Mortgage Troubles Mount

S&P issued a report indicating the outlook for SIVs is negative. Although they are faced with lower structured finance prices and a drying up of funding options, managers are surviving through restructuring — as the credit quality of underlying assets remains good with less than 1 percent downgraded.

“In general, SIV managers are doing what we expect them to be doing,” S&P said. “Managers are successfully selling assets in the open market, executing asset switches with capital investors, and trying to manage the structures toward potential ‘soft landings’.”

The report noted that U.S. subprime residential mortgage-backed securities account for around 6 percent of SIVs, while U.S. prime RMBS make up about 1 percent and commercial MBS represent nearly 8 percent.

Dick Loeffler was appointed as interim chief executive officer of Metrocities Mortgage LLC upon founder Paul Wylie’s decision to step down from the role. Loeffler is also chief operating officer of Prospect Mortgage Co., a portfolio company of Sterling Partners that Metrocities merged with in June.

Hagens Berman Sobol Shapiro announced it is suing Washington Mutual Inc. on behalf of WaMu employees whose 401(k) plan accounts include investments in company stock from April 18, 2006 until present. The class action accuses the Seattle-based thrift of Employment Retirement Income Security Act violations for failing to adequately monitor the plan and advise participants when the company stock investment was no longer prudent, resulting in over $150 million in losses that employees seek to recover. The suit, among other things, alleges WaMu failed to provide accurate information on its financial health and that the company-appointed fiduciaries to the plan are legally responsible to restore losses resulting from mismanagement.

“In recent months WaMu has been hit with investigations and lawsuits that call many of its basic business practices into question,” Hagens lead attorney Steve Berman said in the written statement. “Now the effects of the company’s mismanagement are trickling down to employees and WaMu is forcing them to take a hit where it hurts most — through retirement and savings plans.”

Subsequent to the publication of this story, WaMu spokeswoman Geri Ann Baptista issued a statement indicating that although the company doesn’t comment on pending litigation, it does monitor offerings in its 401(K) savings plan for performance and appropriateness.

“Washington Mutual stock is only one of many investment options within the plan that is available to employees,” she said. “In fact, employees have the option of self-directing their 401K investments into almost any publicly traded stock or mutual fund.”

Royal Bank of Scotland announced Thursday it expects writedowns of over $2.4 billion for the second half of the year, of which more than $1.9 billion is due to exposures to U.S. subprime mortgage markets and the remainder is based on its leveraged finance portfolio. Additionally, the British bank anticipates it will write down over $0.6 billion in income on ABN AMRO’s exposure to U.S. mortgage-related assets. Despite the “rising mortgage delinquencies and expectations of declining house prices in the U.S. [that] have led to a deterioration of the estimated fair value of these exposures,” the company expects overall operating profit and earnings per share to be “well ahead of market consensus.”

So far in the quarter, credit deterioration has cost American International Group Inc. about $3.75 billion, the insurer said in a filing today with the Securities and Exchange Commission. The fair value of its super senior credit derivative portfolio is estimated to have declined by about $1.05 billion to $1.15 billion since the end of the third quarter, while unrealized losses for the RMBS portfolio are estimated at $2.6 billion.

American Mortgage Acceptance Co. warned today that margin calls on some of its repurchase facilities and interest rate derivative contracts forced it to sell the remainder of its Fannie Mae and Ginnie Mae debt securities and two CMBS investments. The sales resulted in $12.5 million of realized losses and $1.0 million in net realized losses from the termination of interest rate swap contracts. The company canceled its fourth quarter dividend to preserve liquidity.

“Management is exploring all strategic options to protect the value of our company,” the New York-based company said.

In response to a shareholder’s suggestion to buy back stock at depressed prices, IndyMac Bank CEO Mike Perry reiterated the company is unable to repurchase shares in the current environment and is considering a variety of capital raising alternatives, according to an SEC filing Thursday. Among the alternatives are a private offering, a balance sheet reduction and a reduced dividend.

In addition to deteriorating housing sector conditions and rising delinquencies and foreclosures, Perry explained that IndyMac’s business model of selling most of its loans on the secondary market is being hindered because “not only is private secondary market virtually closed…now the [government sponsored enterprises] have their own issues and are raising rates and cutting product guidelines.”

In the best case scenario, Perry said he hopes the company will return to modest profitability in the second half of next year.

“In normal times, your suggestion … would be exactly the right thing to do, given how far below book value our shares presently trade,” Perry said. “Maintaining strong capital and liquidity levels is paramount.”

NoteWorld LLC has been acquired from bankrupt C-BASS LLC by NoteWorld President and CEO Linda Remsberg, according to an announcement Thursday. The 30-year-old company, which claims to be the largest servicer of seller-financed notes, was acquired by C-BASS in 1998 when Remsberg came on board.

Tacoma, Wash.-based NoteWorld reports a $4 billion third-party escrow loan portfolio, which its services from 10 locations. Terms of the deal were not disclosed.

“The recent turmoil in the market and the opportunity for growth in seller finance has opened up the opportunity for an individual to own the organization,” Remsberg stated in the announcement.