Servicing

Freddie Mac's new chairman has admitted that the company's previous management engaged in a campaign to manage earnings by abusing accounting rules and that the mortgage giant's new chief executive Greg Parseghian was aware of some of the transactions in question, but ultimately was not responsible.Freddie chairman Shaun O'Malley went out of his way to show his support for Mr. Parseghian, saying he has been cooperating with an internal probe of the company "in good faith." On Wednesday morning Freddie's board released the results of an internal investigation into the restatement of its earnings, accusing past top management -- in particular former chief executive officer Leland Brendsel and president David Glenn -- of keeping the board in the dark about its accounting problems. Mr. O'Malley confirmed that "several" Freddie Mac employees have been fired as a result of the scandal, but would not give a precise number. (Former company employees are implicated in the report as well.) The report, led by outside counsel James Doty, says that senior management "also knew that corporate accounting lacked the necessary skill and resources to assure [that] the company's activities in this regard remained within the boundaries of GAAP." Messrs. Brendsel and Glenn could not be reached for comment. A spokeswoman for Freddie Mac said Mr. Parseghian would not comment "today" [Wednesday] and that "we are going to let the report speak for itself." (See the July 28 issue of National Mortgage News for full details.)

Countrywide Financial Corp., Calabasas, Calif., has reported record earnings of $383 million ($2.74 per share) for the second quarter, up 101% from $191 million ($1.48 per share) in the second quarter of last year.Countrywide said it was the company's ninth consecutive quarter of record earnings. Pretax earnings by the company's mortgage banking operations totaled $402 million in the second quarter, up 77% from that of a year earlier. "Mortgage banking results have been exceptional," said Angelo R. Mozilo, Countrywide's chairman and chief executive officer. "Year-to-date total fundings were $233 billion, which compares favorably to $252 billion in fundings for all of calendar 2002." Countrywide has expanded its servicing portfolio to $559 billion, nearly double the $282 billion as of the beginning of the refinance boom in November 2000, Mr. Mozilo said. "Our [mortgage servicing rights] capitalization rate now stands at 92 basis points," he said. "This low valuation level bodes well for servicing earnings performance after rates rise. Even if the entire $2.3 billion impairment reserve is recovered, the capitalization rate would still be below 140 basis points." The company can be found online at http://www.countrywide.com.

Stock speculators increased their bets against Fannie Mae and Freddie Mac in July, according to new short position figures compiled by Dow Jones & Co.Short positions in Freddie Mac increased sequentially (from June to July) by 64.5% to 8,232,315 shares. Shorts in Fannie increased by 12.6% to 16,697,993. Short-sellers borrow stock at what they view as an inflated price, selling those shares into the open market. Then, later on, they replace the borrowed shares by repurchasing the stock. If the repurchase price is lower than what they borrowed the stock for in the first place, the short-seller profits. Speculators have been increasing their bets against the two congressionally chartered companies in the wake of a reaudit scandal at Freddie Mac.

Class B-2F of Amresco Residential Securities Corp. mortgage pass-through certificates, series 1997-3, group 1, has been downgraded from CCC to D by Fitch Ratings.In addition, the ratings on eight other classes in the deal were affirmed, Fitch said. The downgrades were attributed to loss levels and high delinquencies relative to the applicable credit support.

Several hot California housing markets are finally cooling down as price appreciation slows and defaults rise, according to an online seller of foreclosed property.Foreclosures.com says Sacramento, which led the nation in home price appreciation early in the year, recorded price appreciation of only 1.4% in May, while prices fell 3.2% in San Francisco. "We're coming to the end of the seller's market cycle in the housing markets," said Alexis McGee, president of Foreclosures.com. "The price peak in this cycle was pushed up by record low interest rates, and I believe we're seeing the end of that cycle as well." New notices of default and trustee sales in Sacramento edged up to 21.3 per day in May and June, she said. The Fair Oaks, Calif.-based company also said New York City is "an isolated pocket of recession," noting its 8.1% unemployment rate vis-a-vis the national average of 6.4% and the average rate of less than 4% in contiguous counties. The company can be found online at http://www.foreclosures.com.

Class B-2 of Nomura Asset Securities Corp.'s commercial mortgage pass-through certificates, series 1994-MD1, has been downgraded from C to D by Fitch Ratings.The ratings on two other classes in the deal, A-3 and A-3X (interest-only), have been affirmed and removed from Rating Watch Negative. Fitch said the downgrade was due to realized losses that had been passed through to class B-2. The rating agency said two loans remain in the pool, one of which -- Canton Centre, a $17.7 million loan secured by a regional mall in Canton, Ohio -- is real estate owned, on which a loss is expected. Fitch can be found online at http://www.fitchratings.com.

Twenty-four senior and subordinate certificates from seven manufactured housing securitizations of United Companies Financial Corp. are being reviewed for possible downgrade by Moody's Investors Service.The affected classes of UCFC Funding Corp. manufactured housing contract pass-through certificates are as follows: series 1996-1, classes M and B-1; series 1997-1, classes M and B-1; series 1997-2, classes M and B-1; series 1997-3, classes A-3, A-4, M, and B-1; series 1997-4, classes A-3, A-4, M, and B-1; series 1998-1, classes A-2, A-3, M, and B-1; and series 1998-2, classes A-2 , A-3, A-4 , M-1, M-2, and B-1. Moody's said the review is prompted by continued deterioration in the performance of the pools, which have experienced rising delinquencies and repossessions and declining recovery rates. UCFC Funding was a wholly owned subsidiary of UCFC and was primarily responsible for originating and servicing UCFC's manufactured housing loans, the rating agency noted. UCFC filed for Chapter 11 bankruptcy protection in 1999, and the servicing of the loans was transferred to EMC in December 2000. Moody's can be found online at http://www.moodys.com.

Morgan Stanley has hired Frank Pallotta to run its institutional mortgage-banking desk.Mr. Pallotta previously was a managing director at Credit Suisse First Boston. In his new position, Mr. Pallotta will also co-head the Wall Street firm's loan conduit origination business.

ICT Group Inc., Newtown, Pa., has announced the signing of a three-year contract to provide customer care services to GMAC Mortgage, Horsham, Pa.Customers who call will receive assistance from a trained ICT professional on questions involving monthly mortgage statements, payment by phone, and taxes and insurance, ICT said. The company can be found on the Web at http://www.ictgroup.com.

Washington Mutual Inc., Seattle, has reported record earnings of $1.02 billion ($1.10 per share) for the second quarter, up from $990 million ($1.01 per share) a year earlier.Originations of single-family residential loans totaled $108.16 billion for the quarter, up from $50.17 billion a year earlier. The volume of home equity loans, home equity lines of credit, and multifamily loans totaled $9.46 billion, up 80% from $5.27 billion a year earlier, WaMu said. The company said it is on schedule to open approximately 250 retail banking stores and 70 home loan stores this year. WaMu also reported that its board of directors has declared a dividend of $0.40 per share of common stock, up 33% from $0.30 per share in the previous quarter. WaMu can be found online at http://www.wamu.com.