Servicing

Fitch Ratings has downgraded the short-term Issuer Default Rating of Regions Bank from F1-plus to F1, citing "increased concerns" about the bank's residential homebuilder portfolio. Fitch also downgraded the Individual ratings of Regions Bank and its holding company, Regions Financial Corp., from A/B to B, but affirmed the holding company's long-term IDR at A-plus. The rating outlook was revised from stable to negative. The rating agency said Regional Financial has reported deterioration in its residential homebuilder loan portfolio, which represents approximately 8% of its total loans, and is projecting further deterioration.

ARE Asset Management, Miami, has launched two offshore investment funds registered in Tortola, British Virgin Islands, with the aim of making income-producing and opportunistic investments in the U.S. residential and commercial real estate credit markets. "Although turbulence due to the repricing of subprime adjustable-rate mortgages may continue, the U.S. real estate market has stabilized somewhat, producing some unique circumstances," said Jeffrey Kirsch, managing principal of ARE. "Given today's prevailing interest rate scenario, a U.S. real estate portfolio based upon accurate appraisals and aggressive loan servicing has the potential to yield above-average returns."

Ginnie Mae is opening the door for issuers to combine single-family mortgage-backed securities with reverse mortgage securities in a new real estate mortgage investment conduit, which should give the agency's fledging HECM mortgage-backed securities program a boost. A Ginnie official said the new REMIC program will be ready in a few weeks and they are aiming to complete the first forward/reverse mortgage REMIC this summer. "We don't expect to see a deal until the summer," the official said. Back in September, Ginnie rolled out an MBS program for Federal Housing Administration-insured reverse mortgages, which are called Home Equity Conversion Mortgages, or HECMs. Only one HECM MBS transaction has been completed. But Ginnie executives say they expect the new H-Class REMIC to allow Wall Street to structure the cash flows so it is more attractive to investors and provide a better execution for HECM MBS issuers.

The Treasury Department is proposing a federal Mortgage Origination Commission that would rate the adequacy of state regulation and licensing of mortgage lenders and brokers as part of a larger plan to restructure the financial regulatory system. Treasury Secretary Henry Paulson said the MOC would provide "important information to the marketplace about the strength of each state's mortgage compliance standards." If a state is rated "weak," mortgages originated in that state "should be viewed cautiously before being securitized," he said. The secretary noted that a large percentage of "problematic" subprime loans were originated by state-licensed lenders. (The Office of Thrift Supervision, which oversees thrifts, would be incorporated into the Office of the Comptroller of the Currency under the Treasury plan.) The "powerful" new commission, coupled with the Federal Reserve's Home Ownership and Equity Protection Act rules to ban abusive lending practices, "should go a long way in preventing recent issues from recurring," he said. The Conference of State Banking Supervisors responded that the Treasury plan "disregards" recent improvements in state licensing standards and reporting systems. In addition, the CSBS supports legislation currently under consideration in Congress that would strengthen the states' initiatives.

Class B-6 of Nomura Asset Acceptance Corp. mortgage pass-through securities, series 2003-A2, has been downgraded from BB-plus to BB by Fitch Ratings. Fitch also affirmed the ratings on 11 classes in two Nomura transactions. The downgrade was based on deterioration in the relationship between credit support levels and loss expectations.

Two classes from Structured Adjustable Rate Mortgage Loan Trust mortgage pass-through certificates series 2004-13 have been downgraded by Fitch Ratings. Class B-4 was downgraded from BB to CC/DR3, and class B-5 was downgraded from B to CC/DR4. Fitch also affirmed the ratings on five classes from two SARM securitizations. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses.

More than 100 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on March 27 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed 10 classes of subprime pass-throughs on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of more than $1.4 billion. The securities affected by the latest downgrades were: 37 classes from three issues of Aegis mortgage pass-throughs; 21 classes from two issues of GE pass-throughs; 18 classes from two issues of Ace pass-throughs; 10 classes from one issue of Fremont pass-throughs; 10 classes from one issue of Option One Mortgage Loan Trust pass-throughs; and nine classes from one issue of Residential Asset Mortgage Products Trust pass-throughs. 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."

The short-term Issuer Default Rating and short-term deposit rating of Chevy Chase Bank FSB have been downgraded from F2 to F3 by Fitch Ratings, which cited the "challenging operating environment" of the mortgage banking business. Fitch also downgraded Chevy Chase's Individual rating from B/C to C, but affirmed the bank's long-term IDR at BBB-minus. The rating agency said the downgrades stemmed from "profitability pressure" at the bank in the past year. "Expected earnings pressure combined with the company's obligations on its preferred debt and balance sheet growth will likely reduce capital levels," Fitch said. "Also a consideration in Fitch's downgrade of the short-term IDR is the reduced flexibility due to less favorable terms and pricing in the capital markets for residential mortgage securitizations." Fitch can be found online at http://www.fitchratings.com.

The Federal Agricultural Mortgage Corp. and the National Rural Utilities Cooperative Finance Corp. have announced the sale of $400 million of five-year notes secured by National Rural to Farmer Mac. The notes are secured by mortgage debt issued by rural electric distribution cooperatives that are members of National Rural, a not-for-profit finance cooperative. Farmer Mac, a congressionally chartered corporation that provides a secondary market for rural housing and agriculture-related mortgage debt, said the deal provides National Rural with greater liquidity for its rural utility cooperative members and advances Farmer Mac's role as an investor in rural America. The organizations can be found online at http://www.farmermac.com and http://www.nrucfc.coop.

The default rate on securitized subprime loans hit 25.2% in December, up 185 bp from that of the previous month, but defaults on alternative-A loans are also surging, according to a report by Friedman Billings Ramsey Investment Management. Defaults on alt-A mortgages jumped to 8.26% in January, up 106 basis points from the level in December and 250 bps from that of November. Alt-A borrowers have high credit scores, but are generally self-employed and highly leveraged. There are 2.8 million securitized alt-A loans totaling $839 billion, and nearly 20% of the loans are secured by second homes and investment properties. The alt-A world is vulnerable in today's market with falling house prices and deteriorating labor market conditions. "It is really a double-whammy for alt-A," said FBRIM managing director Michael Youngblood. (The default rate includes loans 90 days or more past due, in foreclosure, and real estate owned.) FBRIM is a subsidiary of Friedman Billings Ramsey, which can be found online at http://www.fbr.com.