Servicing

Citigroup disclosed plans Thursday to reduce its on-balance-sheet mortgage holdings by $45 billion over the next year, or 20% of its total portfolio. Officials in Citi's mortgage division told MortgageWire that it will not be selling loans per se, but instead will try to achieve the reduction through normal portfolio runoff. Citi also clarified that it will remain a retail, wholesale, and correspondent lender but will no longer buy mortgages in bulk packages. "We will buy only on a flow basis," said one company executive. Citi is also reorganizing and will place all its lending-related divisions under CitiMortgage in O'Fallon, Mo., a company managed by Bill Beckmann. (For full details, see the March 10 issue of National Mortgage News.)

In late 2006 Countrywide Financial Corp. chairman and chief executive Angelo Mozilo accelerated his insider stock sales just as the company had decided to spend $2.5 billion of its own money to buy back stock, according to the House Oversight Committee. At a congressional hearing on Friday, committee chairman Henry Waxman, D-Calif., questioned Mr. Mozilo about the buyback plan and his decision to exercise options and sell $150 million worth of stock just as Countrywide's share price was peaking. "Countrywide's stock has fallen almost 85% since February [2007, when it was $45 a share]," Rep. Waxman noted. "Why was the buyback plan in the best interests of the shareholders?" Mr. Mozilo defended his sales, saying there was "no relationship" between Countrywide's stock buyback plan and his exercising of options. Instead of selling his shares through a planned schedule, Mr. Mozilo said, "I could have sold them all at once." Countrywide's shares were trading at just over $5 on Friday, compared with a 52-week high of $42 and a low of $4. Bank of America is buying the company for about $7 a share. The company can be found online at http://www.countrywide.com.

Mortgage brokerage firms cut 4,100 employees in January, while employment at mortgage banking companies appeared to stabilize, according to a government jobs report. The U.S. Bureau of Labor Statistics reported that 3,900 full-time employees in the mortgage banker/broker sector lost their jobs in January. Total employment in the sector fell from 368,800 in December to 364,900 in January. Over the past 12 months, mortgage bankers have cut their payrolls by 25% and eliminated 86,700 jobs, while 23,900, or 17%, of the brokers counted by the BLS have lost their jobs or left the sector. But the recent uptick in refinancings along with rising defaults and workout cases that are straining servicing departments must have forced mortgage banking companies to stop cutting, at least for now. They added 200 workers to their payroll in January. Friday's job report also shows that the troubled homebuilding industry has lost 346,000 jobs since September 2006. Homebuilders laid off 14,400 employees in February, and residential specialty trade contracts cut another 16,300 employees. (There is a one-month lag in the BLS's reporting of jobs data on the mortgage industry.) The BLS can be found online at http://stats.bls.gov.

Twenty classes from eight EMC Mortgage Loan Trust transactions have been downgraded by Fitch Ratings. Fitch also placed five EMC classes on Rating Watch Negative and affirmed the ratings on 25 other EMC classes. The negative rating actions were based on deterioration in the relationship between credit enhancement and loss expectations, Fitch said. The collateral for the EMC transactions, 10 in all, consists primarily of first- and second-lien residential mortgage loans.

More than 50 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on March 5 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed 18 classes of subprime pass-throughs on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of more than $200 million. The securities affected by the latest downgrades were 54 classes from four Soundview Home Loan Trust deals. Fitch also placed the following securities on Rating Watch Negative: 12 classes from one Bear Stearns Asset Backed Securities Trust deal and six classes from one Soundview Home Loan Trust deal. 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 on the Web at http://www.fitchratings.com.

The Issuer Default Rating of Thornburg Mortgage Inc., a real estate investment trust based in Santa Fe, N.M., has been downgraded from CCC to RD by Fitch Ratings as a result of defaults under the company's reverse repurchase agreements. The RD rating (which was removed from Rating Watch Negative) was assigned because the company has failed to meet a margin call for one of its reverse repo agreements "but continues to honor other classes of obligations," Fitch said. The default triggered cross-defaults under the company's other reverse repo agreements, which "represent the primary short-term funding source for the company," the rating agency said. Meanwhile, Zacks Equity Research's Analyst Blog noted that Thornburg's shares had lost 70% of their value in the previous two days. "While we think the company will be able to meet the current $300 million [margin] call on its repurchase agreements, if values on the company's mortgage assets continue to fall, [Thornburg] will not have enough cash to meet future obligations," the Zacks blog said.

Ambac Financial Group, New York, is seeking to bolster flagging ratings strained by the U.S. mortgage-woe-sparked global credit crunch through a public offering for at least $1 billion of shares of its common stock and a concurrent $500 million public offering of equity units. "This capital raise, along with our recent strategic actions, our increased emphasis on risk-adjusted returns over the course of an economic cycle, and a six-month suspension of the structured finance business, will strengthen our capital base," said Michael Callen, Ambac's chairman and chief executive officer. One of the three major rating agencies, Fitch Ratings, has questioned whether the move will be enough to give the company the triple-A rating it seeks.

Spreads between agency mortgage-backed securities and comparable Treasuries have hit their widest levels since the mid-1980s, according to mortgage researchers. The spread between the 30-year Fannie Mae current-coupon MBS and the average of on-the-run five- and 10-year Treasuries recently stood at its widest level since the summer of 1986, said Art Frank, director and head of MBS research at Deutsche Bank Securities. He said supply-demand imbalances resulting in part from heavy sales by servicers, leveraged investors, and money managers caused the spread widening. "The past three sessions have seen mortgages lose all of their gains as the pace of servicer buying has declined and hedge funds continue to de-leverage," said Noah Estrin, an RBS Greenwich Capital MBS trading analyst, in a March 5 report.

The Department of Housing and Urban Development has issued the new loan limits for Federal Housing Administration, Fannie Mae, and Freddie Mac mortgages in high-cost counties of California and will soon release the loan limits for the rest of the country. Congress has temporarily increased the loan limits in high-cost areas to 125% of median home prices, up to a maximum of $729,750, until Dec. 30. Under this authority, lenders will be able to originate mortgages with a principal balance of $729,750 in the counties of Los Angeles, San Francisco, Orange, and Santa Barbara. HUD is also issuing a mortgagee letter that gives FHA lenders the green light to make the higher-balance loans. Lenders can check the new loan limits in their state by going to the FHA website, looking under "Hot Topics," and clicking on "Stay Informed of FHA Mortgage Limits." The FHA can be found online at http://www.fha.gov.

The overall home mortgage delinquency rate jumped to 5.82% in the fourth quarter, the highest level since 1985, according to the national delinquency survey of the Mortgage Bankers Association. When the foreclosure inventory is added to the delinquency rate, nearly 8% of all homeowners with a mortgage were not making payments in the fourth quarter. Foreclosures reached the highest level in the history of the MBA survey, with the inventory of loans in the foreclosure process rising to 2.04% and 0.83% of loans entering the foreclosure process during the fourth quarter. In a conference call with reporters, MBA chief economist Doug Duncan noted that adjustable-rate mortgages to subprime borrowers accounted for 42% of the loans entering foreclosure during the fourth quarter, though subprime ARMs only account for 7% of loans outstanding. "Roughly a third of subprime adjustable-rate loans are late on their payments," Mr. Duncan said. The MBA can be found online at http://www.mortgagebankers.org.