Servicing

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.

Sovereign Bancorp Inc., Philadelphia, has reported a mortgage-related loss of $51.7 million ($0.11 per share) for the second quarter, down from net earnings of $183 million ($0.45 per share) a year earlier.The loss for the quarter included a $43.9 million ($0.10 per share) after-tax, noncash, non-operating impairment charge in the value of Fannie Mae and Freddie Mac preferred stock. Other charges included $4.1 million after-tax ($0.01 per share) for merger and integration expenses plus $8.1 million ($0.02) after-tax for credit losses related to the acquisition of Independence Community Bank Corp., Brooklyn, N.Y., a mortgage warehouse and commercial real estate lender. The Independence acquisition was part of a three-way transaction that led to Banco Santander Central Hispano SA, Madrid, taking an equity position in Sovereign. Mortgage banking revenues at Sovereign totaled $4.5 million for the quarter, down from $13.0 million in the first quarter and $21.3 million in the second quarter of 2005. The drop in revenue was due to keeping more mortgage originations -- those of higher credit quality -- on its balance sheet.

Zacks Equity Research, Chicago, announced Monday that it had made Equity Office Properties Trust its "Bear of the Day" -- a stock expected to underperform the markets over the next three to six months -- for July 17.Zacks said the Chicago-based real estate investment trust continued to experience poor operations in the first quarter, with large rent rolldowns, low (but rising) occupancies, and high capital expenditures. "Earnings will continue to suffer dilution through dispositions, as the company cannot replace lost income fast enough," Zacks said. The company said there are better office REIT alternatives with safer dividends, but added that "we are starting to see improving fundamentals in some of the company's key markets." Zacks can be found online at http://www.zacks.com, and the REIT can be found at http://www.equityoffice.com.

RealtyTrac, an online foreclosure marketplace based in Irvine, Calif., has reported that the number of new properties entering some stage of foreclosure fell 5% in June, although it was still higher than that of a year earlier.The company's U.S. Foreclosure Market Report indicates that 88,195 new foreclosure properties were added to the rolls in June, down 17% from the level recorded in June 2005. "New U.S. foreclosures dropped to their lowest level of the year in June, despite some of the sensational and misleading figures that we've seen reported recently," said James J. Saccacio, RealtyTrac's chief executive officer. "We think it's irresponsible to present falsely inflated numbers to the media for commercial gain as we've seen happen recently. The fact is that most states, with the notable exception of California, Ohio, and Nevada, reported decreased numbers of foreclosure filings in June." The company said Colorado recorded the highest foreclosure rate of any state for the fourth consecutive month in June, although it actually declined 12% from the level in May. RealtyTrac can be found online at http://www.realtytrac.com.

Freddie Mac has announced the selection of JPMorgan Worldwide Securities Services to provide transaction processing and recordkeeping services for its approximately $700 billion portfolio of mortgage-backed securities and short-term assets.Freddie Mac said the decision to outsource the functions is part of an effort to upgrade its technological capabilities and streamline its operating infrastructure. JPMorgan Worldwide will provide administrative and settlement services for Freddie's estimated $700 billion retained portfolio of longer-term assets (chiefly Freddie Mac-issued MBS) and an estimated $70 billion liquidity and contingency portfolio of short-term assets, the government-sponsored enterprise said. Freddie senior vice president Joseph Rossi said the move would simplify the company's operating environment and enable it to manage its investment assets at the Federal Reserve Bank and the Depository Trust Co. more efficiently. He praised JPMorgan's "state-of-the-art systems," scalable infrastructure, and technology management experience with governments and central banks. The companies can be found online at http://www.freddiemac.com and http://www.jpmorgan.com.

National City Corp., Cleveland, took a $115 million hit in the second quarter due to hedging losses on its residential servicing portfolio.The company -- which is contemplating exiting the subprime business -- has taken $243 million in servicing-related hedging losses so far this year. The entire bank, overall, earned $473 million in the quarter, but its A-paper mortgage unit lost $52 million. Its residential subprime business, though, had a strong second quarter, posting a $148 million profit. (Its net mortgage profit for the quarter totaled $96 million.) NatCity has adopted a policy of selling into the secondary market all subprime loans funded by its First Franklin Financial affiliate. During a conference call on July 18, company officials blamed the hedging losses on the implementation of a new model to estimate mortgage loan prepayments. In a statement, it notes that prepayments "are a significant factor" in determining the asset value of mortgage servicing rights. Even though the bank may sell First Franklin, it called the company a "fabulous" business.

One class of MASTR Second Lien Trust 2005-1 mortgage pass-through certificates has been downgraded by Fitch Ratings, and two classes have been placed on Rating Watch Negative.Class M-10 was downgraded from BB-minus to B, and classes M-8 and M-9 were placed on watch. The downgrade and Rating Watch placements were attributed to the failure of overcollateralization to reach the target amount, Fitch said. "The slow OC growth is a result of deterioration in the dollar amount of excess spread due to much faster-than-expected prepayments and rising interest rates," the rating agency said.

One class of SACO I Trust second-lien mortgage-backed securities has been downgraded by Fitch Ratings, and four classes have been placed on Rating Watch Negative.Class B-4 of series 2005-2 was downgraded from BB to B, and the following classes were placed on watch: class B-3 of series 2005-1, class B-3 of series 2005-2, class B-4 of series 2005-3, and class B-4 of series 2005-4. The downgrade and Rating Watch placements reflect a decline in overcollateralization and a belief that the OC will not reach the target amounts for the five classes, Fitch said. "The OC deterioration is a result of reduction in the dollar amount of excess spread due to much faster-than-expected prepayments and rising interest rates," the rating agency said. Fitch can be found online at http://www.fitchratings.com.

Meanwhile, manufacturing-dependent Midwestern states are continuing to record foreclosure rates that are well above the national average, according to ForeclosureS.com, Fair Oaks, Calif.The investment advisory firm said the level of foreclosure activity in Chicago is more than double the national average. "The Chicago metro area as a whole posted a miniscule increase in May after a 57% jump in April, but in Cook County, the increase was about 4%," said Alexis McGee, president of ForeclosureS.com. Ms. McGee said a healthy housing market in Chicago has been enabling many financially distressed homeowners to sell their way out of foreclosure, but that this has not been the case in Michigan. "Over 10,000 homes have actually been lost in foreclosure in Michigan this year," she said. "Massive layoffs and plant closings by the major automakers have dealt a heavy blow to that state."

Foreclosure activity is accelerating in Georgia and Florida, according to ForeclosureS.com, a Fair Oaks, Calif.-based investment advisory firm.The publisher of foreclosure information said nearly 30,000 properties were in some stage of foreclosure in Florida as of mid-July, about a third of them in South Florida. Rising interest rates and a cooling housing market are causing the rise in foreclosures, according to Alexis McGee, president of ForeclosureS.com. "In Atlanta, for example, the inventory of unsold homes had grown by 28.2%, to 43,862, over the last six months," Ms. McGee said. "The foreclosure pace in Georgia is almost double what it was in May of 2005." The company can be found online at http://www.foreclosures.com.