Servicing

A federal judge in Pittsburgh has ruled that a bankruptcy trustee can subpoena loan documents from Countrywide Financial Corp. and interview company executives under oath as part of a civil case involving the nation's largest residential servicer. Judge Thomas Agresti is overseeing a months-old case in which 293 Pennsylvania homeowners sued Countrywide, charging that the servicer sought improper fees and payments from distressed borrowers that violated bankruptcy regulations. In a Tuesday ruling, the judge said it has not been proven that Countrywide did anything wrong but that a bankruptcy trustee involved in the case "has made a showing of a common thread of potential wrongdoing" in several instances where it moved to foreclosure on bankrupt homeowners. At deadline time, a Countrywide spokesman had not returned a telephone call about the matter. Countrywide's foreclosure practices are under investigation in Florida, Georgia, and Ohio. The company is being sold to Bank of America. The sale is expected to close by the third quarter. Countrywide can be found online at http://www.countrywide.com.

Consumer loan delinquency rates, including those for home equity lines and loans, increased sharply in the fourth quarter of last year, according to the American Bankers Association. The delinquency rate on closed-end home equity loans rose 11 basis points from the level recorded in the third quarter to 2.39%, according to the ABA. The delinquency rate on home equity lines of credit rose 12 bps to 0.96%, the ABA reported. All eight consumer loan types saw an increase in overdue rates, with the largest increase being posted by indirect auto loans. The ABA's composite consumer loan delinquency rate rose to its highest level since 1992. "The rise in consumer credit delinquencies is consistent with a rapidly slowing economy," chief economist James Chessen said. "Stress in the housing market still dominates the story, but it's a broader tale of an overall weak economy." The ABA can be found on the Web at http://www.aba.com.

Hanover Capital Mortgage Holdings, a mortgage investing REIT based in Edison, N.J., lost $37.7 million in the fourth quarter, signaling that it may not survive as a going concern unless it receives a capital infusion. "Additional sources of capital are required for the company to generate positive cash flow and continue operations beyond 2008," the real estate investment trust said in a statement. Hanover lost $80 million in all of 2007, compared to a slight loss in 2006. Hanover invests in prime mortgage securities and mortgage loans on a leveraged basis. Its portfolio of investments includes subordinated tranches of mortgage-backed securities whose value has slipped greatly over the past year. It noted that its net loss "is primarily due to an impairment expense of $73.6 million for other than temporary declines in fair value" of its MBS portfolio. Hanover said it is seeking additional capital and has engaged Keefe, Bruyette & Woods Inc. as an investment adviser.

Seven classes of notes and loan interests from Westways Funding XI Ltd., a mortgage market value collateralized debt obligation, have been downgraded by Fitch Ratings. The downgrades were as follows: class A-2 notes, from AA to C/DR4; class B notes, from A to C/DR6; class LB loan interests, from A to C/DR6; class C notes, from BB to C/DR6; class LC loan interests, from BB to C/DR6; class D notes, from CCC/DR5 to C/DR6; and class E income notes, from CCC/DR6 to C/DR6. The downgrades were attributed to "preliminary payment calculations that give a good indication of final payment levels."

Nearly 140 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on April 1 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed 17 classes of subprime pass-throughs on Rating Watch Negative, removed nine from Rating Watch Negative, and affirmed the ratings on classes with outstanding balances of over $2.6 billion. The securities affected by the latest downgrades were: 47 classes from six issues of Citigroup Mortgage Loan Trust mortgage pass-throughs; 34 classes from four issues of MASTR Asset Backed Securities Trust pass-throughs; 31 classes from four issues of IXIS Real Estate Capital Trust pass-throughs; and 27 classes from six issues of Morgan Stanley 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 can be found online at http://www.fitchratings.com.

Nearly 280 tranches from 27 alternative-A transactions issued by Lehman XS Trust Series have been downgraded by Moody's Investors Service. Of the 279 downgraded tranches, 162 remain on review for possible further downgrade. An additional 97 tranches were also placed on review for possible downgrade. The downgrades, in general, were based 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 collateral consists primarily of first-lien alt-A mortgage loans. Moody's can be found online at http://www.moodys.com.

Jordan Paul has been named senior managing director of the recently established Related Investment Fund, which was formed to buy distressed mortgages and property from other developers, lenders, and property owners. Mr. Paul joins the Miami-based fund from Aquila Property Co., a commercial real estate investment, management, and advisory firm he founded in 2000, according to The Related Group, a private multifamily developer that formed the fund in March with Lubert-Adler, a Philadelphia-based real estate private equity firm.

The National Consumers League has announced the launch of MortgageTown, a website aimed at helping prospective buyers understand the risks and benefits of homeownership. MortgageTown explains "nine essential steps" to financing a home, advising consumers on choosing the right loan, closing on a home, protecting themselves from fraud and predatory lenders, and preventing foreclosure. "MortgageTown is a user-friendly and reliable source where consumers can become better versed in the process of getting a mortgage and what pitfalls to avoid as they head down that road," said NCL executive director Sally Greenberg. The new website can be found online at http://www.mortgaetown.org.

The Laborers' International Union of North America has announced that it will kick off a "Pigs at the Trough" tour April 3 in Los Angeles outside the annual meeting of KB Home to highlight the role of corporate homebuilders in creating the subprime crisis. LIUNA said homebuilders are seeking as much as $33 billion in tax breaks through the Foreclosure Prevention Act. "Corporate homebuilders helped create the current housing and mortgage crisis -- contributing to the loss of 232,000 construction jobs in 2007 alone -- by pushing buyers to subprime and high-risk loans through their own mortgage subsidiaries," the construction workers' union said. ".... At KB Home, for example, subprime lending increased 405% between 2005 and 2006. In the tax breaks homebuilders are seeking through the Foreclosure Prevention Act, KB could gain as much as $683 million." The union can be found online at http://www.liuna.org.

The Senate voted 94-1 Tuesday to begin debate on a foreclosure prevention bill after Republican leaders agreed to stop a filibuster and work with Senate Majority Leader Harry Reid, D-Nev., on a consensus bill. The consensus bill was scheduled to be introduced on Wednesday (April 2) and will probably include tax-exempt revenue bonds for refinancing subprime borrowers, Community Development Block Grants for cities to purchase and rehab foreclosed properties, additional funding for housing counseling, and a net-operating-loss carry-back provision for homebuilders. "I think industry can get behind that," said American Financial Services top lobbyist Bill Himpler. He noted that there is also a lot of support for a homebuyer tax credit, which might be included in the package or offered as an amendment. The AFSA lobbyist is wary, however, that Sen. Richard Durbin, D-Ill., might offer a controversial amendment that allows bankruptcy judges to modify mortgages. There are also discussions about attaching a Federal Housing Administration modernization bill to the foreclosure package.