Servicing

Nationwide, the number of new foreclosure filings totaled 130,786 in February, down 4% from January, according to RealtyTrac.That translates into a national foreclosure rate of one filing for every 884 households. The foreclosure rate in February of this year was up 12% from February of 2006. RealtyTrac's foreclosure yardstick includes default notices, auction-sale notices and bank repossessions. But despite the month-over month improvement, 2007 still could shape up to be a troublesome year. "Based on our numbers for the first two months of 2007, foreclosure activity is running at a rate that would project to a 33% increase over 2006," said James Saccacio, CEO of RealtyTrac. The states with the highest foreclosure rates in February were Nevada, Colorado and Florida. The company can be found online at www.realtytrac.com

On Thursday morning Morgan Stanley will hold a public auction of $2.48 billion in mortgages originated by ailing subprime giant New Century Financial Corp.A source familiar with the matter said Morgan believes it has the legal right to the loans because NCFC is in default on its warehouse covenants. (Morgan is one of several warehouse lenders that recently informed NCFC that they no longer will fund its production.) Morgan is auctioning off the loans "as is" with no representations and warranties. Morgan had originally committed $2.5 billion in warehouse lines to NCFC. The source said Morgan is holding a "clean auction" in order to establish a value for the mortgages in anticipation of a "pre-packaged" bankruptcy sale of NCFC. Late last week NCFC said it will realize a $46 million loss on a deal struck with Barclays Bank PLC to settle $900 million in buyback/financing claims. NCFC, which is no longer funding loans, has been delisted by the New York Stock Exchange. It is the subject of criminal and civil investigations.

Capital Trust Inc., a New York-based real estate investment trust, has announced the closing of a $50 million senior unsecured revolving credit facility with WestLB AG.The REIT said the facility will bear interest at 1.50% above the London interbank offered rate. The company can be found on the Web at http://www.capitaltrust.com.

Freddie Mac has disclosed that it held $124 billion of securities backed by subprime home loans at the end of last year, though virtually all were triple-A rated tranches from mortgage securities deals.That accounted for about 18% of Freddie Mac's $704 billion retained portfolio. In total, nonagency mortgage-backed securities accounted for $238 billion of the retained portfolio, consisting of both prime and subprime credits. Nearly all -- 96% -- of the nonagency mortgage securities were rated triple-A, Freddie Mac said. The government-sponsored enterprise said that by most measures, its credit risk exposure remains low. The guarantee portfolio had a loan-to-value ratio of 57% at the end of 2006. Fixed-rate loans constituted 82% of the company's guarantee portfolio. Freddie can be found online at http://www.freddiemac.com.

Mortgage secondary market giant Freddie Mac lost $480 million (under generally accepted accounting principles) in the fourth quarter as losses in the market value of derivatives and the company's credit guarantee portfolio offset interest income and guarantee fee income.For the full year, Freddie Mac earned net income of $2.2 billion, up from $2.1 billion in 2005. Freddie attributed the fourth-quarter loss to a widening of option-adjusted spreads and to credit deterioration on its guaranteed loan obligation. The company's "fair-value" results, designed to strip out the volatility associated with mark-to-market changes in the value of derivatives, also weakened in the fourth quarter, with the value of net assets attributable to common shareholders declining by $200 million. However, the company said that fair value increased by $2.5 billion for the year as a whole. In a conference call with investors and analysts, chairman and chief executive Richard Syron noted that in 2006, both net income and fair value before capital transactions exceeded $2 billion, attributing the increase to growth in Freddie Mac's credit guarantee business. Investors reacted calmly to the news, with Freddie's share price edging up slightly in the hours after the data were released.

New Century Financial Corp., says it will realize a $46 million loss on a deal struck with Barclays Bank PLC to settle $900 million in buyback/financing claims.In a filing with the Securities and Exchange Commission, New Century said it will be relieved of an obligation to repurchase $900 million in loans and Barclays will accept the mortgages "as is." However, if New Century strikes a similar deal with better terms with other warehouse providers/investors, the subprime lender will compensate Barclays by offering the London bank the same terms. As part of the deal, the Irvine-based New Century has agreed to transfer the servicing of the mortgages to a third party approved by Barclays. New Century, which is no longer funding loans, has been delisted by the New York Stock Exchange. Investment banking sources told MortgageWire that the company is working on a pre-packaged bankruptcy and sale agreement but is in the very early stages of negotiations. (See the March 26 issue of National Mortgage News for more details.)

Four classes from four Citigroup Mortgage Loan Trust transactions have been placed on Rating Watch Negative by Fitch Ratings.The affected classes were as follows: class III-B5 of series 2005-5; class 2-B5 of series 2006-AR5; class M5 of series 2006-WF1; and class M-5 of series 2006-WF2. Fitch also affirmed the ratings on 25 other classes in the four transactions. The negative rating actions reflect deterioration in the relationship between credit enhancement and expected losses, the rating agency said. The loans consist of fixed-and adjustable-rate mortgages extended to alternative-A borrowers and secured by first liens, primarily on one- to four-family residential properties.

Increased litigation is likely in the subprime mortgage arena, according to the head of the mortgage and lending litigation practice of Stradley Ronon Stevens & Young LLP, Philadelphia.Stradley Ronon cited a recent finding in a Credit Suisse report that nearly 25% of subprime mortgage deals issued last year had a delinquency rate of at least 8% as of December. "With rising default rates among subprime borrowers, lenders will be faced with the potential for increased litigation and an [increasingly] hostile regulatory environment," said Andrew K. Stutzman, the law firm's mortgage and lending litigation chair. "I think borrowers will look for any avenue they can to avoid bankruptcy or foreclosure, and some will choose litigation as a way to keep their house and credit intact. As I see it, mortgage companies will not sit idly by and settle these suits, but will defend them vigorously."

Servicers, community groups, investors, and investment banks should work together to help subprime borrowers who can't afford their current loans and can't find new financing, a major subprime servicer has told a congressional panel.Ocwen Financial Corp. vice president William Rinehart testified that the recent underwriting and product changes in the subprime market will be beneficial and will reduce early defaults on new loans. However, the changes dictated by investors and regulators will make it more difficult for existing subprime borrowers to "fix their current problems," he warned. "Ocwen and other servicers, [community groups], investors and investment banks must work together to help these homeowners already facing difficulties," Mr. Rinehart said. Ocwen, based in West Palm Beach, Fla., is the sixth-largest subprime servicer, according to NMN's Quarterly Data Report.

Congress should examine the causes of foreclosures before rushing to judgment and prescribing new restrictions on lenders that could "unfairly curtail access to credit," according to the president of the National Association of Mortgage Brokers.The NAMB has been pushing for the Government Accountability Office to conduct a study on foreclosures, and the chairman of the House Financial Services Committee, Rep. Barney Frank, D-Mass., is expected to submit a request to the GAO. "No one questions the personal heartbreak of foreclosure or the serious effect this is having on America's cities," NAMB president Harry Dinham told a House Oversight and Government Reform subcommittee on March 21. However, there are a number of possible factors -- bankruptcy reform, credit card debt, low savings rates, and decreasing home values, as well as illness and other life events -- that could explain recent increases in foreclosures, he said.