Servicing

Foreclosure filings increased 8% in July and were 55% higher than the level recorded a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif. The company's U.S. Foreclosure Market Report indicates that foreclosure filings -- default notices, auction sale notices, and bank repossessions -- were reported on 272,171 properties in July. "Bank repossessions, or [real estate owned], continued to be the fastest-growing segment of foreclosure activity in July, posting a 184% year-over-year increase -- compared to a 53% year-over-year increase in default notices and an 11% year-over-year increase in auction notices," said James J. Saccacio, RealtyTrac's chief executive officer. "The sharp rise in REOs, combined with slow sales, has resulted in a bloated inventory of bank-owned properties for sale." The company reported that Nevada, California, and Florida recorded the highest foreclosure rates in July. RealtyTrac can be found online at http://www.realtytrac.com.

Three tranches issued by Merrill Lynch Mortgage Investors Trust series 2006-SD1, which is collateralized mainly by "scratch-and-dent" mortgage loans, have been downgraded by Moody's Investors Service. The downgrades were as follows: class M-2, from A2 to B2; class M-3, from Baa2 to Caa1; and class B, from Ba2 to C. Moody's said the actions are part of a wider review of all residential mortgage-backed securities transactions "in light of the deteriorating housing market and rising delinquencies and foreclosures." Many scratch-and-dent pools originated since 2004 are experiencing higher-than-expected rates of delinquency, foreclosure, and real estate owned, the rating agency said. Moody's can be found on the Web at http://www.moodys.com.

The Federal Home Loan Bank of Chicago has recorded a $74 million loss for the second quarter, compared with a $78 million loss in the previous quarter, and the bank expects to report losses in "subsequent quarters," according to a securities filing. The FHLBank blamed the continuing losses mainly on a $30 million impairment loss on its investments in subprime mortgage-backed securities and $35 million in derivative and hedging costs related to its $33.5 billion Mortgage Partnership Finance portfolio. However, the bank's president and chief executive, Matthew Feldman, says he hopes the second quarter will be a "turning point" for the Chicago bank, which has $92.8 billion in assets. The FHLBank is expanding its advance business as it sheds MPF single-family loans that it purchased from members and other FHLBanks. In the second quarter, advances rose 6% to $34.7 billion and exceeded MPF loans for the first time since 2002. The Chicago bank stopped buying mortgage loans on Aug. 1, and other FHLBanks have stepped in to buy loans from Chicago members and keep the MPF program going.

Nine certificates from Carrington Mortgage Loan Trust series 2007-HE1 have been downgraded by Moody's Investors Service. Four of the downgraded certificates will remain on review for possible further downgrade. The downgrades were based, in general, on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels, Moody's said.

Eleven certificates issued by Home Equity Loan Trust 2007-FRE1 have been downgraded by Moody's Investors Service. Three of the downgraded certificates will remain on review for possible further downgrade. The downgrades were based, in general, on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels, Moody's said.

The servicer quality ratings of SN Servicing Corp., Eureka, Calif., have been downgraded by Moody's Investors Service from SQ3-plus to SQ3-minus as a primary servicer of subprime loans and from SQ2-minus to SQ3 as a special servicer. Moody's attributed the downgrades mainly to a change in the company's servicing stability assessment from average to below average. SN is a wholly owned subsidiary of Security National Master Holding Co. LLC, whose core business is purchasing and servicing distressed residential and small-balance commercial mortgages. Moody's can be found on the Web at http://www.moodys.com.

The Federal Agricultural Mortgage Corp., Washington, has reported net income available to common stockholders of $21.4 million ($2.13 per share) for the second quarter, compared with $18.4 million ($1.74 per share) in the second quarter of 2007. Farmer Mac said its preferred measure of income, core earnings, was also higher than that of a year earlier, coming in at $7.1 million ($0.70 per share), up 28% from $5.5 million ($0.53 per share) in the second quarter of 2007. "To date, the credit issues that have arisen in the housing and consumer sectors of the economy have not affected the agricultural economy in general, or Farmer Mac's guarantee portfolio in particular," said Henry D. Edelman, Farmer Mac's president and chief executive officer. The government-sponsored enterprise can be found online at http://www.farmermac.com.

JPMorgan Chase has warned in a Securities and Exchange Commission filing that trading conditions "have substantially deteriorated" in the third quarter, affecting spreads on mortgage-backed securities and loans. These spreads have "sharply widened, causing the company to incur losses (net of hedges) of approximately $1.5 billion for the quarter to date," according to a company 10-Q report filed Aug. 11. "The firm's current expectations are for the global and U.S. economic environments to continue to be weak, for capital markets to remain under stress and for a continued decline in U.S. housing prices," JPMorgan Chase said. JPMorgan Chase can be found on the Internet at http://www.jpmorganchase.com.

In the second quarter, 97% of prime borrowers who originally had a one-year conforming adjustable-rate mortgage chose a conforming fixed-rate mortgage when they refinanced, according to Freddie Mac. Freddie's Refinance Product Transition Report also indicated that 87% of prime borrowers who initially had a conforming hybrid ARM refinanced into a conforming fixed-rate loan. (The comparable figures in the first quarter were 92% and 80%, respectively.) Furthermore, nearly all borrowers who had a fixed-rate loan refinanced into another long-term fixed-rate loan. "Even though refinancing borrowers who take out a one-year adjustable-rate mortgage today would save about three-quarters of a percentage point in rate relative to a five-year ARM or 15-year fixed-rate mortgage, the concerns about inflationary pressures leading to future interest rate increases may be causing borrowers to choose the safety and certainty of fixed rates," said Frank Nothaft, chief economist for Freddie Mac. ".... Teaser rates on ARMs have largely disappeared. During the second quarter, the initial interest rate on one-year ARMs averaged three-tenths of a percentage point higher than the fully indexed rate. Without an extra discount, ARMs just aren't attracting many borrowers in today's market." Freddie can be found on the Web at http://www.freddiemac.com.

Pre-foreclosures hit record highs in July, according to ForeclosureS.com, a Fair Oaks, Calif.-based investment advisory firm. Foreclosures climbed 7.3% in July from the previous month's level, and were up 88.6% from the level recorded in July 2007, the company said. "Looking at pre-foreclosure filings as a [percentage] of households -- the best way to judge future foreclosure trends -- this year 7.2 out of every 1,000 households nationwide faced possible foreclosure," said Alexis McGee, president of the firm. ".... Short term, there's no question that the foreclosure outlook is grim. But longer term there is promising news. Foreclosures tend to peak well after the housing market has bottomed, which may be forming as we speak." The company can be found online at http://www.foreclosures.com.