Servicing

H&R Block says it has reduced by $29.2 million the carrying value of "residual interests" in its Option One Mortgage Corp. unit due to "volatility in the mortgage market."The tax services giant said it will provide an update on Option One's sale by the end of the month. The announcement came late Tuesday. Because of the hit on Option One, Block restated its fiscal third-quarter earnings downward by $15.5 million (after tax), resulting in a $60.3 million loss in the period. The Irvine, Calif.-based Option One lost $69.7 million in its most recent quarter (ending Jan. 31), reflecting a large increase in loan-loss reserves. Option One's earnings are reported as part of H&R Block's. According to the Quarterly Data Report, Option One ranked seventh among subprime funders in the fourth quarter, originating $6 billion, a 38% decline from the volume in the fourth quarter of 2005.

Some 700,000 homes funded by subprime mortgages could return to the market in 2008 and 2009, according to an upcoming report by Lehman Brothers.Lehman economist Michelle Meyer told MortgageWire that many of the homes in question were purchased in 2005 and 2006 using stated-income, 80/20 loan combinations and no-money-down subprime mortgages. She could not offer a geographic breakdown, but said her impression is that many of the homes are in California, Florida, and Michigan. Currently, some 4 million homes are on the market. Lehman said it expects the subprime crisis to return 300,000 homes to the market in 2008 and 400,000 in 2009. She expects "fewer" to return this year. The Lehman report will be released March 16.

OceanFirst Financial Corp., Toms River, N.J., will revise earnings for 2006 because of early payment defaults at its subprime mortgage affiliate, Columbia Home Loans.On certain loans, Columbia was funding 100% of the purchase price to subprime borrowers. The Jersey shore, where OFFC funds mortgages, has experienced incredible home price appreciation the past few years. In a statement issued Monday, the federally chartered savings bank said it is evaluating how much in reserves it should set aside for EPDs. As MortgageWire went to press, no dollar amount had been mentioned. In trading, its stock fell 5% on Monday.

The New York Stock Exchange has informed ECC Capital Corp., a real estate investment trust headquartered in Irvine, Calif., that trading in the company's common stock will be suspended and the exchange will take action to delist it prior to the market's opening on March 15.On March 1, NYSE warned ECC that it had fallen below the exchange's continued listing standard related to minimum share price. NYSE requires firms to have a minimum average closing price of $1 per share during a 30-day period. ECC said it was in contact with NYSE Regulation Inc. (the Big Board's regulatory unit) regarding the noncompliance issue but was unsuccessful in its efforts to avoid suspension and delisting. ECC Capital is considering appealing the latest ruling. When the stock is suspended, ECC Capital expects it to be quoted on the OTC Bulletin Board. ECC sold its mortgage production unit in February and now exists as the holder of a portfolio of mortgage investments.

The New York Stock Exchange on Tuesday halted trading in the common and preferred stock of ailing subprime giant, New Century Financial Corp., Irvine, Calif. Investment banking sources told MortgageWire that they expect the lender to file for bankruptcy protection shortly. The non-depository REIT is the subject of a criminal probe into its accounting and recently disclosed that the Securities and Exchange Commission is now investigating the company. Late last week most of its warehouse lenders stopped financing the company. It has $40 billion in servicing rights on its books.

Countrywide Financial Corp., the nation's eighth largest subprime table-funder, has cut 108 jobs in its wholesale subprime division, citing a need to align the lender's "workforce with the recent changes in the mortgage market."The company declined to comment further and would not disclose how many of the jobs eliminated belong to account executives. Last week the Calabasas-based Countrywide disclosed that 19% of its $119 billion subprime servicing portfolio was in some stage of delinquency. According to the Quarterly Data Report, CFC ranks first among all subprime servicers, and third among lenders.

Accredited Home Lenders, the nation's 12th largest subprime funder, said it has been hit with millions of dollars in margin calls and is now exploring "various strategic options."As MortgageWire went to press, its stock had been decimated on the news, plummeting 54% to a new 52-week low: $5.19. Its 52-week high is $60. In a statement, the San Diego-based non-depository said it has paid $190 million in margin calls since January to satisfy its warehouse lenders. Meanwhile, the company also is seeking waivers on its warehouse covenants. "There can be no assurance that the company will be successful in receiving any of the acquired waivers," says an Accredited statement. The lender is now in the process of cutting costs and laying off workers. Among subprime servicers, it ranks 23rd, according to the Quarterly Data Report.

At the end of 2006, the percentage of home loans that were at least 30 days overdue rose to 4.95%, up from 4.67% at the end of the third quarter, according to the Mortgage Bankers Association's quarterly delinquency survey.The foreclosure rate also rose by 14 basis points, with 1.19% of all loans outstanding being at some point in the foreclosure process. The number of loans entering the foreclosure process rose to a record high of 0.54%, up eight basis points from the third quarter. Delinquencies rose across the board, but the steepest rise in late payments was seen in the subprime and FHA loan categories. The FHA delinquency rate reached a record high in the fourth quarter of 13.46%, up from 12.80% in the third quarter, and 13.33% of subprime loans were overdue, up from 12.56%. In addition, the MBA said that the delinquency rate on subprime adjustable-rate mortgages jumped by 122 basis points to 14.44%. MBA chief economist Doug Duncan said that given the MBA's forecast of "below-trend economic growth and a slowly recovering housing market," the MBA expects delinquency and foreclosure rates to level off toward the end of 2007.

A trio of real estate investment trusts were profiled in the Zacks Growth and Income Profit Track release for March 9.This strategy of Zacks Investment Research Inc., Chicago, looks for stocks with unusually high dividend yields. American Home Mortgage Investment Corp., Melville, N.Y., and the only residential mortgage lender of the three, has a current dividend yield of 16.60%. Crystal River Capital Inc., New York, has a dividend yield of 10.56%, and Deerfield Triarc Capital Corp., Chicago, has a dividend yield of 11.25%.

Moody's Investors Service has placed on review for possible downgrade two classes of certificates from two subprime/home equity Aegis mortgage securitizations, one from a deal issued in 2003 and another from a deal issued in 2004.Specifically, the tranches being reviewed are class B of Aegis Asset Backed Securities Trust 2003-2, which currently has a Baa2 rating; and class B3 of Aegis Asset Backed Securities Trust 2004-1, which currently has a Baa3 rating. "Credit enhancement available to the two Aegis deals has declined due to losses and stepdown, and is expected to decline further due to continued losses," Moody's said. Both deals are backed by subprime credit fixed and adjustable rate collateral, as well as small percentages of second lien mortgages, according to the rating agency.