Servicing

New foreclosure activity fell 16% in New York City in February, according to Foreclosures.com, a real estate investment advisory firm based in Fair Oaks, Calif."While this is an improvement over the slowly rising foreclosure rate of the last few months, you have to remember that New York City is a city of renters," said company president Alexis McGee. "Only 26% of the city's housing stock is owner-occupied." The company can be found online at http://www.foreclosures.com.

Freddie Mac has announced the timeframe for submitting stockholder proposals in connection with its annual stockholders' meeting later this year.To be considered for inclusion in Freddie Mac's proxy statement, stockholder proposals must be submitted in writing to Corporate Secretary, Freddie Mac, 8200 Jones Branch Drive MS 200, McLean, Va., 22102, and received by May 24. Freddie Mac said it will announce the dates for submitting stockholder proposals to be introduced from the floor and for stockholder nominations of candidates for election as directors when it announces the date of the annual meeting. Procedural requirements for such proposals and nominations are available online at http://www.freddiemac.com.

Moody's Investors Service has published a report explaining its approach to assessing the risks of U.S. collateralized debt obligations backed by the debt of real estate investment trusts.CDOs backed by REIT trust securities or subordinate debt are "the newest phase in the continued expansion of the $30 billion trust preferred market," Moody's said. "The TRUPs space also includes transactions backed by bank and insurance sector assets." In the report, titled "Moody's Approach to Rating U.S. REIT CDOs," Moody's said its rating approach to REIT CDOs is an extension of its methodology for CDOs backed by bank and insurance TRUPs. REIT CDOs are important sources of funding for small to midsize REITs that have had limited access to the capital markets, the rating agency said. REIT TRUPs are typically nonamortizing, with 30-year maturities and five- or 10-year noncall periods, while subordinate REIT securities are generally nonamortizing and usually have maturities of 10 to 20 years, Moody's said. The rating agency can be found online at http://www.moodys.com.

Meanwhile, foreclosures rose significantly in several Western and Southwestern housing markets in the first quarter, according to ForeclosureS.com, a Fair Oaks, Calif.-based investment advisory firm.Alexis McGee, president of the firm, said the increases coincided with the cooling of previously overheated markets. "The biggest increases were in major urban centers around the West," Ms. McGee reported. "For example, Los Angeles County recorded 6,314 pre-foreclosure filings and foreclosures through March, up from 4,911 in Q4 of 2005, while in San Diego the numbers jumped from 1,565 in Q4 of 2005 to 2,241 in Q1 of 2006." The company can be found online at http://www.foreclosures.com.

RealtyTrac, an online foreclosure marketplace based in Irvine, Calif., has reported that 323,102 properties nationwide entered some stage of foreclosure in the first quarter, a 38% increase from the level recorded in the previous quarter and a 72% year-over-year increase.The company's 2006 Q1 U.S. Foreclosure Market Report is based on the company's database of pre-foreclosure and foreclosure properties, which it says includes more than 600,000 properties in more than 2,500 counties across the country. "The sharp increase in foreclosures in Q1 continues a steady upward trend that we've observed since the beginning of last year," said James J. Saccacio, RealtyTrac's chief executive officer. "Foreclosures have now increased in four consecutive quarters and are on track to go above 1.2 million in 2006, which would push the nation's annual foreclosure rate to more than 1% of U.S. households." Mr. Saccacio added, however, that foreclosures had declined 13% in March, which he said could indicate that the foreclosure rate is leveling off. The company said Georgia, Colorado, and Indiana had the nation's highest foreclosure rates in the first quarter. RealtyTrac can be found online at http://www.realtytrac.com.

Freddie Mac has announced that it will conduct cash tender offers during the week of April 24 for the repurchase of a targeted group of European-style callable debt securities with expired options.Freddie Mac said it will offer to repurchase all outstanding amounts of the selected securities from investors through Morgan Stanley, the designated lead manager for the offers, or J.P. Morgan Chase and UBS Investment Bank, the designated co-dealer managers. Each eligible security will be repurchased at a fixed spread to an outstanding Freddie Mac Reference Notes security.

Capstead Mortgage Corp., Dallas, has reported a net loss from continuing operations of $2.35 million ($0.12 per share) for the first quarter, compared with net income of $2.54 million ($0.13 per share) a year earlier.Capstead attributed the loss to a payment of preferred-share dividends totaling $5.06 million. Earnings improved from those of the fourth quarter, but financing spreads narrowed as a result of higher borrowing rates, the company said. "As a result, first-quarter earnings, while improved, still fell short of quarterly preferred dividend requirements, resulting in a loss per common share," Capstead reported. The company said its mortgage securities portfolio grew by more than $400 million to approximately $4.8 billion in the first quarter, as acquisitions of adjustable-rate mortgage securities totaled $832 million, more than offsetting $403 million of portfolio runoff. Capstead can be found on the Web at http://www.capstead.com.

The Federal Home Loan Bank of Cincinnati has suspended two voluntary affordable housing programs for Katrina victims and minority homebuyers due to proposed capital changes that could carry a $500 million price tag.A preliminary estimate by the Cincinnati bank shows that it would need to increase retained capital by $109 million and repurchase $421 million in excess stock if the Federal Housing Finance Board finalizes the proposed capital rule. The comment period on the proposal ends July 13. FHLBank Board Chairman Charles Koch said the board of directors is "deeply disappointed" about temporarily suspending the two AH programs. "Good corporate governance will not allow us to continue funding the multimillion-dollar voluntary housing programs until we are in a position to know the full extent of our retained earnings shortfall and the negative impact this proposed regulation would have on our business model," he said. Mr. Koch is chairman of Charter One Bank NA.

Freddie Mac is "directing" servicers to participate in the Mississippi homeowners' assistance program even though the mortgage giant is annoyed that residents are not required to place their rebuilding grants in escrow accounts.State residents are already applying for the Community Development Block Grant funds, and they can receive up to $150,000 in grants to rebuild homes that were destroyed or damaged in Hurricane Katrina. By opting into the Mississippi program, servicers can help borrowers with closing documents that have to be filled out to receive the grants and they are assured that part of the proceeds will be used to bring the loan current and pay the taxes. However, there is no requirement that the homeowners repair or rebuild their homes. "[W]e are concerned about the lack of controls on the use of the grant proceeds," Freddie says in a letter to servicers. If the recipients use the funds for other purposes, the letter says, lenders could be forced to foreclose or charge off mortgages on uninhabitable and damaged homes. "In light of these risks, we urge servicers to encourage borrowers to voluntarily escrow their grant proceeds so the servicer can help them use the grants to repair damaged properties or to address outstanding mortgage obligations," Freddie says in the April 18 letter.

Freddie Mac has agreed to pay $410 million to settle class action lawsuits filed by investors who lost millions of dollars when the company restated earnings tied to its $5 billion accounting scandal.Unveiled after the market closed on April 20, the settlement will reduce the government-sponsored enterprise's first-quarter income by $220 million (after taxes). Individual and institutional investors, including the Ohio Public Employees Retirement System, sued the mortgage giant, charging the company, its top officers, and its directors with securities fraud tied to alleged misstatements about its finances. The investors lost millions when the share price of their Freddie Mac stock plummeted in value. In June 2003 Freddie's then chairman and chief executive, Leland Brendsel, and other top officers were forced out as allegations about accounting improprieties began to mount. Freddie Mac can be found online at http://www.freddiemac.com.