Servicing

House and Senate appropriation staffers are working on language that would permit the Department of Housing and Urban Development once again to sell single-family loans that have gone into default.HUD officials are admitting that the Federal Housing Administration loss mitigation program has not worked very well and that it would save more money if lenders assigned defaulted FHA loans to HUD so that the loans could be sold in bulk. Provisions to protect designated revitalization neighborhoods are expected to be included in the VA-HUD appropriations bill that would require loan pool buyers to meet certain performance standards, such as sales to owner-occupants and house repairs. House and Senate appropriation committee members plan to meet the week of Sept. 28 to complete work on the final bill, which includes the FHA loan-limit increase.

Countrywide Credit Industries Inc., Calabasas, Calif., has reported record unaudited earnings of $95.1 million for the fiscal second quarter ended Aug. 31, up 27% from $74.7 million (from ongoing operations) a year earlier.Earnings per share were $0.81, up from $0.67 (from ongoing operations) a year before, Countrywide said. Angelo M. Mozilo, Countrywide's CEO, said the highlight among many production records set during the quarter was record fundings of $22.9 billion, up 117% from a year before. "While this is predominantly a refinance market, purchase mortgage fundings also reached an all-time high of $11.5 billion during the quarter," Mr. Mozilo said. "This is especially significant since demand for purchase mortgages is less sensitive than refinance volume to interest rates." Subprime and home equity loans accounted for 14% of the production sector's pretax profits, he said. Countrywide's servicing portfolio was $195 billion at the end of the quarter with a weighted average coupon of 7.7%, and prepayments and servicing hedge performance "were in line with expectations based on the current rate environment," Mr. Mozilo said. Countrywide's website address is http://www.countrywide.com.

The triple-A rating on Frederick City, Md.'s FHA-insured mortgage lien bonds, Series 1993A has been placed on CreditWatch with negative implications by Standard & Poor's.The action stemmed from a payment default on the mortgage note under the trust estate. The rating agency said it has been notified that "certain funds that were held by the servicer for the payment of mortgage insurance and taxes are no longer available to the trustee, as the servicer has filed for bankruptcy." After the bankruptcy filing the borrower had been making mortgage payments directly to the trustee, but "there are approximately $57,000 in funds that were misallocated by the servicer" prior to the filing, S&P said. In a typical default, the trustee may file for insurance if the mortgage payment is not received, but "in this case, HUD has claimed that since the payment was made by the borrower (although not received by the trustee) this is not an insurable event," the rating agency said. The trustee, which is pursuing legal remedies under the trust estate, says there are sufficient funds to pay debt service for the next two payment dates, S&P said. S&P's website address is http://www.ratings.standardpoor.com.

Standard & Poor's has placed its ratings on the Southern Pacific CMN Trust Series 1998-H1 home loan asset-backed notes on CreditWatch with negative implications.S&P said the action was based on the financial difficulties of Southern Pacific Funding Corp., which recently announced that it will take a one-time charge of $60-70 million in the third quarter as a result of changes in residual asset valuations and increased credit loss expectations. Following that announcement, S&P lowered SPFC's long- and short-term counterparty credit and senior unsecured debt ratings. SPFC, the servicer for the Southern Pacific CMN Trust transaction, has been removed from S&P's list of approved servicers. S&P's website address is http://www.ratings.standardpoor.com.

Freddie Mac has agreed to acquire Cendant Asset Services, a subsidiary of Cendant Mobility Services that specializes in management and sale of real estate owned.The Dallas-based Cendant provides REO services to lenders and servicers nationwide. It will become part of Freddie Mac's HomeSteps real estate sales unit, also based in Dallas. The combined unit will be called HomeSteps Asset Services and will market and sell an estimated 25,000 REO properties a year. Freddie Mac said the company will benefit from improved economies of scale, reducing the cost of marketing and selling REO. Freddie Mac's website address is http://www.freddiemac.com.

Senior unsecured notes of Southern Pacific Funding Corp., Lake Oswego, Ore., have been downgraded by Fitch IBCA Inc. The rating on $100 million of 11.5% senior unsecured notes due 2004 was lowered from B-plus to B-minus, the rating agency said.The action followed SPFC's announcement that it will take a one-time charge of $60-70 million in the third quarter as a result of changes in the valuation of its residual assets, increased credit loss expectations, and current conditions in the asset-backed, debt, and equity markets. "The rating action reflects SPFC's constrained liquidity over the long term, the ability to execute a committed whole loan sale strategy to improve cash flow, and an overall decline in capitalization, which will be exacerbated by the expected revaluation of the company's interest-only strip for the quarter ended Sept. 30, 1998," Fitch IBCA said. As previously reported, Standard and Poor's has lowered SPFC's long-term and short-term counterparty credit ratings and its senior unsecured debt rating. Fitch IBCA's website address is http://www.fitchibca.com.

Alltel Information Corp., Jacksonville, Fla., may be talking to Dovenmuehle Mortgage, Schaumburg, Ill., the nation's largest subservicer, about a possible purchase of the company, sources have told MortgageWire.Alltel operates the largest service bureau for residential servicers. A Dovenmuehle spokesman would not comment on the matter, and Alltel officials did not return telephone calls. At the end of June Dovenmuehle subserviced $26.41 billion in loans, according to the Database Products Group, a MortgageWire affiliate. (Dovenmuehle has owned servicing of just $338 million.) Last year EDS, a technology firm, bought Wendover Funding, Greensboro, N.C., another large subservicer.

Duff & Phelps Credit Rating Co., Chicago, has initiated debt ratings for FirstPlus Financial Group Inc. with a senior debt rating of BB and a subordinated debt rating of BB-minus.The Dallas-based FirstPlus, the nation's largest originator and servicer of high-LTV loans, recently put itself on the auction block. Duff & Phelps said its ratings reflect the company's "improving cash-oriented earnings," its securitization management, and its "dominant" market share in the high-LTV sector. Offsetting factors include the "still unseasoned performance record" for high-LTV loans, exposure to short-term interest rate volatility, and "a high reliance on securitization, including the continued, though more conservative, use of gain-on-sale accounting and the de facto subordination of cash flows relative to securitization lenders." The rating agency cited favorably FirstPlus's use of "significantly more efficient securitization structures over the past year which provide for an up to 2% upfront cash gain from a combination of initial undercollateralization and the sale of senior interest-only securities." Duff & Phelps's website address is http://www.dcrco.com.

Southern Pacific Funding Corp., Lake Oswego, Ore., has announced that it will take a one-time charge of $60-70 million in the third quarter as a result of changes in the valuation of its residual assets, increased credit loss expectations, and current conditions in the asset-backed, debt, and equity markets.Standard and Poor's responded to the announcement by lowering the company's long-term counterparty credit rating and senior unsecured debt rating from B-minus to CCC-plus and its short-term counterparty credit rating from B to C. Southern Pacific is the latest subprime mortgage lender to take a writedown in response to a prepayment-related decline in the value of its servicing portfolio, but the company said it was increasing credit loss assumptions as well. The company said it believes its adjustments for future period credit losses and prepayments will improve the company's performance if higher prepayment levels persist. In addition, the company said it will sell whole loans rather than securitize its product "for the foreseeable future" due to limited access to capital in today's market. "Although the company continues to pursue strategic alternatives with capital partners, the initiatives announced today will position Southern Pacific to be cash neutral and eliminate its reliance on the volatile capital markets," said Robert W. Howard, Southern Pacific's CEO and vice chairman.

Source One Mortgage Services Corp., Farmington Hills, Mich., hopes to generate $15 million to $20 million a month in home equity and high-LTV lending for the rest of this year and next year, according to Steve Manasco, vice president for home equity at Source One.The company has placed a new emphasis on servicing niche markets such as home equity loans, home equity lines of credit, and loans with high loan-to-value ratios over the past year, he said. Mr. Manasco said home equity lending at Source One dates back to about 1994, but that there was not a heavy focus on it until more recently, when Source One created a division devoted to home equity lending.