Servicing

The share values of Fannie Mae and Freddie Mac hit new 52-week lows Wednesday after Freddie Mac was forced to pay a record amount to raise short-term debt. At deadline time, Freddie's shares were down 21% on the day to just $3.29. Its 52-week high is $65. At one point during the morning its shares fell to $2.95. Meanwhile, Fannie Mae's stock dropped 18% to $4.93. Its intraday low was $4.74, and its 52-week high is $70. Both government-sponsored enterprises have been hurt by speculation that they will be nationalized and their common shareholders wiped out. On Tuesday, Freddie Mac priced new five-year notes at 113 basis points over the comparable Treasury obligation [see above item].

The pricing of Freddie Mac's latest Reference Notes offering at 113 basis points over comparable Treasury obligations -- the highest spread the company has ever paid on such debt -- raises new questions about its ability to raise short-term money at a reasonable cost as it struggles with massive delinquencies. Meanwhile, speculators are shorting its stock, believing that the Treasury Department may have to buy its shares, which could dilute the value of its common stock even further. Freddie hopes to raise $5.5 billion in new capital over the coming weeks but has yet to offer any guidance on how it will do so. Company chairman and chief executive Richard Syron recently said the government-sponsored enterprise will likely sell both common and preferred stock. He admitted that to attract investors to the preferred shares, the company would have to offer a double-digit yield.

The Federal Deposit Insurance Corp. has created a program to systematically modify troubled home loans from IndyMac Federal Bank. FDIC Chairman Sheila Bair said the program is designed to create affordable and sustainable mortgage payments for borrowers and increase the value of the loans by rehabilitating nonperforming loans and turning them into performing ones. She said the program will primarily target IndyMac's alternative-A borrowers. The FDIC said it plans to send 4,000 modification proposals to eligible borrowers this week and thousands more in the weeks to come. The modifications will be designed to create payments that represent 38% debt-to-income ratios for the borrowers. Interest rates may be reduced to below the Freddie Mac survey rate for a period of five years. IndyMac was closed and taken over by the FDIC and the Office of Thrift Supervision on July 11.

The sole class of trust certificates issued by COUNTS Trust series 2004-1, a credit-linked note that provides synthetic exposure to mortgage-related securities, among others, has been downgraded from AA to CCC by Fitch Ratings. The rating has also been removed from Rating Watch Negative. The downgrade was attributed to raised loss expectations due to greater-than-expected collateral deterioration in the reference portfolio, especially in subprime residential mortgage-backed securities issued in 2004, 2005, and 2006. The portfolio consists of U.S. subprime RMBS (7.2%), alternative-A mortgage loans (16.9%), and U.S. diversified structured finance collateralized debt obligations (51.4%), Fitch said. The rating agency can be found online at http://www.fitchratings.com.

Post Properties, an Atlanta-based multifamily real estate investment trust, has been designated the "Bear of the Day" for Aug. 19 by Zacks Equity Research, Chicago. The Bear of the Day is a stock expected to underperform the markets over the next three to six months. Noting that Post is no longer for sale, Zacks said the company will "try to reposition itself" through asset sales and personnel reductions. "Operationally, the company has been underperforming its peer group; management has been focused on a sale of the company," Zacks said. Post had a "weak" second quarter due mainly to impairments on development deals that will not be pursued, and the research firm said it has changed its near-term recommendation on the REIT's stock to Sell. Zacks can be found online at http://www.zacks.com, and the REIT can be found at http://www.postproperties.com.

A portfolio of $148 million of commercial real estate loans is being sold by Bridger Commercial Funding's BankXchange program on behalf of an undisclosed major bank in the West. The San Francisco-based Bridger said the portfolio is the largest pool of West Coast performing CRE loans to be brought to market this year, consisting of 88 loans secured by owner-occupied and income-producing properties in the Los Angeles Basin. The majority of the owner-occupied properties secure loans financed under the Small Business Administration's 504 program, Bridger said. The overall portfolio loan-to-value ratio is below 60%, and the debt service coverage ratio exceeds 1.60. The portfolio is being offered in two pools, one composed of 58 owner-occupied loans totaling $95 million and the other composed of 30 income-property loans totaling $53 million. Potential buyers can bid on either pool, or both, and bids will be accepted on a "subject to due diligence" basis through Aug. 29 at 5 p.m. Pacific Daylight Time. The company can be found online at http://www.bridgerfunding.com.

The Democratic Party supports passage of new lending standards to protect homebuyers and provide struggling homeowners access to bankruptcy courts to get their mortgage restructured, according to a draft of the party platform. "We will pass a Homebuyers Bill of Rights, including establishing new lending standards to ensure that loans are affordable and fair, providing adequate remedies to make sure the standards are met and ensuring that homeowners have accurate and complete information about their mortgage options," the draft says. The platform also calls for reform of the bankruptcy laws to "restore balance between lender and homeowner rights." A homeownership protection plan offered by Sen. Barack Obama, the presumptive Democratic presidential nominee, would repeal the current law that prevents bankruptcy courts from modifying mortgage payments. "Obama believes that the subprime mortgage industry, which was engaged in dangerous and sometimes unscrupulous business practices, should not be shielded by outdated federal law," the plan says.

Twenty-five classes of notes issued by six collateralized debt obligations linked to subprime residential mortgage-backed securities have been downgraded by Fitch Ratings. All but one of the downgraded classes were removed from Rating Watch Negative. (The rating on the one exception was withdrawn because of the withdrawal of the Insurer Financial Strength rating of MBIA, which Fitch no longer rates.) The affected securities are as follows: six classes from North Street Referenced Linked Notes 2002-4 Ltd., a partially funded synthetic, structured finance CDO; five classes from Fulton Street CDO Ltd./Funding Corp., a cash flow structured finance CDO; five classes from Glacier Funding CDO III Ltd./Inc.; four classes from Glacier Funding CDO II Ltd./Inc.; four classes from Northwall Funding CDO I Ltd./Inc., a cash flow structured finance CDO; and one class from ABSpoke 2005-XA Ltd., a partially funded static, synthetic, structured finance CDO. The downgrades were attributed to collateral deterioration in subprime RMBS, alternative-A RMBS (in two transactions), and structured finance CDOs with underlying exposure to subprime RMBS (in one transaction).

Franklin Credit Management Corp., a New York-based company that buys, manages, and sells subprime residential mortgage assets, says it expects to report a second-quarter loss of $280-285 million, compared with a net loss of $3.6 million a year earlier. The company says the loss is due to deterioration in the subprime market and the performance of its portfolio of acquired and originated loans, especially acquired second-lien mortgage loans. The company has filed a five-day automatic extension for filing its second-quarter Form 10-Q with the Securities and Exchange Commission. The expected loss reflects a higher provision for credit losses. "Franklin's updated evaluation of its provision and reserves is more in line with the assumptions we used and reserves established as part of our 2007 fourth-quarter restructuring of this commercial lending relationship," said Thomas E. Hoaglin, chairman, president, and chief executive officer of Huntington Bancshares Inc., which has a $1.1 billion commercial lending relationship with Franklin. "The provision does not have any impact on our reported reserve level." Franklin is evaluating the legal structure of its servicing platform as a result of the expected second-quarter loss. Franklin can be found on the Web at http://www.franklincredit.com.

Production of Federal Housing Administration jumbo mortgages continues to ramp up, and Ginnie Mae officials say they expect to guarantee another $1.9 billion in FHA jumbo mortgage-backed securities in August, up from $1.5 billion in July. Since the beginning of April, Ginnie Mae issuers have securitized $4.9 billion in FHA jumbo MBS. Currently, Ginnie Mae segregates FHA jumbos into specially designated Ginnie Mae MBS, and the jumbos are not mixed with lower-balance FHA-insured mortgages. Fannie Mae and Freddie Mac generally purchase jumbos from lenders and hold them in portfolio. (The two government-sponsored enterprises began buying jumbos in April.) According to securities filings, Fannie purchased $947 million in jumbos in the second quarter and Freddie purchased $471 million. Ginnie Mae issuers securitized $1.4 billion in FHA jumbo MBS in the second quarter. Ginnie can be found on the Web at http://www.ginniemae.gov.