Servicing

The Federal Home Loan Bank of San Francisco has finally launched its foreclosure prevention program, which provides matching grants to cover lender costs of refinancing or restructuring subprime mortgages into fixed-rate 30-year mortgage. The FHLBank will provide up to $25,000 for each restructuring, but the lender has to put up $2 for every $1 in grant monies. The $10 million pilot was approved by the Federal Housing Finance Board in January, but the FHLBank regulator did not give final clearance until this summer. The program is designed to help low-income homeowners who cannot afford the reset on their mortgage. The recently passed housing bill authorizes the FHLBanks to use affordable-housing funds to assist and refinance troubled borrowers. The San Francisco bank can be found on the Web at http://www.fhlbsf.com.

The 12 Federal Home Loan Banks have reported combined earnings of $718 million for the second quarter, up 14.3% from the level recorded a year earlier despite the Chicago FHLBank's posting of a $74 million loss. The FHLBanks exhibited no growth in advances or assets from the levels of the first quarter, and the 12 banks ended the second quarter with $913.9 billion in total advances and $1.3 trillion in total assets. However, the second-quarter report shows a 15% increase in investments of mortgage-backed securities issued by the government-sponsored enterprises Fannie Mae and Freddie Mac. As of June 30, FHLBank investments in GSE MBS totaled $86.6 billion, up 15% from the level of the first quarter and 57% from that of Dec. 30. Back in March, the FHLBank regulator lifted a cap on GSE MBS investments to provide additional liquidity for the MBS market. The FHLBanks also held $76.8 billion in private-label MBS as of June 30, and some banks recorded losses on those investments. Meanwhile, the Atlanta FHLBank said it has suspended its Mortgage Purchase Program, and the Chicago FHLBank stopped buying single-family mortgages from its members Aug. 1 in an effort to conserve capital. The Des Moines FHLBank has temporarily stepped in and agreed to buy up to $150 million single-family mortgages from Chicago members.

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.