Servicing

Five classes from two Nomura Home Equity Loan Net Interest Margin notes have been downgraded by Fitch Ratings. The downgrades were as follows: Nomura Home Equity Loan NIM 2006-FM2, class N-1, from BBB to C/DR6, and class N-2, from B to C/DR6 (and removed from Rating Watch Negative); and Nomura Home Equity Loan NIM 2006-HE3, class N-1, from BBB to C/DR6, and classes N-2 and N-3, from B to C/DR6. Fitch also lowered the Distressed Recovery rating of class N-3 in series 2006-FM2 from DR5 to DR6. "The rating actions reflect actual pay-down performance of the NIM securities to date compared to initial projections, as well as changes that Fitch previously made to its subprime loss forecasting assumptions for the underlying transactions," the rating agency said.

Forty-three classes from 10 alternative-A mortgage-backed securities deals have been downgraded by Fitch Ratings. The affected securities included the following: 18 classes from five Washington Mutual Mortgage deals; 14 classes from two GSC Capital Corp. Mortgage Trust deals; and 11 classes from three GSAA Home Equity Trust deals. Fitch also affirmed 30 classes in the alt-A transactions. The rating agency attributed the downgrades to expected defaults and losses from delinquent loans and projected losses from the currently performing pools. Fitch said it is nearing the completion of the first phase of a two-phase review of alt-A transactions issued in 2005, 2006, and 2007.

Fitch Ratings has placed certain notes in 59 collateralized debt obligations backed partly by trust preferred securities or real-estate-related debt on Rating Watch Negative. The rating actions, affecting mainly junior classes of notes rated in the BB, BBB, and A categories, stem from "a significant increase" in TruPS defaults and deferrals as well as deterioration in the credit quality of issuing banks. "Observed deferrals continue to be driven by ... residential construction loan exposure, residential mortgage production, and lack of a core deposit franchise," Fitch said.

Fitch Ratings has announced plans to provide Rating Outlooks on U.S. structured finance bonds in response to a positive reception to its Rating Outlooks for European structured transactions. Fitch introduced the outlooks in June 2007 to European asset-backed securities, commercial mortgage-backed securities, and residential MBS transactions. "Fitch is issuing Outlooks in response to market requests for more forward-looking information about possible future rating changes," said John Bonfiglio, group managing director and head of U.S. Structured Finance. Rating Outlooks -- which may be Positive, Negative, Stable, or Evolving -- indicate the likely direction of any rating change over a one- to two-year period, Fitch said. They will be applied at the individual bond level and updated concurrently with a rating review for each transaction. Fitch can be found on the Web at http://www.fitchratings.com.

Greystone Residential Funding, Middleton, Wis., has announced a change in ownership and a planned transition to a new name, QR Lending. The new equity partner is a group of private investors focused on businesses that serve community banks and credit unions, Greystone said. The company said it does not plan to make operational, management, or personnel changes. The name change will take place in coming months as Greystone's state registrations are completed. The company can be found online at http://www.greystonerf.com.

UBS has closed on the sale of billions of dollars of primarily subprime and alternative-A U.S residential mortgage-backed securities to a newly created distressed-asset fund that will be managed by the BlackRock investment management firm. "Risk reduction remains a critical part of our ongoing financial restructuring, and this sale is a big step toward further reducing our positions in this asset class," said Marcel Rohner, group chief executive officer of UBS. UBS said it sold positions with a nominal value of about $22 billion to the new fund for an aggregate sale price of approximately $15 billion.

Fannie Mae and Freddie Mac have been criticized somewhat for how few jumbo loans they have bought since being granted the authority in February, but officials from the GSEs told Congress Thursday that their companies are beginning to see significant increases in loan submissions. Thomas Lund, executive vice president of Fannie Mae's single-family business, said the government-sponsored enterprise's top 10 seller/servicers now have $3 billion worth of jumbo loans in their pipelines. "We've done $80 million through the end of May," he said. Patti Cook, EVP and chief business officer for Freddie Mac, held onto an earlier prediction that Freddie might buy $15 billion worth of GSE jumbos by year's end. (Under the new authority, Fannie and Freddie can purchase mortgages with balances of up to $729,750 in certain high-cost areas.) The executives told elected officials that their ability to buy jumbos has been hurt because the mortgages cannot be sold forward into TBA (to-be-announced) securities. However, since changing their pricing on jumbos, loan submissions have risen, and rates charged have fallen to the point where they are comparable to those of conventional loans. (For the full story, see the May 26 issue of National Mortgage News.)

The residential servicer ratings of Residential Capital LLC, Minneapolis, have been placed on Rating Watch Negative by Fitch Ratings. The affected ResCap ratings are as follows: residential primary servicer for prime and alternative-A products RPS2-plus; residential primary servicer for subprime, high loan-to-value, and home equity/home equity line of credit product, RPS2; residential primary specialty -- subservicer, RPS2-plus; residential special servicer, RSS2-plus; and residential master servicer, RMS2-plus. The rating actions "reflect the continued pressure on ResCap's liquidity position and financial flexibility and the potential impact on the company's servicing operations," the rating agency said. Fitch downgraded ResCap's Issuer Default Rating from BB-minus to C on May 2 after the company announced a debt exchange offer. The company's corporate ratings remain on Rating Watch Negative pending the execution of the offer, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

The residential servicer ratings of Indymac Bank FSB and a subsidiary have been downgraded by Fitch Ratings. Indymac Bank's primary servicer rating for prime product was downgraded from RPS2 to RPS3-plus, its primary servicer ratings for alternative-A and subprime product were downgraded from RPS2 to RPS3, and its special servicer rating was downgraded from RSS2 to RSS3. The ratings remain on Rating Watch Negative. In addition, the residential primary specialty-reverse servicer rating of Financial Freedom Senior Funding Corp., the company's reverse mortgage subsidiary, has been downgraded from RPS3-plus to RPS3 and placed on Rating Watch Negative. The actions "reflect the company's challenges in returning to profitability and [its] decision to defer dividend payments on preferred stock" issued by Indymac Bank and its holding company, Indymac Bancorp, Fitch said.

Reinforcing their position as the cornerstones of the American housing market, Fannie Mae and Freddie Mac now have enough capital on hand to purchase all $2 trillion worth of mortgages that are expected to be originated this year, their safety-and-soundness regulator said at the Conference of State Bank Supervisors' annual meeting. Two years ago, the two GSEs touched less than 40% of the mortgages that were written. Now that figure is up to 70% of all home loans and 80% of all securitizations, James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told the meeting. "They have become the secondary market, and they are being asked to do a lot more," Mr. Lockhart said. While Fannie and Freddie have been slow to purchase so-called jumbo conforming loans, they are now quickening their pace, the OFHEO director said. In the first two weeks of May, their volume in mortgages ranging from $417,000 to $729,250 was four times what it was in all of April, he reported. "They started out pretty cautiously," Mr. Lockhart said, "but now they are starting to ramp up." He also said he was "satisfied overall" with the Senate housing bill, which was voted out of committee Tuesday, because it "underscores the importance" of a single, world-class regulator for the GSEs. "It checks off all the boxes," he said.