Servicing

The Federal Deposit Insurance Corp. has developed a $50 billion "pay-down" loan program to facilitate the restructuring of "underwater" mortgages and prevent 1 million foreclosures. If approved by Congress, the Treasury Department would make loans to borrowers to pay down the principal of the first mortgage by up to 20%. Mortgage investors participating in the program would pay Treasury's financing costs and interest on the Home Ownership Preservation loan for the first five years. After five years, the borrower would start paying principal and interest. To ensure repayment of the HOP loans, the first lienholders would subordinate their interests to the Treasury. This would ensure that the government is "paid off the top," FDIC Chairman Sheila Bair said, when there is a sale or refinance. She called it a "workable" plan that would make "unaffordable loans affordable." It would also avoid dealing with second lienholders. The loans could stay in the securitized pools and the servicer wouldn't have to get the second lienholder's approval for the restructuring, Ms. Bair told reporters.

Moody's Investors Service has downgraded 63 certificates from 11 transactions issued by Nomura Asset Acceptance Corp. Alternative Loan Trust and backed by second-lien loans. Moody's also placed on review for possible downgrade three of the downgraded certificates as well as two others. Moody's said the negative rating actions were based on credit enhancement levels, including excess spread and subordination, that were deemed too low in view of projected losses. They take into account "the continued and worsening performance" of transactions backed by closed-end second-lien collateral, Moody's said. The rating agency can be found online at http://www.moodys.com.

More than two hundred additional classes of subprime mortgage-backed securities were downgraded by Fitch Ratings on April 28. Fitch also affirmed the ratings on classes with outstanding balances of approximately $9 billion. Among the securities affected by the latest downgrades were: 74 classes from 16 issues by CSFB Home Equity Asset Trust; 35 classes from 11 issues by Countrywide (CWABS); 26 classes from nine issues by Option One Mortgage Loan Trust; 26 classes from 10 issues by Long Beach; 22 classes from six issues by Securitized Asset Backed Receivables; 20 classes from four issues by Finance America Mortgage Loan Trust; and 10 classes from four issues by EquiFirst Mortgage Loan Trust. Fitch can be found online at http://www.fitchratings.com.

Palm Harbor Homes Inc., a Dallas-based manufacturer and marketer of factory-built homes, has announced the sale of approximately $51.3 million of chattel and mortgage loans by its mortgage lending subsidiary, CountryPlace Mortgage Ltd. The loans represented the majority of CountryPlace's $69.4 million warehoused portfolio of chattel and mortgage loans. Approximately $41.5 million of the proceeds were used to repay in full and terminate the company's warehouse borrowing facility, Palm Harbor said. "Multiple parties expressed interest in our warehoused portfolio, and we believe the positive market response, in sharp contrast to the tightening mortgage credit markets, reflects the strength of our business model and our strict underwriting standards, the historically strong performance of our two securitized financings, and the high quality of our assets," said Larry H. Keener, chairman and chief executive officer of Palm Harbor. The company can be found online at http://www.palmharbor.com.

The Federal Home Loan Bank of Chicago expects to report a $78 million loss for the first quarter and losses in "subsequent quarters," the bank says, as it takes steps to improve earnings and reduce hedging costs on its $34.5 billion mortgage portfolio. "Although the first-quarter loss is significant, the Bank has retained earnings of $581 million at the end of the first quarter," acting FHLBank president Matthew Feldman said in a letter to members. The Chicago FHLBank warned its members several months ago to expect a loss when it files it first quarter financial report on May 7. In providing the early disclosure, Mr. Feldman also noted that the bank booked an impairment loss of $33 million on $4.5 billion in private-label subprime mortgage-backed securities that had been degraded. Management estimates the "economic loss" on the subprime MBS will be "approximately $1 million." Separately, the Office of Finance released preliminary financial results for the 12 FHLBanks, which shows consolidated earnings of $697 million in the first quarter, up 12.2% from the level of the same quarter in 2007.

GMAC Financial Services, New York, lost $589 million in the first quarter, but says the performance of its U.S. mortgage unit actually improved. The company's mortgage unit, ResCap, lost $859 million in the first quarter, down from a loss of $910 million in the fourth quarter. ResCap's prime, conforming loan production in the United States totaled $15.4 billion in the first quarter, up from $9.6 billion in the first quarter of last year. The company said weakness in its overseas business offset domestic improvement. ResCap has reduced its mortgage origination activity in the United Kingdom and suspended all new mortgage originations in continental Europe in response to "illiquidity in the global capital markets and weakening consumer credit in certain markets." The company can be found online at http://www.gmacfs.com.

House Financial Services Committee Chairman Barney Frank, D-Mass., says it is "entirely possible" that Congress will send President Bush a legislative package by the Fourth of July that is responsive to the current housing crisis, reduces foreclosures, and increases confidence in the secondary-market agencies. The package would include two Federal Housing Administration bills and a GSE bill to strengthen regulation of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, the chairman told a Washington conference sponsored by the Independent Community Bankers of America. On Wednesday, Rep Frank expects to complete a committee mark-up of his FHA bill to refinance struggling homeowners with "underwater" mortgages. (The Senate Banking Committee is scheduled to mark up a government-sponsored enterprise bill on May 6.) The House has already passed a GSE regulatory reform bill. In addition, the House and Senate are close to an agreement on an FHA modernization bill that will make the FHA a safer alternative to subprime loans. "The crisis has generated some pressure" to act, Rep Frank told reporters. "We should have it done in June."

Nearly 650,000 foreclosure filings were reported nationwide in the first quarter, up 23% from those of the previous quarter and 112% from a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif. The nation's quarterly foreclosure rate was one filing for every 194 households, the company said in its Q1 2008 U.S. Foreclosure Market Report. (Foreclosure filings include default notices, auction sale notices, and bank repossessions.) "Foreclosure activity in the first quarter increased on a year-over-year basis in 46 out of the 50 states and in 90% of the nation's 100 largest metro areas, demonstrating that most regions of the country are seeing more foreclosures," said James J. Saccacio, chief executive officer of RealtyTrac. "In some areas there are also some unusual, nonmarket factors impacting the foreclosure numbers. For example, the city of Philadelphia in late March issued a temporary moratorium on all foreclosure auctions for April, and the city has since adopted a program that will delay foreclosure proceedings on owner-occupied properties until the owners have met face-to-face with lenders to attempt a loan workout plan that would prevent foreclosure." The company can be found online at http://www.realtytrac.com.

Countrywide Financial Corp., Calabasas, Calif., has reported a net loss of $893 million ($1.60 per share) in the first quarter, citing $3 billion of credit-related charges that weighed down results. The credit costs hit both Countrywide's mortgage banking unit, which lost $552 million in the quarter, and its bank, which lost $960 million. Countrywide posted small profits from its capital market and insurance units. The company produced $73 billion of loans in the first quarter, down from $117 billion in the first quarter of 2007. It serviced $1.484 trillion of home loans as of March 31, up from $1.352 trillion a year earlier. The $3 billion of credit-related charges included a $456 million provision for representation and warranty claims, a more than tenfold increase from the reps-and-warranties provision during the first quarter of 2007.

Class M9 of Soundview Home Loan Trust 2004-1 has been downgraded from BBB-minus to BB-plus by Fitch Ratings. Fitch also affirmed the ratings on eight other classes in the deal and six classes in another Soundview transaction. The collateral consists primarily of subprime mortgages.