Servicing

Fannie Mae reported net income of nearly $2.7 billion in the third quarter, up 168% from that of the same period last year.Diluted earnings per share were up 175% to $2.69. However, Fannie Mae prefers to measure its "core operating earnings," which differ from the net income measure prescribed under generally accepted accounting principles. Core earnings were up 12% to $1.8 billion, or $1.83 per share. Net interest income totaled $3.5 billion, up 34.7%, and guaranty fee income totaled $613 million, up 32.6%, Fannie Mae reported. By contrast, credit-related expenses more than doubled to $28.6 million, and the government-sponsored enterprise reported losses of $902 million from the call and repurchase of debt, compared with $138 million in the third quarter of 2002. Chairman and chief executive officer Franklin Raines touted the results. "In a quarter marked by historic levels of volatility in the fixed-income markets, our company continued to benefit from the disciplined strategies for growth that have resulted in consistently strong financial performance through a wide range of economic and financial environments," he said. Fannie Mae can be found online at http://www.fanniemae.com.

The Federal Home Loan Banks purchased nearly $23.8 billion in single-family loans under the Mortgage Partnership Finance program in the third quarter, up slightly from the total recorded in the second quarter.The Chicago FHLBank reported that single-family MPF loan purchases rose by 7.7% in the third quarter, up from $22.1 billion in the second quarter. MPF loans funded in the third quarter of 2002 totaled only $6.1 billion. Over 90% of the loans funded in the third quarter were conventional loans, as opposed to government-guaranteed loans. And MPF loans outstanding totaled $81.5 billion as of Sept. 30, up 136% from a year ago. The MPF gives FHLBank members a "better deal" than selling their loans to Fannie Mae and Freddie Mac, according to Chicago FHLBank president Alex Pollock. "The MPF program also benefits the mortgage finance system more broadly," Mr. Pollock said. "As it grows, the mortgage credit risk is spread among hundreds of lending institutions, which is a sounder strategy than concentrating it in two giant companies."

The Bond Market Association has revised its recommended voluntary practice guidelines for secondary market trading in certain European-style callable securities issued by government-sponsored enterprises.Specifically, the association has revised the appendix C portion of the guidelines that deals with calculations for option-adjusted spread pricing. The association's revision reflects "technical improvements and current market conditions, specifically growing investor interest and the fact that multiple analytic and trading platforms and data vendors have recently begun supporting trading and/or analysis of ECSs in conformity with the guidelines," the association said. The association can be found on the Web at http://www.bondmarkets.com.

Alice Sorenson has been named senior vice president for loan administration of Master Financial Inc., an Orange, Calif.-based mortgage banking company that buys and services alternative lending products.She will be responsible for loan servicing, collections, customer service, loss mitigation, asset management, bankruptcy, records management, and investor operations. Before joining Master Financial, Ms. Sorenson served as senior vice president of finance and asset management at Ameriquest Mortgage Co.

Bank of America Corp., Charlotte, N.C., has reported a tripling of mortgage banking income in the third quarter along with record earnings of $2.92 billion ($1.92 per share), an increase of more than 30% from $2.24 billion ($1.45 per share) a year earlier.Mortgage banking income totaled $666 million in the quarter, an increase of 203%, BoA said. Noninterest income increased 38% to $4.44 billion, driven by growth in mortgage banking, credit card, and investment banking income, as well as improvements in equity investments and increases in trading account profits, the company said. BoA can be found online at http://www.bankofamerica.com.

Two classes of CWMBS (Countrywide Home Loans) Inc. mortgage pass-through certificates, series 2001-10 (ALT 2001-6), have been downgraded by Fitch Ratings and removed from Rating Watch Negative.The downgrades were as follows: class B-3, from BB to B; and class B-4, from B to C. The ratings on four other classes in the deal were affirmed. The downgrades were attributed to loss levels, loss expectations, and high delinquencies relative to the applicable credit support.

Redbrick Partners LP, New York, has launched what it says is the first professionally managed U.S. single-family housing equity fund, opening up a "massive new asset class" to investors.Redbrick said it has developed processes that make the acquisition, financing, and renting of individual homes cost-effective. "It's surprising that there has not been more professional ownership of single-family housing in the U.S.," said Jonas Lee, a managing director at Redbrick. "After all, a vast number of individuals have seen huge gains in the value of their own home. .... But the commercial real estate world has focused on large multifamily buildings due to the perceived difficulty of buying and managing a large number of homes one by one." The company said there are more than a dozen established real estate funds in Europe that buy and rent single-family housing. Redbrick can be found on the Web at http://www.redbrickpartners.com.

Two classes of Diversified Asset Securitization Holdings II LP have been downgraded by Fitch Ratings.The downgrades were as follows: class A-2L, from AA-minus to A-minus; and class B-1, from BBB-minus to BB-minus. Class B-1 was also removed from Rating Watch Negative. Fitch said DASH II is a collateralized debt obligation that was originated and managed by Asset Allocation & Management LLC, but that Western Asset Management Co. became the substitute asset manager for AAMCO in October 2002. The portfolio backing the CDO consists of residential and commercial mortgage-backed securities and commercial and consumer asset-backed securities. Fitch said its review of the credit quality of the collateral and a cash-flow analysis indicated that the original ratings assigned to the downgraded classes "no longer reflect the current risk to noteholders." Fitch can be found online at http://www.fitchratings.com.

Class C of HarbourView CDO III Ltd. -- which is backed by residential and commercial mortgage-backed securities, among other securities -- has been downgraded from BBB to BBB-minus by Fitch Ratings.Fitch also affirmed the ratings on two other classes of the collateralized debt obligation. The CDO is backed by a portfolio of RMBS, general asset-backed securities, CMBS, and other CDOs. The rating agency attributed the downgrade to a continuing deterioration in the credit quality of the underlying portfolio. "HarbourView III holds a number of securities that Fitch has identified as having the potential to impair the ability of the CDO to pay ultimate interest and principal on the class C notes," Fitch said. "The portfolio has experienced a significant credit deterioration in various sectors, including aircraft, manufactured housing, commercial real estate, small business loans, subprime credit card, and mutual fund fee securitizations." Fitch can be found online at http://www.fitchratings.com.

Prepayment rates slowed "far less than expected" for seasoned 6.0%-7.0% agency mortgage-backed securities in the September reporting period, according to the Bear Stearns Prepayment CommentaryAnalysts Dale Westhoff and Bruce Kramer said the latest speeds "suggest that the processing delay between new and seasoned MBS expanded significantly during the final leg of the refinancing wave." The slowdown in constant prepayment rates for seasoned 6.0%-7.0% coupons ranged from 5% to 20%, the analysts said, compared with a 35%-45% CPR decline for new Fannie Mae 5.5s and 6.0s. "The contradiction between leading indicators and actual reported speeds indicates that the sharp sell-off in June sparked a massive rush by borrowers to lock in rates in late June and early July, a rush that was even larger than we had anticipated," the analysts said. They predicted that seasoned high coupons would "play catch-up" to expected speed declines over the next two reports. Bear Stearns can be found online at http://www.bearstearns.com.