Servicing

U.S. Bancorp's second quarter earnings fell 18.5% compared with the year-earlier period as the company added to its loss reserves. U.S. Bancorp's net income for the second quarter fell to $950 million, compared with $1.16 billion in the second quarter of last year. Blaming "continued stress in residential real estate," the Minneapolis-based lender increased its provision for credit losses to $596 million in the second quarter of 2008, which was $111 million higher than the first quarter provision and $405 million higher than in the second quarter of 2007. The company said that declines in home and other collateral values will probably continue to push up charge-offs in the third quarter.

Fitch recorded a higher U.S. commercial real estate loan collateralized debt obligation delinquency rate in June that it said stemmed from the maturity default of one participated loan secured by a hotel/condominium development in South Florida. The CREL CDO delinquency index increased to 1.58% during the month from 1.08% the previous month. This is much higher than Fitch's commercial mortgage-backed securities delinquency rate because "the assets securing the loans in a CREL CDO are transitional in nature or highly leveraged," the ratings agency said. "In addition, the CREL DI covers 25 transactions with 340 assets while the CMBS DI covers many more (500) transactions with significantly more (42,000) loans," Fitch said. "As a result, because of the smaller number of loans in the index, one loan can have a big impact on the delinquency percentage," the ratings agency said. The CREL CDO delinquency index includes loans that are 60 days or longer delinquent, matured balloon loans and repurchased assets.

Standard & Poor's Ratings Services has lowered its ratings on 118 classes from 13 residential mortgage-backed securities transactions backed by U.S. prime jumbo mortgage collateral issued in 2005 and 2006. "The downgrades reflect our opinion that projected credit support for the affected classes is insufficient to maintain the previous ratings, given our current projected losses," S&P said. The ratings agency said it assumes a loss severity of 23% for U.S. prime jumbo RMBS transactions.

Servicers of subprime residential adjustable-rate mortgage loans are seeing an increase in efforts to modify troubled loans, according to Moody's Investors Service survey. "Moody's found servicers had modified, as of the end of March 2008, 9.8% of the subprime ARMs with interest rate resets in the preceding 15 months," the ratings agency said. "In December, a similar survey found only 3.5% of resetting loans being modified," said Moody's. The survey included information from 10 servicers with a total servicing volume of approximately $550 billion, according to the ratings agency. Moody's said these servicers represent roughly 50% of the total U.S. subprime servicing market.

Almost a half-million Americans lost their homes to foreclosure in the first half of 2008, nearly double the same time a year ago, according to ForeclosureS.com, Sacramento, Calif."If the trend continues, we could see one million properties lost to foreclosure across the country by year-end," said Alexis McGee, president of ForeclosureS.com. The company said REO filings at the end of June, at 87,465, were up 5.35% over May, and up 15.76% compared to the second quarter of last year. The second quarter saw 244,230 filings vs. 210,980 filings for the first quarter of 2008. California leads in REO filing numbers: with 116,857 filings, followed by Florida with 43,744 filings, and Arizona with 40,639 filings. The company reported June REO filings dropped in the Midwest and the Northeast. There were 15,494 June filings, down 3.19% from May's 16,005 in the Midwest. In the Northeast, REO filings were 2,686 in June, down 7.51% from May's 2,904 filings; and in other states there were 136 June filings, up 23.64% from May's 110 filings. ForeclosureS.com said pre-foreclosure filings already have surpassed the one million mark with 1,060,187 filings as of June 30.

Impac Mortgage Holdings Inc., Irvine, Calif., has executed a letter of intent to acquire the special servicing platform of UBS AG's New York branch, partially in exchange for the issuance of UBS warrants to purchase up to 2% of Impac's stock. In addition, UBS has agreed to contribute specified balances of loans to the platform as part of a strategic alliance with Impac, according to the latter company. The deal is subject to execution of definitive agreements between the two parties and completed due diligence. "This acquisition will allow the company to take advantage of the existing market conditions to subservice for others, along with buying and then servicing ourselves currently available mortgage assets to the secondary market," said Joseph R. Tomkinson, chairman and chief executive officer of Impac. "The special servicing platform will be combined with our master servicing, default department, and real estate auction business to synergistically work together as a fully integrated platform to maximize the success of opportunistic investments in mortgage assets," he said.

Fannie Mae's and Freddie Mac's safety-and-soundness regulator has issued a statement reassuring nervous financial markets that the big mortgage agencies are still viable. Following an extraordinary sell-off of the agencies' stocks after a former Federal Reserve Board official said they were insolvent, Office of Federal Housing Enterprises Oversight director James Lockhart said the two "are adequately capitalized." OFHEO "continues to monitor closely Fannie Mae, Freddie Mac, and the mortgage and financial markets," he said.

Standard & Poor's Ratings Services has downgraded 77 classes of mortgage pass-through certificates from 22 U.S. subprime residential mortgage-backed securities deals from various issuers. S&P also affirmed the ratings on 235 other classes from the transactions and 16 additional deals. With the exception of two classes from different transactions that experienced principal writedowns, S&P said it downgraded the securities due to credit support and projected credit enhancement, based on the dollar amount of loans in the delinquency pipelines of the affected deals. In recent months, these deals have experienced deterioration in credit support and "the delinquency pipelines indicate that the pattern of losses could continue," the rating agency said.

Standard & Poor's Ratings Services has lowered its ratings on 109 tranches (totaling $29.3 billion) from 36 U.S. cash flow and hybrid collateralized debt obligation transactions. S&P said 22 of the affected transactions are mezzanine structured finance CDOs of asset-backed securities, which are collateralized in large part by mezzanine tranches of residential mortgage-backed securities and other structured finance securities. Nine are "high-grade" structured finance CDOs of ABS, which the rating agency defined as those backed at origination primarily by tranches of RMBS and other structured finance assets that are rated from single-A through triple-A. The downgrades reflect various factors, including credit deterioration and recent negative rating actions on subprime RMBS securities, the rating agency said. S&P can be found on the Web at http://www.standardandpoors.com.

Moody's Investors Service has lowered the residential servicer quality rating of Popular Mortgage Servicing. Moody's dropped the rating one notch from SQ3-plus to SQ3 for the primary servicing of subprime home loans. Moody's also placed the Puerto Rico-based bank's servicer rating on review for further possible downgrade. Moody's said the downgrade was prompted by a decline in the rating agency's assessment of PMSI's collection capabilities. Further review of the company's level of investment in its servicing platform, maintenance of key staffing levels, and ability to retain managers will be among the factors behind future rating actions, Moody's said. PMSI, which serviced $10.9 billion of mortgages as of April 30, is a subsidiary of Popular Inc., the largest commercial bank in Puerto Rico. Moody's can be found online at http://www.moodys.com.