Servicing

Moody's Investors Service has downgraded the ratings of 435 tranches from 67 payment-option adjustable-rate mortgage transactions issued by Countrywide. Of the downgraded tranches, 174 remain on review for possible further downgrade and 179 others were placed on review for possible downgrade. The ratings were downgraded, in general, based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels, Moody's said. The collateral consists primarily of first-lien, adjustable-rate, negatively amortizing alternative-A mortgage loans.

Moody's Investors Service has announced that it is reviewing alternative-A payment-option ARM transactions as part of its wider review of residential mortgage-backed securities. Moody's said the main reason for the review is that many option adjustable-rate mortgage pools are experiencing higher-than-expected rates of delinquency, foreclosure, and real estate owned. Moody's can be found on the Web at http://www.moodys.com.

Moody's Investors Service has downgraded key ratings of two mortgage-related bond insurers in the latest of a series of negative rating actions the two companies have protested. Moody's has downgraded MBIA's insurance financial strength rating from Aaa to A2 and Ambac's IFSR from Aaa to Aa3. Several related ratings are also being affected by the move, including some transactions the companies have insured. Regarding both companies, Moody's said that, among other concerns, "uncertainty about the ultimate performance of ... mortgage-related exposures continues to adversely affect market perceptions" of them, "greatly impairing" their "financial flexibility and ability to write new insurance." In protesting recent negative rating actions by Moody's and the other two major rating agencies, MBIA and Ambac have separately assured market participants that they have taken steps to offset their mortgage-related risks and that their capitalization and claims-paying ability are sound.

Paradigm Default Services LLC, Denver, has announced the introduction of third-party servicing of real estate owned designed to serve clients and investors "awash in a sea of subprime foreclosures." The company said it is creating a special default servicing unit that will provide "cradle-to-grave, hands-on" servicing, taking loans from their initial default to reperformance or liquidation. Paradigm said it acts as a third-party facilitator between lenders and real estate brokers around the nation to ensure that the details of local asset management -- taking possession of foreclosed property, readying it for sale, marketing it, and closing the sale -- are "capably discharged without liability." The company can be found on the Web at http://www.paradigmdefaultservices.com.

RealtyTrac, an online marketplace for foreclosure properties, has announced a partnership with Bid4Homes, an online auction site specializing in distressed property, that enables RealtyTrac users to research and bid on a variety of online real estate auctions nationwide. RealtyTrac said the Bid4Homes proprietary Web-based applications and patented deposit system make it easy for real estate brokers, agents, real-estate-owned asset managers, and private sellers to list homes for auction on RealtyTrac. In addition to bank-owned properties and properties from private sellers, the Silver Spring, Md.-based Bid4Homes offers forfeited properties from the U.S. Marshals Service, seized properties from the Department of the Treasury, and tax-foreclosed properties from more than 50 counties nationwide. "Our users will now be able place online bids on properties being auctioned by Bid4Homes while never leaving the RealtyTrac website," said Rick Sharga, vice president of marketing at the Irvine, Calif.-based RealtyTrac. The companies can be found online at http://www.realtytrac.com and http://www.bid4homes.com.

Former Bear Stearns executives Ralph Cioffi and Matthew Tannin, who managed two subprime hedge funds that collapsed last summer, have been indicted on securities fraud and insider trading in regard to the funds' management. Until recently, little was known about the hedge funds because they were organized under a Bear affiliate, Bear Stearns Asset Management, and incorporated in the Cayman Islands, where bankruptcy laws allow companies to disclose a minimum about their operations. According to the U.S. attorney's office in Brooklyn, where the indictments were handed up, the hedge funds held at least $1.4 billion in investors' money by the end of 2006. In a statement, the U.S. attorney's office said that Messrs. Cioffi and Tannin "believed that the funds were in grave condition and at risk of collapse. However, rather than alerting the Funds' investors and creditors to the bleak prospects of the funds and facilitating an orderly wind-down, the defendants made misrepresentations to stave off withdrawal of investor funds." (For the full story, see the June 23 issue of National Mortgage News.)

Over 400 individuals have been charged with mortgage fraud as the result of a national "takedown" led by the Department of Justice and the Federal Bureau of Investigation. The law enforcement operation called "Malicious Mortgage" netted real estate agents, mortgage brokers, appraisers, and others allegedly engaged in lending fraud, foreclosure rescue schemes, and mortgage-related bankruptcy schemes. So far, the three-month sweep had led to 287 arrests and 173 convictions, and 82 individuals have been sentenced, the DoJ said. The Mortgage Bankers Association and the American Financial Services Association welcomed the crackdown. "We support efforts to prosecute unscrupulous operators who give the mortgage industry a bad name," AFSA president Chris Stinebert said. MBA president Kiernan Quinn said the sweep shows that federal authorities are taking the issue of mortgage fraud seriously. "We will continue to work with the FBI to help them target these kinds of crimes," Mr. Quinn said. The FBI said it has set up 42 task groups and working groups around the country that are investigating 1,400 mortgage fraud cases.

Ten tranches from three alternative-A transactions issued by Morgan Stanley have been placed under review for possible downgrade by Moody's Investors Service. The downgrades, in general, were based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels, the rating agency said. The collateral consists primarily of first-lien, fixed- and adjustable-rate alt-A mortgage loans. Moody's can be found on the Web at http://www.moodys.com.

Ambac Financial Group Inc., a bond insurer that has been pressured by its past exposure to mortgage debt securities hard-hit by the recent market crisis, has decided to terminate its ratings contract with Fitch and asked Fitch to withdraw its ratings. Fitch said it will consider the request. "Our decision to refocus and realign our business around our core expertise in the public finance and infrastructure sectors has led us to re-evaluate our ratings needs," Ambac said. Both Ambac and fellow bond insurer MBIA have been battling negative rating actions by Fitch and other rating agencies, which in turn are under political pressure to show that their ratings sufficiently reflect credit risks and are not compromised by rated companies' payments for services. Bond insurers' ratings are a focal point for the market because of their potential ripple effects on the debt securities they insure.

Washington Mutual Inc., Seattle, has announced the commitment of an additional $1 billion to help homeowners with subprime mortgage loans avoid foreclosure. WaMu noted that the pledge brings the commitment to its borrowers' assistance program to $3 billion. "Since the fund was first established in April 2007, WaMu has helped more than 7,500 homeowners work to avoid foreclosure," said Kerry Killinger, WaMu's chief executive officer. Under the program, eligible WaMu subprime borrowers who remain current on their loans and expect payment increases may apply for new, discounted fixed-rate loans or certain other mortgage products, the company said. The thrift can be found on the Web at http://www.wamu.com.