Servicing

Countrywide's stock got slammed in trading early Thursday, and company chief executive Angelo Mozilo told MortgageWire that short-sellers "are spreading rumors that we have accounting problems."Mr. Mozilo emphasized strongly that the rumors "are totally untrue" and that speculators are trying to drive down the price of the company's stock as a way to make money. (Unlike investors that are "long" stocks, short-sellers profit when a firm's stock price declines.) The CEO of the nation's third-largest residential lender said short-sellers are trying to cash in by using what he called "exquisite" timing and focusing on accounting problems at Freddie Mac and the fact that bond yields are beginning to creep up. At one point, Countrywide's stock was down $6 a share on Thursday, the CEO said. But at MW's deadline early Thursday afternoon, the stock had bounced back a bit and was trading at $71.20, down almost 5%. Countrywide Financial Corp. can be found online at http://www.countrywide.com.

The Fixed Income Clearing Corp., New York, has announced plans to develop central counterparty capabilities for the clearance and settlement of mortgage-backed securities, which it says will "significantly reduce risk, lower costs, and bring increased operational efficiencies to that marketplace."The MBS Division of FICC currently links security buyers and sellers for allocation, clearance, and settlement outside the clearing corporation, requiring settlement with multiple counterparties. The new system would incorporate all the clearing and settlement processes within FICC. The corporation said it would also provide members with a guaranty for eligible trades by interposing itself between the original trading parties and becoming the legal counterparty for settlement purposes. "This approach would break new ground for mortgage-backed securities customers," said Tom Costa, FICC's president and chief operating officer. ".... In fact, a basic objective of this initiative is to provide a seamless processing environment from TBA trade capture straight through to pool delivery and settlement." FICC is a subsidiary of The Depository Trust & Clearing Corp., which can be found online at http://www.dtcc.com.

Fairbanks Capital, the Salt Lake City-based mortgage servicer that has come under fire for controversial collection practices, has finalized the restructuring of the company's financing.The company said the agreement extends financing for servicing advances and working capital through Sept. 30, 2004. However, Fitch Ratings has downgraded Fairbanks' ratings as a servicer of subprime and home equity loans both as a primary and special servicer. However, Fitch removed Fairbanks from Rating Watch Negative and placed it on "evolving" watch status. Fitch said the change, which follows an onsite review of Fairbanks' loan servicing centers, reflects the company's strengthened financial condition, but also reflects uncertainty with regard to the company's "pending settlement with the Federal Trade Commission and the Department of Housing and Urban Development."

Freddie Mac says it is complying with regulators' instructions and has frozen all trading of restricted stock, or the exercise of options, owned by two former executives -- former chairman and chief executive Leland Brendsel, who retired, and former president and chief operating officer David Glenn, who was fired.Freddie Mac's human resources director Mike Hager stressed that the company did not provide Mr. Brendsel with a severance package, even though he worked at Freddie Mac since 1982. However, the former CEO has vested stock options and restricted stock worth $21.1 million. Meanwhile, Mr. Glenn will forfeit $11.2 million in unvested stock options and restricted stock because he was fired, according to the company. Mr. Glenn was fired for failing to cooperate with an internal inquiry into the company's accounting problems. The Office of Federal Housing Enterprise Oversight and the Securities and Exchange Commission asked for the freeze while they investigate Freddie Mac's accounting problems. OFHEO maintains that it has the authority to approve the compensation packages, but Mr. Brendsel's attorney argues otherwise. "We are complying in all respects with OFHEO and SEC," Mr. Hager said. "These executives will not get a nickel more than their 1990 [employment] agreements provide. OFHEO will decide if they get a nickel less." Mr. Glenn's attorney, Tom Vartanian, could not be reached for comment.

Countrywide Financial Corp., Calabasas, Calif., hopes to service $650 billion of home loans by the end of this year, chairman Angelo Mozilo told investors at the company's annual meeting.Mr. Mozilo said the company has experienced "the largest amount of servicing portfolio growth among the 10 largest servicers" over the past year. At the end of May, Countrywide serviced $537 billion of home loans for more than four million customers, up from $452 billion at the end of 2002. The company can be found online at http://www.countrywide.com.

Fannie Mae has told its employees to keep quiet about the Freddie Mac accounting scandal and not to discuss it with anyone outside the company.It has also requested that its employees not send out any e-mail about what has occurred at Freddie Mac. "We've told them not to speculate or discuss the issues," a spokeswoman for the company said, adding: "We don't know what's going on, and we want to be very careful -- for legal reasons." On June 9 Freddie Mac fired its president, David Glenn, when it was revealed that he altered diaries regarding the firm's reaudit. As part of the same move, the company announced the retirement of its long-time chairman and chief executive officer, Leland Brendsel, and the resignation of executive vice president Vaughn Clarke. Fannie Mae can be found online at http://www.fanniemae.com.

Standard & Poor's Ratings Services has announced that it is revising the "form of comfort" it will request for the securitization of prepayment penalties.For transactions closing on or after July 1, the rating agency will request a representation and warranty that the prepayment penalties in the deal are enforceable and were originated in compliance with applicable federal, state, and local laws. For net interest margin securities, the reps and warranties should be made in the documents for the underlying mortgage-backed securitization, S&P said. "As with all other representations and warranties relating to origination and enforceability matters, S&P will rely on issuers to stay informed as to legal requirements governing prepayment penalties," the rating agency said. S&P noted that under an Office of Thrift Supervision rule scheduled to take effect July 1, certain non-federally chartered mortgage lenders will no longer have federal pre-emption protection in charging prepayment penalties, but will be subject to state and local laws regarding the charging of such penalties.

Loan pools backed by adjustable-rate mortgages originated in recent years have no additional risk related to the low interest rates at which they were originated, according to Standard & Poor's Ratings Services.According to an S&P commentary titled "Low Interest Rates Pose No Eminent Risk in U.S. Adjustable-Rate Mortgages," residential mortgage origination volume topped $2.4 trillion in 2002, of which ARMs represented about 17%. Rising interest rates can cause defaults if payment increases are greater than borrowers' income growth. But S&P said when forecast income changes are used in the analysis of debt-to-income ratios under rising interest rates, the risk appears to be "negligible" under the various forecasts. "Even under unlikely scenarios, borrowers' debt-to-income ratios remain within standard underwriting guidelines," said Francis Parisi, a director in S&P's Structured Finance group and the author of the report. ".... Given the forecasts, the correlation between change in income and change in rates, and the seven-year average life of a typical mortgage, today's ARMs should not result in higher-than-average default rates should interest rates rise in the future."

Standard & Poor's has lowered its equity ranking of Freddie Mac to two-STARS "Avoid" at $46.96 per share, citing concerns about federal investigations and questions about the candor of the government-sponsored enterprise."We believe the company has been less than forthright in giving investors adequate information regarding recent investigations," said Erik Eisenstein, an S&P equity analyst of mortgage companies, thrifts, and government-sponsored enterprises. "Only yesterday [June 11], the company disclosed that an SEC inquiry had been in effect since January. We are concerned about the magnitude of the investigation and its potential political fallout." The announcement came through S&P's MarketScope, the rating agency's market intelligence service. S&P had reiterated Freddie Mac's three-STARS "Hold" ranking (in effect since Jan. 27, when it was downgraded from four-STARS "Accumulate") the day after Freddie Mac announced the firing of David Glenn as president and chief operating officer. STARS stands for Stock Appreciation Ranking System. S&P can be found online at http://www.standardandpoors.com.

David Glenn, who was fired June 6 by Freddie Mac, is walking away from the company with $12.7 million in stock but is forfeiting $11.1 million in stock grants, according to company documents.Leland Brendsel, who retired from Freddie Mac on Monday -- the same day the company announced his retirement (and Mr. Glenn's firing) -- leaves the secondary giant with almost $30 million in stock and another $21.1 million in stock grants that vested when he left. (Their stock holdings are based on a share price of $50.) Documents released by Freddie Mac note that Mr. Glenn is not entitled to any compensation after June 6 because he was "terminated for cause." As of MortgageWire's deadline, Freddie Mac had not yet released the compensation package for Vaughn Clarke, whose resignation also came on Monday. All three men left the company in the wake of a widening accounting scandal that has roiled the bond and mortgage markets.