Servicing

Fannie Mae has priced an offering of $1 billion of noncumulative, perpetual, variable-rate preferred stock.The 40 million shares of series P stock have a stated value of $25 per share, with a dividend rate that will reset quarterly. The rate will be set at 4.50%, or 75 basis points above the three-month London interbank offered rate, whichever is greater. Goldman, Sachs & Co. and Merrill Lynch & Co. served as placement agents for the transaction, Fannie Mae said. Fannie can be found online at http://www.fanniemae.com.

Zacks Equity Research, Chicago, has declared Cleveland-based National City Corp., the parent company of National City Mortgage, its "Bear of the Day" for Sept. 26.National City recently projected that its after-tax mortgage banking loss is likely to be in the neighborhood of $160 million in the third quarter, Zacks noted. NatCity's nonperforming assets rose 20% in the first two months of the quarter and its net chargeoffs climbed 36%, the research firm said. "Our new six-month target price of $23 per share (down by $8 per share) implies a negative return of about 9% during the period," Zacks said. "We are thus downgrading our recommendation on the shares of NCC from Hold to Sell." Zacks said the Bear of the Day is a stock expected to underperform the markets over the next three to six months. The research firm can be found online at http://www.zacks.com, and NatCity can be found at http://www.nationalcity.com.

Mortgage lenders and servicers are not restructuring loans for troubled homeowners, according to the Center for Responsible Lending and a bankruptcy judge, who urged Congress to amend the bankruptcy code to prevent unnecessary foreclosures.Marilyn Morgan, a bankruptcy judge in Northern California, said she sees too many foreclosures and has not heard of a "single meaningful workout with a home lender." CRL executive Eric Stein told a House Judiciary panel that servicers fear being sued by investors if they restructure mortgages. Amending the bankruptcy code to allow restructurings by judges would "remove the fear" so that servicers can voluntarily modify loans. Steve Bartlett, president of the Financial Services Roundtable, testified that the industry has adopted principles that encourage loan modifications, and "we should expect more and more homeowners with subprime mortgages to get needed relief."

Gerald J. Ford, the former chairman and chief executive of Golden State Bancorp Inc., has told Fremont General Corp., Santa Monica, Calif., that he does not want to invest in the company under the terms of an agreement reached in May.The announcement comes amid rumors that Fremont is having trouble selling its $20 billion subprime servicing portfolio. Mr. Ford leads an investor group that agreed to put $80 million into Fremont, in exchange for a possible 20% stake. Mr. Ford was slated to become chairman of Fremont and its subsidiary, Fremont Investment & Loan. In a statement, Fremont said that while it did not agree with the factual positions taken by Mr. Ford, it is in discussions with him over revising the terms of the transaction. The convertible preferred stock the investor group was to acquire had a conversion price of $8.66 per share. Before the deal was announced on May 21, Fremont was trading in the area of $7; in the following days it went as high as $13.06 per share. Shortly before 11 a.m. Sept. 26, the day of the announcement, Fremont's stock was down $1.03 (over 20%) from the previous day's close to $4.10 per share.

Investor Wilbur Ross Jr., a bottom-fisher who has made millions investing in ailing steel plants, has emerged as the leading bidder for the mortgage servicing platform of the bankrupt American Home Mortgage, Melville, N.Y.The sale, however, needs to be approved by a bankruptcy judge in Wilmington, Del., where the company filed for Chapter 11 protection in August. According to the Quarterly Data Report, AHM services about $45 billion in residential loans, ranking 24th nationwide. At a speech Tuesday night in New York, Mr. Ross said that eventually the company would fund mortgages again. AHM was a Fannie Mae/Freddie Mac approved lender/servicer. It also played in the jumbo and alternative-A markets. The real estate investment trust can be found online at http://www.americanhm.com.

Freddie Mac has announced the pricing of 20 million shares of fixed-rate noncumulative perpetual preferred stock at $25 per share.The shares (CUSIP: 313400640) are being offered to investors with a dividend rate of 6.55%, the government-sponsored enterprise said. Freddie Mac said it will have the option to redeem all or part of the shares on or after Sept. 30, 2017, at $25 per share plus accrued dividends. Banc of America Securities LLC was the underwriter of the offering.

The long-term issuer default ratings of R&G Mortgage, San Juan, Puerto Rico, and its parent company, R&G Financial Corp., have been downgraded from CCC to BB-minus by Fitch Ratings and placed on Rating Watch Negative.In addition, the long-term IDR of R-G Premier Bank has been downgraded from BB-minus to B and placed on Rating Watch Negative. Fitch pointed to R&G's recent news release "detailing uncertainties regarding relationships with certain government agencies and [government-sponsored enterprises], along with uncertainties related to the near-term renewal of two credit facilities." Moreover, the company "indicated the need to take mortgage impairment charges and provisions for construction loans" in the third quarter, Fitch said. In addition, audited financial statements have still not been released, and "financial metrics" presented in regulatory filings for the first half "compare unfavorably" to those of other financial institutions in the BB rating range, Fitch said.

Limited access to capital has worsened the growth prospects for U.S. mortgage real estate investment trusts in recent weeks and boosted ratings pressure on such companies, according to Fitch Ratings.Steven Marks, a Fitch managing director, said declines in market values of unsecuritized assets have helped trigger margin calls and reduced liquidity for mortgage REITs. "Despite the use of longer-term. match-funded [collateralized debt obligation] financing by mortgage REITs and other finance companies, a majority of these companies continue to utilize short-term, floating-rate financing, creating a mismatch of longer-term, fixed-rate assets and shorter-term, floating-rate, subject to margin debt that is a concern for Fitch," Mr. Marks said. "While a mitigant to this mismatch is the use of interest rate hedging instruments, market value declines in assets due to increased perceived or actual credit risk of a REIT's collateral for this short-term borrowing can still lead to margin calls."

Freddie Mac added more than $12 billion in mortgage assets to its investment portfolio in August, while its issuance of guaranteed mortgage-backed securities fell slightly to the lowest level since December.At the end of August, Freddie's retained portfolio totaled $732.2 billion. Freddie's regulator recently raised its portfolio cap to $735.0 billion and $742.4 billion for the third and fourth quarters, respectively. The Office of Federal Housing Enterprise Oversight raised the cap, allowing Freddie greater flexibility in helping troubled subprime borrowers refinance their loans. Freddie's monthly activity report showed very little sales activity in its investment portfolio, which included $374.6 billion in Freddie-guaranteed MBS and $239.0 billion in private-label MBS. Portfolio liquidations are running at $12 billion to $15 billion a month. The secondary-market agency also reported the issuance of $35.3 billion in guaranteed MBS and structured securities in August, down slightly from $35.5 billion in July. Freddie Mac can be found online at http://www.freddiemac.com.

An affiliate of H&R Block, the publicly traded parent of subprime giant Option One Mortgage, has tapped a $250 million credit facility, citing deteriorating conditions in the commercial paper market.The loan is the responsibility of Block Financial Group, a subsidiary of H&R Block. The tax preparation giant is trying to sell the Irvine, Calif.-based Option One. In a new filing with the Securities and Exchange Commission, Block cites, as one of its risks, the uncertainty surrounding the sale. Hedge fund giant Cerberus Capital has agreed to buy Option One, but it recently threw its existing subprime unit, Aegis Mortgage, into bankruptcy. Option One can be found online at http://www.optiononemortgage.com.