Servicing

Thrift institutions originated $173.3 billion in single-family loans in the second quarter, up 17% from the same period a year ago, and posted strong profits despite an increase in troubled assets.Noncurrent loans and foreclosures stood at 0.95% of total assets as of June 30 -- the highest level since 1997, according to the Office of Thrift Supervision. Single-family loans 90-days or more past due have risen from 76 basis points at the start of the year to 1.16%. OTS officials expect delinquencies to increase but they noted thrifts are increasing their reserves faster than charge-offs are rising. Meanwhile, refinancings comprised 48% of thrift originations as adjustable-rate mortgage holders continued to convert into fixed-rate loans. Thrifts generally like to sell fixed-rate loans and OTS officials noted there is a "chance" they might have problems selling loans due to current problems in the credit markets. However, OTS senior deputy director Scott Polakoff noted that thrift institutions are well capitalized and they originate high quality mortgages. "Our institutions are well positioned to weather this stressed economic time and come out very successful," Mr. Polakoff told reporters.

Hanover Capital Mortgage Holdings Inc., Edison, NJ, has taken an $11.4 million net loss for the second quarter and decided not to declare a dividend, primarily due to market uncertainties and their effect on the company’s subordinate mortgage-backed securities.HCM’s second quarter loss is down from net income of $900,000 during the same period in 2006. The company in the second quarter of this year suffered $11.8 million in impairment expense for other than temporary declines in the fair value of its subordinate MBS and a reduction in gains from sales of its subordinate MBS partially offset by an increase in net interest income on its subordinate MBS. It plans to "revisit the dividend issue" in the third quarter. HCM can be found online at http://www.hanovercapitalholdings.com.

Friedman, Billings, Ramsey Group Inc., Arlington, Va., has sold about $4.95 billion of agency mortgage-backed securities at a loss of approximately $57 million to reduce leverage and "better position" itself in the uncertain asset-backed financing market.The loss includes $17 million that was included in accumulated other comprehensive income as of June 30 as a reduction in book value. The sale leaves FBR with a remaining agency and mortgage-backed securities portfolio of approximately $1.2 billion. FBR can be found on the Web at http://www.fbr.com.

MGIC Investment Corp., Milwaukee, has filed suit in the Federal District Court in Milwaukee looking for a court order to have the Radian Group Inc., Philadelphia, "provide MGIC with certain information needed by MGIC's management" to complete its analysis on whether it should pull out of the merger transaction.Back on Aug. 7, MGIC said it was not obligated to complete the merger because of the problems at C-Bass, a joint venture owned by both companies. At that time MGIC said it was looking to complete its analysis by the week of Aug. 13. In a statement, Radian said it was "disappointed that MGIC filed a lawsuit." It said it never consented to MGIC's timeline and "is compelled to carefully assess the proprietary nature of the subsequent information requests to ensure that Radian does not provide MGIC with an unfair competitive advantage" if the deal does not take place.

Lone Star Fund V (U.S.) LP, Dallas, denies it is in breach of its obligations to purchase Accredited Home Lenders Holding Co., San Diego.The company has made a formal legal filing in response to Accredited's lawsuit of Aug. 13 seeking to force Lone Star to complete the tender offer for the nonprime wholesaler. In its counterclaim, Lone Star said Accredited has suffered a material adverse effect and has materially breached other obligations and that Lone Star is entitled to terminate the merger agreement. Lone Star claims Accredited's only contractual remedy is the payment of a reverse break-up fee of $12 million. Meanwhile Accredited has agreed to trade $1 billion of loans under a 90-day purchase agreement with an unnamed investor at an advance rate comparable to the advance rates it receives from its warehouse lenders. The initial settlement of an approximately $500 million pool occurred on Aug. 17. Accredited at its discretion can repurchase of all the traded loans through mid-November 2007 at a premium to the advance rate. "If the market improves to a rational level, our intention is to repurchase these quality loans by mid-November and sell or securitize them," said Accredited chairman and chief executive James Konrath. The deal takes away Accredited's exposure to margin calls on these loans.

There is "no quick solution" to the problems in the credit markets, Treasury secretary Henry Paulson said, but he noted that the Bush administration is considering ways to help homeowners who are facing foreclosure."We are really focused on the homeowners who are in danger of losing their homes and thinking about policy options to address that segment of the market," secretary Paulson said during an interview on CNBC-TV. The secretary did not reveal any proposals for homeowner assistance. However, it is known that Department of Housing and Urban Development officials are working on a proposal that would allow delinquent subprime borrowers to refinance into a Federal Housing Administration-insured mortgage. Congress is on track to provide $100 million in additional funding for foreclosure prevention counseling and some senators want to provide funding to bolster state-sponsored foreclosure rescue funds. The Treasury secretary said it will "take a while" to workout all the excesses and bad lending practices of the past few years. But he noted that he is seeing signs of more liquidity in the jumbo nonconforming market.

July foreclosure filings -- including default notices, auction sale notices and bank repossession -- rose 93% from July 2006 and were up 9% from June, according to the latest U.S. Foreclosure Market Report from RealtyTrac."While 43 states experienced year-over-year increases in foreclosure activity, just five states -- California, Florida, Michigan, Ohio and Georgia -- accounted for more than half of the nation’s total foreclosure filings," said James J. Saccacio, chief executive officer of RealtyTrac. A few states actually reported declining foreclosure activity on a year-over-year basis. Mr. Saccacio said some of these states could be benefiting from increased interest from real estate investors who have pulled out of more volatile markets.

Fitch Ratings has downgraded certain notes from at least three collateralized debt obligation transactions: Independence V CDO Ltd., Northlake CDO I, and Dunloe 2005-1 Ltd.The rating agency downgraded: all of Dunloe 2005-1's notes; the class C notes and series 1 and 2 preference shares of Independence V and the class II and III notes of Northlake CDO I. Fitch Ratings can be found online at http://www.fitchratings.com.

Standard & Poor's latest assessment of first-lien alternative-A credit residential mortgage-backed securities issued between October 2005 and December 2006 leaves 158 classes downgraded and affirms/removes 82 Alt-A classes from CreditWatch negative.The rating agency said the move resolves 237 outstanding CreditWatch actions in this portion of the market and also includes downgrades on three classes from Bear Stearns Alt A Trust 2005-10 that were not previously on CreditWatch. S&P can be found on the Web at http://www.standardandpoors.com.

KKR Financial Holdings LLC has agreed to sell 16 million of its common shares to seven unaffiliated institutional investors in separately negotiated transactions and its board of directors has approved a public rights offering of up to $270.0 million to its common shareholders.The investors in the 16 million shares are certain funds managed by Farallon Capital Management, L.L.C., Fir Tree Partners, JGE Capital Management, Marsico Capital Management, Morgan Stanley, Oak Hill Advisors, and Sageview Capital LP, according to the company. The proceeds from the 16 million shares total $230.4 million, KKR Financial Holdings said. The publicly traded affiliate of buyout firm Kohlberg, Kravitz, Roberts & Co. had previously said after suffering damage from the market's credit crunch that it no longer intends to invest in residential home loan assets and would dispose of its portfolio either through runoff or through a "strategic alternative," which may include a sale of the common stock of its real estate investment trust subsidiary. KKR can be found online at http://www.kkrfinancial.com.