Servicing

Wells Fargo & Co., San Francisco, has reported record net income of $2.28 billion ($0.67 per share) for the second quarter, up from $2.09 billion ($0.61 per share) a year earlier.Wells Fargo's home mortgage business recorded originations totaling $80 billion in the second quarter, up from $68 billion in the first quarter but little changed from those of a year earlier. However, origination growth and higher net gains on origination/sale activities were offset by a net loss of $225 million related to the effect of higher interest rates on the valuation of mortgage servicing rights (net of hedging costs), the company said. "As a result of our responsible lending and risk management practices, we do not face many of the issues others do in the mortgage industry," said Mark Oman, senior executive vice president in the Wells Home and Consumer Finance Group. "First, we do not retain any credit interest in any prime and nonprime securitizations. Second, we do not originate any negative-amortizing mortgages, including option adjustable-rate mortgages. Finally, we do not portfolio any nonprime no-documentation mortgages or nonprime low-documentation mortgages." The company can be found online at http://www.wellsfargo.com.

The Federal Reserve Board should impose tough restrictions on prepayment penalties in the subprime market, according to an FDIC advisory committee, as a way to prevent mortgage brokers from "steering" borrowers into higher interest-rate loans."Lenders will not pay [an excessive] yield spread premium, which is the incentive structure for steering, unless they have a prepayment penalty," Martin Eakes, chief executive of Self-Help Credit Union, told his fellow members on the advisory board. The Federal Deposit Insurance Corp. advisory committee agreed to send a letter to the Fed urging it to restrict prepayment penalties at the end of all-day discussion on subprime lending problems. In the subprime market, prepayment penalties can equal six months' worth of interest payments. Under the recommendation, lenders could only charge a penalty that recovers the administrative costs of setting up a new loan. The Fed is considering changes to its Home Ownership and Equity Protection Act regulations to ban certain subprime lending practices that it deems unfair or deceptive.

DBRS, New York, has downgraded 94 classes of residential mortgage-backed securities from 62 RMBS transactions.DBRS also placed 15 other classes under review with negative implications, and upgraded 17 classes. The negative rating actions were based on an increase in the pipeline of 90-day-plus delinquencies relative to the available credit enhancement, the rating agency said.

Ginnie Mae has declared R&G Mortgage Corp. in default under its guaranty agreements as a result of the previously announced withdrawal of R&G's status as a HUD/FHA-approved lender by the Department of Housing and Urban Development, according to R&G Financial Corp., the company's San Juan, Puerto Rico-based parent company.The notification by Ginnie Mae said R&G Mortgage will lose its authority to act as a Ginnie Mae issuer and a servicer of Ginnie mortgage pools within 30 days, and that it may not issue additional Ginnie Mae-guaranteed mortgage-backed securities unless approved by Ginnie Mae. (R&G reported recently that it is currently unable to originate loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs because of the company's failure to submit timely audited financial statements.) The parent company said R&G Mortgage would file an appeal with HUD, and that its subsidiary R-G Premier Bank would apply to be licensed as a HUD/FHA-approved lender. R&G can be found on the Web at http://www.rgonline.com.

Capital Markets Cooperative, Ponte Vedra Beach, Fla., has announced an alliance with Fannie Mae aimed at providing CMC members greater benefits when selling loans to the secondary market.CMC members will now have access to Fannie Mae's Desktop Underwriter platform in addition to advantageous pricing, increased flexibility in methods of execution, and a variety of loan products and value-added services, CMC said. "[O]ur clients now have greater flexibility and receive better pricing on the loans they sell upstream to Fannie Mae," said CMC president Tom Millon. "They'll also pay lower fees to use Desktop Underwriter." CMC, a provider of services aimed at reducing risk and maximizing profits for mortgage bankers, can be found online at http://www.capmkts.org, and Fannie Mae can be found at http://www.fanniemae.com.

Senate appropriators have approved a Department of Housing and Urban Development spending bill that includes $100 million for foreclosure prevention counseling.Sen. Charles E. Schumer, D-N.Y., said the $100 million will go to nonprofit counseling agencies that work with borrowers who are trapped in unaffordable subprime loans. "The current situation in the subprime mortgage market is untenable," Sen. Schumer said. "The more we do to help solve it, the fewer families will be faced with losing their homes because of bad loans and dubious mortgage brokers." Sen. Schumer and two fellow Democrats -- Sens. Robert P. Casey Jr. (Pa.) and Sherrod Brown (Ohio) -- have co-sponsored a bill that would provide $300 million for foreclosure prevention counseling and clamp down on certain kinds of subprime lending. The HUD appropriations bill also increases the loan limit on Federal Housing Administration-insured multifamily mortgages and suspends for one year a cap on the number of reverse mortgages the FHA can insure.

Many subprime borrowers who stretched their financial resources to buy a home are running into trouble and creating a new trend in foreclosures, according to a former Federal Housing Administration commissioner.Pockets of foreclosures are developing in the middle of relatively new subdivisions, former Housing Commissioner William Apgar told a Federal Deposit Insurance Corp. advisory committee. The Harvard University lecturer noted that builders "push-marketed" subprime loans with teaser rates as "affordability" products to keep home sales going and to clear their inventories. "Major homebuilders are some of the largest holders of foreclosed properties in Texas," Mr. Apgar said. He also said that defaults on these subprime affordability mortgages are "going to ultimately lead to a ramp-up" in foreclosures. Mr. Apgar is a lecturer at Harvard's Kennedy School of Economics.

Three certificates from two IndyMac trusts have been downgraded by Moody's Investors Service.The downgrades were as follows: IndyMac Home Equity Mortgage Loan Asset-Backed Trust, series SPMD 2000-C, class MV-1, from A3 to Baa3, and class MV-2, from B2 to Caa2; and IndyMac ARM Trust mortgage pass-through certificates, series 2001-H1, class B-2, from Baa1 to Ba1. The downgrades were "based on the analysis of the credit enhancement provided by subordination, overcollateralization, and excess spread relative to expected losses," Moody's said. Collateral in the 2000 deal consists of first-lien adjustable-rate subprime mortgages, while the 2001 deal is backed by first-lien, alternative-A mortgages.

Thirty-three classes from 19 collateralized debt obligations backed partly by subprime residential mortgage-backed securities have been placed on Rating Watch Negative by Fitch Ratings.The CDO rating actions "are a direct result of collateral deterioration, specifically subprime RMBS, whereby significant portions of the portfolio have been downgraded, placed on RWN or 'Under Analysis' by either Fitch, Moody's, or S&P in recent weeks," Fitch said. The rating agency said it also factored in exposure to 2006 vintage closed-end second-lien RMBS "regardless of any rating activity, based on the severe underperformance of this subsector."

Fitch Ratings has announced that 170 subprime residential mortgage-backed securities transactions have been placed "Under Analysis," which indicates that rating actions on the deals will be taken over the next few weeks.Fitch said the latest under-analysis list reflects June performance results that show "continued negative trends, particularly for the late 2005 and 2006 subprime vintages," as well as changes to Fitch's subprime loss forecasting assumptions based on the new data. "These changes were made to better capture the deteriorating performance of pools from 2006 and late 2005 in the face of continued poor loan performance and home price weakness," the rating agency said. Fitch can be found on the Web at http://www.fitchratings.com.