Servicing

Thornburg Mortgage Inc., Santa Fe, N.M., has amended its bylaws to allow a single investor to conditionally acquire up to 30% of its voting stock in connection with a crucial private note offering it has planned. Previously, a single person could not acquire more than 10% of the company's voting stock without the approval of two-thirds of Thornburg's voting shares, according to a Securities and Exchange Commission filing. An investor who acquired more shares under the new amendment would have to provide certain assurances that include a promise to maintain the company's real estate investment trust status, which ensures that the company enjoys certain tax advantages so long as it distributes most of its income to shareholders. Thornburg has announced plans for a private placement of $1.35 billion in subordinated secured notes in which it will issue detachable warrants to purchase shares of common stock that are exercisable under certain conditions. Thornburg must raise close to $1 billion in capital soon in order to keep in place a deal with some of the counterparties involved in a potentially "material" group of margin calls on the company. Thornburg Mortgage can be found online at http://www.thornburg.com.

When the Senate takes up a foreclosure prevention bill during the first week of April, the legislative package will not include a $300 billion Federal Housing Administration program to refinance distressed homeowners, according to Sen. Charles E. Schumer, D-N.Y. Before the Easter recess, Rep. Barney Frank, D-Mass., and Sen. Christopher J. Dodd, D-Conn., unveiled a legislative proposal that would help 1 million homeowners in "underwater" mortgages refinance into affordable FHA-insured mortgages. Sen. Dodd said he would like to include the FHA proposal in the foreclosure prevention bill. But it appears that Senate leaders have nixed it. Speaking on an ABC-TV news program, Sen. Schumer said the Frank-Dodd proposal has to be "done in a careful way, and we are not proposing that" as part of the foreclosure package. The New York senator stressed that the foreclosure bill will include "modest proposals" that provide for more housing counseling, increase mortgage revenue bonds, and create a net operating loss carry-back for homebuilders. Rep. Frank, the House Financial Services Committee chairman, has scheduled an April 9 hearing on the FHA refinancing proposal.

Class M-1 of the series 1998-2 IndyMac manufactured housing contract pass-through certificates has been downgraded from CC/DR3 to C/DR4 by Fitch Ratings. Fitch also affirmed the ratings on 11 classes from three IndyMac manufactured housing transactions. The downgrade was based on deterioration in the relationship between credit enhancement and expected losses, the rating agency said. The collateral consists of fixed-rate MH installment sales contracts and installment loan agreements.

Two classes of IndyMac ABS Inc. home equity securities have been downgraded by Fitch Ratings. Class B of series SPMD 2001-C was downgraded from CCC/DR1 to CC/DR3, and class M-10 of series SPMD 2004-B was downgraded from BBB-minus to BB-plus. Fitch also affirmed the ratings on 13 classes in the two deals. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses. The rating agency can be found online at http://www.fitchratings.com.

Fannie Mae issued $69.4 billion in mortgage-backed securities in February, up from $49.1 billion in January and $41.7 billion in February of 2007. The mortgage giant's monthly report also indicates that the serious delinquency rate on its conventional single-family portfolio hit 1.06% in February, up 8 basis points from that of the previous month. Fannie executives have been warning investors to expect rising delinquencies and defaults this year. But they also project that tighter underwriting and higher fees will make their MBS business very profitable. The government-sponsored enterprise recently received regulatory approval to expand its investment portfolio again, along with a reduction in its capital requirements. This might stir more investment activity in the coming months. The mortgage portfolio totaled $724 billion in February and has hovered between $710 billion and $730 billion for over a year. Fannie can be found online at http://www.fanniemae.com.

Capital markets disruptions linked to U.S. mortgage woes and rating agency actions have affected the liquidity of CIT Group Inc., according to the New York-based commercial finance company. CIT said that, as a result of its liquidity concerns, it is "drawing upon its $7.3 billion in unsecured U.S. bank credit facilities" and using the proceeds "to repay debt maturing in 2008, including commercial paper, and provide financing to its core commercial franchises." The company also said it would "continue to actively seek additional funding sources, as well as explore and execute on the sale of nonstrategic assets and/or business lines."

The 12 Federal Home Loan Banks have been given a green light by their regulator to purchase over $100 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac over the next two years to provide additional liquidity for the MBS market. The Federal Housing Finance Board agreed by notational vote to raise the cap on MBS investments from 300% to 600% of capital as part of the government's effort to help stabilize the housing market. The FHLBanks held $136.4 billion in MBS as of Sept. 30. Fannie and Freddie will be testing the market soon with the issuance of jumbo MBS for the first time. In addition, the Finance Board said the FHLBanks can purchase agency MBS that are secured by subprime and nontraditional mortgages that meet federal regulatory guidance. "Increasing the agency MBS investment authority for the banks is another way in which the FHLBank System can perform its traditional mission," said Finance Board Chairman Ronald Rosenfeld. Fannie's and Freddie's regulator recently relaxed their capital requirements so the two government-sponsored enterprises could expand their investment portfolios and purchase $200 billion in mortgage loans and MBS.

JPMorgan Chase and The Bear Stearns Cos. Inc. have amended their merger agreement, making changes that include raising the implied value of Bear Stearns common stock from $2 per share to approximately $10 per share. The two companies also entered into a share purchase agreement under which JPMorgan Chase would purchase 95 million newly issued shares of Bear Stearns common stock -- or 39.5% of the outstanding Bear Stearns common stock after the issuance -- at the amended agreement price. In addition, the Federal Reserve Bank of New York's $30 billion in special financing associated with the deal has been changed so that JPMorgan Chase will bear the first $1 billion of any losses associated with the Bear assets being financed and the Fed will fund the remaining $29 billion on a nonrecourse basis to JPMorgan Chase.

Credit Plus Inc., Salisbury, Md., is creating a new company, Mortgage Works, which will specialize in loss mitigation products with the goal of allowing lenders to identify potential problem loans in their portfolio before they become an issue. In an interview at the Regional Conference of Mortgage Bankers Associations in Atlantic City, David Wheeler, regional account executive with Credit Plus, said the new company was created after discussions with its lender clients who were looking for a way to identify potential problem borrowers. The program, currently in beta testing, is expected to be released in the second quarter. To identify potential problems he said, the program looks at several factors, not just credit. It will identify refinance opportunities and adjustable-rate mortgage replacement strategies. Recognizing that larger and smaller lenders have different needs in this area, the products offered by Mortgage Works will be customizable. "It is robust enough to accept whatever the lenders needs are," Mr. Wheeler said.

DBRS has downgraded 676 classes from 113 residential mortgage-backed securities transactions, reflecting higher serious delinquencies relative to the available credit enhancement. Among deals backed primarily by first-lien collateral, the Toronto-based rating agency said that given the potential for significant future losses, excess spread in the downgraded classes is not expected to cover anticipated losses. As a result, the principal balance of subordinate classes may suffer writedowns. Among second-lien transactions, DBRS said that the downgrades reflect the rapid deterioration in credit enhancement resulting from a significant increase in delinquencies and losses. That has depleted over-collateralization in many transactions.