Servicing

The rapid growth of Freddie Mac's mortgage portfolio over the past 10 years is no longer "feasible," according to the company's top executive."You should expect a slowing in the rate of growth," a Freddie Mac spokeswoman said, confirming statements made by Freddie's chairman and chief executive, Richard Syron, in interviews with two newspapers. Over the past 10 years, Freddie Mac's portfolio has grown to $637 billion, fueling the government-sponsored enterprise's profitability. But its growth has also raised concerns about its financial risks. However, Freddie's portfolio has shrunk during the past five months and is down 5.5% since the beginning of the year. Fannie Mae's portfolio has also shrunk, but the company says it believes rising short-term interest rates will create a buying opportunity soon and restart the growth of its $881 billion mortgage portfolio.

Three classes of notes issued by Independence I CDO Ltd., a collateralized debt obligation partly composed of residential and commercial mortgage-backed securities, have been downgraded by Fitch Ratings.The downgrades were as follows: class A, from AAA to AA-plus; class B, from AA-minus to A-minus; and class C, from BBB to BB. Fitch attributed the downgrades to declining overcollateralization ratios. The CDO consists of approximately 24.1% RMBS, 21.9% CMBS, 47.5% asset-backed securities, and 6.5% CDOs, the rating agency said. Fitch can be found online at http://www.fitchratings.com.

GMAC Mortgage Corp., Horsham, Pa., has announced the introduction of a no-annual-fee credit card that helps cardholders pay down their mortgage via rewards for retail purchases.Holders of the GMAC Mortgage Equity Rewards MasterCard, issued by MBNA America Bank, earn one point for every dollar in net retail purchases charged to the platinum card, the company said. When a cardholder accumulates 2,500 points, $25 is credited automatically to the cardholder's mortgage principal with GMAC Mortgage. There is no annual limit on points or how many Equity Rewards can be used to reduce mortgage principal, the company said. "Paying even a few hundred dollars extra each year toward mortgage principal can save thousands over the life of a 30-year mortgage," said Rick Gillespie, chief marketing officer at GMAC Mortgage. For example, quarterly Equity Rewards payments of $50 on a 30-year, $150,000 mortgage with a 6.5% fixed annual percentage rate would save $16,975 and reduce the term of the mortgage by 17 months, the company said. GMAC Mortgage can be found online at http://www.gmacmortgage.com, and MBNA can be found at http://www.mbna.com.

Investment banker Sandler O'Neill, a long-time bull on Fannie Mae, has reduced its earnings estimates on the mortgage giant, citing the company's troubles with its $8 billion manufactured housing portfolio.Sandler O'Neill analyst Mike McMahon reduced his 2004 earnings estimate by $0.17 a share to $7.83. Mr. McMahon notes in an analyst report that Fannie will take an after-tax hit of between $156 million and $169 million on the MH portfolio. Sandler, though, is maintaining a "buy" rating on the company. "The primary risk to our target price continues to be headline/political risk," it says.

Fannie Mae chairman and chief executive Franklin Raines is predicting that commercial banks will soon loose their appetite for investing in mortgages as short-term interest rates rise."The one thing we know is that the carry trade that banks conduct in mortgages doesn't last forever," he told a UBS Warburg financial services conference. In response to critics such as Federal Reserve Board Chairman Alan Greenspan, Mr. Raines argued that Fannie's ability to purchase and portfolio mortgage loans and securities plays an important role in providing liquidity to the market when other investors no longer find it lucrative to invest in mortgages. "Without our mortgage portfolio, both investors and consumers would feel the pain," he said. Investors would not be able to find a ready buyer when they want to sell their mortgage holdings and mortgage rates would skyrocket -- hurting consumers, according to Fannie's CEO. "But we will be ready to stabilize the mortgage market," Mr. Raines said.

Citigroup, one of the most active buyers in the mortgage space over the past few years, has agreed to pay $1.26 billion for Principal Residential Mortgage, Des Moines, Iowa, the nation's 11th-largest residential servicer.The acquisition, which is expected to close by year-end, will make CitiMortgage, O'Fallon, Mo., the nation's fifth-largest residential funder and servicer. CitiMortgage currently ranks seventh in servicing, and eighth in production, according to figures compiled by National Mortgage News and the Quarterly Data Report. Once completed, the sale will leave Cendant Mortgage, Mt. Laurel, N.J., and GMAC Mortgage, Horsham, Pa., the lone nondepositories among the top 15. Cendant was almost sold to Countrywide Home Loans about a month ago, but the sale fell apart late in the negotiation process. In its May 10 issue, NMN broke the news that Citi was talking to Principal Financial Group, the insurance parent of PRM, about a deal.

Class B-1F of Amresco Residential Securities Corp. mortgage pass-through certificates series 1997-3, group 1, has been placed on Rating Watch Negative by Fitch Ratings.In addition, the ratings on 23 classes in several Amresco deals were affirmed, Fitch said. The Rating Watch Negative placement was attributed to loss levels and high delinquencies relative to the applicable credit support.

Two classes in two CWMBS (IndyMac) Inc. mortgage pass-through deals have been downgraded by Fitch Ratings.The downgrades were as follows: series 1995-C, class B4, from BB to B and removed from Rating Watch Negative; and series 1995-K A1, class B1D, from CCC to C. Fitch also affirmed the ratings on 20 residential MBS classes in six transactions and removed the following classes from Rating Watch Negative: series 1995-K A1, class B1C; series 1995-K A2, class B2D; series 1995-K A3, class B3C; series 1995-K A4, class B4C; and series 2000-E, class B3. The rating agency said the downgrades stemmed from loss levels and high delinquencies relative to the applicable credit support. Fitch can be found online at http://www.fitchratings.com.

Entrust Financial Services Inc., Denver, has announced a restructuring of a $2 million convertible promissory note.Entrust said the company and the noteholder agreed to amend and restate the terms of the note, which will bear interest at a rate of 12%. Its maturity date has been extended to May 1, 2006, and uncured events of default have been waived, Entrust said. Jeff Rudolph, the company's executive vice president and chief financial officer, said Entrust will reduce its annual interest charge by $640,000 per year as a result of the restructured debt. The company can be found online at http://www.entrustfs.com.

Class BF of Countrywide asset-backed securities series 2000-2, group 1, has been placed on Rating Watch Negative by Fitch Ratings.Fitch also affirmed the ratings on 12 CWABS classes and removed class BV of CWABS series 2000-2, group 2, from Rating Watch Negative. Fitch attributed the negative rating action to loss levels that exceeded the amount of group 1's excess spread in recent months.