Servicing

Twenty-two classes from six issues of Citigroup Mortgage Loan Trust mortgage pass-through certificates have been downgraded by Fitch Ratings.Fitch also placed two classes on Rating Watch Negative and affirmed the ratings on 52 classes of CMLT securities. The downgrades reflect deterioration in the relationship between credit enhancement and expected losses, the rating agency said. The loans consist generally of fixed- and adjustable-rate alternative-A mortgages. Fitch can be found on the Web at http://www.fitchratings.com.

Members of the Hope Now alliance have agreed to do a mass mailing to reach 200,000 troubled borrowers and develop methods for quickly determining whether a loan modification or refinancing would prevent foreclosure, according to Treasury Secretary Henry Paulson."Members of the alliance told me they are developing methods, criteria, and metrics that any industry participant can use to systematically evaluate a borrower's ability to pay a resetting adjustable mortgage," Secretary Paulson said. This approach will allow servicers to fast-track borrowers who are current on their ARM into a loan modification or refinancing and provide others with different options. Treasury Under Secretary Robert Steel, Iowa Attorney General Tom Miller, Sandor Samuels, executive managing director of Countrywide Financial Corp., and others will be testifying at a House Financial Services Committee hearing Nov. 2 on the Hope Now efforts to prevent foreclosures and encourage loan modifications.

Residential properties that are in some state of foreclosure rose 30% in the third quarter and doubled on a year-over-year basis, to 446,726 units, according to new figures released by RealtyTrac, Irvine, Calif.Nevada had the highest foreclosure rate in the nation, with one filing for every 61 households, according to RealtyTrac, a mortgage information company. After Nevada, California (one for every 88 households) and Florida (one for every 95) had the highest incidence of foreclosures. California, though, saw its foreclosure filings quadruple to 148,147 incidences from those of a year earlier. Other states ranking among the top 10 in foreclosures include Michigan, Ohio, Colorado, Arizona, Georgia, Indiana, and Texas. RealtyTrac can be found online at http://www.realtytrac.com.

Fifty-nine classes from 13 Countrywide residential mortgage-backed securities deals issued in 2005 and 2006 have been downgraded by Fitch Ratings.Fitch also affirmed the ratings on 32 classes from the CWALT transactions. The downgrades were attributed to a deterioration in the relationship between credit enhancement and loss expectations. The collateral for the transactions consists primarily of 30- and 15-year fixed-rate mortgage loans to alternative-A borrowers. Fitch can be found on the Web at http://www.fitchratings.com.

Mortgage Assistance Center Corp., Dallas, has announced the signing of a $50 million funding agreement with an unnamed Dallas-based investment fund.The funding will be used to acquire pools of distressed residential real estate and residential mortgages through joint ventures formed with the investment fund, MACC said. The company said it has agreed to grant the investment fund a warrant to purchase up to one-third of MACC's common stock. MACC can be found online at http://www.mac-tx.com.

The Federal Home Loan Bank of Chicago has notified its members that it will not pay a dividend in the third quarter due to declining earnings and a possible loss in the fourth quarter."We expect that certain factors will significantly lower our future net income and we may experience losses in the fourth quarter and 2008," the FHLBank says in a securities filing. In the second quarter, the Chicago bank reported that earnings fell by 55%, to $50 million, compared with the level of a year earlier. The bank incurred a $13 million loss on its $36.4 billion mortgage portfolio, which had boosted earnings by $84 million in the second quarter of 2006. The Chicago bank had been operating for the past three years under a supervisory agreement that was recently replaced with a cease-and-desist order by the Federal Housing Finance Board.

The stocks of Irwin Financial Corp. and Flagstar Bancorp Inc. were trading lower Wednesday morning after both firms reported third-quarter losses related to home loans.Irwin lost $18 million, including "discontinued operations," in the third quarter, compared with net income of $5.5 million in the second quarter. Chairman and chief executive officer Will Miller said the "mortgage crisis continued to take a heavy toll on our results." Irwin significantly increased its reserve in the third quarter for future home equity losses. Flagstar Bank, which reported a $32.1 million loss for the third quarter, said a decrease in gains on the sale of mortgage servicing rights, losses on loan sales, and an increase in the provision for loan losses was responsible for the downturn. The companies can be found online at http://www.irwinfinancial.com and http://www.flagstar.com.

A law firm that represents shareholders who lost millions by investing in two subprime-related hedge funds managed by Bear Stearns & Co. is calling for a vote to replace Bear as the manager of what's left of the funds.A spokesman for the law firm of Reed Smith LLP said, "The two funds are worthless. The idea is to take over management of them and do a forensic accounting to see what happened. Bear's view is that it's not responsible for what happened and that shareholders are out of luck." The two funds -- one for U.S. investors, the other for overseas investors -- had an equity value of $650 million at one time. Bear Stearns could not be reached for comment at deadline time. Investors have already filed class-action lawsuits against Bear in regard to their losses. Reed Smith, though, is not a party to those suits. Bear Stearns can be found online at http://www.bearstearns.com.

House Financial Services Committee Chairman Barney Frank, D-Mass., wants to start the mark-up of his controversial predatory-lending bill on Nov. 6.The Mortgage Reform and Anti-Predatory Lending Act would establish a minimum federal lending standard (but not pre-empt state lending laws) along with a limited form of assignee liability for securitizers of subprime mortgages. The bill (H.R. 3915), co-sponsored by Reps. Brad Miller and Mel Watt, both North Carolina Democrats, also appears to ban the payment of yield-spread premiums to mortgage brokers. The National Association of Mortgage Brokers is seeking a clarification to this anti-steering provision.

A properly designed bankruptcy bill with firm guidance for modifying loans could reduce the number of expected foreclosures by 500,000, Mark Zandi, chief economist of Moody's Economy.com, has told a congressional panel.Mr. Zandi warned that 2 million families could lose their home by early 2009 and that the current cycle of rising foreclosures and falling housing prices could lead to a national recession. "There is no more efficacious way to short-circuit this cycle than by adopting legislation to allow bankruptcy judges the authority to modify first mortgages by treating them as secured only up to the market value of the property," he testified. He suggested that this legislation should sunset after three years so Congress can review its impact. But he dismissed claims by the Mortgage Bankers Association that such a bankruptcy bill would force lenders to increase mortgage rates and fees [see item above]. And the founder of Economy.com testified that current voluntary efforts by mortgage servicers to modify loans is unlikely to stop the increase in foreclosures. The Moody's dot-com can be found online at http://www.economy.com.