Servicing

Recent turmoil in the credit markets prompted banks and thrifts to increase their borrowings from the Federal Home Loan Banks by $110 billion in August.The FHLBank System Office of Finance reported that advances jumped 16.4% in August, to $769 billion. The Atlanta FHLBank reported that it made $29.1 billion in advances in July and August. (During the first six months of the year, its advances grew by only $2.7 billion.) The FHLBank of San Francisco reported preliminary data indicating that its advances rose by a total of $53 billion over July and August. Meanwhile, members of the New York FHLBank increased their borrowings by 11%, or $6.5 billion, during August. Astoria FS&L president and chief executive George Engelke Jr. said he suspects that most of the demand for FHLBank borrowings came from banks and thrifts that engage in mortgage banking, as opposed to portfolio lenders like Astoria. He reported that Astoria has seen a "huge pick-up" in mortgage applications in the last three to four weeks. However, it will take another 30-45 days before the loans are closed -- so there is no immediate need for funding, he said.

Two classes of notes issued by Commodore CDO II Ltd., a collateralized debt obligation, have been downgraded by Fitch Ratings.The class C notes were downgraded from AA to A, and the class C notes were downgraded from BBB to BBB-minus and removed from Rating Watch Negative. In addition, the ratings on three other classes in the deal were affirmed. Fitch said the transaction consists of residential mortgage-backed securities, asset-backed securities, commercial MBS, and other CDOs. The rating agency attributed the downgrade to "negative credit migration" and revisions to its methodology for rating CDOs.

Fifty-two classes from nine issues of SACO mortgage pass-through certificates totaling nearly $518 million have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions.Fitch also affirmed the ratings on classes with outstanding balances of approximately $739 million. 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." Fitch can be found on the Web at http://www.fitchratings.com.

Federal and state regulators are urging mortgage servicers to be "proactive" and assist homeowners who are facing a jump in their monthly payments due to an approaching reset of their adjustable-rate mortgage.Servicers should assess the full extent of their authority under pooling and servicing contracts to see if they have the flexibility to contact borrowers in advance of loan resets, according to a joint Statement of Loss Mitigation Strategies for Servicers issued by the regulators. "With declines in housing prices in some areas and tighter credit for subprime loans, it is vital that mortgage servicers work proactively with borrowers facing much higher payments as their interest rates reset," FDIC Chairman Sheila Bair said. "Our work with leading accountants, attorneys, trade groups and market participants has confirmed that servicers of securitized mortgages have the authority under the accounting and tax rules, as well as securitization documents, to proactively help deserving borrowers."

The Markets & Banking business of New York-based Citigroup has purchased the wholesale mortgage origination business and mortgage servicing assets of ACC Capital Holdings, Orange, Calif.Citi acquired an option to buy those businesses in February as part of an agreement to provide working capital to ACH. The wholesale business operated under the name Argent Mortgage. The transaction was announced Aug. 31 and closed the next day. "Exercising our option to acquire the assets from ACH's wholesale origination and servicing business allows Citi to secure valuable and scalable platforms in a market undergoing significant change," said Jeffrey A. Perlowitz, head of global securitized markets in Citi's Fixed Income, Currencies and Commodities unit. "Through this acquisition, we gain important operational and pricing efficiencies and the ability to extend the high lending standards of our existing residential mortgage business from point of origination through securitization and servicing." Citi received $45 million in servicing rights from ACH in the transaction.

Countrywide Financial Corp., is contemplating slashing its work force by 7,000 to 10,000 workers, according to industry officials close to the situation.If the job cuts become reality, it would be one of the largest layoffs in mortgage history -- outside of a bankruptcy filing. (The nation's largest lender employs about 60,000.) The company is also planning to take a multimillion-dollar writedown on its "held for sale" portfolio of mortgages, one source said. A company spokesman would not comment on specifics, but said the company has "always aligned its organization to best serve the needs of its customers and reflect the market and economic conditions in which we operate." He added that, "While as a matter of policy we don't comment on speculation, any changes to the Countrywide organization will reflect our ongoing strategy to align our business to the marketplace. The company's organizational strategy throughout this year has been consistent with that approach." Countrywide can be found online at http://www.countrywide.com.

Class B-4 of Harborview Mortgage Loan Trust Inc. series 2006-3 has been downgraded from BB to B by Fitch Ratings, and class B-3 has been placed on Rating Watch Negative.In addition, Fitch affirmed the ratings on three other classes in the transaction. The rating agency attributed the negative rating actions to a deterioration in the relationship between credit enhancement and loss expectations. The deal is backed by adjustable-rate mortgage loans secured by residential first liens.

Thirty more classes of mortgage-backed securities have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions.Fitch also affirmed the ratings on classes with outstanding balances of approximately $9 billion. The latest downgrades affect the following securities: 13 classes from two issues of Soundview Home Equity Loan Trust asset-backed certificates; nine classes from three issues of Asset Backed Securities Corp. mortgage pass-through certificates; and eight classes from three issues of J.P. Morgan mortgage pass-through certificates. 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."

House prices appreciated by only 0.1% in the second quarter, but rose at a 3.2% rate over the previous four quarters, which was still a 10-year low, according to a housing price index published by the Office of Federal Housing Enterprise Oversight."Prices in the second quarter of 2007 were 3.2% higher than they were in the same quarter of 2006, the lowest annual price change since the 1996-97 period," OFHEO said. OFHEO Director James Lockhart said the second quarter was marked by tighter credit policies, rising foreclosures, and weakening buyer demand. "Significant price declines appear localized in areas with weak economies or where price increases were dramatic during the housing boom," he said. OFHEO collects its pricing data from Fannie Mae and Freddie Mac, and it includes refinancings and home purchase transactions. OFHEO can be found at http://www.ofheo.gov.

Accredited Home Lenders of San Diego -- but for 43% less than it offered back in the spring.According to a statement issued by Accredited, Lone Star is willing to pay $8.50 a share for the subprime lender/servicer, compared with an original price of $15.10 (or $400 million). Based in Dallas, Lone Star had tried to back out of the original deal but was sued by Accredited. The subprime lender's management is encouraging its board to approve the new offer. In trading Friday, Accredited's shares were trading up 40% at almost $9 a share. The lender recently cut staff and stopped funding many new loans as a way to preserve capital. Among subprime lenders, it ranks 18th, according to the Quarterly Data Report. Accredited can be found online at http://www.accredhome.com.