Servicing

NovaStar Financial Inc., Kansas City, Mo., has announced a one-for-four reverse stock split of its outstanding common stock.Immediately after the reverse split, NovaStar had approximately 9.47 million shares of stock outstanding, the company reported. The stock began trading July 30 under a new CUSIP number: 669947889. NovaStar can be found on the Web at http://www.novastarmortgage.com.

Foreclosure filings totaled 925,986 in the first half, up more than 30% from the total recorded in the previous six months and up more than 55% from that of the first half of 2006, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif.In its Midyear 2007 U.S. Foreclosure Market Report, RealtyTrac indicates that the foreclosure filings -- default notices, auction sale notices, and bank repossessions -- were reported on 573,397 properties nationwide in the first half. The report also shows a foreclosure rate of one foreclosure filing for every 134 U.S. households. RealtyTrac can be found on the Web at http://www.realtytrac.com.

The default rate on subprime mortgage loans hit 12.4% in May, up 41 basis points from the rate recorded in April, and the foreclosure rate climbed to 5%, according to a Friedman Billings Ramsey report.FBR managing director Michael Youngblood said he expects the subprime default rate to continue to drift upward to 14.45% by April 2008. The default rate on subprime loans stood at 5.7% in May 2006 and the foreclosure rate was 2.73%. The report by the Alexandria, Va.-based investment banking firm also shows that the default rate on alternative-A loans rose to 2.69% in May, up 21 bps from that of the previous month. (The default rate includes loans 90 days or more past due, in foreclosure, and real estate owned.) FBR can be found online at http://www.fbr.com.

HSBC Holdings, in a new earnings statement, says its U.S. mortgage business suffered writedowns of $760 million in the first half.But the bank -- which earlier this year exited the subprime correspondent market -- said the $760 million in mortgage-related writedowns is not significant because it had already booked reserves of $715 million. "As a result, our impairment allowances remained largely unchanged at $2.1 billion," it said. The London-based bank is the parent of HSBC Finance, Prospect Heights, Ill., the nation's second-largest subprime lender. HSBC said it has modified 5,000 loans as part of a "contact" program geared toward 19,000 troubled borrowers.

Fannie Mae issued $53.1 billion of mortgage-backed securities in June, the highest level since it issued $61 billion in September 2005, according to the government-sponsored enterprise.Fannie's monthly summary also reported that $47.2 billion of the $122.8 billion of nonagency mortgage securities in its portfolio as of the end of June were backed by subprime loans. Of the $47.2 billion, approximately $46.9 billion was rated triple-A (or the equivalent) by at least two nationally recognized rating agencies, and none of the subprime-backed MBS had been downgraded, Fannie Mae said. The GSE's gross mortgage portfolio grew to $722.5 billion in June, up from $718.3 billion in May but down from $730.9 billion a year earlier. Fannie Mae can be found online at http://www.fanniemae.com.

Opteum Inc., a real estate investment trust based in Vero Beach, Fla., has announced a sale by its majority-owned subsidiary Orchid Island TRS LLC of substantially all its remaining mortgage servicing portfolio.The terms of the agreement were not disclosed. The aggregate unpaid principal balance of the loans underlying the mortgage servicing rights sold was approximately $2.97 billion as of June 30, Opteum said. The proceeds of the sale will be used to repay debt currently secured by Orchid Island's mortgage servicing portfolio and for other corporate purposes, Opteum said. The company can be found on the Web at http://www.opteum.com.

Four classes of Residential Accredit Loan Inc. mortgage pass-through certificates have been downgraded by Fitch Ratings.The downgrades were as follows: series 2005-QS5, class B-1, from BB to B-plus, and class B-2, from B to C/DR4; and series 2005-QS17, class B-1, from BB to B-plus, and class B-2, from B to C/DR4. In addition, Fitch placed nine classes on Rating Watch Negative and affirmed the ratings on 66 classes from 13 RALI securitizations. The negative rating actions were due to a deteriorating relationship between credit enhancement and loss expectations, Fitch said. The collateral for the deals consists primarily of 15- and 30-year fixed-rate mortgage loans extended to alternative-A borrowers, the rating agency said. Fitch can be found online at http://www.fitchratings.com.

The Securities and Exchange Commission has ruled that servicers of mortgage-backed securities can take the lead in restructuring or modifying subprime loans that are headed for default without running into adverse accounting consequences.The agency's professional staff believe that "modifications undertaken when loan default is reasonably foreseeable should be consistent with the nature of modification activities undertaken that would be permitted if a default had occurred," SEC Chairman Christopher Cox says in a letter to House Finance Services Committee Chairman Barney Frank, D-Mass. The SEC letter also clarifies that such loan modifications would not trigger a Financial Accounting Standard 140 requirement and force the lender to repurchase the loan. Rep. Frank thanked the SEC chairman for such a quick response to the issue. "This is a constructive approach that will allow mortgage lenders to provide help at the earliest possible moment to people who might otherwise be trapped in bad loans or forced into foreclosure," the committee chairman said. A few months ago, the Mortgage Bankers Association circulated a position paper concluding that servicers have a lot of latitude in helping borrowers avoid foreclosure. MBA senior director Alison Utermohlen said the SEC letter is good news. "We thought we were on firm ground," she said.

The chief economist of Moody's Economy.com says he expects mortgage credit quality to "erode measurably" between now and the summer of 2008.Speaking with reporters on a conference call, prominent housing economist Mark Zandi predicted that the industry will see slightly more than 1.2 million mortgage defaults this year and 1.3 million next year. By contrast, about 800,000 mortgages defaulted in 2005. Mr. Zandi said those defaults will lead to about $125 billion of losses for investors in mortgage-backed securities, an estimate significantly higher than Federal Reserve Board Chairman Ben Bernanke's recent prediction that the subprime lending crisis could cause $50 billion to $100 billion in losses.

Four certificates from two Finance America Mortgage Loan Trust securitizations issued in 2004 have been downgraded by Moody's Investors Service.The downgrades were as follows: series 2004-1, class M6, from A3 to Baa2, class M7, from Baa1 to Ba2, and class M8, from Baa2 to B3; and series 2004-2, class M-9, from Baa3 to Ba2. The downgrades were attributed to credit enhancement levels that may be low given the projected losses. "Both transactions have stepped down, causing the subordinated certificates to start receiving their share of unscheduled prepayments," Moody's reported. "In addition, the severity of loss on liquidated loans has begun to increase." The transactions are backed primarily by first-lien adjustable- and fixed-rate subprime mortgage loans.