Servicing

LOGS Financial Services, Northbrook, Ill., a default management and outsourcing provider for the mortgage industry, has announced the expansion of its services into the subprime and chattel mortgage markets.The company has formed a subprime default management group in its Outsourcing Division, with an emphasis on manufactured housing. LOGS said it recently contracted to service delinquent loans in Baton Rouge, La., to complement the work being done in its Northbrook and Jacksonville, Fla., locations. "Losses in the manufactured housing market continue to rise to the point where fewer financing opportunities exist for the purchase of new units," said Michael C. Barron, LOGS' general counsel. "This has resulted in higher pricing for these loans and, consequently, a higher default risk. By applying the process-driven structure of our Outsourcing Division to the management of these loans for our servicing clients, we are confident we can reduce the cost of liquidation while ensuring the best possible recovery on the collateral value." LOGS said it is also expanding its default management services to handle mixed collateral loans, home equity, and other unusual financing arrangements. The company can be found online at http://www.logs.com.

Four classes of IndyMac Manufactured Housing Contract pass-through certificates have been downgraded by Fitch Ratings.The downgrades were as follows: series 1997-1, class M, from BBB to B; series 1998-1, class M, from BBB to B; series 1998-2, class M-1, from BBB-minus to B, and class M-2, from BB-minus to CCC. In addition, the ratings on 14 other classes from the three deals were affirmed. The rating agency noted that IndyMac exited the manufactured housing lending business in mid-1999 but continues to operate its mortgage loan servicing operation in Pasadena, Calif. Fitch attributed the downgrades to poor performance of the underlying manufactured housing loans, whose higher-than-expected losses have led to "the complete depletion of overcollateralization on all three transactions." Fitch can be found online at http://www.fitchratings.com.

Southern Financial Bancorp. and Essex Bancorp, both of Virginia, have announced a merger that will spin off Essex's wholly owned mortgage subservicing subsidiary.Following the bank merger, the existing shareholders of Essex Bancorp will own 75.1% of LoanCare, Essex's servicing unit. Southern Financial will own 24.9% of LoanCare. LoanCare is a nationwide subservicer of loans for various investors. Gene D. Ross, currently chairman and chief executive officer of Essex Bancorp, will become the CEO of LoanCare.

At least nine employees at Freddie Mac have been fired by the company in the wake of its earnings restatement scandal, a source at the company has confirmed to MortgageWire.Four of those let go include chairman and chief executive Leland Brendsel, president David Glenn, chief financial officer Vaughn Clarke, and Gregory Reynolds, a former comptroller who last year moved over to the business side of the company. (Technically, Mr. Brendsel retired and Mr. Vaughn resigned.) Freddie declined to provide MW with the names of the other five employees. Mr. Reynolds, who could not be reached for comment, is mentioned in the new internal "Doty Report" on the accounting scandal. His name appears in regard to the accounting for loan-loss reserves and how the company might have made adjustments to these reserves to meet the earnings expectations of Wall Street analysts. According to the report, Mr. Reynolds told investigators that if "corporate accounting had a legitimate reason," adjustments to reserves could be made, but he "conceded that the rationale for these adjustments often was not very well documented." However, the report adds that "no evidence of an adjustment of this nature that exceeded $37 million" was found and that on no occasion did these adjustments move earnings "more than five cents a share."

Class B of Delta Funding Corp.'s series 2000-4 mortgage-backed securities transaction has been downgraded from CCC to CC by Fitch Ratings.Fitch attributed the rating action to higher-than-expected loss levels that have depleted the overcollateralization in the deal to zero and resulted in a writedown of more than $92,000 to class B. "Furthermore, the presence of a 36-month interest-only strip siphons off excess spread that would otherwise be available to cover losses and build [overcollateralization] in the deal," Fitch said.

Nine classes from five BankAmerica manufactured housing transactions have been downgraded by Fitch Ratings and two others have been placed on Rating Watch Negative.The downgrades were as follows: series 1995-BA1, class B-2, from B to CCC; series 1997-1, class M, from BB-minus to CCC, and class B-1, from CCC to C; series 1997-2, class M, from B-plus to CCC, and class B-1, from CC to C; series 1998-1, class B-2, from BB to B (and removed from Rating Watch Negative); and series 1998-2, class M, from A-plus to BBB (and removed from Rating Watch Negative), class B-1, from BB to B, and class B-2, from B to CCC. Classes M and B-1 of series 1998-1 were placed on Rating Watch Negative. In addition, the ratings on 19 other classes from the five MH deals and from a sixth were affirmed. Fitch attributed the downgrades to higher-than-expected losses that have caused "significant interest shortfalls to various subordinate bonds in the transactions." BankAmerica Housing Services was purchased by Greenpoint Credit in 1998. Although Greenpoint exited the manufactured housing lending business in January 2002, the company continues to service its MH portfolio, Fitch noted. The rating agency can be found online at http://www.fitchratings.com.

The commercial mortgage primary servicer rankings of NorthMarq Capital Inc. and Legg Mason Real Estate Services Inc. have been placed on CreditWatch with negative implications by Standard & Poor's Ratings Services.S&P said the actions were based on the recent announcement that the Minneapolis-based NorthMarq is acquiring the commercial mortgage banking and mortgage servicing operations of the Baltimore-based LMRES. "Throughout the pre-closing and post-acquisition transition periods, Standard & Poor's will be assessing the progress and efficacy of NorthMarq's integration plan, particularly as it relates to converting systems, recasting the organizational structure, and blending procedures to ensure the maintenance of quality and efficiency," the rating agency said. Both NorthMarq and LMRES are currently ranked Above Average as commercial mortgage primary servicers by S&P.

In June, when the Freddie Mac accounting scandal broke wide open, the company saw its loan purchases decline slightly from the previous month while its issuance of participation certificates fell by $8 billion, or 12%.Freddie Mac bought $75.27 billion in mortgages during the month, compared with $77.41 billion in May. However, compared with those of June 2002, the company's loan acquisitions actually doubled. According to figures released by the company July 24, Freddie's purchase commitments -- a barometer of future activity -- stood at $63.63 billion, a 12-month high. Freddie Mac can be found on the Web at http://www.freddiemac.com.

A just-released internal audit of the Freddie Mac restatement scandal blames former chief executive Leland Brendsel and president David Glenn, saying the two men "failed to take prompt corrective action" when it became clear that the company's corporate accounting department lacked the necessary "depth and expertise."The report, managed by outside counsel James Doty, says the two men ignored specific pleas by the board in the fall of 2001 and the spring of 2002 to fix the department. The Doty report says the two men controlled "the flow of information" and kept the board in the dark about its accounting and disclosure problems. The report also says Mr. Glenn attended a meeting where the company's former auditors (Arthur Andersen) expressed concerns that the corporate accounting department "lacked leadership," while complaining that compensation levels in the department were "too low" to retain critical talent. Messrs. Brendsel and Glenn could not be reached for comment. Freddie Mac can be found online at http://www.freddiemac.com.

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.)