Servicing

Freddie Mac has announced that the company will release its fourth quarter and full-year 2007 financial results before the New York Stock Exchange opens on Feb. 28. The company said it will hold a conference call at 10 a.m. EST on that date to discuss the results. To listen to the call, domestic investors should call 1-800-230-1074, and international investors should call 1-612-288-0329, approximately 10 to 15 minutes before the start of the call. A spokesman for Freddie's rival Fannie Mae told MortgageWire that Fannie will release its 2007 results before the end of February. A live webcast of Freddie's call and related information will be available through its website at http://www.freddiemac.com/investors/webcasts.

The acquisition of Countrywide Financial Corp. by Bank of America Corp., Charlotte, N.C., has drawn opposition from SRM Global Fund, a Cayman Islands-based hedge fund that controls 5.19% of Countrywide's stock. In a Securities and Exchange Commission filing, SRM said "the merger agreement does not provide sufficient value to holders of [Countrywide's] common stock." The company also issued a news release saying it will vote against the merger and that the Calabasas, Calif.-based Countrywide is "strong and will rapidly return to profit on a standalone basis." If this is not true, SRM said it wants to know what management did to maximize shareholder value. As the deal now stands, SRM said Countrywide shareholders would get less than $8 dollars per share. But even after the fourth-quarter loss, it maintained that Countrywide still has a book value "in excess of $20 per share, in addition to its substantial franchise value as the leading mortgage business in the United States and its insurance business." It added that it is not surprised that BoA will proceed on the deal because it is paying a substantial discount to book value. SRM also asked the SEC to investigate movements in Countrywide's stock price in the days before the merger was announced.

Credit unions moved billions of additional dollars into their loan loss reserves in the fourth quarter, creating some of the biggest losses in the history of the industry, according to preliminary fourth-quarter data submitted to the National Credit Union Administration. According to the Credit Union Journal, the biggest loser in the fourth quarter was Wescom CU, a $4 billion Pasadena, Calif.-based credit union that boosted its loan loss reserves by $24.3 million, or 68%, causing losses of $26.3 million for the quarter and a whopping $33.2 million for the year. Several other large California credit unions, where the mortgage market has been hit harder than in most states, also reported huge losses for 2007, like USA FCU, with a loss of $5.8 million; Sterlent CU, $4.8 million: Kaiperm FCU, $3.8 million: Xerox FCU, $3.4 million: E1 Financial CU, $1.4 million; and Kaiser Lakeside CU, $1.4 million.

Now that Congress has changed the tax laws on debt forgiveness, it is more feasible for servicers to write down the principal amount of a mortgage to help struggling borrowers, according to a federal regulator. "Such an option might be considered for borrowers having financial difficulties making their payments after their loans reset and where foreclosure is a looming possibly," FDIC Chairman Sheila Bair told a Senate panel. The Federal Deposit Insurance Corp. chairman noted that Congress has passed the Mortgage Forgiveness Debt Relief Act, so borrowers no longer have to pay taxes when the principal amount of their mortgage is reduced. Servicers should "carefully consider" whether writedowns or forgiveness of arrearages of principal and interest are "better options than foreclosure, or even short sales in appropriate circumstances," Ms. Bair testified.

Meanwhile, Fitch has announced enhancements to ResiLogic, its mortgage default and loss model for U.S. residential mortgage-backed securities. Fitch said the enhancements are designed to further its goal of incorporating a "robust forecast" of national and regional economic conditions into the ResiLogic model. The three major enhancements are as follows: expansion of state-level risk multipliers to include 25 specific metropolitan statistical area multipliers; the incorporation of MSA and state risk multipliers as factors influencing the loss severity for a defaulted mortgage in addition to the risk of mortgage default or frequency of foreclosure; and the inclusion of a national risk index that changes default and loss expectations in accordance with national macroeconomic trends. The rating agency also released a quarterly update to its regional risk multipliers. "The combined impact of these revisions generally produces a higher expected loss for subprime and alt-A mortgages, and to a lesser extent, for prime mortgages," Fitch said. "This is primarily due to Fitch's expectations of additional substantial stress on mortgage performance due to declining home prices and a weakening economy."

Fitch Ratings has placed 2,972 classes of 2006 and 2007 subprime residential mortgage-backed securities (totaling approximately $139 billion) on Rating Watch Negative. Fitch said the actions resulted from an adjustment to its loss projections for subprime RMBS stemming from a significant deterioration in subprime mortgage performance in recent months. The rating agency attributed the deterioration to accelerating home price declines caused partly by "the dramatic contraction in the mortgage origination and securitization markets." Fitch said it has also increased its loss expectations for U.S. subprime RMBS backed predominantly by first-lien mortgages originated in 2006 and the first half of 2007. The rating agency can be found online at http://www.fitchratings.com.

Mortgage companies cut 5,600 full-time employees from the payrolls in December to end a terrible year in which 114,600 workers -- nearly a quarter of the industry's work force -- lost their jobs. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell from 374,600 in November to 369,000 in December -- down 23.7% from that of December 2006. (The BLS revised all the employment numbers in its latest report.) The mortgage industry started the year with 483,600 employees. But the subprime meltdown that sent the credit markets reeling forced scores of mortgage companies to shut their doors and others to cut their staffs. Industry employment may stabilize or even rise in coming months, however, due to an increase in refinancings and hiring by servicers to deal with rising defaults and resets of adjustable-rate subprime mortgages. The Bureau of Labor Statistics can be found online at http://stats.bls.gov.

Fitch Ratings has placed 188 tranches from 18 commercial real estate collateralized debt obligations, representing $8.4 billion in total, on Rating Watch Negative following a review in its surveillance methodology. Analysts at the rating agency wished to clarify that the CDOs are not technically CMBS deals, as described in a Jan. 16 item in MortgageWire, although the underlying collateral may be commercial mortgage-backed securities.

Seven classes of Sequoia Mortgage Funding Corp. mortgage pass-through certificates have been downgraded by Fitch Ratings. The affected securities are in series 2006-1 and series 2007-1. Fitch also affirmed the ratings on five other classes in the two deals. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral consists of prime hybrid adjustable-rate mortgage loans indexed to the London interbank offered rate. Fitch can be found online at http://www.fitchratings.com.

A poll of late-paying mortgage borrowers finds that 57% aren't aware that their lender may be able to offer plans that would help them avoid foreclosure. However, when specific workout alternatives were mentioned, the percentage of homeowners aware of options like repayment plans and loan modifications actually increased. The poll, commissioned by Freddie Mac and conducted by Roper Public Affairs and Media, also found that 44% of delinquent borrowers are aware of the existence of housing counselors who can talk to them about their mortgage problems. The survey indicated that the percentage of delinquent homeowners who say they recall their mortgage servicer reaching out to them has increased, to 86%, up from 75% in a similar survey three years ago.