A Pretty Quiet Quarter, by Some Standards.(Wells Fargo, Countrywide Financial Corp. and IndyMac, financial statements)

Garrison Keillor likes to begin his "news from Lake Woebegone" segment by telling people that it's been a quiet week in the fictional Midwestern small town. Then he gets into the entertaining details.

After reviewing fourth-quarter and year-end earnings statements from the mortgage industry, much the same can be said about the most recent mortgage servicing hedge results.

It's been a quiet quarter, for the most part. Not that there was no reason to worry. The average prime 30-year mortgage rate was 6.30% at the start of October, according to Freddie Mac's weekly rate survey. By the end of December, the average 30-year rate had slipped to 6.18%.

For the most part, that modest rate rally didn't trip up too many lenders, but there were more than a few that reported modest impairment to their mortgage servicing rights asset for the fourth quarter.

Let's start with the big kids.

Countrywide Financial Corp. saw its total loan servicing pretax earnings decline to just $9 million in the fourth quarter of 2006, down from $306 million in the fourth quarter of 2005, largely as a result of negative changes in MSR values and hedging losses. The company said quarterly earnings were constrained by a $215 million negative swing in the value of the MSR asset and retained interests coupled with a $132 million increase in interest expense related to the asset. While servicing cash flow remained strong (servicing fees net of guarantee fees totaled just over $1 billion for Countrywide in the fourth quarter), higher interest rates and increased leverage in the servicing sector stemming from the issuance of $1.5 billion high-equity-content debt securities drove up interest expense.

Wells Fargo, the nation's largest servicer with a $1.3 trillion portfolio as of Sept. 30, 2006, saw reasonably placid results despite its huge portfolio. Like Countrywide, Wells reported gross servicing fee revenue ...