Servicing

Countrywide Financial Corp., Calabasas, Calif., has reported net earnings of $434.0 million ($0.72 per share) for the first quarter, a 37% decline from $683.5 million ($1.10 per share) in the first quarter of 2006 that the company attributed largely to its subprime operations.Mortgage banking revenues from subprime operations plummeted approximately $400 million in the first quarter from those of the fourth quarter, $245 million of the total from production revenues and $155 million from investments, the company reported. Pretax earnings by the company's mortgage production sector overall were off by more than 50% from those of a year earlier, falling from $284 million to $139 million. The loan servicing sector recorded a pretax loss of $69 million, compared with net income of $249 million a year earlier, the company said. "Excluding the impact of subprime conditions and increased credit costs in the quarter, Countrywide's core operations made strong contributions to quarterly earnings," said Angelo R. Mozilo, the company's chairman and chief executive officer. "Our production sector delivered strong volume and margins for both prime first and home equity loans, which accounted for 93% of our total mortgage banking operations." Countrywide can be found online at http://www.countrywide.com.

The ranking members of the House Financial Services Committee have asked the Government Accountability Office to conduct a study into the recent surge of foreclosures and promptly report back to the committee.The request by committee chairman Barney Frank, D-Mass., and Spencer Bachus, R-Ala., directs the investigative and auditing arm of Congress to assess the magnitude of the foreclosure problem as well as its causes and possible solutions. "Developing workable solutions to the current problems in the subprime market is a high priority for members of both Houses and both parties, and our committee will be considering legislation on the subject in the coming months," the April 25 letters says. The congressmen also want the GAO to look at the impact of "exotic" and subprime mortgage products on foreclosures, as well as the securitization of these loans. "It seems clear that the type of mortgages that have been offered to borrowers in recent years is one factor, but there is no reason to conclude that it is the only factor," the letter says. "Moreover, even if the types of mortgages recently being offered are the predominant factor, the question is why they have only now begun to lead to higher foreclosure rates."

Roughly 7% of U.S. homeowners have negative home equity, and the housing industry is currently in the throes of a "deep recession," according to the chief economist for Global Insight Inc., a forecasting firm.But Global Insight's Nariman Behravesh also said Thursday that the subprime mortgage crisis "is now off the front pages, but more firms could go belly up." Speaking at a forecast conference sponsored by the National Association of Home Builders, Mr. Behravesh added that "housing demand is beginning to recover." Even though 7% of mortgages are under water, 60% of homeowners have equity of 30% or more, he said. Outstanding subprime loans account for just 13% to 14% of the total market, according to Global Insight.

Three classes of Putnam Structured Products CDO 2001-1 Ltd., a collateralized debt obligation consisting partly of residential and commercial mortgage-backed securities, have been downgraded by Fitch Ratings.The rating agency also affirmed the ratings on four other classes in the transaction. "In Fitch's modeling, the portfolio is unable to generate sufficient interest proceeds to compensate [for] the costs of the floating-rate liabilities in both rising and flat interest rate scenarios," Fitch said. "This leads to deteriorating performance in the lower part of the capital structure while the senior notes benefit from structural protection features." Fitch said the portfolio backing the CDO consists of RMBS (32.3%), CMBS (13.6%), the debt of real estate investment trusts (23.5%), corporate bonds (16.1%), asset-backed securities (7.4%), and other CDOs (7.1%).

Three classes from two CitiFinancial Mortgage Securities Inc. securitizations have been downgraded by Fitch Ratings.The downgrades were as follows: series 2003-1, class MV-3, from A to BBB-minus, and class MV-4, from BBB-minus to BB-minus; and series 2003-3, class MV-3, from BBB to BB-minus. In addition, 16 tranches from four Citi transactions have been upgraded, and the ratings on 10 classes have been affirmed. The downgrades were attributed to deterioration in the relationship between credit enhancement and loss expectations. The collateral backing the affected classes consists primarily of first-lien subprime residential mortgage loans.

Two classes of mortgage pass-through certificates in Mortgage Asset Securitization Transactions Asset Back Securities Trust deals have been downgraded by Fitch Ratings.Class M-6 of series 2002-OPT1 was downgraded from BBB-minus to BB-minus, and class M-6 of series 2003-WMC2 was downgraded from BBB-minus to BB-plus. Fitch also placed classes M-10 and M-11 of series 2005-NC2 on Rating Watch Negative and affirmed the ratings on 22 classes in three MASTR ABS securitizations. The rating agency attributed the downgrades to deterioration in the relationship between credit enhancement and loss expectations. Fitch said the collateral backing the transactions consists primarily of first- and second-lien fixed- and adjustable-rate subprime mortgage loans.

Four classes of mortgage pass-through certificates in Mortgage Asset Securitization Transactions Second Lien Trust 2005-1 have been downgraded by Fitch Ratings.The downgrades were as follows: class M-6, from BBB-minus to BB-plus; class M-7, from BB-plus to CC; class M-8, from B-minus/DR2 to C/DR6; and class M-9, from CC/DR3 to C/DR6. Class M-7 was also assigned a Distressed Recovery rating of DR4. In addition, the ratings on six other classes in the MASTR transaction were affirmed. The downgrades were attributed to the failure of overcollateralization to reach the target level and to writedowns stemming from rising interest rates and prepayments that have been much faster than expected.

Seventeen classes from six Structured Asset Securities Corp. residential mortgage-backed securitizations have been downgraded by Fitch Ratings.In addition, the Distressed Recovery ratings on two SASCO classes were lowered. Fitch also affirmed the ratings on 59 classes from six SASCO deals. The downgrades were attributed to a deterioration in the relationship between credit enhancement and loss expectations. The pools consist of conventional, fixed-rate, fully amortizing and balloon, second-lien residential mortgage loans, Fitch said.

Twenty-nine classes from 10 Credit Suisse First Boston Home Equity Asset Trust transactions have been downgraded by Fitch Ratings.In addition, the ratings on 97 classes from 18 CSFB HEAT transactions have been affirmed. The downgrades were attributed to a deterioration in the relationship between credit enhancement and loss expectations. The rating agency said the collateral backing the transactions consists of first- and second-lien fixed- and adjustable-rate subprime mortgage loans. The rating agency can be found online at http://www.fitchratings.com.

Foreclosures are continuing to "escalate at a record-setting pace" in Massachusetts, according to ForeclosuresMass, a provider of foreclosure data based in Framingham, Mass.The company said 6,624 foreclosures were recorded in the first quarter, up 76% from the level of a year earlier. "It is clear that tens of thousands of Massachusetts residents are trapped in properties they can no longer afford," said Jeremy Shapiro, president and co-founder of ForeclosuresMass. "They can't keep up with mortgage payments that are too high, and the downward pressure on statewide housing prices means that they can't sell the home to pay off their debts. With no substantial market turnaround in sight, we expect Massachusetts foreclosure rates to continue at record or near-record levels for months to come." The company can be found online at http://www.foreclosuresmass.com.