Servicing

Countrywide Financial Corp., Calabasas, Calif., has reported slightly lower fourth-quarter earnings than in the fourth quarter of last year, but also revealed a huge jump in accumulated negative amortization on its payment-option ARM portfolio.According to the lender's earnings statement, it holds $32.7 billion in option adjustable-rate mortgages on the balance sheet of its bank, a 23% gain from last year. But its option ARMs have accumulated negative amortization of $653 million -- a stunning increase of 782% over 12 months. Countrywide earned $622 million in the fourth quarter (down 3%), but had record earnings of $2.67 billion for the year. It funded $124 billion in the fourth quarter (mostly residential), an 8% drop from that of the fourth quarter of 2005. Acquisitions by its capital markets conduit fell 69%, to $2.7 billion. Countrywide now services $1.298 trillion in loans, a 17% increase from a year ago. The company can be found online at http://www.countrywide.com.

Class M-11 of J.P. Morgan Mortgage Acquisition Corp. asset-backed pass-through certificates, series 2005-FRE1, has been placed on Rating Watch Negative by Fitch Ratings.Fitch also affirmed the ratings on 18 other classes in the transaction. The negative rating action was attributed to "early trends in the relationship between serious delinquency and credit enhancement." The collateral pool consists of fixed- and adjustable-rate subprime mortgage loans originated by Fremont Investment and Loan. Fitch can be found online at http://www.fitchratings.com.

Clayton Holdings, Shelton, Conn., has announced the introduction of fraud detection services designed to protect conduits, Wall Street issuers, and holders of mortgage-backed securities from losses due to origination fraud and breaches of representations and warranties.Clayton said the new services draw upon its "extensive" due diligence and credit risk surveillance experience. They include: high-risk loan identification; expanded fraud reviews; put-back reviews; and trend analysis. "We're drawing on the breadth and depth of our data, experience, and technology to spot issues prior to securitization, and we have the analytics and surveillance tools to identify exceptions that, when cured, enhance bond performance," said Keith Johnson, Clayton's president and chief operating officer. "Our new fraud services not only reduce fraud and early payment default exposure, but increase client efficiency and enhance understanding of this problem." The company can be found online at http://www.clayton.com.

A recent report by a consumer advocacy group predicting a wave of foreclosures on 2/28 adjustable-rate mortgages is "grossly inaccurate," according to the Coalition for Fair & Affordable Lending, a subprime lending group."Traditional hybrid ARMs are neither a significant problem nor a disaster waiting to happen as some have claimed," CFAL executive director Wright Andrews says in a letter to federal and state banking regulators. The CFAL argues that foreclosure rates on subprime ARMs will be dramatically less than the 20% predicted in the Center for Responsible Lending study. But the CRL is not projecting a 20% foreclosure rate, according to CRL senior vice president Eric Stein. The study shows that 20% of the subprime ARMs originated in 2006 will end up in foreclosure over the life of the loans. "That is a totally different question that the CFAL letter does not address," Mr. Stein said.

Residential Funding Corp., a unit of GMAC, has told the struggling Mortgage Lenders Network USA, Middletown, Conn., and an affiliate that it is terminating their right to service loans for RFC.The announcement came late Jan. 26 after the market closed. It is unclear how many loans MLN and its Virgin Islands-based affiliate, Emax Financial Group, service for RFC. Meanwhile, this past weekend MLN laid off 180 employees that worked in its retail division in Middletown. About 10 days ago MLN cut loose 832 people who had been on furlough. It now employs less than 780, compared with 1,800 in early December. MLN is the subject of temporary cease-and-desist orders in all of New England, Pennsylvania, and Michigan. The C&D orders prohibit it from funding new mortgages. MLN services about $17 billion in loans. An auction of $3 billion in servicing rights belonging to MLN was recently scuttled last week, according to the Jan. 29 issue of National Mortgage News.

Sandler O'Neill, which has been following Countrywide's stock for years, says it is unlikely that Bank of America will buy the nation's largest mortgage banking firm.In a research note issued Jan. 26, Sandler analyst Mike McMahon declared that "one way for a commercial bank to destroy market value is to buy a big mortgage company." However, Mr. McMahon writes that the "likely scenario" is that Countrywide is talking to BoA about a possible outsourcing arrangement whereby Countrywide would process (and presumably service) residential mortgages for the bank. Countrywide, which has a depository affiliate, has scheduled its fourth-quarter earnings conference call for noon on Jan. 30. Presumably, the BoA issue will come up during the call.

Bank of America, Charlotte, N.C., and Countrywide Financial Corp., Calabasas, Calif., are involved in talks about combining forces in mortgages, according to a report by The Financial Times.BoA and Countrywide declined to comment. A few years back, National Mortgage News reported that Countrywide and Bank of America were discussing an outsourcing arrangement whereby Countrywide would originate and service loans for the bank under a "private-label" arrangement. BoA eventually passed on the deal, said an executive familiar with the talks. The Financial Times also reported Friday that the two parties might be engaged in merger talks. One analyst who follows Countrywide said it is more likely that the firms would strike a deal in regard to outsourcing as opposed to a merger.

IndyMac Bancorp Inc., Pasadena, Calif., the holding company for IndyMac Bank, has reported record net earnings of $343 million ($4.82 per share) for 2006, up 17% from profits recorded in 2005.Mortgage loan production totaled a record $90 billion, up 48% from the volume recorded the year before, IndyMac said. For the fourth quarter, the company reported net earnings of $72 million, compared with net earnings of $70 million in the fourth quarter of 2005. Earnings per share amounted to $0.97, down 8%, IndyMac said. Mortgage loan production totaled a record $26 billion for the quarter, up 44% from that of a year earlier. Michael W. Perry, IndyMac's chief executive officer, said the company's management is "clearly disappointed with these results because they were considerably below our normal earnings growth." However, Mr. Perry said the company "maintained reasonable and prudent credit quality in our mortgage loan production," adding that subprime loans represented only 3% of fourth-quarter production. The company can be found online at http://www.indymacbank.com.

Class M-10 of Mortgage Asset Securitization Transactions Asset Back Securities Trust mortgage pass-through certificates series 2005-FRE1 has been placed on Rating Watch Negative by Fitch Ratings.Fitch also upgraded 28 classes and affirmed the ratings on 68 classes in 13 MABS securitizations. The rating agency attributed the negative rating action to trends in the relationship between serious delinquencies and credit enhancement.

Seven classes from two Societe Generale Mortgage Securities issues have been placed on Rating Watch Negative by Fitch Ratings.The affected classes are as follows: series 2006-FRE1, classes M-9, M-10, M-11, and M-12; and series 2006-FRE2, classes M-9, M-10, and M-11. In addition, Fitch affirmed the ratings on 18 classes from the two deals. The negative rating actions were attributed to "early trends" in the relationship between serious delinquency and credit enhancement. "Both transactions have delinquency figures well above the industry average," the rating agency said. The transactions are backed by 30-year fixed- and adjustable-rate mortgages originated or acquired by Fremont Investment and Loan.