Servicing

Regina M. Lowrie, president, chief executive officer, and a founder of Gateway Funding Diversified Mortgage Services, has been nominated as vice chair-elect of the Mortgage Bankers Association of America.Ms. Lowrie will become the first woman to be elected an officer of the MBA at the association's 90th Annual Convention Oct. 19-22 in San Diego. She now serves as the chair of the MBA's Residential/Single-Family Board of Governors and has been on the MBA board of directors since 1996, the MBA said. Ms. Lowrie has also served as the chair of the association's political action committee, MORPAC, and as a member of various other committees.

Standard & Poor's has reiterated its three-STARS "Hold" equity ranking of Freddie Mac at $52 per share.S&P said the stock has been ranked a "Hold" since Jan. 27, 2003, when it was downgraded from four-STARS "Accumulate." The announcement came through S&P's MarketScope, the rating agency's real-time market intelligence service. "Shares are at a historically low price-to-earnings multiple, but with a low degree of confidence in earnings-per-share estimates in light of a pending restatement, we would hold the shares," says Erik Eisenstein, an S&P equity analyst of mortgage companies, thrifts, and government-sponsored enterprises. S&P's Stock Appreciation Ranking System is based on the opinions of S&P equity analysts on the price appreciation potential of 1,200 U.S. stocks for the next six to 12 months. Rankings range from five-STARS (Strong Buy) to one-STARS (Sell).

The rate-indicative benchmark 10-year Treasury yield hit record lows of around 3.2% before noon Tuesday, but bond market participants were saying they believed the debt markets would ultimately shrug off the flight-to-quality prompted by Freddie Mac's audit-related management shake-up.As of about 9:50 a.m. Tuesday, agency debt spreads to Treasuries had in total widened out about five or six basis points from where they stood before Freddie's initial announcement early Monday, according to Scott Graham, managing director and co-head of the agency group at Greenwich Capital. However, Mr. Graham told MortgageWire he believed that announcements by two rating agencies late Monday indicating that they had put certain ratings of Freddie Mac or its securities on watch for possible downgrade, as well as concerns expressed by a politician who has been a longtime critic of the government-sponsored enterprises, had not done much to further hurt spreads, which were at the tightest levels in six years prior to June 9. He said the fact that Freddie Mac's problems have come to light and that the GSE is correcting them should be good for agency spreads in the long term.

The firing of Freddie Mac president and chief operating officer David Glenn was prompted by "his lack of cooperation and candor" with a special counsel appointed by the board of directors' audit committee to investigate accounting errors.Mr. Glenn did not provide "open and candid responses to the questions he was asked," Freddie Mac's new president and chief executive Gregory Parseghian said during a conference call. When he submitted personal diaries to the special counsel, he admitted that they were altered and pages were missing. Mr. Parseghian also said Mr. Glenn provided information about what was altered, but the new CEO said he didn't know whether Mr. Glenn had provided any information from the missing pages. Freddie Mac officials emphasized that they are not characterizing Mr. Glenn's misconduct as fraud, and they maintain that it does not have any effect on the economics or value of the publicly traded company or its risk management position. Meanwhile, the Office of Federal Housing Enterprise Oversight said it is initiating an investigation into misconduct by Freddie Mac employees. Mr. Parseghian, who met with OFHEO Director Armando Falcon Jr. early Monday morning, said he is only aware of one employee who is a target of the OFHEO investigation. The resignation of executive vice president and chief financial officer Vaughn Clarke is not linked to misconduct, he said.

Mortgage giant Freddie Mac shocked the mortgage and bond markets Monday morning, announcing that its long-time chairman and chief executive Leland Brendsel had suddenly retired and that president and chief operating officer David Glenn had been fired.The company said Mr. Glenn had been let go because of "serious questions as to the timeliness and completeness of his cooperation and candor with the board's audit committee...." The company -- which is in the midst of reauditing its books -- said executive vice president Vaughn Clarke had resigned as well. The firm's stock price immediately plunged as news of the shakeup spread through the mortgage industry. One consultant close to Freddie Mac said he expects more firings and resignations in the weeks ahead. Meanwhile, Freddie's regulator, the Office of Federal Housing Enterprise Oversight, issued a statement saying it had created a special investigative team "to assume the review of accounting practices relevant to the restatement process." In the same statement, OFHEO blames Freddie Mac's reaudit woes on "management misjudgments that led to a misapplication of GAAP principles and disclosures of employee misconduct, specifically, altering and failing to supply documents relevant to the restatement process." In the wake of the firing and resignations, Freddie Mac named Gregory Parseghian as its president and CEO, and Shaun O'Malley as non-executive chairman. Paul Peterson has been named COO, and Martin Baumann CFO. In a conference call Monday, Mr. Parseghian tried to calm investors as well as the mortgage market. "Our key assets and capabilities are undiminished by the changes announced today," he said. "We have superior financial strength." Freddie Mac can be found online at http://www.freddiemac.com.

The Goldman Sachs Group is starting a market for derivatives based on mortgage prepayment speeds.The first auction of options and futures on prepayment speeds is scheduled to take place June 12. Thereafter, Goldman Sachs hopes to conduct the auctions on the second and fourth Thursday of each month. Each month, all extant options will effectively reopen as existing contracts. Goldman Sachs executives say that creating a market for prepayment derivatives will provide a better hedge for mortgage prepayment risk. "The key for the success or failure of this product is can we get mortgage servicers to participate," said Allen Brazil, managing director for mortgage and ABS research at Goldman Sachs, told MortgageWire. Buyers for the forwards and options will likely be mortgage servicers. Sellers of the derivatives are likely to include Wall Street firms, hedge funds, and other mortgage investors, Goldman Sachs believes.

Embattled subprime servicer Fairbanks Capital Corp., Salt Lake City, has fired its president and another top officer, MortgageWire has learned. A source familiar with the matter said, "more firings are in the works."In an unannounced move, Bill Garland, who had been president for about two years, was dismissed on May 23rd. Also let go a week ago Friday was Chris West, who was in charge of client and investor relations. Neither man is listed in the residential directory for Salt Lake City and could not be reached for comment. A spokeswoman for Fairbanks confirmed that Mr. Garland had left the company, but offered no other information about the matter. She would not comment at all on Mr. West. In regard to Mr. Garland the spokeswoman said, "There was no (press) release put out on it. We're just saying that he is no longer with the company." Fairbanks is under investigation by the Federal Trade Commission and the Department of Housing and Urban Development for its servicing practices. (See National Mortgage News issue of June 9 for more details.)

While affirming certain debt ratings for Cendant Corp. and its PHH Corp. subsidiary, Fitch Ratings says the outlook for the ratings of both firms is "negative."Fitch said the weak outlook for the travel sector weighed heavily on the negative outlook for Cendant, and that the action against Cendant affects the rating of mortgage subsidiary PHH. Fitch also said that the "cyclicality of the mortgage business" and the potential impact of current interest rates on the firm's mortgage servicing rights are factors in the negative outlook.

Accredited Home Lenders Holding Co., a subprime originator that has been one of the few companies in any industry to bring an initial public offering to market of late, has closed a $300 million securitization of first-lien loans through a subsidiary.Lehman Brothers Inc. was the lead manager of the transaction and Credit Suisse First Boston LLC. was the co-manager. The securitization was comprised of three classes of notes, each backed primarily by a pledge on one of three groupings of mortgages, the San Diego-based lender reported.

Standard and Poor's Rating Services has added Provident Funding Associates, Wachovia Bank, Washington Mutual Bank, RESIMAC Ltd., Archon Group Italia, and Pirelli & C. Real Estate Credit Servicing to its June Select Servicing List.Provident is now on the list as a residential mortgage servicer in the U.S. Wachovia gained a spot as an alternative residential mortgage servicer. In commercial mortgage servicing, Washington Mutual is now listed as a special servicer. On the international front, RESIMAC is now listed as a residential servicer in Australia. In Italy, Archon Group Italia is listed as a residential and commercial servicer, and Pirelli & C. is listed as a special servicer for residential and commercial loans. S&P also announced that World Savings Bank is no longer participating in its Select Servicer program as a residential mortgage servicer.