Servicing

Five classes from two series of BCF LLC mortgage pass-through certificates have been downgraded by Fitch Ratings. The downgrades were as follows: series 1997-R1, class B-1, from AA to BBB, class B-2, from BB-plus to B, and class B-3, from CC/DR3 to C/DR6; and series 1997-R3, from AA to BB, and class B-2, from BB to C/DR6. All but class B-2 of series 1997-R3 were placed on Rating Watch Negative, as were classes A-4 and WAC in series 1997-R1. The collateral for the transactions consists primarily of mortgage loans purchased from the Department of Housing and Urban Development. "The mortgage loans are secured by first liens on one- to four-family residential real estate properties and had been contractually delinquent at origination," Fitch said.

Thirty-eight tranches of synthetic residential mortgage-backed securities certificates from 12 transactions issued by RESI, EASI, SASI, and RESIX have been downgraded by Moody's Investors Service. The certificates are protected by subordination, including a nonamortizing unrated tranche. In a synthetic transaction, credit protection is provided to the owner of a pool of jumbo mortgages (the protected party) similar to that provided by subordination in conventional RMBS transactions, Moody's said. The reference portfolio includes prime fixed-rate mortgages from various originators. Under an agreement with the issuer, the protected party pays a fee for the transfer of a portion of the portfolio risk, the rating agency said.

Citigroup Inc. is set to announce that it will provide $1 million of "planning grants" to help nonprofits apply for federal funding to acquire, renovate, and sell vacant real-estate-owned properties. The Housing and Economic Recovery Act, enacted July 30, set aside $3.9 billion for such activities. Eric Eve, a senior vice president of global community relations at Citi, said its grants will enable nonprofits to "better understand the REO space." Nonprofits can apply to Citi for grants of $50,000 to $100,000 in 12 cities: Oakland, Calif.; Atlanta; Chicago; Boston; Detroit; Charlotte, N.C.; Rochester, N.Y.; New York; Cleveland; Columbus, Ohio; Pittsburgh; and Houston.

Lehman Brothers has begun to reopen for business under the ownership of Barclays Capital, and more than 10,000 Lehman employees have been offered jobs in the new entity, according to Barclays PLC. The actions followed the recent approval by the Bankruptcy Court for the Southern District of New York of Barclays' agreement to acquire Lehman Brothers' investment banking and fixed-income and equity sales, trading, and research businesses, among others. Lehman's banking and advisory functions are now open for business, and its capital markets and trading businesses will resume full operations shortly, Barclays said. Employment offers have been made to all employees of the Lehman businesses acquired by Barclays. The combined firm will use the Barclays Capital name. Barclays said it has purchased the rights to use the Lehman Brothers name and will consider opportunities to do so.

Amy Brandt, who was the chief executive officer of WMC Mortgage Co. during that alternative-A lender's salad days, has returned to the industry by buying two servicers and an Internet originator. Vantium Capital Inc., her private-equity firm, was planning to announce that it has acquired the assets of Strategic Recovery Group LLC, a Plano, Texas-based company that collects on defaulted and charged-off debts; its Acqura Loan Services LLC, which manages subprime portfolios; and Strategic Recovery's online-only lending business, which uses the brand name Go Financial Solutions. Vantium, a New York company, would not make executives available for interviews. In a press release, Ms. Brandt said, "We will use these companies as a platform to develop, or acquire, new businesses that will serve the financial and investment markets." The firm did not say how much it paid for any of the assets. It has financial backing from Leon Black's Apollo Global Management LLC, the New York private-equity firm that sold WMC Mortgage to General Electric Co. in 2004. Acqura is to service assets bought by a Vantium fund managed by Michael Commaroto, the former head of private-label mortgage-backed securities at Deutsche Bank AG, Vantium said.

The Federal Housing Administration is warning its lenders not to finance "buy-and-bail" transactions in which the borrowers are planning to default on their old mortgage as soon as they move into their new home. These borrowers generally tell lenders that they are planning to rent their current home after they move into a less expensive house. To stop this "unscrupulous practice," the FHA says it is temporarily changing its underwriting guidance to ensure that the borrower can make payments on both mortgages without relying on rental income. The underwriting analysis "may not consider any rental income from the property," the FHA says in a mortgagee letter, unless the borrower has a loan-to-value ratio of 75% or less. Fannie Mae has instituted a similar buy-and-bail policy.

Before the Senate Banking Committee approves a $700 billion bailout of the credit and mortgage markets, some of its members want assurances that the government will not overpay for subprime MBS -- plus promises that taxpayers will get warrants in companies that sell to the government. At a hearing Tuesday -- attended by every senator on the committee as well as a noisy faction from ACORN that was silenced by committee Chairman Christopher J. Dodd, D-Conn. -- several elected officials wanted to know at what price the government would purchase mortgage-backed securities. "How will the assets be priced?" asked Sen. Robert Menendez, D-N.J. "If the seller doesn't like the price, will the taxpayer be asked to pay a premium?" The question was aimed at Treasury Secretary Henry Paulson, who has been putting together the bailout plan over the past few weeks. Committee members expressed dismay at having to spend so much of the taxpayers' money to help bail out Wall Street. "It's financial socialism," said Sen. Jim Bunning, R-Ky. "And it's un-American."

Fitch Ratings is the first rating agency to rate mortgage loans based on VantageScore, the algorithm created by the three credit bureaus to compete with Fair Isaac. "The mortgage crisis has not only shown that a multitude of factors influence the performance of high risk loans, but has also underscored the need for an improved generic consumer scoring model against which mortgage lenders can more reliably make their loans," said group managing director Huxley Somerville, who heads Fitch's U.S. RMBS group. "Built using data that includes the dramatic rise in consumer indebtedness in recent years and regularly revalidated to ensure the model's continued predictiveness, VantageScore has shown to be more accurate than FICO because it excludes the use of authorized trade lines." The latest version of FICO had originally excluded authorized trade lines, but Fair Isaac said the feature is being added back into FICO 08 because of concerns related to the Equal Credit Opportunity Act. Fitch has fully incorporated VantageScore into ResiLogic 2.1, a quantitative model that provides credit risk analysis at the individual loan and pool level for residential mortgage loans.

The Summit County [Ohio] Port Authority has voted to issue $12.5 million in tax-exempt bonds to help homeowners in the region who are facing foreclosure, according to American Homeowner Preservation Inc., Akron, Ohio. The authority approved the use of the bonds to help finance the work of AHP Ohio, a new nonprofit organization that is now accepting applications from distressed homeowners in the Summit County region. AHP Ohio said its program offers qualified homeowners who are behind on their payments and owe more than their house is worth a way of selling their homes and leasing them back at affordable monthly payments. The organization can be found on the Web at http://www.ahpoh.org.

Credit union leaders were working through the weekend to ensure that the massive government bailout of the mortgage industry includes their industry, too -- especially corporate credit unions, which are treading water amidst huge portfolios of underwater mortgage-backed securities. According to a report in Credit Union Journal, a sister publication to National Mortgage News, corporate CUs have accrued some $10 billion in unrealized losses on their mortgage-backed securities -- more than the capital of the entire corporate network. Almost every corporate CU is holding underwater mortgage securities, and more losses are expected to come to light this week and next as the corporates report their August financials to their members, the newspaper reported.