Servicing

The National Association of Home Builders has dropped demands that struggling builders receive tax rebates, and now the trade group is urging Congress to pass a "robust" homebuyer tax credit to stimulate the housing market. "That tax credit needs to be as big and unencumbered and as rapid-acting as Congress can make it," NAHB chief executive Jerry Howard told reporters. In February, the NAHB cut off political contributions to legislators because Congress refused to include a net operating loss carry-back provision in an economic stimulus package. The NOL provision would have allowed homebuilders and other unprofitable companies to deduct losses in 2008 and 2009 from their profits in prior years and receive tax rebates. In April, the Senate passed a foreclosure prevention bill that included an NOL provision, but it came under heavy criticism. House tax writers did not include an NOL provision in a bill that gives first-time homebuyers a $7,500 tax credit. However, the tax credit works like an interest-free loan that has to be paid back in 15 years. The builders want a real tax credit that is not limited to first-time homebuyers. The NAHB's analysis shows that a robust tax credit would have a more stimulative effect on the economy than an NOL provision, Mr. Howard said.

Citing mortgage-related concerns, Fitch Ratings has placed the long- and short-term Issuer Default Ratings of Constitution Corporate Federal Credit Union, Wallingford, Conn., on Rating Watch Negative. The credit union's long-term IDR stands at AA-minus, and its short-term IDR stands at F1-plus. The rating agency said it is concerned that the CU faces a growing likelihood of realizing significant losses. "Constitution's exposure to the troubled mortgage market, including home equity, subprime, and [alternative-A] product, has contributed to a large unrealized loss position in relation to capital," Fitch said. The rating agency can be found on the Web at http://www.fitchratings.com.

With price declines of 50% and more, home sales are picking up in the Central Valley of California thanks to higher loan limits on Federal Housing Administration-insured mortgages, but more losses for the banking industry are in the pipeline, according to Friedman Billing Ramsey. "With interest rate resets, defaults and foreclosures still growing, the peak in industry losses will probably be sometime in 2009," said FBR Capital Markets managing director Paul Miller. In Sacramento, a house that sold for $385,000 in April 2005 is likely to be sold at auction for $120,000 today, the company said. Prices are generally down 30% to 70% from peak values, with the average decline around 50%. FBR equity analysts who toured the valley during the week of June 9 said they were "surprised by just how bad things are" in the Central Valley and that it would be "even worse" without FHA financing, which is the "only game in town." Construction activity in the Central Valley has stopped, and speculators are getting back into the market because they can purchase properties for rentals at prices "with breakeven or even positive cash flows," the FBRCM report says.

KeyCorp, a Cleveland-based financial services company and mortgage lender, has priced offerings of $1 billion of common shares and $650 million of noncumulative perpetual convertible preferred stock. The approximately 85.1 million common shares were priced at $11.75 per share, while the 6.5 million shares of series A preferred stock were issued with a liquidation preference of $100 per share. Each share of the preferred stock will be convertible at any time, at the option of the holder, into 7.0922 shares of KeyCorp common stock at a conversion price of $14.10 per share, the company said. Citi is serving as the sole book-running manager of the offerings. KeyCorp can be found online at http://www.key.com.

The Ford Foundation has announced a $2 million grant to the Consumer Credit Counseling Service of Greater Atlanta to support new technology that allows credit counselors to speed up mortgage loan modifications. The foundation said the grant will enable the CCCS, which has piloted the new software platform, to increase its counseling staff by 80 employees and open another counseling facility in the Atlanta area. "Preventing foreclosure is beneficial to borrowers and lenders alike, yet confusion, delay, and distrust on both sides have often stood in the ways of sensible loan modifications," said Frank DeGiovanni, director of economic development at the Ford Foundation. "This new system is finally breaking down those barriers." The foundation said the grant is the first in a series of "major investments" that will address the foreclosure crisis. The organizations can be found online at http://www.fordfound.org and http://www.cccsinc.org.

The long-term counterparty credit rating of the Federal Home Loan Bank of Chicago has been downgraded from AA-plus to AA by Standard & Poor's Ratings Services, according to the Office of Finance. The FHLBank was removed from CreditWatch, and its outlook was upgraded to stable. When S&P placed the bank on CreditWatch, the rating agency said its deteriorating profitability had been attributed to hedging losses involving assets in its Mortgage Partnership Finance program and other hedging adjustments that would hurt future earnings. The Office of Finance, the debt issuance facility of the FHLBanks, also reported that S&P has affirmed the counterparty credit ratings of the FHLBank of Seattle at AA-plus/A-1-plus and upgraded its outlook to positive. The Office of Finance can be found online at http://www.fhlb-of.com, and S&P can be found at http://www.standardandpoors.com.

Thornburg Mortgage Inc., a troubled real estate investment trust based in Santa Fe, N.M., has announced stockholder approval of an increase in the number of authorized shares of capital stock from 500 million to 4 billion. The shareholders also okayed amendments to the company's charter to modify the terms of all Thornburg's series of preferred stock, eliminating substantially all voting rights of preferred stockholders and making preferred stock dividend payments noncumulative, among other things. The company said it must still obtain consents from holders of each series of preferred stock before the modifications can take effect. "Winning shareholder approval of management's proposals marks a milestone achievement in our efforts to rebuild the company and resume more normal business operations," said Larry A. Goldstone, president and chief executive officer of Thornburg Mortgage. Thornburg completed a $1.35 billion private placement in recent months after announcing that it had to raise nearly $1 billion to keep in place a key agreement with counterparties involved in potentially material margin calls it had been facing. The company can be found online at http://www.thornburgmortgage.com.

Lehman Brothers has replaced two of its top executives in the days prior to the formal release of its fiscal second-quarter results. Joseph Gregory has been replaced as president and chief operating officer by Herbert H. McDade III, while Erin Callan has been forced out as chief financial officer after serving in the position for only seven months. Her replacement is Ian Lowitt, currently the co-chief accounting officer. Mr. McDade was global head of Lehman's equities division. According to Lehman's statement, Ms. Callan will be rejoining the investment banking division in a senior capacity. On June 9, Lehman said it expected a loss of $2.8 million for its second fiscal quarter, which ended May 31. Between June 6 and June 12, Lehman's stock price dropped by $10.51, closing at $22.70 per share. As of 11 a.m. June 13, the day after the sackings were announced, Lehman's stock was up $2.22 on the day to $24.92.

Foreclosure filings rose 7% in May and were nearly 48% higher than the level of 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 261,255 properties in May. "May was the third straight month where we've seen a month-to-month increase in foreclosure activity, and the 29th straight month we've seen a year-over-year increase," said James J. Saccacio, RealtyTrac's chief executive officer. "The nationwide rate of increase for default notices and foreclosure auction notices slowed in May, with default notices up just 1% from the previous month and auction notices down 3% from the previous month." However, bank repossessions "continued to surge," he said. The company reported that Nevada, California, and Arizona recorded the highest foreclosure rates in May. RealtyTrac can be found online at http://www.realtytrac.com.

An analysis of loan servicing data by the Office of the Comptroller of the Currency has found that loss mitigation actions exceeded new foreclosure starts by a nearly two-to-one margin among subprime borrowers in March. Starting in February, the nation's nine largest OCC-regulated mortgage servicers began submitting some historical and monthly servicing metrics to the agency. Those lenders account for 23 million loans, or about 40% of all outstanding mortgages, the OCC said. The agency said overall credit quality remained "relatively satisfactory and relatively stable" over the six-month period ended in March. While the percentage of loans in the foreclosure process crept upward to 1.23% during that period, the number of new foreclosures peaked in January and fell in March, the OCC said. The OCC can be found on the Web at http://www.occ.treas.gov.