Servicing

The Federal Home Loan Bank of Chicago is still working on a plan to move its Mortgage Partnership Finance program off its balance sheet, but the restructuring is not expected to make the mortgage purchase program more profitable."Income from the off-balance-sheet MPF business is expected to be less than the income generated under the current business model," according to the Chicago FHLBank's third-quarter financial report. The $88.9 billion-asset FHLBank reported third-quarter earnings of $42 million in the third quarter, down 6.7% from those of the same period last year. The MPF program generated $31 million of the earnings in the third quarter. Meanwhile, the bank is buying back excess stock as required by a supervisory agreement. It is also purchasing mortgage-backed securities to generate interest income. The bank can be found online at http://www.fhlbc.com.

The Federal Home Loan Bank of Boston has disclosed that its largest source of mortgage loans, Balboa Reinsurance Co. (a Countrywide subsidiary), stopped selling loans to the FHLBank in April."Management cannot predict the extent to which Balboa Reinsurance Co. may sell loans to the bank in the future," the Boston FHLBank says in its third-quarter financial report. Nearly 70% of the Boston FHLBank's $4.6 billion mortgage portfolio came from Balboa, a subsidiary of Countrywide Financial Corp., Calabasas, Calif. The Boston bank's loan purchases totaled $39.2 million in the third quarter, compared with $1.2 billion in the same period last year. With the loss of its major customer, the Boston bank's mortgage portfolio is shrinking as principal repayments outpace loan purchases. But the FHLBank still reported strong earnings. Net income totaled $50.3 million in the third quarter, a 62.6% increase from that of a year earlier. The FHLBank can be found online at http://www.fhlbboston.com.

Classes B3, B4, and B5 of GSMPS Mortgage Loan Trust, series 2003-1, have been placed under review for possible downgrade by Moody's Investors Service.The rating actions were taken because credit enhancement levels are low given the projected losses on the underlying pools of re-performing loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs, the rating agency said. Virtually all the loans were repurchased from Ginnie Mae pools, according to Moody's.

Classes B-2, B-3, and B-4 of Reperforming Loan REMIC Trust Certificates, series 2003-R4, have been placed under review for possible downgrade by Moody's Investors Service.The rating actions were attributed to credit enhancement levels that are deemed low in view of projected losses on the underlying pools, Moody's said. Loss severities "appear to be very high" for collateral insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs, the rating agency said.

Class M-3 of Residential Accredit Loans Inc., series 2004-QA2, has been downgraded from Baa2 to Ba1 by Moody's Investors Service.The downgrade was attributed to "relatively low" credit enhancement levels in light of expected losses. "The excess spread has significantly declined due to the high percentage of hybrid collateral. .... As a result, the deteriorating overcollateralization amount is causing the subordinate tranches to be more vulnerable to defaults. The underlying collateral consists of alternative-A, first-lien, adjustable-rate residential mortgage loans. The rating agency can be found online at http://www.moodys.com.

Detroit, Ft. Lauderdale, Fla., and Denver posted the three highest U.S. metropolitan foreclosure rates in the third quarter, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif.The company's Q3 2006 U.S. Metropolitan Foreclosure Market Report ranks the foreclosure rates of the nation's 100 largest metro areas. The foreclosure rates for the three cities were 1.249%, 1.138%, and 1.113%, respectively, the company reported. "The third quarter saw a marked increase in the number of properties entering some stage of foreclosure," said James J. Saccacio, RealtyTrac's chief executive officer. "It appears that a combination of factors, including a slowdown in home sales and lower home appreciation rates are contributing to higher numbers of delinquencies." The rest of the top 10 cities were as follows: Miami; Dallas; Indianapolis; Fort Worth, Texas; Atlanta; Las Vegas; and Memphis. RealtyTrac can be found online at http://www.realtytrac.com.

Class B-2 of CDC Mortgage Capital Trust mortgage pass-through certificates, series 2003-HE1, has been downgraded from BB-minus to B-plus by Fitch Ratings.In addition, Fitch affirmed the ratings on four other classes from the CDC deal. The rating agency attributed the downgrade to a deterioration in the relationship between credit enhancement and expected losses. The pool consists of fixed- and adjustable-rate subprime mortgages, primarily for one- to four-family residential properties. The rating agency can be found online at http://www.fitchratings.com.

Fieldstone Investment Corp., Columbia, Md., has reported a loss of $45.0 million ($0.97 per share) for the third quarter, compared with net income of $23.0 million ($0.47 per share) a year earlier.The company, structured as a real estate investment trust, is the parent of nonconforming lender Fieldstone Mortgage Co. Michael J. Sonnenfeld, president and chief executive, said the loss resulted from increased reserves needed to cover delinquencies of the newer loans in its portfolio and continued market pressures on sale margins. Servicing initiatives include accelerated intervention on delinquent loans, engagement of a delinquency- and loss-mitigation monitor for 2006 production, and elimination of high-delinquency products. It is reducing yield-spread premiums and consolidating operations centers. "Our origination initiatives include introduction of new [alternative-A] products, a simplified rate sheet that reflects the actual rates at which we lend, and a new commission plan based on a loan's net value to the company," Mr. Sonnenfeld said. "We have not reduced our credit quality nor changed our pricing discipline to increase originations, and we have eliminated the lowest-credit, highest-risk loans from our guidelines."

The Federal Agricultural Mortgage Corp., Washington, has reported a net loss of $6.3 million ($0.58 per share) for the third quarter and announced the completion of its restatement of financial results for 2003-2005 and the first two quarters of this year.Farmer Mac attributed the loss, which compared with net income of $19.3 million ($1.70 per share) for the third quarter of 2005, to accounting losses on financial derivatives used for hedging. The government-sponsored enterprise said this was in contrast to its restated results for the first two quarters, in which gains on financial derivatives brought net income to $15.1 million and $13.4 million, respectively. "The restatement of our financial results corrected our accounting under [Statement of Financial Accounting Standards No. 133] and so eliminated the use of hedge accounting for financial derivatives used to hedge interest rate risk," said Henry D. Edelman, Farmer Mac's president and chief executive officer. "... [T]he accounting corrections under SFAS 133 had no effect on core earnings or cash flows, and an insignificant impact on Farmer Mac's financial position." The GSE can be found online at http://www.farmermac.com.

Countrywide Financial Corp., Calabasas, Calif., has announced that it intends to convert its national bank charter to a federal savings bank (or thrift) charter.The company said it has notified the Federal Reserve Board of San Francisco, the Office of Thrift Supervision, and the Office of the Comptroller of the Currency of the decision, which came after "several months of strategic analysis." Upon the approval of the application, Countrywide Bank NA would be converted to a thrift and Countrywide Financial Corp. would become a savings-and-loan holding company, with the OTS as the regulator of both entities. "In our continuous efforts to maximize efficiencies, the company has determined that Countrywide is better positioned for future growth as a savings institution with a single primary regulator, as opposed to the current dual-regulator structure," said Angelo R. Mozilo, Countrywide's chairman and chief executive officer. "Based on our analysis, we believe that the OTS's focus on the housing market and its unitary supervisory approach aligns more closely with Countrywide's existing business activities and future diversification efforts." The company can be found online at http://www.countrywide.com.