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Wells Fargo & Co., San Francisco, has announced that it will take a $1.4 billion special provision in the fourth quarter for higher losses it now expects in certain indirect channels and that it will "further tighten" its home equity lending standards by no longer accepting business through those channels.The company said it will stop originating home equity loans through wholesalers in which the combined loan-to-value ratio of the first and second mortgages is 90% or higher, or where the second mortgage is not behind a Wells Fargo first mortgage. Wells Fargo also reiterated that it will no longer acquire home equity loans through correspondent relationships, and that $11.9 billion in loan portfolios already acquired through such channels will be placed in liquidating status. The company said the $1.4 billion special provision for the liquidating portfolio reflects higher expected losses stemming from further deterioration in the housing market outlook. "Given today's uniquely challenging environment, we believe that sharpening our focus on our better-performing and relationship-based home equity loans is in the best long-term interest of our company," said John Stumpf, Wells Fargo's president and chief executive. Wells Fargo can be found online at http://www.wellsfargo.com.

Three classes from two deals issued by Mortgage Asset Securitization Transactions Asset Back Securities Trust have been downgraded by Fitch Ratings.The downgrades were as follows: series 2002-OPT1, class M-6, from BB-minus to CCC/DR3; and series 2004-WMC1, class M-4, from BBB-plus to BB, and class M-5, from BBB to B. Fitch also affirmed the ratings on seven other classes in the two deals. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral for the transactions consists primarily of first- and second-lien subprime mortgage loans.

Three classes of Salomon Brothers Mortgage Securities VII Inc., series 2002-CIT1, have been downgraded by Fitch Ratings.The downgrades were as follows: class M-3, from BBB to BB-plus; class M-4, from BB to B-minus/DR1; and class M-5, from BB-minus to B-minus/DR2. Fitch also affirmed the ratings on three other classes in the deal. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral for the transaction consists of first- and second-lien subprime mortgage loans.

Three classes of notes issued by U.S. Capital Funding V Ltd./Corp. and U.S. Capital Funding VI Ltd./Corp., collateralized debt obligations backed partly by the subordinated debt of a finance company specializing in residential mortgage lending, have been placed on Rating Watch Negative by Fitch Ratings.The affected classes are class C of U.S. Capital V and classes C-1 and C-2 of U.S. Capital Funding VI. The mortgage-linked debt includes middle-market and leveraged loans and minority allocations to subordinated debt issued by a specialty finance company, U.S. Capital said. In addition, the affected notes are backed chiefly by trust preferred securities and subordinated debt issued by banks and thrifts. Regarding the finance company, "the likelihood and timing of ongoing interest and principal payments will be dependent upon the performance of the company's portfolio of assets," Fitch said. "Uncertainty with respect to the performance of these underlying assets increases the potential for a rating action to the class C notes of both CDO transactions."

Four tranches from Structured Adjustable Rate Mortgage Loan Trust 2005-21 have been downgraded by Moody's Investors Service.The downgrades were as follows: class B3-I, from A2 to A3; class B4-I, from A3 to Baa2; class B5-I, from Baa2 to Ba1; and class B6-I, from Baa3 to B1. The downgrades 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, adjustable-rate, alternative-A mortgage loans. Moody's can be found online at http://www.moodys.com.

Eighteen classes of mortgage-backed securities from several issuers have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions.Fitch also placed nine classes on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of over $3 billion. Among the securities affected by the latest downgrades were: 11 classes from four issues of Soundview Home Equity Loan Trust asset-backed certificates; three classes from Fremont Home Loan Trust mortgage pass-through certificates, series 2005-1; two classes from Meritage Mortgage Corp. asset-backed certificates, series 2005-2; one class from UBS MASTR Asset Backed Securities mortgage pass-through certificates, series 2005-NC1; and one class from Terwin Mortgage Trust asset-backed certificates, series 2005-5SL. 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." The rating agency can be found online at http://www.fitchratings.com.

Citing deterioration in the housing and mortgage markets, Franklin Bank Corp., Houston, has announced a decision to increase its allowance for credit losses by approximately $20 million.Franklin said it expects credit costs for its commercial loan portfolio to range from $5.0 million to $7.5 million next year. The company said its total allowance for credit losses will grow from 0.42% to 0.91%, while the reserve for the builder finance portfolio will increase from 0.52% to 1.72% and the overall commercial loan reserve will rise from 0.61% to 1.33%. "Franklin's management believes that this effort to anticipate issues, rather than wait for them, should remove the perceived risk to our institution from both the builder finance and mortgage portfolios," the company said. Franklin Bank can be found on the Web at http://www.bankfranklin.com.

House prices declined 4.9% during the 12-month period from September 2006 to September 2007, according to the Standard & Poor's/Case-Shiller housing price index, which covers 20 metropolitan areas."Most of the metro areas continue to show declining or decelerating returns on both an annual and monthly basis," said Robert Shiller, chief economist at MacroMarkets LLC. Only five of the 20 metro areas -- Atlanta; Charlotte, N.C.; Dallas; Portland, Ore.; and Seattle -- posted positive price increases, but they are all under 5%. Mr. Shiller told reporters that a futures index based on the S&P/C-S HPI 10-city index is predicting that house prices will decline by over 5% next year, and he thinks that is a "reasonable" estimate. "We are in the aftermath of the biggest housing boom in history," which was fueled by unprecedented speculation on residential properties, Mr. Shiller said. He sees a greater-than-50% chance of a recession due to declining housing starts, falling house prices, rising foreclosures, and problems in the financial markets. Further information on the index can be found online at http://www.homeprice.standardandpoors.com.

A study commissioned by the U.S. Conference of Mayors predicts that the "foreclosure crisis" will shave $166 billion off the U.S. economy next year.The analysis, performed by Global Insight for the mayors' association, predicts that homeowners nationally will see the value of their equity drop by $1.2 trillion in 2008. The study also projects that "at least" 1.4 million homes will go into foreclosure next year, representing a market value of $316 billion in property. The study predicts that home prices will fall by 7% nationally in 2008. The mayors say the housing downturn will ripple through the economy, trimming job creation by 524,000 next year.

Sen. Charles E. Schumer, D-N.Y., has urged the regulator of the Federal Home Loan Banks to undertake a special review of the loans that Countrywide Bank has pledged to collateralize $51 billion in advances from the FHLBank of Atlanta.The thrift subsidiary of Countrywide Finance Corp. increased its advance borrowings in the third quarter by $28.2 billion -- up nearly 80% from those of the previous quarter. In a letter to the Federal Housing Finance Board, Sen. Schumer urged the regulator to "probe" the underlying risk of Countrywide's collateral, which includes payment-option mortgages. The senator said in a CNBC-TV interview that he has concerns about the Atlanta FHLBank's ability to assess the risk of Countrywide's collateral. "At a time when Countrywide's mortgage portfolio is deteriorating, the Federal Home Loan Bank's exposure to Countrywide poses an unreasonable risk," the Senate Banking Committee member said. A Finance Board spokesman said the agency would "respond to Sen. Schumer," but declined to comment further.