Servicing

Sixty-three certificates from 19 First Franklin Mortgage Loan Trust transactions backed by first-lien subprime mortgage loans have been downgraded by Moody's Investors Service. Moody's also placed 11 certificates under review for possible downgrade. The downgrades were attributed to the fact that credit enhancement provided by subordination, overcollateralization, and excess spread for each deal is low compared to projected pipeline losses. "Stepdown and continuous losses have left the deals with thin credit enhancement levels and made them more vulnerable to pool deterioration in the tail end of the deals' lives," the rating agency said. Moody's can be found online at http://www.moodys.com.

More than 100 additional classes of subprime mortgage-backed securities were downgraded by Fitch Ratings on April 30. Fitch also affirmed the ratings on classes with outstanding balances of more than $5 billion. The securities affected by the latest downgrades were: 54 classes from 23 issues by Structured Asset Investment Loan; 31 classes from eight issues by CDC Mortgage Capital Trust; 20 classes from 19 issues by Chase Funding Loan Acquisition Trust; 17 classes from four issues by Structured Asset Securities Corp.; and nine classes from two issues by People's Choice Home Loan. Fitch can be found online at http://www.fitchratings.com.

The number of severely delinquent mortgage accounts rose 15% from February 2007 to February 2008, according to a National Score Index study conducted by Experian Consumer Direct. The national average credit score for those with a severely delinquent mortgage account stood at 599 in February 2008, compared with 605 a year earlier, Experian reported. "Conversely, the average credit score in February 2008 for those with a mortgage account with no delinquencies was 750," the credit report provider said. (The company said its definition of severely delinquent mortgage accounts includes chargeoffs, short sales, foreclosures, repossessions, collections, voluntary surrenders, and bankruptcies.) The study also found that the average mortgage balance for those with a severely delinquent account was $131,699 in February 2008, compared with $124,465 a year earlier, and that the states with the highest number of such accounts were California (where 12.4% of mortgage accounts are severely delinquent), Florida (8.0%), and Texas (6.3%). The company can be found on the Web at http://www.experian.com.

Hammered by accelerating delinquencies in its home equity portfolio, Cal State 9 Credit Union, Concord, Calif., lost $53.1 million in the first quarter. Cal State, which lost $61.6 million last year, is being managed by its regulator, the National Credit Union Administration. The agency is trying to sell the California lender. Delinquencies in the credit union's home equity loan portfolio rose 38% in the quarter from year's end. Meanwhile, depositors continued to withdraw their funds from the ailing CU, with $29 million in accounts walking out the door in the first quarter. Cal State 9 at one time had $465 million in assets.

Deutsche Bank has reported taking a 141 million euro ($220 million) loss in the first quarter, a period in which it also took 885 million euros ($1.38 billion) in writedowns on commercial real estate and residential mortgage-backed securities. The RMBS involved in the writedowns were predominantly backed by alternative-A credit mortgages, the company said. "In the month of March, pressure on the banking sector was more intense than at any time since the current credit downturn began," said DB chairman Josef Ackermann.

Origen Financial, a manufactured housing lender based in Southfield, Mich., has agreed to sell its servicing platform and related assets to Green Tree Servicing, St. Paul, Minn. The deal includes the transfer of approximately $1.6 billion of manufactured housing loans. Origen said it will use proceeds from the sale to retire a $15 million loan secured by the servicing assets, partially repay a $46 secured loan facility, and as working capital. As part of the sale, Green Tree will assume the lease for Origen's Fort Worth, Texas, servicing facility. Origen, battered by difficult market conditions, previously announced that it had suspended the origination of new loans for its own portfolio and sold recently originated but unsecuritized loans at a loss. "With the agreement to sell our servicing platform, we are now focused on trying to sell our origination platform assets and right-size our employee and cost structure to accommodate the continued management of our $1 billion securitized loan portfolio," said Ronald Klein, Origen's chief executive. Upon completion of the transaction, Green Tree will see its servicing portfolio grow to over $22 billion. Origen can be found online at http://www.origenfinancial.com.

An affiliate of WL Ross & Co. has closed on its $1.3 billion purchase of Option One Mortgage Corp., Irvine, Calif., which services $55 billion in A-minus to D loans. With Option One under his belt, WL Ross chief executive Wilbur Ross said he is now in the hunt to buy savings and loan institutions. His financial backers include sovereign wealth funds. In a recent interview with National Mortgage News, Mr. Ross said he eventually wants to enter the loan production business. Last year, Mr. Ross's company bought the servicing platform of bankrupt American Home Mortgage, Melville, N.Y., a subprime and alternative-A servicer. (For the full story, see the May 5 issue of NMN.)

More than 100 additional classes of subprime mortgage-backed securities were downgraded by Fitch Ratings on April 29. Fitch also affirmed the ratings on classes with outstanding balances of more than $2.6 billion. The securities affected by the latest downgrades were: 94 classes from 17 issues by First Franklin; 11 classes from seven issues by Renaissance Home Equity Loan Trust; five classes from three issues by Fremont Home Loan Trust; and one class from an issue by American Business Financial Services. Fitch can be found online at http://www.fitchratings.com.

Liberty Property Trust, Malvern, Pa., has been designated the "Bear of the Day" for April 30 by Zacks Equity Research, Chicago. The Bear of the Day is a stock expected to underperform the markets over the next three to six months. Zacks said the commercial real estate investment trust's operations "are holding up relatively well in the company's core portfolio, although overall vacancies are increasing," and noted its "attractive yield, now over 7%, although the dividend is barely being covered with operating cash." Office and industrial markets are weakening throughout the United States, Zacks said. "Liberty has a large development pipeline that is only mildly pre-leased, and poses risk should the economy continue to soften in 2008," the research firm said. Zacks can be found online at http://www.zacks.com, and Liberty Property Trust can be found at http://www.libertyproperty.com.

Silver State Bancorp, Henderson, Nev., has reported a net loss of $14.4 million ($0.95 per share) for the first quarter, citing an increase in its loan loss reserve related to faltering real estate markets. In the first quarter of 2007, the company reported net income of $5.6 million ($0.39 per share). The loss reflects a $31.0 million provision for loan losses that was attributed to first-quarter chargeoffs of $9.7 million and nonperforming loans that grew from $13.1 million to $78.0 million. "The impact of the deterioration of the Nevada and Arizona economies and real estate markets on certain segments of our loan portfolio, namely our residential construction and land loans, began to be realized toward the end of the first quarter of 2008 as project delays mounted and updated appraisals showing significant[ly] lower valuations were received," said Corey L. Johnson, Silver State's president and chief executive officer. The company can be found online at http://www.silverstatebancorp.com.