Servicing

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.

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.