Servicing

Foreclosures are "skyrocketing" in Massachusetts, according to ForeclosuresMass, a provider of foreclosure data based in Framingham, Mass.The company said 4,292 foreclosures were recorded in the second quarter, up 66% from the level of a year earlier and 114% from that of 2004. "Foreclosures are not simply on the rise here in Massachusetts, they are skyrocketing to new levels," said Jeremy Shapiro, president and co-founder of ForeclosuresMass. "Thousands of Massachusetts homeowners are in distress, and interest rates, dropping home prices, and escalating energy costs will only make the situation worse as we move into the latter half of 2006." The company can be found online at http://www.foreclosuresmass.com.

Thanks to a strong performance in its servicing business, Countrywide Financial Corp., Calabasas, Calif., earned $722 million in the second quarter, a 27% gain compared with earnings from a year earlier.Compared with those of the first quarter, earnings rose about 6%. A nationally chartered bank, a majority of CFC's income ($630 million) came from its mortgage banking operations. Its servicing business had pretax earnings of $279 million in the quarter, a 213% gain compared with those of the second quarter of 2005. Its production business had pretax earnings of $325 million in the quarter, a 21% drop from those of the second quarter of last year. Sandler O'Neill issued a report on CFC, noting that its production margin may have bottomed out. "The third quarter is typically the strongest quarter in the mortgage banking cycle," Sandler added. Despite the strong quarter, Countrywide's shares were trading down about $1 to $38.30 as of MortgageWire's deadline Tuesday. The company can be found online at http://www.countrywide.com.

The Federal Agricultural Mortgage Corp., Washington, D.C., has announced that its outstanding program volume has reached a record level of about $7 billion.The new level was achieved with the completion of a recent guarantee transaction involving $1 billion of five-year agricultural mortgage-backed notes. The notes are collateralized by an obligation of Metropolitan Life Insurance Co. that is, in turn, collateralized by Farmer Mac-eligible agricultural real estate mortgage loans, Farmer Mac said. The government-sponsored enterprise can be found online at http://www.farmermac.com.

Zacks Equity Research, Chicago, announced Friday that it had made Duke Realty Corp. its "Bear of the Day" -- a stock expected to underperform the markets over the next three to six months -- for July 21.Zacks said the Indianapolis-based real estate company reported first-quarter funds from operations that were 10% lower than Zacks' expectations. "We do not expect a material improvement in operating results in the next six months, as the company has assets concentrated in weak, slow-growth markets," Zacks said. Zacks can be found online at http://www.zacks.com, and Duke can be found at http://www.dukerealty.com.

Deferred interest more than doubled at Golden West Financial, Oakland, Calif., in the second quarter, a sign that its customers are choosing the lowest payment possible on their payment-option adjustable-rate mortgages.According to the thrift's earnings statement, deferred interest (which reflects the balance of negative amortization) rose to $914 million on loans receivable and mortgage-backed securities, compared with $448 million at Dec. 31. Even though the figure rose dramatically, Golden West's nonperforming assets totaled just 0.37% of all assets. A year ago the ratio was 0.28%. The holding company and its thrift affiliate, World Savings, are being sold to Wachovia Corp., Charlotte, N.C. Golden West earned $390 million in the second quarter, an 8% increase from that of a year earlier. The company funded $11.7 billion in mortgages in the second quarter, but did not say how much of the volume was option ARMs. The company helped pioneer the option ARM product but is not the largest funder. In the first quarter, Countrywide Home Loans ranked first in option ARM lending with $20 billion, according to the Alternative Products Quarterly Data Report, a MortgageWire affiliate.

Washington Mutual, Seattle, has no plans to unload any more residential servicing rights and likely is done restructuring its mortgage business, a top company executive has told MortgageWire."I don't see any more major moves," said WaMu home loans chief David Schneider. "We feel good about where we are positioned." The executive also confirmed that the nation's largest thrift will no longer originate government-insured mortgages, and will "stop chasing market share" in "low-margin" conventional loans that are purchased by Fannie Mae and Freddie Mac. "We are out of government lending," Mr. Schneider said. WaMu agreed on July 19 to sell its entire government servicing portfolio, and part of its conforming loan portfolio -- $140 billion in receivables -- to Wells Fargo Bank in a deal that will result in a $157 million pretax loss for WaMu. WaMu can be found on the Web at http://www.wamu.com.

A J.D. Power and Associates Survey has found that USAA Federal Savings Bank ranks highest in customer satisfaction among mortgage servicing customers.The study measured customer service based on four factors: the administration of the customer's account, the billing process, the payment process, and the process of contacting the servicer when necessary. J.D. Power said USAA ranked highest in all four areas. BB&T and Citizens Bank ranked second and third, respectively, in the study. GMAC Mortgage and Wells Fargo rounded out the top five. The study also found that 45% of mortgages do not remain with the originator for servicing after the loan is closed, and customer satisfaction is significantly lower among customers whose mortgage is passed on to a different company for servicing. "While this is common practice in the industry, removing the homeowner from the decision to sell the mortgage to a different company for servicing can create confusion and a sense of betrayal among customers," said Rocky Clancy, executive director of the banking and mortgage practice at J.D. Power.

Washington Mutual Inc., Seattle, has reported net income of $767 million ($0.79 per share) for the second quarter, down from $844 million ($0.95 per share) a year earlier, but the results include a $101 million after-tax adjustment for a pending sale of mortgage servicing rights to Wells Fargo (see previous item).In addition to the adjustment for the MSR sale, the income figures reflect a $52 million after-tax restructuring charge related to WaMu's efficiency initiatives. The company said net income excluding these two items would have been $920 million ($0.94 per share). Net income for the home loans business segment totaled $32 million in the second quarter, compared with $39 million in the first quarter and $292 million in the second quarter of 2005, WaMu said. WaMu can be found online at http://www.wamu.com.

In a move that surprised the mortgage industry, Seattle-based Washington Mutual agreed late Wednesday to sell its entire government servicing portfolio and part of its conforming portfolio -- $140 billion in receivables -- to competitor Wells Fargo in a deal that will result in a loss for WaMu.According to a mergers-and-acquisitions database compiled by National Mortgage News, it is the largest bulk servicing transaction in U.S. history. WaMu values the $140 billion in servicing rights at $2.6 billion, but when all is said and done, the thrift will book a $157 million pretax loss on the sale. The receivables include: $89 billion in Fannie Mae/Freddie Mac servicing rights, $43 billion in servicing rights on FHA/VA-backed loans, and $8 billion in private investor rights. The purchase will make Wells Fargo the No. 1-ranked residential servicer in the United States. It also means that Wells will control about $143 billion of the $450 billion Ginnie Mae servicing market, or 32%. (For more details, see the July 24 issue of NMN.)

Fitch Ratings has updated its cash flow modeling criteria for rating U.S. residential mortgage-backed securities and home equity loan asset-backed securities.Fitch also said it is now using Intex Dealmaker as its primary cash flow modeling tool. The revised RMBS and HEL criteria reflect changes to the prepayment, loss distribution, and interest rate assumptions used when rating deals with senior-subordinate/overcollateralization structures that are typical in subprime and some alternative-A securitizations, Fitch said. The rating agency also announced an updating of its criteria for rating net-interest-margin securitizations as a result of the changes in its cash flow modeling criteria. Fitch can be found online at http://www.fitchratings.com.