Servicing

Royal Bank of Scotland has agreed to purchase Charter One Financial Inc., Cleveland, a top-30 residential servicer, for $10.5 billion.Charter One is also the nation's 40th-largest residential funder, according to figures compiled by MortgageWire and the Quarterly Data Report. After the deal is completed, RBS, which also owns Citizens Financial Group Inc., Providence, R.I., will rank among the 10 largest commercial banks in the United States. The deal adds $43 billion in assets, 616 retail branches, and 8,400 employees to RBS's growing U.S. banking empire. Together, Charter One and Citizens will boast assets of $128.8 billion and 1,400 branches. The transaction value of approximately $10.5 billion is based on a cash purchase price of $44.50 per share. Charter One's principal subsidiary, Charter One Bank, converted from a thrift charter to a national bank charter in 2002. Charles John Koch, Charter One's chairman and chief executive officer, said Citizens Financial "shares our operating philosophy, strategies, and customer focus. Our geographic footprints fit together perfectly." The companies can be found online at http://www.citizensbank.com and http://www.charterone.com.

In the first quarter, 43% of the homeowners who refinanced their homes got a mortgage at least 5% larger than the original loan, nearly unchanged from a revised 44% in the previous quarter, according to Freddie Mac.The percentage was slightly higher than the 41% level recorded a year earlier, the government-sponsored enterprise said in its quarterly refinance review. "With mortgage rates above the 46-year low of last June, the refinance volume is less than last summer's," said Frank Nothaft, Freddie Mac's chief economist. "The share of cash-out refis tends to rise when overall refinancing activity slows down because fewer borrowers find it economical to refinance their mortgages simply for a lower rate, but the cash-out alternative may be a very affordable option." Freddie Mac can be found online at http://www.freddiemac.com.

NovaStar Financial Inc., Kansas City, Mo., has reported net income of $29.7 million for the first quarter, up from $23 million in the same period of 2003.Approximately 23% of the company's subprime business comes from its net branches, which fell from 432 as of Dec. 31 to 383 in the first quarter, the company said. While selectively eliminating branches, NovaStar increased nonconforming loan production and securitized $1.7 billion in nonconforming mortgage loans. The company also reported that its lending arm, NovaStar Mortgage, received an SQ2 rating from Moody's Investors Service, the second-highest mark in the industry, for above-average loss mitigation on loans and average foreclosure timeline management results. NovaStar Mortgage can be found online at http://www.novastarmortgage.com.

Four classes of First Nationwide Trust mortgage pass-through certificates have been downgraded by Fitch Ratings.The downgrades were as follows: series 2000-1 group II, class II-B-5, from B to CCC, and series 2001-4 groups III, IV, and V, class D-B-3, from BBB to BB; class D-B-4, from BB to CCC; and class D-B-5, from B to C. Fitch also upgraded 18 classes and affirmed the ratings on 26 classes in eight deals. The rating agency attributed the downgrades to loss levels, loss expectations, and "severely delinquent loans in the pipeline" relative to applicable credit support.

Five classes of CWMBS (Countrywide Home Loans) Inc. residential mortgage-backed certificates have been downgraded by Fitch Ratings.The downgrades were as follows: series 2000-4 (Alt 2000-1), class B3, from B-minus to CCC; series 2001-3 (Alt 2001-2), class B3, from BB to B and removed from Rating Watch Negative, and class B4, from B to C and removed from Rating Watch Negative; and series 2001-8 (Alt 2001-5), class B-3, from BB to B and removed from Rating Watch Negative, and class B4, from CC to C. In addition, class B2 of series 2000-4 (Alt 2000-1) was placed on Rating Watch Negative, five other classes were upgraded, and the ratings on 12 others were affirmed. The rating agency said the actions stemmed from loss levels and loss expectations relative to the applicable credit support. Fitch can be found online at http://www.fitchratings.com.

Moody's Investors Service has raised the servicer rating on Fairbanks Capital to SQ3, which signifies average, from a below-average rating of SQ4.The rating, for primary servicing of subprime loans and for special servicing, reflects operational improvements, a stabilizing legal and regulatory environment, effective servicing performance, and below-average financial stability for the firm, Moody's said. The rating incorporates an expectation that Fairbanks will be able to successfully renegotiate its bank lines and maintain adequate liquidity to fund its operations, Moody's said, adding that failure to do so "could have serious rating consequences."

Foreclosures in the Chicago metropolitan area are continuing at a rate far above their historical average, according to Foreclosures.com, a distressed property investment advisory firm based in Fair Oaks, Calif.New weekly foreclosure filings in the Chicago area averaged 508 in March and the first two weeks of April, the firm reported. "That's almost double the normal historic baseline of 260 per week for the six Chicago metro counties," said Alexis McGee, president of Foreclosures.com. She said "protracted unemployment" is only one of the causes of the foreclosure surge, and pointed to a warning by economists at Bank One about relaxed loan qualification standards in the secondary mortgage market. "The easy money that was so plentiful during the recent boom in housing is coming back to haunt both borrowers and lenders," Ms. McGee said. Foreclosures.com can be found on the Web at http://www.foreclosures.com.

Standard & Poor's Ratings Services has revised its outlook for Cendant Corp. to positive from negative.At the same time, S&P raised its outlook for Cendant subsidiary PHH Corp. to stable from negative. The change reflects "good operating momentum amid relatively healthy economic conditions, the reduction of about $800 million in corporate debt in 2003, and the expectation that approximately $2 billion in additional corporate debt will be eliminated by the end of 2004," the rating agency said. S&P affirmed the BBB corporate rating on Cendant and the BBB-plus counterparty rating on PHH. At the end of last year, Cendant Mortgage was the 10th-largest residential servicer in the U.S., owning servicing rights on $139 billion of home loans. S&P can be found online at http://www.standardandpoors.com.

Freddie Mac has announced that, as part of an ongoing review of its mortgage participation certificate disclosure practices, it will implement enhancements for all PC pools beginning in July 2004.These enhancements are intended to promote transparency as well as improve the accuracy of payment and disclosure. Specifically, Freddie will disclose three new elements: First Payment Distribution, to provide the loan count, the percentage of unpaid principal balance, and the percentage of all loans underlying the related PC that have not yet reached their first payment date; First P&I Payment, representing the first date on which principal as well as interest will be due on this type of mortgage in a PC pool; and Weighted Average Original Loan Size, the weighted average of the origination amounts for mortgages in all PCs as of pool formation. Additional enhancements will be instituted as of July. Freddie Mac can be found online at http://www.freddiemac.com.

Subprime servicing specialist Ocwen Federal Bank, FSB, has entered into a supervisory agreement with its regulator, promising to end certain billing practices and to expedite the handling of consumer complaints.The Office of Thrift Supervision has been monitoring the W. Palm Beach, Fla., thrift for several years due to consumer complaints that continue to dog the company. OTS did not levy any fines against the federally chartered thrift. But the regulator is demanding quick action to implement a "best practices" approach to servicing that is outlined in the supervisory agreement. Ocwen chairman and chief executive William Erbey said Ocwen is committed to excellence in customer service. "We are grateful for the insights gained in our on-going dialogue with OTS and consumer interest organizations, and will continue to strive for ways to better serve our clients." Despite the supervisory agreement, Fitch Ratings said it is not changing Ocwen's credit rating or its servicer rating.