Servicing

Freddie Mac is projecting third-quarter earnings of $600 million, including a $190 million after-tax hit due to storm damage caused by hurricanes Katrina and Rita.It projects earnings of $2.1 billion through the first nine months of the year, a 19% decline from those of the same period last year. In a conference call late Dec. 1, the government-sponsored enterprise said it now has a GSE market share of 45%, compared with 41% last year. Freddie Mac, which is almost finished working its way through a $5 billion accounting scandal, is required by its regulator to have excess capital of $12 billion. At the end of September it surpassed that goal by $4.7 billion, spurring it to increase its dividend. (See related story below.)

Mortgage lenders and brokers added 8,000 full-time employees to their payrolls in October after completing a robust third quarter in which originations hit levels not seen in two years.The U.S. Bureau of Labor Statistics reported Friday that employment in the mortgage industry rose from 527,400 in September to 535,400 in October. (There is a one-month lag in BLS reporting of mortgage-sector employment data. The November data will be released Jan. 6.) The number of people working in the mortgage industry has increased by more than 100,000 since January 2004. But it appears that the housing boom has reached a turning point, and additional hiring may end soon. The Mortgage Bankers Association's mortgage application index dropped from 713.5 in the last week of September to 635.5 for the week ended Nov. 18. Friday's employment report indicates that the U.S. economy generated 215,000 new jobs in November and the unemployment rate remained unchanged at 5.0%. The BLS can be found online at http://stats.bls.gov.

Countrywide Home Loans, Calabasas, Calif., the nation's largest mortgage banking firm, plans to close two "central processing units," cutting about 300 jobs in the process. The company labeled the moves as "strategic" but also cited a downturn in loan applications and what a spokesman called a "seasonal" decline in production. The CPUs that will be shuttered Jan. 3 are in Westlake Village, Calif. (200 jobs), and Sunrise, Fla. (100 jobs). The company said it will rely more on its 39 regional operations centers. Come January it will have just two CPUs, which are more national in scope. Lenders are starting to experience a decline in loan production, but executives say their biggest concern isn't volume but profit margins. They cite a flat yield curve as a key factor and the reluctance of some originators to raise their rates.

Three classes of mortgage-backed securities from various transactions aggregated by Lehman Brothers Inc. have been downgraded by Moody's Investors Service.The downgrades were as follows: Structured Asset Securities Corp. series 2001-BC1, class M1, from Aa2 to A3, class M2, from A2 to Baa3, and class M3, from Baa2 to Baa3. In addition, Moody's upgraded 45 classes, confirmed the ratings on two classes, placed six classes on watch for possible upgrade, and withdrew the ratings on eight classes following their redemption. The downgrades were prompted by credit enhancement levels that are low in view of projected losses on the underlying pools, Moody's said.

Three subordinate tranches from two subprime mortgage transactions issued by Metropolitan Asset Funding Inc. in 1999 and 2000 have been downgraded by Moody's Investors Service.The downgrades were as follows: series 1999-B, class B-2, from Ba2 to B2, and class B-3, from B2 to Caa2; and series 2000-A, class M-2, from B3 to Caa2. The downgrades were attributed to the weaker-than-expected performance of the mortgage pools and the resulting erosion of credit support. "Specifically, the overcollateralization in the 1999-B deal is almost completely depleted and the class B-3 certificates are likely to experience losses in the near future," Moody's said. "In addition, the overcollateralization in the 2000-A deal has been fully exhausted, the class B-1 certificates have been fully written down, and the class M-2 certificates have realized losses." The pools are backed by first-lien fixed-rate subprime mortgage loans, and they include "a significant amount" of seller-financed loans and loans with small average balances, the rating agency reported. Moody's can be found online at http://www.moodys.com.

Freddie Mac has extended its foreclosure moratorium for three months in the areas devastated by hurricanes Katrina and Rita, and it has given its servicers the leeway to suspend mortgage payments for certain borrowers for up to 12 months."We strongly encourage borrowers now benefiting from the mandatory forbearance that expired [Dec. 1] to contact their mortgage servicers as soon as possible to discuss next steps," Freddie vice president Patricia Chen said. Fannie Mae's forbearance policy allows for the suspension of mortgage payments for up to 18 months. Fannie also expects its servicers to "discontinue any foreclosure or collection activities until they can review any effect the disaster may have had on the condition of the property or the borrower's employment or income status." Nearly 100,000 homes in New Orleans and 500,000 homes in the Gulf Coast region are uninhabitable, according to numbers compiled by Consumers Union. Lenders and servicers also are having problems getting in touch with borrowers displaced by the hurricanes. "For those borrowers ready and able to resume payments, that will mean repayment plans and loan modifications; for other borrowers, particularly those whose homes remain uninhabitable and are not sure of their plans, forbearance can be extended," Fannie spokesman Brian Faith said. The government-sponsored enterprises can be found online at http://www.freddiemac.com and http://www.fanniemae.com.

Fannie Mae reported late Wednesday that it had misclassified $10.3 billion in loan purchases over the past two years, counting single-family acquisitions as multifamily and vice versa.The company, which is working its way through an $11 billion accounting scandal, said the misclassification will not affect earnings. A company spokeswoman told MortgageWire that the problem was caused by a "coding" mistake. She also said the government-sponsored enterprise will no longer specify its loan purchases as single-family or multifamily on a monthly basis, offering that information only quarterly. It will continue to publicize its total purchases each month under the data point called "business volume."

Class BF-1 of Saxon Asset Securities Trust series 2000-1 has been placed under review for possible downgrade by Moody's Investors Service.The certificates are secured by fixed- and adjustable-rate home equity loans. The underlying collateral "appears to be performing worse than Moody's original expectations," the rating agency said. Moody's added that the severity of loss on the liquidated loans may increase due to a higher concentration of manufactured housing loans. The rating agency can be found on the Web at http://www.moodys.com.

Fitch Ratings has downgraded NetBank's residential mortgage primary servicer rating from RPS3-plus to RBS3 for prime-quality loans.Fitch attributed the downgrade to recent profitability pressure and management's "delayed response in correcting repeat audit findings and customer service call center delays." The rating agency said NetBank's operating results have been hurt by the poor performance of the company's mortgage lending business. Specifically, Fitch cited concern about what it termed weaknesses in management's ability to promptly address audit findings relating to claims processing, delays in foreclosure referral, the timeliness of policy and procedural updates, and insufficient outbound calling campaigns in the area of default management. Fitch also cited concern about customer service hold times and abandonment rates in the call center, which "rose significantly above industry averages." Fitch said the weaknesses cited in the audit have either been corrected or are subject to an action plan to correct them. Fitch's servicer ratings are based on a scale of one to five, with one being the highest rating. The rating agency can be found online at http://www.fitchratings.com.

A county jury in Galveston, Texas, has awarded a Texas woman $11.5 million in damages and attorneys' fees, finding that Ocwen Federal Bank engaged in "unfair, unlawful, and deceptive" loan servicing practices, according to attorneys for the plaintiff.According to the complaint, 64 year-old Sealy Davis took out a home equity loan secured by her Texas residence in 2002, and Ocwen serviced the loan. The complaint alleges that after Ms. Davis missed a payment due to illness, Ocwen failed to credit her for money that had been paid and began to foreclose upon her home while assuring her that she was on a repayment plan. In reaching the civil verdict, the jury voted 10 to 2 in favor of the plaintiff and against Ocwen, the defendant in the case. Ms. Davis's lead attorney was Robert Hilliard, who says he has an additional 100 clients with similar predatory-servicing complaints against Ocwen. Ocwen was preparing a response to the jury award that was not yet available by MortgageWire's deadline.