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Countrywide Launches Program to Refinance or Modify Mortgages

LOS ANGELES (AP) -- Countrywide Financial Corp., the nation's largest mortgage lender, said Tuesday it will begin calling borrowers to offer refinancing or modifications on $16 billion in loans whose interest rate is set to adjust by the end of 2008. Its shares fell more than 4 percent.

Countrywide has been under fire since early July -- it has had difficulties with loan financing, its chief executive has been criticized for selling hundreds of millions of dollars in stock and it faces pressure from the government to help keep people from losing their homes.

"Unprecedented times call for unprecedented remedies," Countrywide President and Chief Operating Officer David Sambol said in a statement. "We are determined to assist borrowers who have the willingness and wherewithal to remain in their homes, but need a little help to do it."

The Calabasas, Calif.-based company said it would reach out to borrowers who are current on their loans but are facing an imminent rate reset to discuss options. Countrywide said it would refinance about $10 billion in loans and modify another $4 billion.

It also plans to contact borrowers of some $2.2 billion who are late on their loans and having trouble paying because of a recent rate reset.

In total Countrywide's plan would reach out to about 82,000 borrowers for some kind of relief.

Subprime mortgages -- those made to people with poor credit histories -- have become a problem for the global economy. As people who took out subprime mortgages from 2005 through the first half of 2007 defaulted at increasing rates, bonds backed by those mortgages began to lose value.

More than 50 mortgage lenders have gone out of business this year. A seizure in the global credit markets precipitated by the mortgage crunch has led a consortium of banks to propose a fund of up to $100 billion to buy distressed assets.

So far this year, Countrywide has completed about 20,000 loan modifications -- a figure that represents less than 5 percent of the more than 500,000 loans the lender reports were behind in payments as of last month.

The figure amounts to about 24 percent of the roughly 82,000 loans the company said were in foreclosure as of September.

Still, the company notes that its efforts to help troubled borrowers through refinancing, loan modification, repayment plans and other loan workouts, have kept some 40,000 borrowers from losing their homes.

Under the initiative announced Tuesday, Countrywide plans to offer an estimated 52,000 borrowers with subprime loans refinancing into prime rate loans or federal assistance mortgage loans insured by the Federal Housing Administration.

The company estimates some 10,000 borrowers with subprime loans who are now behind on their payments due to their mortgage interest rate resetting will be offered rate reductions by the end of the year.

Countrywide shares fell 66 cents, or 4.2 percent, to $15.02 in morning trading Tuesday. The shares have traded in a 52-week range of $14.40 to $45.26.

Countrywide Financial: http://my.countrywide.com/

by Ruth Simon
Monday, October 29, 2007provided by

Some lenders are now making it tougher for borrowers in softening housing markets to get a mortgage.

The policy is designed to keep lenders from holding the bag if home prices in those markets continue to fall -- and highly leveraged borrowers find themselves owing more than their home is worth. But the tighter standards, by discouraging home buyers, could add to downward pressure on home values in already weak markets.

Lenders such as J.P. Morgan Chase& Co., Citigroup Inc. and Wells Fargo & Co. are cutting the maximum amount some borrowers can finance in counties or states where home prices are declining. Mortgage companies are also taking a tougher look at appraisals in housing markets with falling prices. Among the areas being hit by the tougher standards are parts of California, Florida and Michigan.

Lenders in the past have come under criticism for their failure to make loans in minority neighborhoods, a practice known as "redlining." The latest round of tightening, by contrast, is broader, and aimed at markets where home prices are falling.

The sharper focus on soft housing markets comes after mortgage lenders have tightened their standards for all borrowers amid a slowing housing market, a widespread credit crunch and rising delinquencies. New national data from Equifax Inc. and Moody's Economy.com show that the mortgage delinquency rate jumped to 3.3% in the third quarter from 2.3% a year earlier.

Because lenders' policies vary, borrowers can often get around the tighter restrictions by taking their business elsewhere. Ritch Workman, a mortgage broker in Melbourne, Fla., says he recently asked Wells Fargo to approve a loan for a borrower with good credit who was buying a new $1.1 million home in Brevard County and wanted to put 10% down. "Wells came back and said they would only [finance] 85%" of the home's value, says Mr. Workman. The borrower ultimately got the 90% financing he was seeking from another lender, according to Mr. Workman.

The impact of such restrictions could grow if these tighter standards become more widespread. It "could significantly impact the ability of even borrowers with good credit scores to buy a home if they don't have a significant down payment," says David Stevens, who runs the mortgage operation at Long & Foster Real Estate, based in Fairfax, Va. Last year, more than one-third of Long & Foster's customers put less than 10% down, Mr. Stevens says.

With house prices falling, lenders are looking to control their risk, says Doug Duncan, chief economist of the Mortgage Bankers Association. But "there's a little bit of a self-fulfilling prophecy," he adds. "If you tighten standards, fewer people can qualify [for a mortgage]. Effective demand is going to be lower, resulting in lower house prices."

The tighter standards are already creating challenges for some borrowers. James DeGeronimo Jr., a mortgage broker in Cleveland, says that Charter One, a unit of Citizens Financial Group Inc., turned down one of his clients who was seeking to refinance a $108,000 mortgage. The lender didn't feel that it could get an accurate valuation of the property, given the high number of foreclosure sales in the neighborhood, he says. Mr. DeGeronimo says his firm was able to find another lender willing to refinance the mortgage.

A spokeswoman for Charter One says the company "has taken a prudent approach to serving the borrowing needs of homeowners" and has an additional appraisal-review process in areas with declining values. "We continue to lend in Cuyahoga County and it continues to be an important market for us," she adds.

Thornburg Mortgage Inc. in Santa Fe, N.M., which specializes in larger loans, has begun looking at median home prices in specific markets when it assesses a particular loan. "If we're making a $2 million loan in Manhattan, we're a lot more comfortable with it than a $2 million loan in Dearborn, Michigan," where prices tend to be much lower, says Thornburg President Larry Goldstone.

Some of the lenders are reducing the maximum combined loan-to-value ratio, a measure of how much of a home's value a borrower can finance using a mortgage and a home-equity loan. In August, J.P. Morgan Chase's home-equity division cut the maximum amount borrowers in Nevada can finance to 85% of the home's value. The unit won't let borrowers finance more than 90% of their home's value in seven other states -- Arizona, California, Colorado, Florida, Michigan, New Jersey and New York. That compares to a maximum combined loan-to-value of 100% of a home's value in Texas and Washington and 95% in other states. Chase made the move to reduce the chance that the loans it makes will wind up under water, a company spokesman says.

Citigroup this month cut the maximum amount certain borrowers in "depreciating" markets can finance through a mortgage and home-equity loan. The change applies to borrowers in seven states -- including Arizona, California and Florida -- who are buying a home or pulling cash out when they refinance. In most of these markets, Citi is reducing maximum financing to 85% of the home's value. Citi is also reducing by five percentage points the maximum loan-to-value ratio in more than 80 counties in 14 states and the District of Columbia.

"We routinely review our criteria and make adjustments as appropriate according to market conditions," a Citi spokesman says.

Wells Fargo, meanwhile, has expanded a program begun earlier this year that tightened standards in certain "declining" markets. Wells has reduced the maximum amount it will finance by 10 percentage points in markets the company has identified as "distressed." The list includes more than 50 counties in seven states, including parts of California, Florida and Michigan. It also cut by five points maximum financing in more than 125 other counties in a total of 22 states and the District of Columbia. A spokesman says the company is monitoring credit conditions on a "day to day" basis.

In other cases, lenders are giving appraisals closer scrutiny. Bank of America Corp. says it is asking for more detailed appraisals in markets with falling prices. In many cases, appraisers are being told to drive by the property to get a better estimate of its value instead of just running information about the home through a computer model.

In October, SunTrust Banks Inc. published a list of roughly 50 metro areas in 16 states and the District of Columbia that it designated as "declining markets." The declining markets list "was issued to make sure that appraisers in those markets are taking that into account and explaining how it figures into their valuation," a SunTrust spokesman says.

In markets where home prices are declining, IndyMac Bancorp Inc. is telling appraisers to base its assessment of a property's value on comparable sales that are less than 90 days old. It's also telling them to take into account the asking price for at least one comparable home that's currently on the market.

"The lenders are being way more conservative than they were a year or two ago," says John Rooney, an appraiser in Phoenix. In some cases it can be tough to find enough comparable properties that meet lenders' criteria, particularly for higher-end homes, he says.

Copyrighted, Dow Jones & Company, Inc. All rights reserved.

Sales of Existing Homes Fall by Largest Amount on Record in September

WASHINGTON (AP) -- Sales of existing homes plunged by a record amount in September while median home prices dropped by the largest amount in nearly a year, reflecting deepening problems in the troubled housing market.

Analysts said the current downturn is already more severe than the housing slump of the 1990s and they predicted before it is resolved it will rival the 1980-82 housing slump when the industry was battered by double-digit mortgage rates and a steep economic downturn.

The National Association of Realtors reported Wednesday that sales of existing homes fell 8 percent in September, the largest decline to show up in records dating to 1999. The seasonally adjusted annual sales rate of 5.04 million existing homes was also the slowest pace on record.

The median price -- the point at which half the homes sold for more and half for less -- fell to $211,700 in September, down by 4.2 percent from the sales price a year ago. It was the biggest price drop since last October and marked the 13th time out of the past 14 months that the year-over-year sales price has decreased.

Problems in housing worsened in September following a severe credit crunch that hit in August as banks and other lenders tightened standards in the face of soaring mortgage defaults. The market all but dried up for subprime borrowers, those with weak credit histories, and people seeking so-called jumbo loans over $417,000.

Many economists said the problems in housing could well last for another year, given record-high levels of unsold new and existing homes.

"The housing market is unraveling," said Mark Zandi, chief economist at Moody's Economy.com. "We are in a steep downturn and the prospects are that it is going to get worse before it gets better."

The 8 percent decline in sales was bigger than the 4.5 percent drop that had been expected. It marked the seventh straight monthly decline and left sales activity 19.1 percent below the pace of a year ago. Last week, the government reported that construction of new homes slid to the slowest pace in 10 1/2 years in September as builders continue to cut back in the face of weak demand.

The housing slump followed five straight years of record sales, a boom that was fueled by the lowest mortgage rates in four decades. The housing boom lured many investors to purchase second homes in hopes of flipping them for quick profits.

That all began to turn down late last year as mortgage rates began to rise and buyers began to balk at the huge price gains that had been occurring in the hottest sales areas such as California, Florida and parts of the Northeast.

Analysts blamed the bigger-than-expected sales slump in September on the turmoil that hit credit and mortgage markets in August as worries increased over rising mortgage foreclosures.

"Mortgage problems were peaking back in August when many of the September closings were being negotiated and that slowed sales notably in higher priced areas that rely more on jumbo loans," said Lawrence Yun, senior economist for the Realtors.

By region of the country sales were down 10 percent in the Northeast, 9.9 percent in the West, 7 percent in the Midwest and 6 percent in the South.

The slowdown in sales meant that the inventory of unsold homes rose to 4.4 million units in September. At the September sales pace, it would 10.5 months to eliminate the overhang of unsold homes, a record length of time.

Yun forecast that prices will decline by 1.5 percent this year, compared to 2006. That would be the first annual price decline in the four decades that the Realtors have been tracking prices.

The troubles in housing have been a drag on overall economic growth, increasing worries that the housing slump and related credit market troubles could become so severe that they will push the country into a recession.

However, many private economists believe that the Federal Reserve, which cut a key interest rate for the first time in four years last month, will continue cutting rates to make sure that the weakening economy does not tumble into a full-blown recession. The Fed meets again next week.

"The housing crunch is accelerating. The Fed can't stand by and watch," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

Existing home sales: http://www.realtor.org

AP
Friday October 19, 12:25 pm ET
By Ieva M. Augstums, AP Business Writer

Jobs Cuts Ahead at Wachovia After 3Q Profit Drops 10 Percent

CHARLOTTE, N.C. (AP) -- Wachovia Corp., the nation's fourth largest bank, said Friday its profit fell 10 percent in the third quarter, hurt by $1.3 billion in losses and write-downs related to turmoil in the credit markets.

Chief executive Ken Thompson said the Charlotte-based company was "deeply disappointed" in the results, particularly in the company's corporate and investment bank.

Other executives said the bank would eliminate several hundred positions by year-end but declined to be more specific. The banking company employs about 110,000 people overall.

"Given the environment we are in now, we plan to remain very disciplined across the organization," Chief Financial Officer Tom Wurtz said in an interview. Wurtz said a number of growth initiatives that the bank would have pursued will now be put on the back burner, declining to more specific.

The bank's shares fell nearly 2 percent in midday trading.

Wachovia said net income fell to $1.69 billion, or 89 cents per share, in the July-September period compared with $1.88 billion, or $1.17 per share in the year-ago period. Revenue grew 4 percent to $7.35 billion from $7.04 billion in the third quarter of 2006.

After-tax expenses related to the bank's acquisition of Golden West Financial Corp. amounted to 1 cent per common share in the third quarter of 2007.

Earnings in the third quarter also include a $249 million gain from correcting results from earlier this year.

Wall Street expected earnings of $1.03 per share on $8.02 billion of revenue, according to analysts polled by Thomson Financial. The earnings estimates typically exclude one-time items.

Its shares fell 92 cents, or 1.9 percent, to $47.22 in midday trading Friday.

Thompson said the summer's turmoil in fixed-income markets "clearly had a disappointing impact on the results of market-oriented businesses, but the strength in our core banking and brokerage businesses continued to serve us very well."

He added, "we're taking the appropriate steps to ensure that as markets remain unsettled, we focus intently on actively managing our exposures and controlling costs."

But he told analysts the "managing" he plans to do will not include "substantial shifts in our business model," alluding to Thursday's news of the decision by Bank of America Corp., its crosstown rival, to reassess its investment bank business.

Instead, he said the Wachovia has "taken and continue to take decisive steps on expenses through actions on head count, incentives and discretionary spending within our corporate and investment bank."

Bank of America Chief Executive Ken Lewis on Thursday said, "there will be some scaling back," after investment banking results helped plunge his company's third-quarter profits by 32 percent.

In the quarter, Wachovia recorded a provision for credit losses of $408 million, up from $108 million, reflecting modest deterioration in credit quality, a more uncertain credit environment and loan growth. Net charge-offs were $206 million, or 19 percent of average net loans.

Corporate and investment banking operations saw earnings sink 80 percent, as revenue tumbled 51 percent to $819 million. The business unit had earnings of $105 million, down from $428 million, driven by the $1.3 billion effect of the market disruption.

Wachovia's general bank saw earnings jump 33 percent, with revenue climbing 30 percent to $4.5 billion. Results were driven by increased loans and deposits and reflected the bank's October 2006 acquisition of Golden West Financial Corp., which expanded Wachovia's mortgage business even as the industry had slowed and gave the company a foothold in California, a state where it had just a handful of branch offices.

Investors expressed concern then, and continue to do so, about the bank's $24 billion purchase last year of one of the country's largest mortgage lenders.

But bank executives say the doubters are wrong and insist the takeover is working out just fine.

"We are faring in much better shape than other lenders in this market," said Don Truslow, Wachovia's chief risk officer.

Net interest margin, a measure of the difference between Wachovia's borrowing costs and lending rates, dropped to 2.92 percent from 3.03 percent.

Third quarter results included the full quarter impact of Golden West. Results do not include the impact of the bank's acquisition of A.G. Edwards Inc., a retail brokerage firm headquartered in St. Louis, which closed on Oct. 1 of this year.

For the first nine months of the year, net income was $6.33 billion, or $3.30 a share, up from $5.49 billion, or $3.43 a share, in 2006.

Wachovia Corp.: http://www.wachovia.com

AP
Thursday October 11, 8:07 am ET
By Alex Veiga, AP Business Writer

U.S. Foreclosure Filings Nearly Double in September Over Same Month a Year Ago

LOS ANGELES (AP) -- Foreclosure filings across the U.S. nearly doubled last month compared with September 2006, as financially strapped homeowners already behind on mortgage payments defaulted on their loans or came closer to losing their homes to foreclosure, a real estate information company said Thursday.

A total of 223,538 foreclosure filings were reported in September, up from 112,210 in the same month a year ago, according to Irvine-based RealtyTrac Inc.

The number of filings in September was down 8 percent from August's 243,947, the firm said.

Despite the sequential decline, the September figure represents the second-highest total for filings in a single month since the company began tracking monthly filings two years ago.

"August was an extraordinarily high month for foreclosure activity, so some falloff was almost predictable," said Rick Sharga, RealtyTrac's vice president for marketing.

The filings include default notices, auction sale notices and bank repossessions. Some properties might have received more than one notice if the owners have multiple mortgages.

Typically, borrowers must be 60 to 90 days past due on their mortgage payments before their lender will consider them in default, the first stage of the foreclosure process. If a homeowner can't find a way to get current on payments, the home is then often put up for auction, and if it doesn't sell, it eventually goes back to the bank.

In all, 39 states saw a decline in foreclosure filings, the firm said.

Sharga noted that there was a spike in the number of bank repossessions in August that did not occur in September.

It's likely that the sequential decline in foreclosure activity between August and September was just a blip, not a bellwether of lessening foreclosure filings.

"We don't see September as the beginning of the end in this cycle of foreclosures," Sharga said.

The foreclosure rate for the nation in September was one foreclosure filing for every 557 households, the firm said.

The U.S. housing market has seen sales decline and home prices fall or remain flat, making it harder for homeowners who can't afford to make mortgage payments to sell their homes or seek refinancing.

Many of those troubled homeowners were among those who took on adjustable-rate mortgages that are now adjusting to a higher interest rate, translating into payments they cannot afford to make.

The rising delinquencies and foreclosures this year have led the mortgage industry to tighten lending standards, further narrowing options for homeowners struggling to pay their mortgage.

Nevada, Florida and California had the highest foreclosure rates in the country last month, the firm said.

Nevada reported one foreclosure filing for every 185 households, earning the state the highest foreclosure rate in the nation for the ninth month in a row. The state had 5,504 filings in September, down 11.1 percent from August and more than triple from September 2006.

Florida had one foreclosure filing for every 248 households. The state reported 33,354 foreclosure filings in September, down just less than 2 percent from August, but more than three times greater than September 2006's total.

California's foreclosure rate was one filing for every 253 households. The state reported the most foreclosure filings of any single state with 51,259, down 11 percent from August but a fourfold increase from September of last year.

Rounding out the states with the top 10 foreclosure rates last month were Michigan, Arizona, Georgia, Ohio, Colorado, Texas and Indiana.

RealtyTrac Inc.: http://www.realtytrac.com

AP
Wednesday October 10, 3:51 pm ET
By Alan Zibel, AP Business Writer

Realtors Group Slashes Forecast for Existing Home Sales, Predicts New Home Sales Will Be Weak

WASHINGTON (AP) -- This year's decline in existing home sales will be steeper than previously anticipated, a trade group for real estate agents predicted Wednesday.

The eighth straight downwardly revised forecast from the National Association of Realtors calls for U.S. existing home sales to be 10.8 percent below last year as housing market woes persist. Sales of new homes, meanwhile, are expected to finish 2007 at the lowest level in a decade.

The trade group's outlook for 2007 homes sales has grown more pessimistic through the year as foreclosures soared, credit market troubles developed and sales fell. Back in February, the group forecast an annual decline in existing home sales of only 0.6 percent.

In its October report, the association predicts 5.78 million existing homes will be sold in 2007, down from 6.48 million last year. Last month, the association predicted an 8.6 percent drop from a year ago.

This year's sales would be the lowest since 2002, when sales hit 5.63 million.

Sale prices for existing homes are forecast to drop 1.3 percent to a median of $219,000 this year -- a slight improvement from last month's prediction of a 1.7 percent decline. The median price refers to the point where half sold for more and half for less.

Next year, the trade group expects existing home sales to climb to 6.12 million. That is 2.4 percent lower than last month's prediction.

The picture, however, is bleaker in California, one of the states most caught up in this decade's housing boom.

The California Association of Realtors projected Wednesday that existing home sales in that state would fall 9 percent next year after a projected drop of 23 percent this year from 2006.

The group also forecast that the median price of a California home will decline 4 percent to $553,000 next year, compared with a projected median sale price of $576,000 for this year.

Nationwide new home sales are projected to fall to 805,000 this year down 23 percent from 1.05 million last year, according to the national Realtors group. If that forecast is accurate, it would be the worst year since 1997, when 804,000 newly constructed homes were sold. In 2008, 752,000 new home sales are expected.

Despite the bleaker outlook, the group maintains an optimistic message. Its senior economist, Lawrence Yun, noted in a statement that markets including Austin, Texas, Salt Lake City and Raleigh N.C. are showing price growth and 2007's home sales will be the fifth-highest on record.

"The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains," Yun said.

Existing single-family home sales dropped 4.3 percent in August, compared with the previous month, to the slowest sales pace in five years, according to the Realtors group.

The housing market has been battered by the steepest downturn in 16 years, as measured by the Standard & Poors/Case-Shiller index that covers housing prices in major U.S. cities. Problems were exacerbated in August by turmoil in credit markets, reflecting new worries about rising mortgage defaults.

The median U.S. existing home price edged up slightly in August to $224,500, an increase of 0.2 percent from August 2006. It marked the first year-over-year price increase after a record 12 straight months of declining prices.

CNNMoney.com
Friday October 5, 5:03 pm ET
By Jeanne Sahadi, CNNMoney.com senior writer

The heat on U.S. mortgage lenders and servicers was turned up a few degrees this week when the country's chief bank regulator publicly proposed that they permanently freeze interest rates on subprime adjustable-rate mortgages (ARMs) for many homeowners.

"Keep it at the starter rate. Convert it into a fixed rate. Make it permanent. And get on with it," Federal Deposit Insurance Corp. Chairman Sheila Bair said in prepared remarks at an investor's conference.

ARMs often have a low introductory interest rate for two or three years and then reset to much higher levels.

Roughly 1.3 million subprime ARMs are due for a rate reset between now and the end of 2008, according to data from First American Loan Performance.

Bair proposed that servicers convert only those ARMs that haven't reset yet and only for borrowers who are current in their payments and occupy their homes. Loans taken out by speculators who don't live in the homes they bought would not qualify for the automatic conversion.

Consumer advocates have also been calling on lenders and servicers to modify subprime mortgages to make the payments affordable for homeowners who would struggle to keep the house once their rates reset. But rate reductions, while they do happen in some cases, are far from widespread, they say.

"We can't just sit here doing this kind of case-by-case, laborious restructuring process with all these millions of subprime hybrid ARMs," Bair said, citing a recent Moody's survey, which found that less than 1 percent of problem subprime ARMs were being restructured.

"[Bair's recommendation] is exactly what's needed," said Michael Shea, executive director of ACORN Housing, which has offices around the country where counselors have been working with troubled homeowners to renegotiate their subprime mortgages with servicers.

Mortgage servicers - those that administer and collect payments on the loans - may be restricted by the terms of their pool servicing agreements (PSAs), which are their contracts with the investors who own the loans being serviced. Those contracts may specify when and how many loans may be modified.

But the servicer typically does have discretion when a loan has become or is likely to become delinquent. And investors are unlikely to object if the servicer can make the case why a modification will lose less money than a foreclosure, said William Rinehart, vice president and chief risk officer of Ocwen, a loan servicer that administers 470,000 loans.

And in many instances, foreclosures can create bigger losses for investors. "[E]ffective restructuring can preserve credit support [and] reduce credit losses," Bair told the investor conference.

If servicers acted on Bair's suggestion verbatim, "you'd likely have a backlash, particularly from your senior investors," said Larry Litton, president of Litton Loan Servicing, which has been proactive about contacting borrowers before their rates reset and modifying their loans in instances where a rate reset would make the home unaffordable for them.

The message Litton thinks the industry will take away from Bair's proposal is "you have to do a better job of fixing loans that are fixable. And if you don't do it, someone else will do it for you," he said, noting, for instance, that a proposal on the Hill to let bankruptcy judges reduce the mortgages of borrowers filing for Chapter 13 would not go over big with the industry.

AP
Friday October 5, 5:11 pm ET

Washington Mutual Predicts Third-Quarter Earnings Will Fall 75 Percent

SEATTLE (AP) -- Washington Mutual Inc. said Friday that the weak housing market and the recent mortgage crunch will lead to a 75 percent drop in its third-quarter net income, making it the latest financial institution to warn investors it took a major hit over the summer.

WaMu, the nation's largest savings bank, reported net income of $748 million in the third quarter of 2006, meaning third-quarter 2007 net income is likely to be somewhere around $187 million.

The decline in third-quarter income will mostly come from rising provisions for loan losses and write-downs of mortgages Washington Mutual currently holds.

Washington Mutual said its loan loss provision for the quarter will total $975 million. The provision exceeds net charge-offs -- loans written off as having no chance of being recovered -- by $550 million. Loss provisions, on top of paying current charge-offs, are used to cover future losses.

The company will also write down the value of various loans and portfolios by about $410 million.

Washington Mutual will write down by $150 million the value of $17 billion in loans that it was originally intending to sell, but instead moved to its investment portfolio after it could find no buyers in the secondary markets.

Another $150 million in write-downs will be taken in the company's trading securities portfolio. Washington Mutual will also take $110 million in write-downs on investment grade mortgage-backed securities it is holding to sell to investors.

Rising delinquencies and defaults among mortgages, especially subprime loans given to customers with poor credit history, have led to the near disappearance of investors willing to buy the loans in the secondary markets and forced lenders to reserve more cash for losses.

Washington Mutual is not the first financial institution to warn third-quarter profits would take a massive hit.

Citigroup Inc. said Monday its quarterly earnings would fall 60 percent from the previous year as it writes down more than $3 billion in securities backed by underperforming mortgages and loans tied to corporate bonds.

UBS AG and Deutsche Bank AG also said they would write off more than $3 billion in losses due to the declining mortgage market. UBS expects the write-down to leave the company posting a loss in the third quarter.

Shares of Washington Mutual rose 79 cents, or 2.2 percent, to close at $36.07 Friday.

Monday October 1, 1:40 pm ET
By Gail Liberman and Alan Lavine

PALM BEACH GARDENS, Fla. (MarketWatch) -- Many programs offer to bail you out of an impending mortgage rate increase. Do any really help?

Major considerations: Often, these programs require counseling sessions, which may take too long if you're in a loan due to reset soon. Some have special requirements, which may disqualify you. You first may have to negotiate with your lender, who may or may not help. The loan terms for which you qualify may be unattractive. Also, investment property or non-owner-occupied property may be excluded.

So where can you turn if your adjustable-rate mortgage rate is resetting to be assured of fast help?

FHASecure, the program recently announced by President George Bush, may be about the first to get borrowers, at risk of foreclosure, into a new loan fast.

As of last week, 35 FHASecure loans had been originated, and Countrywide Financial had started offering the program. Offices of First Horizon Home Loans, an affiliate of First Horizon National Corp., Memphis, were gearing up to launch FHASecure. Learn more at www.fha.gov.

FHASecure aims to get your loan payments back to around what they were before the loan rate reset, says Bill Glavin, the U.S. Housing and Urban Development's special assistant to the federal housing commissioner. The program has strict rules, which generally are the same as for a traditional Federal Housing Administration mortgage.

The chief difference: For FHASecure, you must be delinquent on your mortgage for 30 days due specifically to a rate reset. You also must have made at least six consecutive payments on time prior to the reset.

Catches: You can't use this loan to refinance an FHA loan. Much like FHA loans for low-down-payment borrowers, you generally must have 3% equity in your home. Also, loan limits vary by geographic region -- to a maximum $362,790.

Some lenders, Glavin says, may issue this type of loan even with a bankruptcy.

Nonprofit help

Can't qualify for FHASecure? The Neighborhood Assistance Corporation of America (NACA), Boston, on Oct. 1 was touting a 5.625% rate on a 30-year fixed-rate mortgage for refinances in many areas. NACA is a Boston-based nonprofit IRS 501 (c) 4 social action organization and mortgage broker.

So far, the organization -- at www.naca.com -- has $1 billion, obtained from large banks, specifically to refinance predatory loans. There are no down-payment requirements, points, closing costs, fees or credit score considerations.

To qualify, however, you must have a predatory interest rate, currently at least 10%, or the home must be in need of substantial repairs. You must have had your mortgage at least two years. It must be based where the program is available and meet specific maximum regional purchase price limits.

You can't be using loans to pay for living expenses, and all properties must have a thorough home inspection and termite inspection. If applicable, a septic inspection may be required.

The attractively priced loan requires a $50 monthly fee toward a "Membership Assistance Program," once you get the loan. That money, says Bruce Marks, CEO, funds free counseling and short-term financial assistance for up to three mortgage payments in case you can't make monthly payments. The $50 fee must be paid monthly for five to 10 years, depending upon the amount borrowed.

There also is a $20 annual fee per household to join the advocacy group once counseling actually starts. Based on a $200,000 loan, your monthly payment -- even with added NACA fees -- would be about $80 less at that program's 5.625% rate than with the going average 6.66% 30-year fixed-rate mortgage rate, according to HSH.com.

Major catch: Refinancing through NACA is not guaranteed after you apply. It's one solution that may arise from a mandated counseling session. Other potential solutions: Restructuring the loan with the lender or working out a payment plan so the borrower gets current.

"We would look to see what is the most appropriate action," Marks says.

What to watch out for

More national lenders need to step up to the plate to refinance loans on more attractive terms, says Kate Crawford, consumer protection chairwoman for the National Association of Mortgage Brokers.

When considering a refinancing program, Crawford suggests taking these steps:

• If counseling is a requirement and a loan reset imminent, get a commitment upfront on how long the counseling session will take.
• Get a good-faith estimate of all costs before you apply.
• Always make a payment on your mortgage -- even if you're behind.
• Refinance only with a fixed-rate mortgage.
• If you've already made payments, try to get a loan equal to the term remaining. However, if payment relief is critical, you may have no other option than to obtain a longer-term loan.
• Avoid prepayment penalties.
• Carefully shop different lenders for rates, points, costs and other terms. They often vary -- even on government programs.
• Avoid special programs in which monthly payments may change, based on income.

Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is "Quick Steps to Financial Stability" (Que/Penguin). You can contact them at www.moneycouple.com.

Monday October 1, 12:36 pm ET
By Jeffrey Rothfeder, Money Magazine writer

Good-bye, easy money. Hello, credit squeeze. If you haven't tried to borrow since the subprime chaos began, you'll find your friendly money bazaar a much more cautious place.

The lenders that in 2005 threw funds at anyone with a pulse have begun to insist on proof that borrowers have a prayer of paying them back. Even if you have a high credit score and a flush bank account, you'll likely feel the difference. So you'd better get to know the new rules.

Mortgages

What's happening: Several species of exotic mortgages are headed for extinction, including the 2/28, the 3/27 and those requiring no proof of income, says Paul Haarman, vice president of Renaissance Mortgage Corp. But the effects of the mess have extended beyond subprime.

According to the Federal Reserve, about one in seven banks has toughened home lending standards even for borrowers with good credit. You'll find lenders stingier on appraisals, more persnickety on documentation and far less likely to finance 100 percent.

Also, at the high end, rates on the 30-year jumbo (over $417,000) jumped nearly a percentage point between June and September.

What to do: If you have an adjustable-rate mortgage, read your agreement to find out when your rate will reset, how high it will likely go and how high it could go.

If it's coming due and will end up above 7 percent, consider refinancing to a fixed rate. You'll need 10 percent equity and a credit score over 660.

Must buy? Get the best fixed rate you can (rates on a 30-year fixed are currently a sliver above 5/1 ARMs).

Home-equity loans and lines of credit

What's happening: These are generally holding at about the prime rate, now 8.21 percent if your credit score is above 680 and you can prove income. But you can't tap 100 percent of equity anymore; you'll be lucky to get 80 percent.

What to do: Just because you can get a home-equity loan or HELOC doesn't mean you should. Home prices are falling nationwide, and you don't want to borrow against shrinking equity unless it's the cheapest way to finance a necessary purchase, such as college or medical care.

Credit cards

What's happening: Hurting from subprime exposure, banks are looking to increase revenue. Coincidence or not, credit-card terms are slightly higher. Intro offers have gone from 12 months at 0 percent to three months at 1.9 percent and up, says Curtis Arnold of CardRatings.com.

And issuers are increasingly triggering rate increases, he adds. Discover, for example, hiked its highest-risk customers from 17.99 percent to 18.99 percent.

What to do: Now more than ever, pay on time and check your bill to be sure your APR hasn't risen.

Auto loans

What's happening: Car loans have hovered for the past year around 7.4 percent, with highs of 25 percent for those with poor credit. So far these have been impervious to the crunch, says Chintan Talati of Edmunds.com.

What to do: You may be tempted, as in the past, to use a tax-deductible HELOC to buy a car, but think twice. Real estate is unstable, it's harder to get prime on a HELOC and paying it back requires discipline. If you can get a 7 percent to 8 percent auto loan, take it.

FHA NEWS ABOUT REFINANCING BORROWERS WHO ARE LATE ON SUBPRIME MORTGAGES:

The Department of Housing and Urban Development gave lenders the go-ahead last week to start refinancing delinquent subprime borrowers into Federal Housing Administration loans.

The emergency program is designed to give certain subprime borrowers with adjustable-rate mortgages a refinancing option to avoid foreclosure.

It is a key component of the Bush administration's efforts to mitigate the fallout from the subprime mortgage debacle.

Under the program, borrowers that were current on their monthly payments up to the time of the reset of their ARM can qualify for a new FHA-insured mortgage, according to the FHA mortgagee letter that spells out the requirements for the refi program.

Eligible homeowners can roll missed payments in their new FHA loan but they can't go above a 97.75% loan-to-value ratio on the first mortgage, based on a new appraisal.

But the FHA will allow a second lien to provide some flexibility for borrowers who have experienced a decline in property values and can't afford the closing costs or late fees. "That is nice feature," said FHA consultant Bud Carter. "They really made an effort to try and reach a lot of these borrowers." Mr. Carter is with Potomac Partners in Washington.

President George Bush announced the creation of the FHA refinancing program, which is call "FHA Secure," just before the Labor Day weekend. The FHA Secure program will give "many families who are struggling" an opportunity to refinance into FHA-insured mortgages and keep their homes, the president said.

The president stressed that it is not a "bailout" for lenders or speculators. But he said the government has a role to play in helping American homeowners "get through this difficult time." FHA Secure is a temporary program, however, and it is set to end by the end of calendar year 2008.

President Bush also said the Department of Housing and Urban Development will issue a Real Estate Settlement Procedures Act proposal soon to "require mortgage brokers to fully disclose their fees and costs."

HUD is expected to issue a proposal later this fall that revamps the good-faith estimate disclosure that borrowers receive shortly after signing an application for a mortgage.

The president also called on Congress to pass FHA reform legislation that would increase FHA loan limits, lower downpayment requirements and offer more flexibility in pricing mortgage insurance premiums.

The House is on track to pass an FHA reform bill quickly, possibly this week. But it is unclear when the Senate Banking Committee will be able to reach a consensus on FHA reforms.

Meanwhile, HUD estimates the FHA will refinance over 100,000 subprime borrowers into FHA loans by the end of this fiscal year, which ends Sept. 30. And the FHA could refinance another 160,000 subprime borrowers in FY 2008 without any changes to its program.

With the new FHA Secure program, HUD expects to reach another 60,000 subprime borrowers because the FHA will be able to refinance delinquent borrowers for the first time.

HUD officials say they can reach even more subprime borrowers by implementing risked-based pricing. And the department is planning to implement risked-based pricing through an administrative action, if Congress does not pass an FHA bill by Jan. 1.

By pricing its mortgage insurance premiums by credit risk, the FHA could help another 20,000 subprime borrowers refinance into a new FHA-insured mortgage in FY 2008 and help 120,000 new homebuyers who have fewer financing options due to the contraction in subprime lending, a HUD official said.