Servicing

The California Reinvestment Coalition, San Francisco, has announced a new initiative aimed at increasing the number of mortgage counselors working to keep Californians in their homes. Under the California Home Ownership Preservation Initiative, mortgage counseling agencies will receive $4.6 million to build their capacity over the next two years, the coalition said. The announcement came from the coalition, the San Francisco Foundation, the California Community Foundation, and eight financial institutions: Merrill Lynch, HSBC-North America, Wachovia Bank, Comerica Bank, Wells Fargo Bank, Countrywide Financial Corp., Citi, and Bank of America. The California Reinvestment Coalition can be found on the Web at http://www.calreinvest.org.

Western Alliance Bancorporation, Las Vegas, has announced plans to write down its subprime mortgage-backed securities from $9.5 million to $4.9 million for the fourth quarter, but said the charge is expected to be offset. The offset will come from mark-to-market valuation benefits under Statement of Financial Accounting Standards No. 159, the company said. Western Alliance also announced that its earnings per share are expected to decline from $0.35 in the third quarter to $0.09 in the fourth quarter, primarily as a result of an increase in its loan loss provision to $13.9 million. The company can be found online at http://www.westernalliancebancorp.com.

Downey Financial Corp., Newport Beach, Calif., has announced an increase in previously reported levels of nonperforming adjustable-rate mortgage assets. The estimated level of nonperforming assets as a percentage of total assets was increased to 7.8% as of year's end. Downey said it had launched a borrower retention program in the third quarter aimed at enabling qualified borrowers to switch from a payment-option ARM to a less costly alternative. The modifications were not deemed troubled debt restructurings, and Downey's independent auditor did not object, the company said. But after further review, the auditing firm, KPMG LLP, advised Downey that they should be classified as troubled debt restructurings, and Downey agreed. "This conclusion was reached because in the current interpretation of [generally accepted accounting principles]," Downey said, "especially in the current housing market, there is a rebuttable presumption that if the interest rate is lowered in a loan modification, the modification is deemed to be a troubled debt restructuring unless the modified loan can be proved to be at a market rate of interest based upon new underwriting, including an updated property valuation, credit report, and income analysis." The company can be found online at http://www.downeysavings.com.

One million securitized subprime mortgage loans were 90 days or more past due, in foreclosure, or real estate owned as of Oct. 31, according to the latest credit performance report by Friedman Billings Ramsey Investment Management. Subprime defaults have jumped from 9.1% in October 2006 to 19.4% in the space of 12 months -- raising the number of subprime foreclosures to 417,800. The foreclosure rate was 7.8% in October. FBRIM managing director Michael Youngblood said he expects the default rate to go higher as resets on adjustable-rate subprime mortgages kick in this year. So far, defaults have been driven by lax underwriting standards and, more recently, by declining house prices and weakening labor markets. FBRIM researchers used a database of 5.18 million subprime loans in compiling the October credit performance report on nonagency securitized mortgages.

Meanwhile, the CtW Investment Group is calling on five Citigroup directors to "describe the actions they took" to protect shareholders from excessive exposure to mortgage risk over the past two years. The five are: C. Michael Armstrong, George David, John M. Deutch, Andrew N. Liveris, and Anne M. Mulcahy. CtW said it will recommend that shareholders vote against directors who fail to provide "a compelling response" before Citi's 2008 annual meeting. "Accountability for risk management begins with the Audit Committee, and they will be the first to face an opposition shareholder vote," said Bill Patterson, executive director of the organization, which works with pension funds sponsored by unions affiliated with Change to Win to "enhance long-term shareholder value through active ownership." The group can be found online at http://www.ctwinvestmentgroup.com.

Citi also announced the raising of $12.5 billion of capital via the sale of convertible preferred securities, including a $6.9 billion investment by the Government of Singapore Investment Corp. The private offering included investments from several other sources, including the Kuwait Investment Authority and The Weill Family Foundation. Citi also announced a public offering of approximately $2 billion in convertible preferred securities; a reduction in the company's quarterly dividend to $0.32 per share; and continuing sales of noncore assets, including asset reductions of approximately $176 billion in the fourth quarter under generally accepted accounting principles.

Citigroup has reported a $9.8 billion loss for the fourth quarter after taking a $17.4 billion writedown on subprime mortgage assets and reducing its subprime exposure from $54.6 billion in the third quarter to $37.3 billion. Citigroup executives cited the writedowns and losses on U.S. mortgage and consumer loans as the primary reason for the poor performance. They also say they expect continued deterioration in mortgage and consumer loan performance this year and have valued their remaining subprime assets (including $29.3 billion in collateralized debt obligations) based on the assumption that house prices will decline 6.5% -7.0% in 2008 and 2009. The giant international banking company also announced plans to raise more capital (see item below), and it is reducing its dividend by 40% to 32 cents. In response to the earnings report, Fitch Ratings announced that its rating outlook for Citigroup will remain negative "until profitability is restored, exposure to topical areas is further reduced, and asset quality stabilizes." The company can be found online at http://www.citi.com.

Class I-B-3 of Homebanc Mortgage Trust 2007-1 has been downgraded from Baa2 to Ba1 by Moody's Investors Service. The downgrade was based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels. The collateral consists primarily of first-lien, fixed- and adjustable-rate alternative-A mortgage loans.

Eight tranches from two mortgage-backed securities deals issued by American Home in 2007 have been downgraded by Moody's Investors Service. The downgrades were as follows: American Home Mortgage Assets Trust, series 2007-3, class I-M-1, from Aa2 to Baa3 (and placed on review for possible further downgrade), class I-M-2, from A2 to Caa1, class I-M-3, from Baa3 to Ca, class II-M-3, from A2 to B3, class II-M-4, from A3 to Caa1, class II-M-5, from Baa2 to Caa2, class II-M-6, from Baa3 to Caa3; and series 2007-2, class I-M-2, from A3 to Baa2. In addition, nine tranches from three deals have been placed under review for possible 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.

Fourteen tranches from two deals issued by ChaseFlex in 2007 have been downgraded by Moody's Investors Service, and one tranche has been placed under review for possible 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. The collateral consists of first-lien, fixed- and adjustable-rate alternative-A mortgage loans.