Servicing

Seven classes of ContiMortgage Corp. Home Equity Loan Trust certificates have been downgraded by Fitch Ratings.The downgrades were as follows: class B of Conti 1998-1, from BBB to B; class B of Conti 1998-2, from BBB to BB; class B-I of Conti 1998-3 group I, from BBB-minus to B; class B of Conti 1998-4, from BBB to B; class B of Conti 1999-1, from BB to CCC; and class B of Conti 1999-3, from BB to B. In addition, the ratings on class B-1 of Conti 1998-3 group I, class B of Conti 1999-1, and class B of Conti 1999-3 were removed from Rating Watch Negative. Fitch also affirmed the ratings on 37 ContiMortgage classes. The downgrades were attributed to a decline in credit enhancement relative to applicable credit support. "The spikes in losses are the effect of the recent procedural changes made by the servicer, Fairbanks Capital Corp., to its processes regarding the reconciliation of property values used in its net present value model," Fitch said. The rating agency can be found online at http://www.fitchratings.com.

Although revenues in J.P. Morgan Chase's home finance unit fell 32% in the third quarter, the company was able to generate net income of $1.63 billion ($0.78 per share), up from $40 million ($0.01 per share) a year earlier."Our focus on execution against the backdrop of an improving economy has resulted in significant reductions in risk concentrations, strong year-over-year earnings growth, and improved competitive positions," said William B. Harrison Jr., J.P. Morgan Chase's chairman and chief executive officer. "I am especially pleased by the improvements in our commercial credit portfolio." Hedging of mortgage servicing rights during the quarter generated a net loss of $6 million. The company's home finance unit also suffered some losses from loan pipeline hedging and customer rate-lock extensions.

Buoyed by record mortgage originations, Wells Fargo & Co., San Francisco, has reported net income of $1.56 billion ($0.92 per share) in the third quarter, up 8% from $1.44 billion ($0.84 per share) a year earlier.The EPS figure was also a record, the company said. Wells Fargo said its mortgage origination volume totaled an industry record $161 billion in the third quarter, up from an industry record $135 billion in the second quarter. "Year to date we have originated an industry record of $399 billion, already surpassing the $333 billion we originated for all of last year," said Mark Oman, Wells Fargo's group executive vice president for home and consumer finance. The owned mortgage servicing portfolio rose to $674 billion in the third quarter, up 18% from the level recorded a year earlier, the company said. Mortgage servicing rights were carried on the balance sheet at $5.8 billion on Sept. 30, up from $3.8 billion as of June 30, Wells Fargo said. Wells Fargo can be found on the Web at http://www.wellsfargo.com.

Meanwhile, during a conference call with investors and analysts, Washington Mutual acknowledged more details about the loan pipeline problems that led to a shake-up in the senior management of the company's mortgage group in the third quarter.Kerry Killinger, chairman and chief executive officer of WaMu, said that as a result of both interest rate volatility and operational problems, some WaMu loan applications were not funded during the rate-lock period through no fault of the consumer. He said WaMu honored the interest rate locks despite the rising rate conditions, which caused WaMu to sell the loans at a loss, as previously disclosed. In addition, problems with the "timeliness" of information flows about the mortgage application pipeline led to insufficient hedging of the interest rate risk in the hedging. Mr. Killinger said WaMu is now confident that those operational problems have been corrected.

Washington Mutual, Seattle, earned $1.03 billion in the third quarter, despite losing $126 million during the period in connection with mortgage loan sales.But WaMu, which had warned the market in early September about its loan loss problem, did well in the quarter in part because it offset losses by reducing its servicing amortization rate -- at least that's the opinion of stock analysts who cover the mortgage banker. Smith Barney analyst Matt Vetto wrote in a research note that WaMu "used its toolkit to offset a loss from a widely-advertised hedging glitch." Mr. Vetto added that WaMu suffered a sequential decline in its servicing portfolio and is losing market share. In the second quarter WaMu reported a $475 million gain in regard to mortgage sales. Morgan Stanley analyst Ken Posner noted in his analysis that WaMu "missed consensus estimates [on earnings] by a sizeable amount." He added that "operational issues" at the mega-thrift, the nation's largest servicer of home mortgages, are "detracting significantly from current economic results." However, he said the risks facing WaMu "are not catastrophic in our view."

America's Community Bankers member banks and thrifts sold $33 billion in one- to four-family mortgages during the first nine months of this year through strategic alliances set up by the trade group with Fannie Mae, Freddie Mac, and private wholesalers.Since the first alliance with Fannie Mae was launched in May 2001, the ACB mortgage program has been a conduit for $55 billion in loans, according to ACB. "The mortgage programs couldn't have come along at a better time," said William Zuppe, a savings bank executive from Spokane, Wash. It has allowed ACB members -- especially the smaller members -- to participate in this "terrific boom in refis over the last couple of years," he said. Mr. Zuppe becomes the ACB chairman Oct. 22 when the current chairman, Russell Taylor, hands him the gavel at ACB's annual convention in Las Vegas.

To get a true understanding of Freddie Mac's financials one would have to "triangulate," Freddie executive vice president and chief operating officer Paul Peterson told a press luncheon Oct. 20 at the Mortgage Bankers Association of America's annual convention in San Diego.He compared it to using a global positioning system, which uses three reference points to get an accurate location. A single summary statistic does not give an accurate measure of Freddie Mac, according to Mr. Peterson. Part of the problem is that a large portion of assets are being marked to market but liabilities are not, which he said will result in volatility in Freddie Mac's financial statement. The fair-value balance sheet is more important because it marks to market all assets and all liabilities. Separately, Mr. Peterson said that unlike Fannie Mae, Freddie Mac expects to meet all three of its affordable housing goals. During a refinance boom it becomes a challenge to meet these goals, but earlier this year Freddie Mac was very active in seeking out portfolios of loans to meet the affordable housing criteria, he said.

Karl Meyer has been named director of national operations at LOGS Financial Services Inc., a provider of default management systems based in Northbrook, Ill.LOGS said Meyer will focus on improving communications between the company's outsourcing division and the law firms around the country that LOGS works with on behalf of mortgage servicers. Mr. Meyer has six years of experience in default servicing and private legal practice in the areas of construction, land use, real estate, mortgage banking, and lender liability. LOGS can be found online at http://www.logs.com.

RBMG Inc., a subservicer based in Columbia, S.C., has joined an alliance between Freddie Mac and the Independent Community Bankers of America.The alliance's new RBMG private-label subservicing option will help lenders retain mortgage customers, enhance cross-selling opportunities, and keep costs low, Freddie Mac and the ICBA said. They said the arrangement offers a "state-of-the-art call center" and around-the-clock access to mortgage information. Payments are permitted from all ICBA member bank locations that allow borrowers to make in-person payments, and a non-competition agreement prevents RBMG from competing for loan origination business or any other financial service the lender offers, according to Freddie Mac and the ICBA. The alliance can be found online at http://www.freddiemac.com/singlefamily/icba.html.

Banks and thrifts that are members of America's Community Bankers sold $33 billion in one- to four-family mortgages during the first nine months of this year through strategic alliances the trade group has set up with Fannie Mae, Freddie Mac, and private wholesalers.Since the first alliance with Fannie Mae was launched in May 2001, the ACB mortgage program has been a conduit for $55 billion in loans, according to ACB. "The mortgage programs couldn't have come along at a better time," said William Zuppe, a savings bank executive from Spokane, Wash. It has allowed ACB members -- especially the smaller members -- to participate in this "terrific boom in refis over the last couple of years," he said. Mr. Zuppe will become the ACB chairman Oct. 22 when the current chairman, Russell Taylor, hands him the gavel at ACB's annual convention in Las Vegas.