Servicing

Provident Bankshares Corp., Baltimore, has reported a net loss of $15.5 million ($0.49 per share) for the fourth quarter, chiefly as a result of a writedown of its REIT trust preferred securities. Provident recorded net income of $11.3 million ($0.34 per share) a year earlier. The company said the loss stemmed from the writedown of "a significant portion" of its $95 million portfolio of real estate investment trust securities and an increase in the provision for loan losses "to reflect the inherent risk in its real estate loan portfolios," among other things. "We took these prudent steps with our investment portfolio even though the securities that are being written down are performing," said Gary N. Geisel, Provident's chairman and chief executive officer. "Given their lack of market liquidity and recent credit rating decline, this was a prudent decision based on a rational analysis of the national housing and residential mortgage industries." The company can be found online at http://www.provbank.com.

Huntington Bancshares Inc., Columbus, Ohio, has reported a net loss of $239.3 million ($0.65 per share) for the fourth quarter, due largely to credit losses linked to Franklin Credit Management Corp., a specialist in servicing and resolving residential mortgage loans. A year earlier, Huntington reported earnings of $87.7 million ($0.37 per share). Huntington said it made a $405.8 million provision for credit losses in the fourth quarter related to the restructuring of loans to Franklin, along with $106.2 million for non-Franklin-related losses, much of which was attributed to continued weakness in commercial real estate markets. Thomas E. Hoaglin, chairman, president, and chief executive officer of Huntington, said the company "firmly" believes that the "reserves we have established and the positive cash flow coverage resulting from the restructuring address fully the current and anticipated financial performance issues associated with this relationship." The company can be found online at http://www.huntington.com.

The mortgage industry modified an estimated 54,000 home loans and established formal repayment plans involving another 183,000 borrowers during the third quarter, according to an analysis by the Mortgage Bankers Association. The MBA also estimates that foreclosure actions were started on 384,000 loans in the third quarter, though the MBA said that 63% of the foreclosure starts involved non-owner-occupied homes, borrowers who failed to respond to servicers' efforts to contact them, or borrowers who failed to perform on a repayment plan or loan modification that was already in place. Jay Brinkman, the MBA's vice president of research, said the number of loan modifications and repayment plans is likely to grow because of the industry's efforts to reach out to borrowers with subprime adjustable-rate mortgage loans. The MBA estimates are based on responses from servicers covering about 33 million home loans, or 62% of the total market. The MBA can be found online at http://www.mortgagebankers.org.

Subprime servicers are starting to provide data on their loan modification efforts to a working group of state attorneys general and banking regulators, according to New York Banking Superintendent Richard Neiman. The multistate working group, headed by Iowa Attorney General Tom Miller, began working with subprime servicers last summer to make sure distressed homeowners are getting the assistance they need to avoid foreclosure. However, Mr. Miller's group has been shut out of the loan modification efforts led by Treasury Secretary Henry Paulson and the Hope Now alliance of servicers. "I found it curious and disappointing that the Treasury's Hope Now alliance did not include a state government representative," Mr. Neiman told the Exchequer Club. "This omission could undermine the group's effectiveness, because it is missing the perspective from an important regulatory partner, which is the sole supervisor for a significant portion of the mortgage industry."

Federal Reserve Board Chairman Ben S. Bernanke says he expects that foreclosures on $1 trillion in subprime adjustable-rate mortgages will lead to at least $100 billion in losses, and it could go much higher. "So far, I see about $100 billion, but it certainly could be several multiples of that as we go forward and delinquency rates and foreclosure rates rise," the Fed chairman told the House Budget Committee. He noted that there are 5 million subprime ARMs, of which 20% are delinquent. The Fed chairman also testified that home prices are falling in many parts of the country. "The virtual shutdown of the subprime mortgage market and a widening of spreads on jumbo mortgage loans have further reduced the demand for housing, while foreclosures are adding to the already-elevated inventory of unsold homes," he said.

Bond insurer Ambac Financial -- whose guarantee is behind billions of dollars in asset-backed bonds collateralized by subprime loans -- saw its stock plunge 60% in trading early Thursday after Moody's Investor Service said it is reviewing the company for a possible downgrade. The news comes on the heels of Ambac's recent announcement that it has an estimated $5.5 billion pretax loss on credit derivatives for the fourth quarter. In trading, Ambac's shares were down 62% to just $5 a share. In a statement regarding the possible downgrade, Ambac called it a "surprising" move on Moody's part, adding that "Management remains confident in Ambac's insured portfolio and will communicate further on these matters."

Merrill Lynch took a $9.8 billion loss for the fourth quarter -- and a $7.8 billion net loss ($8.6 billion from continuing operations) for all of 2007 -- due primarily to an $11.5 billion U.S. mortgage-related writedown in the last three months of the year that produced results far below analysts' estimates. In addition to the writedowns on the mortgage-related assets themselves, Merrill took credit valuation adjustments of $2.6 billion related to hedges with financial guarantors on collateralized debt obligations with mortgage exposure. Analysts at Sandler O'Neill Research said that, while the writedowns "were significant and larger than our expectations, we actually expect that some investors may be disappointed [that Merrill] did not take a larger writedown, given more aggressive actions at some of its competitors and in the wake of ... significant capital raises." The results may have implications for the company's remaining wholesale mortgage business. Merrill also announced the appointment of Noel B. Donohoe as co-chief risk officer. Mr. Donohoe was previously head of firmwide risk at Goldman Sachs from 1994 to 2005. Merrill Lynch can be found online at http://www.ml.com.

Class B-5 of PHH Mortgage Corp. mortgage pass-through certificates series 2006-2 has been placed on rating Watch Negative by Fitch Ratings. Fitch also affirmed the ratings on 43 other classes from eight PHH issues of pass-through certificates.

Six tranches from MortgageIT Securities Corp. Mortgage Loan Trust series 2007-1 has been downgraded by Moody's Investors Service, and three tranches have been placed under review for possible downgrade. One downgraded tranche remains on review for possible further downgrade. The negative rating actions 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, fixed- and adjustable-rate alternative-A mortgage loans.

The Homeownership Preservation Foundation, Minneapolis, has reported a doubling in the number of homeowners calling its 888-995-HOPE hotline in the fourth quarter. The national hotline, which helps borrowers who are behind on their mortgage payments, received more than 143,000 calls in the fourth quarter, twice the total received in the third quarter and nearly 10 times that of the first quarter, the foundation said. More information on the hotline can be found on the Web at http://www.995hope.org.