Servicing

The Mortgage Bankers Association and the Commercial Mortgage Securities Association have joined with the Real Estate Roundtable and the National Association of Realtors to oppose differentiation between the ratings of structured finance products and those of other asset classes. In a letter to Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., and the panel's ranking member, Sen. Richard C. Shelby, R-Ala., the groups warn that differentiating between ratings, as some are proposing, would further erode investor confidence and threaten a fragile economy. "At a time when we need to restore liquidity and confidence in the market, the last thing we ought to be doing is be making the ratings process more complicated," said Kieran P. Quinn, chairman of the MBA. "We recognize improving the ratings process is a key to getting players back in the market, and we want to work with Congress to find the best way to do that. This just isn't it." The letter recommends educating investors about the risk associated with all securities, as opposed to focusing exclusively on structured securities. The letter was sent in advance of a committee hearing on the role of credit rating agencies in U.S. credit market turmoil.

Downey Financial Corp., Newport Beach, Calif., lost $248 million in the first quarter, citing "ongoing" weakness in the housing market. The thrift, which ranks 44th among all residential funders, set aside $236 million to cover credit losses and noted that during the quarter its average loan-to-value ratio had improved to 65% (from 67% in the first quarter of 2007). Its average FICO score was 745 in the first quarter, compared with 721 a year earlier. The company reported that it is seeing a pickup "in the rate at which our foreclosed homes are being sold." Downey said 23% of its inventory of unsold homes "was either in escrow to be sold or in negotiation to be sold" at the end of March. The company can be found online at http://www.downeysavings.com.

Royal Bank of Scotland -- the parent of Greenwich Capital, for years a major player in subprime asset-backed securities -- early Tuesday morning said it would take almost $12 billion in mortgage-related writedowns and raise $24 billion in new capital. Great Britain's second-largest bank blamed its problems on the U.S. subprime mess and the spreading credit crunch that is now affecting many sectors of the financial services industry. Based in Connecticut, Greenwich has been a major securitizer of subprime mortgages. Its client list once included some of the largest subprime funders in the United States, including Ameriquest Mortgage of California. Sources say Greenwich has slashed its warehouse lending business to the bone and is even margin-calling investors in delinquent mortgages. One investment banker who visited Greenwich recently described the atmosphere in Connecticut as "a lot of traders sitting around gabbing" and "people going home early." Greenwich has not responded to telephone calls from National Mortgage News.

Six classes of mortgage pass-through certificates from American Home Mortgage Investment Trust 2005-SDI have been downgraded by Fitch Ratings. The downgrades were as follows: group 1, class I-M2, from A to BBB, class I-M3, from BBB to B, and class I-M4, from BB to CC/DR3; and group 2, class II-M2, from A to BBB (and placed on Rating Watch Negative), class II-M3, from BBB-minus to C/DR4, and class II-M4, from B to C/DR6. Fitch also affirmed the ratings on four other classes in the scratch-and-dent transaction.

Ten certificates from two transactions issued by MASTR Second Lien Trust have been downgraded by Moody's Investors Service. One downgraded class was maintained on review for possible further downgrade. "The actions take into account the continued worsening performance of transactions backed by closed-end second lien collateral," Moody's said. "Substantial pool losses over the last few months have eroded the credit enhancement available to the mezzanine and senior certificates." Moody's can be found on the Web at http://www.moodys.com.

Freddie Mac has announced $10.5 million in grants to 12 nonprofit housing counseling organizations for outreach, education, and foreclosure prevention efforts. The groups were selected for their abilities to educate and advise borrowers (especially subprime borrowers) about foreclosure options or help them obtain workouts from mortgage servicers, the government-sponsored enterprise said. The largest share of the funds will be administered through the Hope Now Alliance in grants totaling more than $6 million, of which approximately two-thirds is allocated for Hope Now's counseling, operations, and outreach. Other organizations receiving grants of $500,000 or more from Freddie are: Center for Responsible Lending, $1 million; Neighborhood Assistance Corporation of America, $500,000; and Don't Borrow Trouble, $500,000. Freddie said the grants are the result of the November settlement between the Office of Federal Housing Enterprise Oversight and former Freddie Mac chief executive Leland Brendsel. The GSE can be found online at http://www.freddiemac.com.

Wolters Kluwer Financial Services, Minneapolis, and Fidelity National Information Services, Jacksonville, Fla., have announced plans to integrate certain Wolters Kluwer loan-modification systems and compliance content into the loss mitigation module of FNIS's servicing platform. The companies said the integration of Wolters Kluwer's Desert Document Services repository of standardized documents into the Desktop workflow, document, and expense management system of FNIS will enable servicers "to automatically generate federal- and state-compliant documents on a nationwide basis" and to customize loan modification documents and packages as needed. The Desktop loss mitigation module is available to all servicers and is integrated with FNIS's Mortgage Servicing Package platform and other servicing platforms, the companies said. The companies can be found online at http://www.wolterskluwerfs.com and http://www.fidelityinfoservices.com.

The Office of Federal Housing Enterprise Oversight wants to ensure that Fannie Mae's and Freddie Mac's application of fair-value accounting promotes transparency and consistency in financial reporting and will take corrective actions if the practice "distorts earnings or capital," according to newly issued examiner guidance. "It is important that Fannie Mae and Freddie Mac apply fair value in a sound and consistent manner," OFHEO Director James Lockhart said. OFHEO says it expects the government-sponsored enterprises to document their decisions for applying fair value to selected financial assets and liabilities and provide the regulator with a full fair-value balance sheet each quarter. "If OFHEO detects patterns of use of the fair value option that impair transparency or distort earnings or capital, OFHEO will evaluate whether such application of the FVO is unsafe and unsound," the examiner guidance says.

Five tranches from Basic Asset Backed Securities Trust 2006-1 have been downgraded by Moody's Investors Service. The downgrades were as follows: class M-2, from Baa2 to B2 (and placed under review for further possible downgrade); class M-3, from Ba3 to B3 (and placed under review for further possible downgrade); class M-4, from B3 to Caa2; class M-5, from B3 to Caa2; and class M-6, from Ca to C. The rating agency 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 subprime residential mortgage loans.

Nine tranches from Meritage Mortgage Loan Trust 2005-3, a subprime residential mortgage-backed securities deal, have been downgraded by Moody's Investors Service. One downgraded tranche remains on review for possible further 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 subprime residential mortgage loans. Moody's can be found online at http://www.moodys.com.