Servicing

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.

Three classes of GSRPM Mortgage Loan Trust, series 2002-1, have been downgraded by Fitch Ratings.The downgrades were as follows: class M-1, from AA-minus to A; class M-2, from BBB to BB; and class B, from BB-minus to B. Fitch also affirmed the rating on one class in the transaction. The downgrades were attributed to a deterioration in the relationship between credit enhancement and loss expectations. As of the March 25 distribution, cumulative losses had exceeded the loss trigger maximum at 8.44%, "causing the trigger to fail for the remainder of the pool's life," Fitch reported. 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. The rating agency can be found online at http://www.fitchratings.com.

LoanCare Servicing Center Inc.'s residential primary servicer rating for prime product has been upgraded from RPS3-minus to RPS3 by Fitch Ratings.The Norfolk, Va.-based LoanCare, the loan subservicing subsidiary of LandAmerica Financial Group Inc., was cited by Fitch as having "capable and tenured management team, effective loan administration procedures, and improvement to its formal training program." The rating agency also cited the financial strength of the Richmond, Va.-based LandAmerica. Fitch rates residential servicers on a scale of 1 to 5, with 1 being the highest rating.

Fannie Mae has announced the introduction of Benchmark REMICs, a multiclass real estate mortgage investment conduit security with enhanced structural, price transparency, and liquidity features for fixed-income investors.The company said it expects to issue the first Benchmark REMIC in this quarter and up to two deals per quarter thereafter. Fannie said the securities will have four characteristics designed to improve liquidity and price transparency: syndicated dealer distribution; a large Guaranteed Maturity Class, with a stated final maturity; a minimum new-issue size of $1 billion for each GMC; and live price quotes on TradeWeb for the GMCs. The securities will generally be collateralized by pools of Fannie Mae fixed-rate, first-lien, single-family mortgages. Peter Niculescu, executive vice president for capital markets, said the move "should help us better serve our affordable housing mission by attracting more capital to the U.S. housing market through broadened distribution of Benchmark REMICs to a potentially more diverse mortgage investor base globally." Freddie Mac introduced a similar program, Reference REMICs, last year.

Fannie Mae is encouraging lenders and servicers to participate in a Mississippi housing assistance program, despite some legal concerns about the subordination agreements they have to sign to work with homeowners receiving the assistance grants."Servicers that opt-in have our consent to subordinate our lien to the required covenant and will have no liability to Fannie Mae for the consequences of such subordination," the government-sponsored enterprise says in a letter to lenders and servicers. The deadline for signing up for the state housing program is April 21. Homeowners can receive up to $150,000 in grants to rebuild homes that were destroyed or damaged by Hurricane Katrina. By participating, lenders and servicers will help homeowners with the execution of the closing documents for the grants. Lenders are assured that the loan will be made current and taxes will be paid. But after that point, the homeowner has complete control of the funds and there is no guarantee or requirement that the assistance be used to repair the property or pay down the mortgage.

The Prestwick Mortgage Group, Alexandria, Va., is brokering the sale of mortgage servicing rights on a $1.8 billion portfolio of Fannie Mae and Freddie Mac loans.The weighted average note rate is 5.664%, and the weighted average servicing fee is 0.3869%. The portfolio has 33 months of weighted average seasoning and a 1.86% delinquency rate, including foreclosures. The vast majority of the loans, 88.3%, are backed by homes in North Carolina, with most of the rest coming from Virginia, South Carolina, or Georgia. The seller is a Southeastern bank. The bid deadline is April 26.