Servicing

Home Properties LP, a subsidiary of Rochester, N.Y.-based Home Properties Inc., has priced an offering of $175 million aggregate principal amount of exchangeable senior notes due in 2026.In addition, Home Properties said the subsidiary is offering $25 million of notes that may be issued, at the option of the initial purchasers, within 12 days. The company said it expects to use about $58 million of the approximately $172 million of net proceeds to repurchase shares of its common stock, about $70 million to repay debt under its revolving credit facility, and the remainder for general corporate purposes. Home Properties, an apartment real estate investment trust, can be found online at http://www.homeproperties.com.

Meanwhile, Washington Mutual chairman and chief executive Kerry Killinger says the federal guidance on nontraditional mortgages will have a "limited" effect on its payment-option ARM lending program, but he wants to see a level playing field with regard to federal- and state-regulated entities."For the guidance to be truly effective in safeguarding consumers, we do believe all mortgage lenders should be held to the same standards," the CEO told investors and analysts during a conference call on the company's third-quarter results [see previous item]. State regulators are expected to issue similar guidance in a couple of weeks. "We continue to evaluate the guidance," Mr. Killinger said. "However, based on preliminary analysis and initial discussions with our regulator, the Office of Thrift Supervision, while we expect some changes, the impact on the origination of the option ARM products in our Home Loans group appears limited." The giant thrift originated $37.2 billion of home loans in the third quarter, and 30% were option adjustable-rate mortgages. The average credit score is 707, and the loan-to-value ratio of the portfolio is 57%, Mr. Killinger said, adding that demand for hybrid ARMs has increased.

Washington Mutual Inc., Seattle, has reported earnings of $748 million ($0.77 per share) for the third quarter, a decline from $821 million ($0.92 per share) a year earlier that WaMu attributed in part to efficiency initiatives and a sale of mortgage servicing rights.The company's Home Loans group recorded a net loss of $33 million in the third quarter, compared with net income of $302 million a year earlier, WaMu said. The results included net after-tax charges of $31 million related to the sale of $2.53 billion of mortgage servicing rights and after-tax charges of $33 million related to the company's efficiency initiatives, which are expected to continue into the fourth quarter, the company said. Home loan volume totaled $37.20 billion in the third quarter, down 10% from $41.36 billion in the second quarter and down 34% from $56.47 billion a year earlier. WaMu can be found online at http://www.wamu.com.

Class B-1F of Amresco Residential Securities Corp. mortgage loan pass-through certificates, series 1998-3 group 1, has been downgraded from BB to C by Fitch Ratings.In addition, the downgraded class was assigned a DR4 Distressed Recovery rating and the ratings on two other classes from group 1 and four classes from group 2 were affirmed. The downgrade was due to a deterioration in the relationship of credit enhancement to loss expectations, Fitch said. The trust consists of a fixed-rate group (group 1) and an adjustable-rate group (group 2) in which the excess spread is cross-collateralized. "This feature has generally allowed for excess spread from the adjustable-rate group to help support the fixed-rated group," the rating agency said. "However, in the past 12 months group 2 has experienced several months of high losses, and any of the excess interest that was generated was needed to build its own overcollateralization."

Fitch Ratings has announced the launch of Derivative Fitch, the first specialty rating agency designed to provide ratings, research, and analytics that address the unique risks of the credit derivatives market.The structural complexity of the derivatives market is different from that of the traditional bond market, as derivatives "are affected not only by risk associated with underlying assets but also heightened sensitivities to factors like credit stability and market risk," Fitch said. Institutional investors such as pension funds, banks, insurance companies, and fund managers are increasing their participation in the market, the rating agency said. In forming Derivative Fitch, the company said it will consolidate over 100 professionals from its global CDO (collateralized debt obligation) and Structured Credit ratings groups. Besides ratings, Derivative Fitch will offer products and services such as Vector 3.0, a benchmark model for assigning ratings to derivatives; Risk Analytics Platform for Credit Derivatives, a market risk assessment service for synthetic CDOs; Valuspread, a derivatives pricing service; and FitchCDx, an Internet-based research platform. The agency can be found online at http://www.derivativefitch.com.

Barclays Capital has hired a longtime Nomura Securities International agency mortgage researcher, and Nomura's continued participation in the agency MBS market appears questionable.Art Frank, Nomura's former director of MBS, has been named director and mortgage strategist at Barclays, according to the latter company. A Nomura spokesman had not returned a call by deadline time, and efforts to reach the company's agency MBS team through its switchboard were met with uncertainty about whether the business was still offering services in that area.

Wells Fargo & Co., San Francisco, has reported record net income of $2.19 billion ($0.64 per share) for the third quarter, up from $1.98 billion ($0.58 per share) a year earlier, although revenues fell at Wells Fargo Home Mortgage.(Earnings per share reflect a two-for-one stock split in August.) Home Mortgage revenue totaled $923 million, down from $1.4 billion in the third quarter of 2005, largely due to a recovery a year earlier of $356 million in the valuation of mortgage servicing rights, Wells Fargo reported. Mortgage originations totaled $104 billion, down from $116 billion in the second quarter but up from $103 billion a year earlier. "Our owned real estate servicing portfolio grew to $1.33 trillion, up $215 billion for the quarter," said Mark Oman, senior executive vice president in the Wells Home and Consumer Finance Group. "This growth included $172 billion of servicing acquired during the quarter." The company can be found online at http://www.wellsfargo.com.

Ginnie Mae is going ahead with a new program to guarantee pools of reverse mortgages insured by the Federal Housing Administration, known as home equity conversion mortgages, and create an accrual mortgage-backed security that will not have a payment schedule."We are confident the Ginnie Mae security will foster a robust secondary market for reverse mortgages," Ginnie President Robert Couch said at a news conference announcing the HECM MBS program. Ginnie Mae and its supporters say they expect the MBS program to increase the availability of HECMs and reduce origination costs to make the reverse mortgages a better deal for senior citizens. However, investors in the federally guaranteed HECM MBS will not receive payments of principal and interest until the borrowers leave their home or die, or the payouts on the HECM loan reach 98% of the claim amount. The Ginnie president added that his agency, as well as lenders and servicers, has to make "a lot of system changes" to issue HECM securities. It could take until next summer to do the first deal, he said. Ginnie Mae can be found online at http://www.ginniemae.gov.

The class B notes of South Coast Funding II Ltd., a collateralized debt obligation consisting largely of mortgage-backed securities, have been downgraded from BBB-minus to BB-minus by Fitch Ratings.The ratings on three other classes of notes in the CDO were affirmed. The downgrade was attributed to "the continuous deterioration of the underlying collateral, which outweighs the deleveraging of the transaction since the end of the reinvestment period." Fitch said about 81.4% of the South Coast deal consists of residential MBS, while the remainder is made up of other CDOs (8.7%), commercial MBS (4.9%), asset-backed securities (4.5%), and corporate debt (0.8%). Fitch can be found online at http://www.fitchratings.com.

Andrew Davidson & Co. Inc., New York, and Compass Analytics LLC, San Francisco, have announced the integration of the Andrew Davidson prepayment model for mortgage-backed securities into Compass's mortgage analytics system, CompassPoint.The two companies' customers will now have access to the MBS prepayment model through CompassPoint for derivation of option-adjusted durations and mortgage cash flow valuation and analysis. The integration "will significantly augment Compass's mortgage valuation and trading analytics designed to seamlessly integrate the valuation process from mapping of loan data through whole-loan or structured whole-loan cash flow valuations," said Rob Kessel, managing partner of Compass Analytics. The companies can be found online at http://www.ad-co.com and http://www.compass-analytics.com.