Servicing

United Financial Inc., Denver, is brokering the sale of servicing rights on a $219 million portfolio of Fannie Mae/Freddie Mac home loans.The average loan balance is $89,000. The weighted average interest rate is 8.78%. Bids are due July 21.

A national loan servicing portfolio totaling $3 billion in Fannie Mae/Freddie Mac home loans is being brokered by Countrywide Servicing Exchange, Pasadena, Calif. The average loan balance is $127,093 and the weighted average note rate is 7.198%.Bids are due July 16.

Stephen J. Rotella has been named to the newly created position of chief operating officer of Chase Home Finance, a unit of Chase Manhattan Corp. based in Edison, N.J., that deals with mortgages, home equity loans, and manufactured housing.Mr. Rotella, 45, will be responsible for post-production, servicing, technology, and underwriting and will report to Tom Jacob, the chairman and chief executive officer of Chase Home Finance. Mr. Rotella joined the company in 1987 and, over the past seven years, has directed its servicing business. Chase originated $40 billion in residential mortgages in 1997 and has a servicing portfolio of $178 billion.

The Federal Deposit Insurance Corp. has approved a final rule that raises the Tier 1 capital limit on mortgage servicing rights from 50% to 100%.Other federal banking and thrift regulators will follow shortly, and the agencies plan to publish the joint rule in the Federal Register before the end of July. The effective date of the long-awaited rule is Oct. 1. However, banks can elect to implement the high capital limit on the day the rule is published in the Federal Register. A few institutions have bumped up against the 50% capital limit, and the early effective date will provide relief from having to deduct excess MSRs from Tier 1 capital. The final rule maintains the current practice of requiring institutions to take a 10% haircut when valuing mortgage servicing assets for capital purposes.

Mego Mortgage Corp., Atlanta, has completed its recapitalization, but will take a third-quarter loss of $55 million.The company generated $87.5 million of new equity from various sources. City National Bank, Charleston, W.Va., and Sovereign Bancorp Inc., Wyomissing, Pa., have acquired $10 million in convertible preferred stock. Both have options to acquire $10 million of Mego common stock at $1.50 per share. City Mortgage Services, an affiliate of City National, has acquired the right to service approximately $536 million of mortgages now serviced by Mego and the exclusive right to service up to $1 billion of mortgages originated or acquired by Mego in the future. Another unnamed strategic investor has acquired $5 million in preferred stock, while other private investors have purchased $15 million of Mego's common stock at $1.50 per share. In addition, Mego exchanged $79 million of senior subordinated notes for $37.5 million of preferred stock and $41.5 million in new senior subordinated notes. Mego also announced that Champ Meyercord, formerly a senior investment banker with Greenwich Capital Markets, is the company's new chairman and chief executive. Mr. Meyercord will be heading up a company that will lose at least $55 million for its fiscal third quarter, which ended on May 31. This loss comes from additional reserves against loans held for sale, writedowns of capitalized fees and expenses resulting from the recapitalization, and a writedown in the carrying value of mortgage-related securities.

The House is set to vote on a private mortgage insurance reform bill July 14.Lawmakers have resolved several sticking points that had previously endangered the bill. Once voted on in the House it will move to the Senate, where mortgage industry lobbyists are predicting easy passage. "The bill provides a happy medium for both servicers and borrowers," said Karen Kapen, a lobbyist for the Mortgage Bankers Association of America, which supports the legislation. The bill, also backed by the Mortgage Insurance Companies of America, calls for automatic cancellation of private MI once a borrower's equity reaches 22%, although creditworthy borrowers can cancel at 20% equity. Servicers will notify borrowers once these equity levels have been attained. The proposed legislation provides a federal preemption, except for those states that already have private MI laws, including California, Connecticut, Maryland, Minnesota, Missouri, New York, and Texas. There is no federal regulator under the proposed MI reform bill, which means the courts will have to resolve any consumer or lender complaints.

First Commercial Mortgage Co., a subsidiary of the Little Rock, Ark.-based First Commercial Bank, has purchased $1.2 billion in loan servicing rights representing 24,000 mortgages on properties in Arkansas, Texas, Kansas, and Oklahoma.Jack Fleischauer, chairman and CEO of First Commercial Bank, said the bank's size and the similarities between its portfolio and the one recently acquired made the transaction attractive. First Commercial is merging with Regions Mortgage. Once that merger is completed, the combined portfolios of Regions Mortgage and First Commercial Mortgage will total about $23 billion, making Regions one of the top 35 mortgage servicers in the country.

Southern Pacific Funding Corp., Lake Oswego, Ore., has announced the completion of a $650 million securitization by its wholly owned subsidiary, Southern Pacific Secured Assets Corp. The mortgage loan asset-backed pass-through certificates, Series 1998-2 consisted of eight classes (plus an interest-only certificate with a notional balance of $178.4 million), with fixed-rate yields ranging from 6.04% to 6.76%.The yield on the A-1 floating-rate class was 17 basis points above the London Interbank Offered Rate. The lead underwriter was Lehman Brothers Inc., and Morgan Stanley Dean Witter, Prudential Securities Inc., and First Union Capital Markets Corp. were the co-managers. SPFC will be the master servicer of the certificates. Its website address is http://www.sp-funding.com.

Prepayment rates on most 30-year Freddie Mac mortgage-backed securities with coupons of 7.5%-8.5% slowed by 10%-15% in the June reporting period, according to the Bear Stearns Prepayment Commentary.Analysts Dale Westhoff and Bruce Kramer cautioned, however, that new 7.5s were 76 basis points in the money from February through May and that the 7.5% coupon "remains extremely vulnerable to brief flirtations" with lower interest rates. The 76-bp incentive "is just at the threshold for a full refinancing response, so any sustained move to lower mortgage rates would trigger an immediate reaction in this coupon," they said. The Bear Stearns analysts pointed to the fact that speeds for seasoned premium Freddie Mac MBS held strong, which they linked to the resurgence of home prices in California. They also cited surprisingly strong prepayment rates in the cusp and discount sectors. Overall, the analysts said the report confirms that "speeds will decay in a range-bound environment," but warned that it "should not be taken as a signal that prepayment risk is also declining."

Thornburg Mortgage Asset Corp., Santa Fe, N.M., has affirmed its strategy of investing in high-quality adjustable-rate mortgage securities and avoiding investments in interest-only strips, servicing, and fixed-rate mortgages.The prepayment rate on the company's portfolio "declined modestly" in June, Thornburg said. "Fully 94% of the company's ARM assets are securitized in order to minimize credit exposure and reduce funding costs," the company said. Thornburg said it does not own any IO strips, mortgage loan servicing, or 15- or 30-year fixed-rate mortgage products and does not intend to buy such products in the future. The company also said it has no intention of realizing any losses on the sale of its portfolio and "is not under any pressure to sell any assets."