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Whispers: November 26, 2007

Private-equity firm J.C. Flowers has reportedly submitted a bid for Northern Rock that offers a "nominal" value to shareholders, while repaying GBP15 billion of Bank of England debt. J.C. Flowers would make additional repayments of around GBP10 billion to the Bank of England by the end of 2010, reports said. Cerberus Capital Management is also rumored to have scrapped plans to bid for the bank.

Three former Countrywide Financial executives were sentenced to three years' probation each for criminal insider trading. Alan Cao, Quan Zhu and Jun Shi all plead guilty earlier this year to using confidential data to sell off their shares ahead of an earnings report that showed Countrywide's 2004 third-quarter shares would not meet Wall Street projections. The securities fraud brought in more than $100,000 in combined profits. The former executives have also been ordered to serve several hundred hours of community service and pay a total of $8,000 in fines. The three men worked in financial planning or portfolio management for Countrywide.

H&R Block said goodbye to its CEO last week amid several other management changes. The company is reportedly struggling to sell its subprime mortgage unit Option One to private equity firm Cerberus Capital Management. Mark A. Ernst resigned as chairman, president and CEO but will remain with the company as a consultant through year-end in order to train new leadership. Alan M. Bennett will take over as interim CEO, while the board searches for someone on a more permanent basis. Bennett said he did not want to be considered for the position full time. Bennett retired earlier this year as chief financial officer and a member of the office of the chairman of Aetna. He will temporarily relocate to Kansas City and work full time during the search for a new CEO. Richard C. Breeden was elected chairman of the board and will serve in a non-executive capacity, H&R Block said, primarily focusing on external constituencies and the leadership of the board. Breeden is a former chairman of the U.S. Securities and Exchange Commission. He leads an investment fund that is a major investor in H&R Block.

Fieldstone Mortgage Co, which is owned by parent C-BASS, said it has ceased accepting loan applications and funding mortgage loans, according to a posting last week on its Web site. The company also said it has stopped accepting applications for broker approvals.

Behringer Harvard, a Dallas-based REIT, announced that Robert J. Chapman has joined the firm as executive vice president and co-chief operating officer. Chapman will share responsibilities with Robert S. Aisner, president and current chief operating officer of the firm. Chapman will also oversee the company's investment banking relationships and will be actively involved in new corporate initiatives, capital markets, and special operational and strategic projects, the firm said. Prior to joining Behringer, Chapman was executive vice president and chief financial officer for AMLI Residential Properties Trust for ten years. Before joining AMLI, Chapman was managing director of Heitman Capital Management Corp., and prior to that he served as managing director and CFO of JMB Institutional Realty Corp. Chapman has been a member of the Association of Foreign Investors in Real Estate, the Mortgage Bankers Association.

Commercial real estate prices fell by 1.2% on a monthly basis in September, according to the Moody's Investors Service/REAL Commercial Property Price Indices. The drop may be signaling that the ongoing liquidity crunch has created a tipping point for commercial real estate values, the rating agency said. Some sectors took a bigger hit than others. In the third quarter of 2007, office and apartment properties saw price declines of 0.5% and 1.0%, respectively, from the previous quarter. However, the industrial and retail sectors continued to grow, increasing by 3% and 2.6%, respectively, in the third quarter, Moody's said. Moody's/REAL Commercial Property Price Indices analyze same-property price changes across the U.S.

The Mortgage Bankers Association (MBA), American Land and Title Association (ALTA) and American Escrow Association (AEA) announced the development of uniform closing instructions for future mortgage transactions. The instructions will be in two standard sets and will provide a standard format for the details of each transaction including borrower names, property address and loan type. Lenders will not be required to use the instructions, but they are likely to be widely accepted, the MBA said. The new instructions will be discussed during an online workshop, presented by the MBA, ALTA, AEA and hosted by CampusMBA, on Monday, Dec. 3.

Impac Mortgage Holdings said it will delay filing its 10-Q form for the quarter ended Sept. 30, 2007 in order to record its recently discontinued warehouse lending operations, commercial operations and the close of its nonprime mortgage business. Impac said it will take a bigger loss in the third quarter compared with the same period in 2006 but was unable to provide an estimate on the expected loss. The company has reportedly been the subject of margin calls from Bear Stearns. Impac said it expects to file the report in mid-December 2007.

Hanover Capital Mortgage Holdings (HCM) has reported a net loss for the third quarter 2007 of $31.7 million, compared with net income of $0.1 million for the same period of 2006, and it has decided not to declare a third-quarter dividend. The company said the losses were the result of declines in fair value of the HCM's subordinate mortgage-backed securities and a $1.5 million decrease in net interest income on its subordinate MBS portfolio. The decrease in net interest income is the result of the increased financing costs associated with a new fixed-term financing facility the company established in August of 2007.

Swiss Re reported a $878 million after-tax loss from its exposure to two related credit default swaps written by its Credit Solutions business. Severe downgrades by the rating agencies in October, along with the lack of liquidity in the market, have reduced the value of the underlying assets, Swiss Re said. While prime and mid-prime securities have the most exposure to the affected securities, there is exposure to subprime and to ABS CDOs as well, the company said, adding that it has marked these ABS CDOs to zero. The subprime securities were written down to 62% of their original value and the market value of the portfolio is now at 3.6 billion francs ($3.2 billion), Swiss Re said. The company said, however, that it would continue its share buyback program for 6 billion francs ($5.4 billion).

Freddie Mac has reported a $2 billion third-quarter net loss, more than double its previous filing. It reflected a higher provision for credit losses and losses on mark-to-market items. The $1.2 billion provision for credit losses reflects the significant deterioration of mortgage credit due to the continued weakness of the housing market. The loss amounts to $3.29 per diluted common share. The company's fair value of net assets also dropped by $8.1 billion. Fitch Ratings responded to the filing by placing Freddie Mac's preferred stock rating on negative watch. The company's preferred stock currently has an investment-grade rating of AA.' The negative watch resulted from concerns about Freddie Mac's ability to meet capital targets set by its regulator, the Office of Federal Housing Enterprise Oversight.

Moody's Investor Service has launched a new early warning system for Europe, the Middle East and Africa (EMEA) RMBS performance and portfolio trends, "as part of commitment to help improve transparency in the structured finance market," the agency said in a statement. The new European service, called EMEA Performance Data Services (EMEA PDS), allows users to benchmark and monitor the performance of deals in U.S. ABS, RMBS and CDO deals since 2002 and has recently been extended to cover European RMBS deals. "The most compelling feature of EMEA PDS for RMBS is that it makes all performance information across all deals available via a single interactive web platform, thereby eliminating the need for time-consuming data collation and verification," says Mario Aquino, head of international markets strategy. "The platform includes the same data, risk analytics, reporting and warning alerts that Moody's own surveillance analysts use to monitor credit in structured finance transactions." EMEA PDS users can observe over 60 different performance metrics, such as delinquencies, losses, credit support and excess spread. Searches can be further refined by country, region, asset type or closing date. EMEA PDS for RMBS can also be used to download performance and trigger data, perform time-series analyses, download the performance data in both graphical and tabular formats for further analyses, set customized email alerts, and create customized user-defined indices.

According to Fitch Ratings latest loan delinquency index, U.S. CMBS delinquencies fell by one basis point to 0.28% in October 2007. The most notable decline was among hotel properties, which fell to 5.4% of the total in October from 13.6% in September, according to Fitch. The decline in hotel delinquencies was driven primarily by the resolution of a large hotel in New Orleans. While the hotel's $83.3 million loan was assumed and brought current, it has yet to be transferred back to the master servicer, Fitch said. The multifamily sector experienced a rise in delinquencies for the fourth month in a row. In October, the net increase in delinquencies was $42.2 million or 8.5%. This was primarily due to 29 newly delinquent loans totaling $96.3 million. The three states with the highest concentration of delinquent loans were Texas with 51.5%, Michigan with 15.4%, and Oklahoma with 14.2%. The vintages with the highest concentration were 2006 with 24.2%, 2005 with 17%, and 2002 with 13.5%. Health care also experienced a rise in delinquencies, ending October with $19.5 million in delinquent loans, up from $5.7 million in September.

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