Servicing

Lehman Brothers has priced a $4.0 billion offering of convertible preferred shares that boosted its common stock price to levels above $40 Tuesday morning from a Monday close just over $37. The preferred shares are convertible at the option of the holder into a specified amount of common stock at an initial conversion price of about $49 per common share. Rumors about the effect of the U.S. mortgage-sparked credit crunch on certain Wall Street players have put downward pressure on Lehman's stock price in the wake of the Bear Stearns merger deal with JPMorgan Chase. Lehman has a policy of not commenting on market rumors.

National City Corp., Cleveland, says it is exploring "strategic alternatives," a corporate euphemism for putting the company up for sale. NatCity, which has hired Goldman Sachs as the adviser for the review, said it would make no further statements until its board has approved a specific course of action. Even though NatCity sold the First Franklin subprime originations and servicing platforms to Merrill Lynch at the end of 2006, the company has still suffered in the current credit crisis. According to its 10-K filing, NatCity had $1.0 billion in loans at the end of last year that were not eligible for sale to Fannie Mae or Freddie Mac. "Declining real estate prices and higher interest rates have caused higher delinquencies and losses on certain mortgage loans, particularly second lien mortgages and home equity lines of credit and especially those that have been sourced from brokers that are outside National City's banking footprint," the 10-K says. "These trends could continue. These conditions have resulted in losses, write downs and impairment charges in the mortgage business, especially in the fourth quarter of 2007." NatCity finished 2007 as the nation's 10th-largest servicer, with a portfolio of $187.5 billion, and the 12th-largest originator, with volume of $46.4 billion for the year, according to the Quarterly Data Report. The company can be found on the Web at http://www.nationalcity.com.

UBS AG -- once a major warehouse lender to the subprime industry -- says it will take a $19 billion writedown on its mortgage-related investments in the first quarter, including charges against its structured finance positions. The Swiss bank also announced that its chairman, Marcel Ospel, is stepping down. (On Tuesday morning, the German bank Deutsche Bank announced $4 billion in mortgage-related writedowns.) UBS also said it is forming a new unit "to hold certain currently illiquid U.S. real estate assets." The bank/investment bank said it expects to lose $12 billion in the first quarter. UBS estimated that it has $15 billion in financial exposure to subprime-related assets, compared with $28 billion at the end of December. The bank plans to raise $15 billion in new capital.

Classes B-3, B-4, and B-5 of Sequoia Mortgage Trust 11 mortgage pass-through certificates have been placed on Rating Watch Negative by Fitch Ratings. Fitch also affirmed the ratings on three other classes from Sequoia Mortgage Trust 11. The negative rating actions were attributed to "possible deterioration" in the relationship between credit enhancement and expected losses in the future. The collateral consists of adjustable-rate prime mortgage loans.

Class B3 of DLJ Mortgage Acceptance Corp. series 1994-3 mortgage pass-through certificates has been downgraded from CCC/DR2 to C/DR3 by Fitch Ratings. Fitch also affirmed the ratings on 10 classes from four DLJ transactions. The downgrade was based on deterioration in the relationship between credit enhancement and expected losses, the rating agency said. The collateral consists of fixed- and hybrid adjustable-rate residential mortgage loans.

Seventy additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on March 28 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed four classes of subprime pass-throughs on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of approximately $1.6 billion. The securities affected by the latest downgrades were: 30 classes from four issues of Centex Home Equity Loan Trust mortgage pass-throughs; 18 classes from two issues of CSFB Home Equity pass-throughs; 12 classes from one issue of SG Mortgage Securities Trust pass-throughs; nine classes from two issues of Countrywide pass-throughs; and one class from an issue of Aames Mortgage Investment Trust pass-throughs. The rating actions were attributed to changes to Fitch's subprime loss forecasting assumptions that "better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness."

Fitch Ratings has downgraded the short-term Issuer Default Rating of Regions Bank from F1-plus to F1, citing "increased concerns" about the bank's residential homebuilder portfolio. Fitch also downgraded the Individual ratings of Regions Bank and its holding company, Regions Financial Corp., from A/B to B, but affirmed the holding company's long-term IDR at A-plus. The rating outlook was revised from stable to negative. The rating agency said Regional Financial has reported deterioration in its residential homebuilder loan portfolio, which represents approximately 8% of its total loans, and is projecting further deterioration.

ARE Asset Management, Miami, has launched two offshore investment funds registered in Tortola, British Virgin Islands, with the aim of making income-producing and opportunistic investments in the U.S. residential and commercial real estate credit markets. "Although turbulence due to the repricing of subprime adjustable-rate mortgages may continue, the U.S. real estate market has stabilized somewhat, producing some unique circumstances," said Jeffrey Kirsch, managing principal of ARE. "Given today's prevailing interest rate scenario, a U.S. real estate portfolio based upon accurate appraisals and aggressive loan servicing has the potential to yield above-average returns."

Ginnie Mae is opening the door for issuers to combine single-family mortgage-backed securities with reverse mortgage securities in a new real estate mortgage investment conduit, which should give the agency's fledging HECM mortgage-backed securities program a boost. A Ginnie official said the new REMIC program will be ready in a few weeks and they are aiming to complete the first forward/reverse mortgage REMIC this summer. "We don't expect to see a deal until the summer," the official said. Back in September, Ginnie rolled out an MBS program for Federal Housing Administration-insured reverse mortgages, which are called Home Equity Conversion Mortgages, or HECMs. Only one HECM MBS transaction has been completed. But Ginnie executives say they expect the new H-Class REMIC to allow Wall Street to structure the cash flows so it is more attractive to investors and provide a better execution for HECM MBS issuers.

The Treasury Department is proposing a federal Mortgage Origination Commission that would rate the adequacy of state regulation and licensing of mortgage lenders and brokers as part of a larger plan to restructure the financial regulatory system. Treasury Secretary Henry Paulson said the MOC would provide "important information to the marketplace about the strength of each state's mortgage compliance standards." If a state is rated "weak," mortgages originated in that state "should be viewed cautiously before being securitized," he said. The secretary noted that a large percentage of "problematic" subprime loans were originated by state-licensed lenders. (The Office of Thrift Supervision, which oversees thrifts, would be incorporated into the Office of the Comptroller of the Currency under the Treasury plan.) The "powerful" new commission, coupled with the Federal Reserve's Home Ownership and Equity Protection Act rules to ban abusive lending practices, "should go a long way in preventing recent issues from recurring," he said. The Conference of State Banking Supervisors responded that the Treasury plan "disregards" recent improvements in state licensing standards and reporting systems. In addition, the CSBS supports legislation currently under consideration in Congress that would strengthen the states' initiatives.