Servicing

Countrywide Financial Corp., Calabasas, Calif., has reported earnings of $582 million ($0.94 per share) for the third quarter, down 47% from $1.1 billion ($1.93 per share) in the record-setting third quarter of last year.Pretax earnings by the company's mortgage banking operations totaled $633 million in the third quarter, down from $1.41 billion a year earlier. "On a year-over-year basis, third-quarter earnings are difficult to compare given the record refinance volume and the convergence of other favorable events experienced during last year's third quarter, which generated by far the best financial results in the company's history," said Angelo R. Mozilo, Countrywide's chairman and chief executive officer. ".... In line with a reduction in volume and a loan production mix shift to lower-margin adjustable-rate product, overall production margins declined 43 basis points from last year and 12 basis points from the second quarter of 2004, to 82 basis points." Countrywide said its servicing portfolio rose to a record $786 billion, up $141 billion from the level at the start of the year. As of shortly before noon Wednesday, Countrywide's stock had fallen 13.7%, to $32.36 per share. The company can be found online at http://www.countrywide.com.

Downey Financial Corp., Newport Beach, Calif., says it will sell most of its third-party mortgage servicing rights after taking an $18.4 million impairment hit in the third quarter.In the firm's quarterly earnings report, CEO Daniel Rosenthal said that after the end of the third quarter, Downey entered into agreements to sell about 80% of its MSRs on loans serviced for others. "Virtually all of the underlying loans represent borrowers with whom we have no other business relationship," he said, adding that the sale of the third-party servicing should reduce earnings volatility in future quarters. Downey reported net income of $24.5 million in the third quarter, or $0.88 per share, down 16.2% from the third quarter of last year.

Fannie Mae estimates that half of subprime borrowers have only slightly blemished credit records, and the mortgage giant intends to be more aggressive in serving this market, according to Fannie Mae chairman and chief executive Franklin Raines."Fannie is moving ahead with a concerted effort to serve the subprime market," Mr. Raines told the America's Community Bankers annual convention. "And helping our ACB partners compete and succeed in this market is a vital part of the strategy." [It could not be immediately determined whether this would require a charter revision for the government-sponsored enterprise.] Mr. Raines noted that $323 billion of subprime loans were originated last year and the market is growing. "We estimate that about half of subprime borrowers have only slightly blemished credit and are just a notch away from qualifying for Fannie Mae's prime conventional financing," Mr. Raines said. He added that Fannie Mae could serve those subprime borrowers without lowering its credit standards. Fannie Mae can be found online at http://www.fanniemae.com, and ACB can be found at http://www.americascommunitybankers.com.

Bank of America Corp., Charlotte, N.C., has reported net income of $3.76 billion ($0.91 per share) for the third quarter, up from $2.92 billion ($0.96 per share) a year earlier, but said it had taken a $250 million loss in its mortgage banking operations.The loss in mortgage banking income resulted from lower origination volume and a writedown of mortgage servicing rights, BoA said. The company also reported that it realized $732 million in securities-related gains "as it repositioned its mortgage-backed securities to reduce mortgage prepayment risk." BoA touted its commercial MBS underwriting operations, saying it had become the top U.S. deal manager in CMBS in the first nine months of 2004. The company can be found online at http://www.bankofamerica.com.

The Pennsylvania Supreme Court needs to reconsider its decision involving bailee letters (used to facilitate sales of residential loans) in order to avoid disruption in the state's mortgage market, according to warehouse lender JPMorgan Chase Bank.Over 50% of all U.S. residential loans are shipped under a bailee letter, the New York bank says in an amicus brief on behalf of a defunct Los Angeles-based warehouse lender, Pioneer Commercial Lending Corp. Bailee letters protect a lender's ownership in loans that are being shopped to potential investors. In the Pioneer case, the purchaser erred by wiring the funds to an account of the wrong lender, which CoreStates Bank used to cover overdrafts by that lender. "The decision has effectively elevated the behavior of one party over the plain terms of the contract ... and creates the danger that lenders cannot protect themselves against potential purchasers that take liberties with the documents," the amicus brief says. The brief discloses that Pioneer has a $5 million loan from JPMorgan Chase Bank that is secured by the litigation.

The senior unsecured debt of GMAC Commercial Mortgage Bank PLC and GMAC Commercial Mortgage Japan KK has been downgraded from BBB-plus to BBB by Fitch Ratings as part of a broader downgrade of debt issued by General Motors Corp., General Motors Acceptance Corp., and related entities.Fitch also affirmed the corresponding commercial paper ratings at F2, and left the Rating Outlook at Negative. The rating agency attributed the downgrades and outlook to GM's "margin compression," weakness in its truck and car portfolios, and "significant post-employment benefit obligations." But it said GMAC's automotive and mortgage finance operations "have exceeded expectations and are projected to continue to perform well." The rating agency can be found online at http://www.fitchratings.com.

The board of directors of the Federal Agricultural Mortgage Corp., Washington, has for the first time declared a quarterly dividend on its three classes of common stock.The Farmer Mac board declared a dividend of $0.10 per share of class A and class B voting common stock and class C nonvoting common stock. The dividend will be payable on Dec. 31 to stockholders of record as of Dec. 15. The board also declared a regular quarterly dividend of $0.80 per share on the corporation's 6.40% cumulative preferred stock, series A.

The American Securitization Forum has appointed Thomas Deutsch to succeed Laura Stothmann as its associate director.Mr. Deutsch was previously an associate in the capital markets department of Cadwalader, Wickersham & Taft LLP, where he represented issuers and underwriters in residential mortgage-backed securitizations and other structured finance offerings. The forum can be found online at http://www.americansecuritization.com.

Four classes of Ocwen Residential MBS Corp. mortgage-backed securities have been downgraded by Fitch Ratings.The downgrades were as follows: Ocwen 1998-R1, class B-3, from BBB to BBB-minus; Ocwen 1998-OFS1, class B, from BBB to BBB-minus (and removed from Rating Watch Negative); and Ocwen 1999-R2, class B-2, from A to BBB, and class B-3, from B to CCC. Fitch also affirmed the ratings on 10 classes from the aforementioned Ocwen deals plus two others. The downgrades were attributed to "poor collateral performance and the deterioration of asset quality beyond original expectations."

Fitch Ratings is warning that disparities in the alternative-A sector of the residential mortgage-backed securities market have rendered the term Alt-A nearly meaningless for investors.The rating agency said bonds issued by many sellers in the alt-A market "bear unprotected credit risks because of the implications from borrower credit, risk layering, and intangibles." Fitch maintains that the alt-A sector should be segmented into three subsectors: Prime Alt-A, Alt-A-minus, and Alt-B. "As lenders have embraced a wider credit spectrum under the alt-A banner, there is such a blurring of the original definition of alt-A that the term should hold little meaning to investors," said Cheryl Glory, co-author of a new Fitch report titled "Who Put the Alt in Alt-A?" The report is based on a study of over 71,000 alt-A loans issued by GMAC-RFC and Indy Mac Mortgage Corp. in 1999 and 2000. "The analysis of intangibles is vital to understanding the credit risk in alt-A," said the other report co-author, Sarbashis Ghosh. "An issuer's underwriting and credit standards have a great impact on pool performance." Examples of such intangibles are FICO sourcing, valuation procedures, and multiple risk layering, Fitch said. The rating agency can be found online at http://www.fitchratings.com.