Servicing

The chairman-elect of the Mortgage Bankers Association has taken Fannie Mae and Freddie Mac to task for "penalizing future borrowers" for the past sins of granting financing to previous borrowers who weren't nearly as deserving. David Kittle, the president of Principle Wholesale Lending, Louisville, Ky., who takes the MBA's reins in October, questioned the need for the government-sponsored enterprises to charge higher fees for loans with smaller downpayments, borrowers with FICO scores between 650 and 680, or on houses located in so-called declining markets. Speaking to reporters at the MBA's National Secondary Market Conference in Boston, Mr. Kittle said, "We're making better loans today than we ever have. So if we're underwriting better, what's the need for the fees?" The MBA officer said the fees are adding $750 to the cost of every $100,000 borrowed, so borrowers who care about cash are opting for loans insured by the Federal Housing Administration. "A FICO score of 660 with 10% down is a good loan, but they've pushed that entire market to the FHA," he said of the GSEs.

The performance of closed-end second-lien mortgages has devolved to the point where they are "basically a writeoff," according to Standard & Poor's managing director Susan Barnes. Speaking at the Mortgage Bankers Association's National Secondary Market Conference in Boston, Ms. Barnes said closed-end seconds are "performing horribly" but that home equity lines of credit are "better" because they are typically originated by banks, which have stronger relationships with borrowers. S&P recently stopped rating seconds, saying it might resume at some point if it were able to get a sense that the asset class's performance had become predictable again. The rating agency can be found online at http://www.standardandpoors.com.

Effective immediately, Fannie Mae is going to offer its lenders better pricing on jumbo mortgages to help jump-start the market, according to chief executive Daniel Mudd. Fannie will price jumbos as if they were securitized in the TBA (to-be-announced) market, he said, but acquire the high-balance loans for Fannie's investment portfolio through the end of the year. Congress has authorized Fannie Mae and Freddie Mac to purchase mortgages above the $417,000 conforming loan limit until Dec. 31. But legislation has already been introduced to permanently increase the loan limit. Mr. Mudd told investors and analysts on a conference call that Fannie Mae will be giving up the "liquidity premium" with the new pricing strategy. But he views it as an opportunity cost to get a "foothold" in the jumbo market.

Fannie Mae has reported a $2.2 billion loss for the first quarter, down from a $3.6 billion loss in the fourth quarter, and said it plans to raise $6 billion in additional capital through offerings of common and preferred stock. The mortgage giant said its also plans to introduce a refinancing option for "underwater" borrowers that allows borrowers with Fannie-owned loans to refinance up to 120% of the property's current value. Fannie Mae's net revenue rose by $700 million in the first quarter to $3.8 billion, but that was offset by fair-value losses and $3.2 billion in credit-related expenses. The government-sponsored enterprise said 43% of its credit losses stem from its $310.5 billion alternative-A mortgage loan portfolio. Fannie also recognized a $1.1 billion loss on its investments in private-label securities backed by alt-A and subprime mortgages. Separately, the Office of Federal Housing Enterprise Oversight has agreed to lower Fannie's capital surplus requirement from 20% to 15% as a result of the stock offering. The regulator also lifted a 2006 consent order Fannie signed in 2006. The GSE can be found online at http://www.fanniemae.com.

Two tranches from two alternative-A mortgage-backed securities deals issued by RBSGC have been downgraded by Moody's Investors Service. Class B-1 of RBSGC Mortgage Loan Trust 2007-A was downgraded from Aa2 to A2, and class 1B1 of RBSGC Mortgage Loan Trust 2007-B was downgraded from Aa2 to A2. The downgrades were based, in general, 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-rate, alt-A mortgage loans.

Three tranches from one alternative-A transaction issued by Prime Mortgage Trust have been downgraded by Moody's Investors Service. The downgrades were as follows: Prime Mortgage Trust 2006-CL1, class M-4, from Baa1 to Baa3; class M-5, from Baa2 to Ba3; and class M-6, from Ba1 to B3. Class M-6 remains on review for possible further downgrade. The downgrades were based, in general, 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 -rate, alt-A mortgage loans.

Five classes of mortgage pass-through certificates issued by Merrill Lynch Mortgage Investors Merrill Lynch Credit Corp. have been downgraded by Fitch Ratings. The downgrades were as follows: series 2003-C, class B-4, from BBB-plus to BB, and class B-5, from BB-plus to CC/DR3; and series 2004-G, class B-3, from BBB to B, class B-4, from BB-plus to CC/DR4, and class B-5, from B-plus to C/DR6. Fitch also affirmed the ratings on seven other classes in the two deals. The downgrades were attributed to "current trends in the relationship between serious delinquency and credit enhancement." The collateral consists of adjustable-rate prime mortgage loans.

Six classes of notes from Sharps CDO I, a static cash flow collateralized debt obligations backed partly by alternative-A residential mortgage-backed securities, have been downgraded by Fitch Ratings. The downgrades were as follows: class A-1, from AAA to A-minus; class A-2, from AAA to A-minus; class B, from AA-plus to CC; class C, from A-plus to C; class D, from BBB to C; and class E, from BB to E. The downgraded classes were all removed from Rating Watch Negative. Fitch attributed the downgrades to "significant collateral deterioration" in the portfolio's alt-A RMBS. Approximately 63% of the portfolio has been downgraded since the transaction closed in December 2006, the rating agency said.

Twenty-four tranches from three alternative-A transactions issued by ChaseFlex have been downgraded by Moody's Investors Service. Twelve of the downgraded tranches remain on review for possible further downgrade, two tranches were placed on review for possible downgrade, and the rating on one tranche was confirmed. The collateral consists primarily of first-lien alt-A mortgage loans. The downgrades were based, in general, 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 rating agency can be found online at http://www.moodys.com.

Fifty additional classes of subprime mortgage-backed securities were downgraded by Fitch Ratings on May 2. Fitch also affirmed the ratings on classes with outstanding balances of more than $1.3 billion. The securities affected by the latest downgrades were: 22 classes from eight issues by Merrill Lynch Mortgage Investors; 15 classes from 10 issues by Asset Backed Funding Corp.; eight classes from three issues by Specialty Underwriting and Residential Finance; and five classes from four issues by Countrywide (CWABS).