Servicing

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.

Anworth Mortgage Asset Corp., a real estate investment trust based in Santa Monica, Calif., has announced that it expects to recognize a loss from operations of approximately $0.07 per share for the third quarter.Anworth said the increase in interest income (net of premium amortization) from its portfolio of agency mortgage-backed securities was offset by the increase in its cost of borrowings, resulting in an approximately unchanged interest rate spread. The mortgage REIT also announced that its wholly owned subsidiary, Belvedere Trust Mortgage Corp., reported a preliminary loss of approximately $900,000 for the third quarter. The loss was attributed largely to accelerating prepayments and to financing costs that were rising faster than the increases in the yield of its mortgage-related assets. Anworth can be found on the Web at http://www.anworth.com.

Atlanta-based NetBank has completed the sale of most of its mortgage servicing rights on conventional, agency-eligible loans for $119 million, less than the carrying value of the asset.The sale involved underlying mortgages totaling $8.5 billion in unpaid principal. IXIS Real Estate Capital bought the servicing rights on $8.2 billion of the total, though it has retained NetBank to subservice the loans. IXIS invests in mortgage servicing rights, though it does not perform servicing operations. Servicing rights on $230 million of Ginnie Mae loans were sold to an unnamed separate buyer, according to NetBank. NetBank said the sale will result in an after-tax loss of $19.3 million. The company also said it will post an after-tax loss of $8.7 million on the sale of Ginnie Mae mortgage-backed securities that it held as an on-balance-sheet hedge. The company can be found online at http://www.netbank.com.

One year after the implementation of bankruptcy reforms, credit counselors are finding that consumers contemplating bankruptcy are in such dire financial condition that bankruptcy is their only option, and many are delinquent on their mortgage, according to a survey by the National Foundation of Credit Counseling.On average, consumers signing up for pre-filing counseling have unsecured debt that exceeds their annual income by $11,600. The NFCC also noted that 42% of the credit counseling agencies in the survey reported that 26% to 100% of their pre-filing clients are delinquent on their mortgage payments. (In passing bankruptcy reform, Congress mandated that consumers receive credit counseling before filing for bankruptcy protection.) Bankruptcy filings are estimated to total 600,000 this year, which would be the lowest level in 20 years. However, filings are increasing each month and some estimate it will cross one million in 2007-- due to energy prices and the resetting of adjustable-rate mortgages, according to the NFCC report.

Luminent Mortgage Capital Inc., a San Francisco-based real estate investment trust, has priced a public offering of 6 million shares of common stock at $10.25 per share.Luminent said it plans to use the proceeds to buy mortgage assets as part of its residential mortgage credit and spread strategies. The underwriters have been granted an option to buy up to 900,000 additional shares to cover any overallotments. UBS Investment Bank was the sole book-running manager of the offering. The REIT, which invests primarily in U.S. agency and other highly rated mortgage-backed securities, can be found online at http://www.luminentcapital.com.