Servicing

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.

Four classes of Ace Securities Corp. mortgage-backed securities have been downgraded by Fitch Ratings, and three classes have been placed on Rating Watch Negative.The downgrades were as follows: series 2002-HE3, class M-2, from A to BBB (and removed from Rating Watch Negative), and class M-3, from BB to B; and series 2004-HE1, class M-5, from BB to B-plus, and class M-6, from BB-minus to B. The securities placed on rating watch were class B-2 of series 2005-HE2, class B-2 of series 2005-HE3, and class B-1 of series 2005-RM2. In addition, the rating agency affirmed the ratings on 55 other classes from six transactions. Fitch said the negative rating actions were taken because monthly losses have generally exceeded the available excess spread in recent months, causing a deterioration in the amount of overcollateralization. The rating agency can be found on the Web at http://www.fitchratings.com.

Freddie Mac has announced that it will pass through full prepayments of principal that represent repurchases of 451 "hybrid" adjustable-rate mortgage loans from 31 single-family ARM participation certificate pools.Freddie Mac said it will reflect the prepayment activity in its February pool factors and will pass through the principal prepayments on the March distribution date for these adjustable-rate PCs. The ARMs and related PCs are all still in their fixed-rate periods. Freddie Mac said one of its sellers recently notified the company that during the second half of 2006 it inadvertently delivered certain ARM loans with a London interbank offered rate index into Freddie Mac PC pools that bear a prefix for Treasury indices. These errors triggered the repurchases, the government-sponsored enterprise said. Freddie can be found online at http://www.freddiemac.com.

Slowing home price appreciation and decreased affordability have boosted the risk of home price declines in the nation's 50 largest housing markets, according to PMI Mortgage Insurance Co., Walnut Creek, Calif.The average score in the PMI U.S. Market Risk Index rose from 328 to 342 in the fourth quarter, the company reported. This means the company's estimate of the probability of experiencing a home price decline in the next two years has risen from 32.8% to 34.2% in the 50 largest metropolitan statistical areas. According to the index, there are now 19 markets with a greater than 50% chance of price declines over two years, up from 18 in the third quarter. "Years of rapid appreciation have made homes less affordable in many areas, and that's not sustainable over the long term, so that what we are seeing is not unexpected," said Mark F. Milner, chief risk officer of PMI Mortgage Insurance. "Over time, moderating appreciation will bring prices back in line with economic fundamentals, particularly incomes, bringing the market back to a healthy balance." PMI can be found online at http://www.pmigroup.com.

RealtyTrac, an online foreclosure marketplace based in Irvine, Calif., has reported that more than 1.2 million foreclosure filings were reported nationwide in 2006, a 42% increase.The company's 2006 U.S. Foreclosure Market Report is based on the company's database of pre-foreclosure and foreclosure properties, which it says includes more than 800,000 properties in nearly 2,500 counties across the country. "While foreclosures are not at historically high levels, a 42% year-over-year increase is certainly noteworthy," said James J. Saccacio, RealtyTrac's chief executive officer. "The increase in the number of properties in foreclosure was driven partly by the general slowing of overall housing sales, and partly by the impact of monthly mortgage payments increasing dramatically for homeowners who held some of the riskier types of adjustable-rate and subprime mortgages." The company said Colorado had the nation's highest foreclosure rate, at 3%, and Texas recorded the highest number of foreclosures, 156,876, or nearly 13% of the national total. RealtyTrac can be found online at http://www.realtytrac.com.