Servicing

Morgan Stanley has announced an agreement to acquire Saxon Capital Inc., a servicer and originator of residential mortgages based in Glen Allen, Va., for $706 million.The price tag is based on a cash consideration of $14.10 per share of Saxon stock. Morgan Stanley said the acquisition is in line with its strategy of building a global, vertically integrated residential mortgage business. "Saxon builds on our existing origination and securitization capabilities by providing us with an extremely strong servicing platform," said Anthony Tufariello, global head of Morgan Stanley's Securitized Products Group. The acquisition "will further enhance our risk management of mortgage portfolios" and provide "new origination capabilities in the nonprime market," Mr. Tufariello said. Morgan Stanley was the lead adviser on the transaction and was also advised by Milestone Merchant Partners, the company said. Saxon, a real estate investment trust, was advised by Credit Suisse Securities (USA) LLC. Morgan Stanley can be found online at http://www.morganstanley.com, and Saxon can be found at http://www.saxonmortgage.com.

Fannie Mae has reported that the price tag for its accounting scandal may be lower than its original $10.8 billion estimate when it releases a restatement of its 2001 through 2004 financial results later this year.The mortgage giant said in a securities filing that an estimated $2.4 billion loss due to its misapplication of hedge accounting on mortgage commitments will be "significantly reduced." However, Fannie admitted that it is "unable to quantify the amount at this time." The government-sponsored enterprise also disclosed that a $400 million settlement it paid to securities regulators for alleged "fraudulent" financial reporting is not tax deductible. The expense will be recorded in its 2004 financial statement. Regarding its mortgage business, Fannie said the issuance of single-family mortgage-backed securities increased to $112.1 billion in the second quarter, up 5% from that of the previous quarter. However, Fannie's issuance of multifamily mortgage-backed securities fell by 51%, to $1.2 billion. The GSE cited a "lower number of seasoned pool issuance" for the steep decline in its multifamily business. "We expect multifamily lending to decrease during the second half of 2006 due to declining apartment building sales," Fannie said in the second-quarter update of its business activities and financial developments.

Prepayment rates on 30-year fixed-rate mortgages in agency mortgage-backed securities fell 14% in July, according to Bear, Stearns & Co.The decline reflected a two-day reduction in the business calendar and a 6-basis-point selloff in mortgage rates, said Bear Stearns senior managing directors Dale Westhoff and V.S. Srinivasan. Fannie Mae 30-year collateral recorded a constant prepayment rate of 10.7 CPR overall for the month, down 1.7 CPR from that of June, the analysts reported. "The decline in speeds was uniformly distributed across the coupon stack, with almost every coupon showing a 14% to 15% decline," they said. Speeds on 15-year Fannie Mae and Freddie Mac collateral fell by 13%, comparable to the decline in 30-year speeds. Overall speeds on Ginnie Mae collateral fell from 16.2 CPR in June to 14.4 CPR in May. Despite the recent rise in mortgage rates, the analysts said they expect speeds to increase 10% in August, mainly because of a three-day increase in the business calendar. But in the longer term, "we expect a steady decline in speeds," they said. Bear Stearns can be found online at http://www.bearstearns.com.

New foreclosed residential properties rose nearly 5% in July to their highest level of the year, according to Foreclosure.com, an online foreclosure listing service based in Boca Raton, Fla.Such foreclosures totaled 28,130 in the United States in July, but the nationwide inventory of foreclosed residential properties actually fell to 86,562, a decrease of 3.1% from that of June, the company reported. Brad Geisen, president and chief executive officer of Foreclosure.com, said the new foreclosures are "driven in large part" by rate increases in adjustable-rate mortgages, producing "great bargains" for investors and homebuyers. "Put simply, foreclosures are hot and getting hotter," Mr. Geisen said. "And this is just the beginning." Foreclosure.com said the largest monthly increases in new foreclosures were recorded in Missouri, where they were up 48.2%; Michigan, up 38.0%; and Minnesota, up 31.1%. The company can be found online at http://www.foreclosure.com.

More than 10 months after a new bankruptcy law took effect, debtors' attorneys are finding new ways to create headaches for mortgage servicers, according to creditors' lawyers who spoke at the Western States Loan Servicing Conference in Las Vegas.Michael Ackerman, an attorney with Zucker, Goldberg & Ackerman in New Jersey, said that debtors' lawyers are urging debtors in bankruptcy court to sue servicers for "proof of claim" issues involving fees such as broker price opinions and inspections that are routinely required during default servicing. Because the law is new, he said servicers should consider litigation in order to have a greater say in the development of case law involving the bankruptcy statute. Being a plaintiff gives lenders more control over the facts of the case coming to court and what bankruptcy judge decides it, he noted. "Whoever hits the issue first in each district will have an overwhelming influence on the cases that come after," Mr. Ackerman said.

Eight classes from five Ameriquest Mortgage Securities Inc. home equity issues have been downgraded by Fitch Ratings.The downgrades were as follows: series 2002-3, class M-4, from B to C; series 2002-4, class M-4, from BBB-minus to BB-minus; series 2003-1, class M-3, from BBB to BBB-minus, and class M-4, from BBB-minus to BB; series 2003-2, class M-3, from BBB to BBB-minus, and class M-4, from BBB-minus to BB; and series 2003-AR2, class M-3, from BBB to BB, and class M-4, from BBB-minus to BB-minus. Fitch also assigned a DR4 Distressed Recovery rating to class M-4 of series 2002-3. In addition, Fitch upgraded two Ameriquest classes and affirmed the ratings on eight classes from the five Ameriquest deals. The downgrades were attributed to a deterioration in the relationship between credit enhancement and expected losses.

Morgans Hotel Group Co., a New York-based hospitality company that operates boutique hotels in gateway cities, has announced the issuance of $50 million in trust preferred securities in a private placement.The securities, issued through a newly established trust subsidiary, MHG Capital Trust I, have a 30-year maturity and are redeemable after five years at par. They bear interest at a fixed rate of 8.68% until October 2016, and thereafter at a floating rate of 3.25% over the London interbank offered rate. Net proceeds from the issuance will be used to pay down the company's credit line and provide financing for development and other corporate activities. The company can be found online at http://www.morganshotelgroup.com.

TMSF Holdings Inc., a Los Angeles-based residential mortgage lender, has announced the termination of its plan to convert to a real estate investment trust.The company said its board of directors voted unanimously to terminate the reorganization plan because of unfavorable market conditions. TMSF said the market conditions prevent it from satisfying the conditions necessary to carry out the reorganization.

Freddie Mac is ending its foreclosure moratorium in the Gulf Coast areas hit hardest by hurricanes Katrina and Rita, but servicers can still extend forbearance on a case-by-case basis for an additional 90 days."The year-old blanket moratorium ends August 31," the secondary-market agency told its servicers and lenders in a bulletin. "Lenders must still obtain Freddie Mac's prior approval before initiating any foreclosure actions and continue to provide relief options before pursuing a foreclosure." While conceding that there is still "much to do" in the Gulf Coast, a Freddie executive said the blanket foreclosure moratorium "helped thousands of borrowers with Freddie-owned loans cope with the financial aftermath of those storms." Freddie Mac can be found online at http://www.freddiemac.com.

Class B of GSRPM Mortgage Trust series 2002-1 has been downgraded from B to C and assigned a Distressed Recovery rating of DR5 by Fitch Ratings.Fitch also affirmed the rating on three other classes in the transaction. The downgrade was attributed to a deterioration in the relationship between credit enhancement and loss expectations. The DR5 rating reflects Fitch's expectation that the overcollateralization will be "completely exhausted" in a few months, the rating agency said. The collateral consists primarily of performing and re-performing, seasoned, mainly first-lien residential mortgage loans that were purchased by an affiliate of GS Mortgage Securities Corp. and then sold to GS Mortgage Securities.