Servicing

Freddie Mac has reported that its estimated net income for the first half of 2006 totaled $2.7 billion, with increases in the "fair value" of the guarantee fee and derivative instruments boosting results.Higher interest rates helped generate mark-to-market gains, and Freddie Mac acknowledged that with rates dipping in the third quarter, some of those mark-to-market gains could be lost. On a fair-value basis, a measure Freddie Mac prefers to GAAP (generally accepted accounting principles) results, Freddie said its return was $2.3 billion in the first half, for an annualized rate of return of 17%. Freddie Mac executives said on a conference call with investors that the average fair-value return exceeded management's goal of percentage earnings growth in the low to mid-teens. The company said it still hopes to return to regular financial reporting by the end of next year, though executives were hesitant to give a firm timetable.

Richard Syron, chairman and chief executive of Freddie Mac, has advised investors that the housing markets may be poised for "a relatively bumpy landing."Speaking on a conference call to update investors on Freddie Mac's first-half performance, Mr. Syron said weaker housing conditions will affect more than just credit performance, putting negative pressure on consumer spending and the economy as a whole. "In our minds it will have a substantial negative effect on GDP," he said. He also noted that there has been a shift away from "traditional mortgage products" into more esoteric loans, but he said Freddie Mac is "very comfortable with what we have in those markets." Through July of this year, interest-only loans constituted 14% of year-to-date loan purchases, but they only accounted for 3% of the total credit guarantee portfolio, the company said. Freddie Mac can be found online at http://www.freddiemac.com.

Citigroup has acquired a majority of Irwin Mortgage's $19 billion residential servicing portfolio, investment banking sources have told MortgageWire.Citigroup bought about 60% of the receivables, with three other buyers acquiring pieces of the rest. Two of the smaller buyers have been identified as ABN Amro Mortgage, Ann Arbor, Mich., and MidFirst Bank, Oklahoma City. None of the buyers had responded to telephone calls as of MortgageWire's deadline. In a filing with the Securities and Exchange Commission, Irwin Financial Corp. of Indiana said the sale price on the receivables is $261 million, but that ultimately it will book an $11 million loss on the deal. IFC is the parent of Irwin Mortgage.

Two certificates from two transactions issued by SACO I Trust have been placed under review for possible downgrade by Moody's Investors Service.The affected classes are class B-3 of SACO I Trust 2004-3 and class B-4 of SACO I Trust 2005-2. "These transactions are backed by closed-end seconds, and have seen recent losses that have exceeded the excess spread available, thereby depleting the overcollateralization," Moody's said.

Classes M3 and B of Structured Asset Securities Corp. series 2002-BC1 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 given the projected losses on the underlying pools. The transaction is backed primarily by first-lien subprime mortgage loans.

Class B-1 of GE Capital 1998-HE1 has been downgraded from B2 to Caa2 by Moody's Investors Service.The downgraded was based on low credit enhancement levels compared with current loss projections, Moody's said. "The realized losses have caused the subordination and credit enhancement levels to significantly decline," the rating agency said. The collateral consists of closed-end, fixed-rate, first-lien residential mortgage loans. Moody's can be found on the Web at http://www.moodys.com.

Moody's Investors Service has downgraded one class and placed five classes on review for possible downgrade from two Residential Asset Mortgage Products Inc. Trust asset-backed securitization deals issued in 2002.Moody's also downgraded one class from a Residential Asset Securities Corp. subprime deal issued in 2001. The downgrades were as follows: RAMP series 2002-RS3, class M-I-2, from Aa2 to A2, and RASC series 2001-KS2, class M-II-1, from Aa2 to A1. The RAMP classes placed on review were as follows: series 2002-RS1, classes M-I-1, M-I-2, and M-II-2; and series 2002-RS3, classes M-II-1 and M-II-3. In addition, Moody's confirmed the rating on one class from one of the RAMP deals and one class from the RASC deal. The negative rating actions were attributed to the weaker-than-expected performance of the mortgage pools and the resulting erosion of credit support. Specifically, the overcollateralization in the 2002-RS1 adjustable-rate pool has been fully exhausted, and the class M-I-3 and M-II-3 certificates have both realized losses, the rating agency said. In addition, the overcollateralization amounts in the 2002-RS3 adjustable-rate pool and the 2001-KS2 fixed-rate pool are "significantly below their targets, and pipeline losses could put pressure on the most subordinate tranches from these pools," Moody's said.

PHH Corp., Mt. Laurel, N.J., has reported the receipt of an extension from the New York Stock Exchange regarding the filing of its annual 10-K report with the Securities and Exchange Commission, allowing the continued listing of PHH's common stock on the NYSE through Jan. 2.The listing will be subject to review by the NYSE during that period, PHH said. The company said it expects to file the 2005 annual report by Oct. 31, but that it may request an additional extension from the NYSE if it does not do so by Jan. 2. If an additional extension were granted, PHH could have until April 2, 2007, to file the report, after which the stock exchange's rules would require it to initiate suspension and delisting procedures, the company said. PHH can be found online at http://www.phh.com.

Two classes from Equity One ABS Inc. mortgage pass-through certificates issued in 2002 have been downgraded by Fitch Ratings.Class B of series 2002-1 was downgraded from BBB to BB-plus, and class B-2 of series 2002-3 was downgraded from BBB to BB. Fitch also affirmed the ratings on 33 classes in eight Equity One subprime transactions. The rating agency attributed the downgrades to a deterioration in the relationship between credit enhancement and expected losses. Overcollateralization has been "off target for as many as eight of the past nine months" because monthly collateral losses have exceeded the available monthly spread, Fitch reported. The rating agency can be found online at http://www.fitchratings.com.

Two classes from CDC Mortgage Capital Trust mortgage pass-through certificates, series 2002-HE3, have been downgraded by Fitch Ratings and two classes from other transactions have been placed on Rating Watch Negative.The downgrades were as follows: class B1, from BB-minus to B-plus; and class B2, from B-plus to C. Class B2 was also assigned a distressed recovery rating of DR6. The securities placed on watch were class B3 of series 2003-HE3 and class B3 of series 2003-HE4. In addition, Fitch affirmed the ratings on 14 classes from the three CDC deals. The rating agency attributed the downgrades to a deterioration in the relationship between credit enhancement and expected losses. The pools consist of fixed- and adjustable-rate subprime mortgages for one- to four-family residential properties.