Servicing

Franklin Credit Management Corp., a specialist in servicing and resolving residential mortgage loans, has entered into restructuring agreements with its lead lending bank, according to the Jersey City, N.J.-based company.Franklin Credit's indebtedness to The Huntington National Bank was reduced by approximately $300 million, and Franklin paid the bank a $12 million restructuring fee. In addition, approximately $1.5 billion in debt to the bank (including about $491 million owed by Tribeca Lending Corp., an origination subsidiary of Franklin Credit) was restructured into six term loans with modified terms and a maturity date of May 15, 2009, Franklin reported. The forbearance agreements also contain certain restrictions on Franklin Credit's activities. The company also reported that it has been notified by the NASDAQ Stock Market that its common stock has failed to maintain the $5 million minimum market value required for listing. Failure to restore compliance by April 1 will result in a delisting notification. Franklin Credit can be found online at http://www.franklincredit.com.

Irwin Financial Corp., Columbus, Ind., has announced that it expects to report a mortgage-related consolidated loss (including discontinued operations) of $15-20 million in the fourth quarter.The company said it will take approximately $5 million in restructuring charges in the fourth quarter and expects to take less than $2 million in the first quarter. "In our home equity segment, we are being negatively affected by the noncore portfolio we transferred from 'held-for-sale' when the secondary market collapsed in the first quarter of 2007," said Will Miller, Irwin's chairman and chief executive officer. "These loans, which were originated for sale and did not meet our core portfolio credit guidelines, are adding to our delinquencies and required provision at a rate that is disproportionate to the portfolio as a whole. In addition, we are seeing greater-than-expected rate of delinquencies and losses on loans where loan-to-values at origination approached 100%." Irwin can be found online at http://www.irwinfinancial.com.

State Street Corp., Boston, has taken a $279 million net charge after taxes for the fourth quarter to establish a reserve designed to address costs related to active fixed-income strategies exposed to subprime mortgage markets.State Street has also named James S. Phalen, executive vice president and head of international operations for investment servicing and investment research, as the new interim chief executive officer of State Street Global Advisors. William W. Hunt, the previous SSGA CEO, has resigned. SSGA, State Street's investment management arm, manages its fixed-income strategies.

The Mortgage Bankers Association has changed course and is now backing stand-alone legislation that would allow Fannie Mae and Freddie Mae to purchase jumbo loans of up to $625,000 nationwide on a temporary basis.In a letter to the GSEs' regulator, the MBA contends that liquidity problems in the jumbo market have led to higher interest rates on loans above the conforming loans limit ($417,000) and fewer financing options for borrowers. "The increase should be in effect for no less than 12 months, and up to 24 months if market conditions warrant," the MBA says in a letter to James Lockhart, director of the Office of Federal Housing Enterprise Oversight. The MBA previously opposed a temporary hike in the conforming lending limit unless it was part of a comprehensive bill to strengthen the regulation and supervision of the government-sponsored enterprises. The association can be found online at http://www.mortgagebankers.org.

Mortgage companies dropped 9,100 full-time employees from their payrolls in November, and over 100,000 mortgage-related jobs have been lost in the wake of the subprime meltdown.The U.S. Bureau of Labor Statistics reported Jan. 4 that employment in the mortgage banker/broker sector declined from 401,000 in October to 391,900 in November. Nearly 110,000 loan officers and other mortgage workers have lost their jobs or left the industry since November 2006. Over the same period, 200,000 construction workers have lost their jobs. Meanwhile, President Bush is considering new initiatives to stimulate the economy and stabilize the housing market. And Friday's dismal jobs report, which indicates that the unemployment rate jumped from 4.7% to 5.0% in one month, is going to put more pressure on White House officials to come up with a stimulus package to reverse a slowing economy. The BLS can be found online at http://stats.bls.gov.

Seven classes of asset-backed certificates from Meritage Mortgage Corp. series 2004-1 have been downgraded by Fitch Ratings.The downgrades were as follows: class M-1, from AA to A-minus; class M-2, from A-plus to BB-plus; class M-3, from A to B; class M-4, from BB-plus to B; classes M-5 and M-6, from B to CCC/DR1; and class M-7, from CC/DR2 to C/DR5. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses. The mortgage pool consists of first- and second-lien residential mortgages. The rating agency can be found online at http://www.fitchratings.com.

WGNB Corp., Carrollton, Ga., has announced increases in its nonperforming assets and loan loss provision for the fourth quarter due to deteriorating conditions in the residential real estate market.The company said it expects to report a loan loss provision of approximately $2.3 million for the quarter, compared with $750,000 in the third quarter, and nonperforming assets of $42.0 million, compared with $23.5 million in the third quarter. "In response to market conditions, management has been actively reviewing our loan portfolio with a particular emphasis on our residential real estate exposure," said H.B. "Rocky" Lipham III, WGNB's chief executive officer. "We have spent the last three months evaluating credit, analyzing valuations, and aggressively collecting on problem residential real estate loans." The company can be found on the Web at http://www.wgnb.com.

As Bush administration officials look for more ways to shore up the housing market, a conservative scholar is suggesting that policymakers take a look at a Depression-era agency that purchased defaulted mortgages to prevent foreclosures.American Enterprise Institute resident fellow Alex Pollock stresses in a Dec. 31 paper that the Home Owners' Loan Corp. refinanced more than 1 million loans from 1933 and 1937 and was later liquidated at a profit to the government. "The fundamental idea was that the HOLC would acquire defaulted mortgages from lenders and investors, giving its bonds in exchange, and then refinancing the mortgages on more favorable and more sustainable terms," Mr. Pollock says in the paper entitled "Crisis Intervention in Housing Finance." However, the lender would take a loss on the principal of the mortgage due to a new appraisal and lower property value. The HOLC was liquidated after 18 years and the government's initial $200 million investment produced a modest return of $14 million. "As the housing and mortgage bust of 2007 continues into 2008, the lessons of the HOLC again are relevant and well worth studying," Mr. Pollock says.

The delinquency rate on home equity loan products surged in the third quarter, according to the American Bankers Association.The ABA's consumer delinquency bulletin showed that the overdue rate on closed-end home equity loans rose 29 basis points to 2.28% in the third quarter, the highest delinquency rate posted in two years. The overdue rate on home equity lines of credit climbed 7 basis points to 0.84%, though home equity lines of credit remained the consumer credit category with the lowest delinquency rate at banks. The delinquency rate on property improvement loans rose 16 basis points to 1.60% in the third quarter. Deterioration in housing-related loans drove the ABA's consumer composite delinquency ratio up during the quarter, despite improvement in credit card performance. James Chessen, chief economist of the ABA, said he expects to find that delinquency rates on home equity loan products continued to rise in the fourth quarter, "reflecting continued weakness in the housing sector." The ABA can be found on the Web at http://www.aba.com.

Horizon Bancorp, Michigan City, Ind., has announced an increase in its provision for losses in the fourth quarter related to its wholesale mortgage and indirect auto loan portfolios.Horizon said it raised the provision for losses by $1.4 million in December to account for credit deterioration in the two business segments. The provision expense is expected to total $1.77 million in the fourth quarter, compared with $550,000 in the third quarter. The company said its wholesale mortgage portfolio, the residual of a line of business that was closed in June, totaled $8.9 million as of Dec. 28. "This portfolio consists primarily of residential, second mortgage, home equity lines of credit and term loans with high loan-to-value ratios," Horizon said.