Servicing

Twenty-nine classes of subprime asset-backed pass-through certificates issued by Asset Backed Securities Corp. have been downgraded by Fitch Ratings as a result of changes to the rating agency's subprime loss forecasting assumptions. Fitch also affirmed the ratings on classes with outstanding balances of $1.4 billion. The rating actions were attributed to changes in Fitch's subprime loss forecasting assumptions that "better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness." Fitch can be found online at http://www.fitchratings.com.

The Federal Home Loan Bank of Chicago has announced that it will stop purchasing single-family loans after July 31 but will continue to provide operational support for mortgages it has already bought from members and other FHLBanks. Effective immediately, the Chicago FHLBank will "no longer enter into new master agreements or renew existing master commitments to purchase mortgage loans" under the Mortgage Partnership Finance program, the Chicago bank's acting president, Matthew Feldman, says in a letter. The FHLBank has a $34.6 billion mortgage loan portfolio that has become a serious drag on earnings. The Chicago bank, which is operating under a supervisory order, says it expects to report a loss in the first quarter. Mr. Feldman's letter indicates that the bank is looking for a way to restart deliveries of MPF loans by selling them to third-party investors. But they will have to get the Federal Housing Finance Board to approve this "off-balance-sheet funding alternative." The FHLBank launched the MPF program in 1997, and its regulator has blocked the securitization of the MPF loans for the past seven years.

Credit Suisse took a loss of 2.1 billion Swiss francs ($2.0 billion) in the first quarter and 5.3 billion Swiss francs ($5.1 billion) in net writedowns, about 3.6 billion Swiss francs ($3.5 billion) of which appear to be mortgage-related. The mortgage-related writedowns stem from collateralized debt obligations (2.7 billion Swiss francs, or $2.6 billion), commercial mortgage-backed securities (848 million Swiss francs, or $819 million), and residential MBS (96 million Swiss francs, or $93 million). The remaining writedowns reflect leveraged-finance concerns. While the writedowns remain sizable, the company said it has made progress reducing exposures in problem areas like commercial mortgage, which has been cut by 25%. Credit Suisse also said it has reduced leveraged-finance exposures by 41%. Credit Suisse can be found on the Web at http://www.creditsuisse.com.

In response to strong criticism from fair-lending groups, Fannie Mae has indicated that it is reconsidering recent moves to tighten underwriting standards on affordable housing mortgages and impose new fees. "We have met extensively with advocates, listened to their concerns, and are considering making some changes to our methodologies," Fannie spokesman Brian Faith said. Freddie Mac has also met with the fair-housing and civil rights organizations that have accused the two government-sponsored enterprises of abandoning their affordable housing mission. "While we disagree with their conclusions, we have had helpful discussions with the housing groups and take their concerns very seriously," a Freddie spokesman said. The GSEs can be found online at http://www.fanniemae.com and http://www.freddiemac.com.

The House Financial Services Committee has approved by voice vote a bill that would shield mortgage servicers from investor lawsuits so they can modify loans and help more troubled borrowers avoid foreclosure. The bill (H.R. 5579), sponsored by Reps. Michael Castle, R-Del., and Paul Kanjorski, D-Pa., would create a safe harbor for servicers who carefully consider loss mitigation options and decide to modify a mortgage. "Homeowners and investors alike benefit by finding terms and conditions that would allow at-risk homeowners to stay in their homes, while providing investors some rate of return for their investments," Rep. Castle said. Industry groups oppose the bill. But Rep. Castle said his bill would "eliminate some of the payoffs" required under a Federal Housing Administration refinancing bill the committee was scheduled to mark up on April 24. The FHA bill requires investors/servicers to write down the loan amount to refinance an "underwater" mortgage into an FHA-insured mortgage.

Three classes of notes issued by Westways Funding XI Ltd., a mortgage market value collateralized debt obligation, have been downgraded and their ratings withdrawn by Fitch Ratings. The downgraded notes were as follows: class A-PT, from AA to C/DR1 and withdrawn; class LA loan interests, from AA to C/DR1 and withdrawn; and class P, from AA to AA-minus and withdrawn. Fitch also withdrew the ratings on seven other classes. The negative rating actions were taken, and the ratings withdrawn, because the program has liquidated after breaching its overcollateralization tests, the rating agency said. Only class A-1 notes have been paid in full.

Fannie Mae and Freddie Mac are abandoning their affordable housing mission by tightening lending practices and imposing new fees that will put homeownership out of reach for minority and low-income homeowners, according to 80 fair-housing and civil rights organizations that are urging the government-sponsored enterprises to reverse course. "We the undersigned are deeply troubled by the recent announcement of your intentions to raise the cost of low-down payment loans for all but the smallest percentage of homebuyers with near perfect credit," the groups say in a letter to the top executives of Fannie and Freddie. The new "pricing scheme" violates "your charter," the April 22 letter says, and it is "tantamount to both ethnic and gender discrimination." Fannie and Freddie have tightened underwriting standards and imposed new delivery fees on almost all their mortgage programs, including affordable housing products.

Ambac Financial Group, whose guarantees stand behind billions of dollars worth of subprime asset-backed securities, lost $1.6 billion in the first quarter, blaming its problems on the company's "direct exposures" to the mortgage-backed securities market. At deadline time, the company's shares were trading down 38% to $3.73 a share, reaching a new 52-week low. (Its high was $96.) The New York-based Ambac took a $1 billion writedown in the quarter on its mortgage guarantee business. It also took a noncash charge of $1.7 billion to cover losses on credit derivatives. Commenting on the results, company chief executive Michael Callen noted that, "The housing market crisis continues to disrupt the global credit markets, and our credit derivatives and direct mortgage portfolios were severely impacted once again." The company can be found on the Web at http://www.ambac.com.

Forty-eight additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on April 21 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed one class on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of $1.5 billion. The pass-through securities affected by the latest downgrades were: 45 classes from eight issues by Residential Asset Mortgage Products; and three classes from one issue by Own It Mortgage Loan Trust. The rating actions were attributed to changes to Fitch's subprime loss forecasting assumptions that "better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness." Fitch can be found online at http://www.fitchratings.com.

Moody's Investors Service has downgraded the ratings of more than 800 tranches in nearly 100 subprime residential mortgage-backed securities transactions from six issuers. The affected securities were as follows: 286 tranches from 30 issues by First Franklin Mortgage Loan Trust; 220 tranches from 25 issues by Citigroup Mortgage Loan Trust; 208 tranches from 27 issues by Securitized Asset Backed Receivables LLC Trust; 90 tranches from 12 issues by Specialty Underwriting and Residential Finance; 27 tranches from three issues by Aegis Asset Backed Securities Trust; and 14 tranches from two issues by Park Place Securities Inc. Of the downgraded tranches, 164 remain on review for possible further downgrade. Moody's said 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 collateral consists primarily of first-lien, fixed- and adjustable-rate subprime residential mortgage loans.