Servicing

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.

Bank of America has a rigid transition process it uses for any of the acquisitions it has done or is doing, said its president for consumer real estate Floyd Robinson. He was asked during a panel session at the Regional Conference of Mortgage Bankers Associations in Atlantic City to provide an update on BoA's acquisition of Countrywide Financial Corp., Calabasas, Calif. The Charlotte, N.C.-based bank is assigning "hundreds" of associates to the transition process. There has been a 30-day look at the practices of both companies, Mr. Robinson said, and one of the items that resonated with him is the disparity in the two companies' respective direct-to-consumer businesses. BoA has done $168 billion in this channel while Countrywide has $113 billion. Much of Countrywide's production comes from the correspondent and wholesale channels, areas that BoA does not do business in, leading Mr. Robinson to point out Countrywide has a very different business model than BoA does. The different approaches and attitudes between the two, he added, could make this one of the most challenging acquisition integrations for BoA. One business the combination will not do is subprime, an area BoA has not been in for several years. The company will not take an inappropriate risk to its reputation, Mr. Robinson said.

Moody's Investors Service has downgraded National City Bank's servicer quality rating for second liens by one notch, citing lower ratings on the parent company's long-term debt as the primary factor in the rating action. Moody's lowered National City's servicer quality rating to "SQ2" from a previous rating of "SQ2-plus," but also removed the servicer rating from review for possible additional downgrades. Moody's recently downgraded the parent company, National City Corp., to "A3" from "A2" for senior debt. The parent company's debt ratings remain on review.

Newport Beach, Calif.-based DRI Management Systems has planned to launch RINCON, a Web-enabled default management application. At the MBA Tech Show DRI talked about how RINCON helps servicers better manage defaults by using Web services to offer easy deployment, a more robust workflow, letters, forms and spreadsheets embedded in the workflow, automated connection between third parties, an exception-based setup to allow for a more automated process and an upgraded loss mitigation decisioning model. This Web-enabled version of the company's The Default Solution product will be available in early 2009.

Morgan Stanley during the first fiscal quarter produced its second highest fixed income sales and trading revenues ever but also took mortgage proprietary trading net writedowns of about $1.2 billion. The company saw net earnings fall by almost 42% to approximately $1.55 billion from about $2.67 billion during a comparable quarter the year before. The company also noted in its earnings report for the quarter that it had $6.1 billion in non-interest expenses that included severance payments during the period. In addition, Morgan Stanley noted that it saw a lower percentage drop in net income year-to-year when its earnings were compared on an "income from continuing operations" basis.

Reflecting on how the mainstream press has treated the mortgage business in the past year, Mortgage Bankers Association chairman Kieran Quinn told attendees at the Regional Conference of Mortgage Bankers Associations in Atlantic City, "I'm convinced there is an endless supply of bad headlines and they are going to run through 2008." He called for a release of the portfolio caps on Fannie Mae and Freddie Mac as well as an expansion of the higher loan limits to all 50 states and not just selected areas. "We're not done" pushing for that to happen, Mr. Quinn said. As for dealing with troubled loans, "I'm almost ready for the second coming of the RTC," he said, but in this case the R would stand for residential. Furthermore, participation would be voluntary. He reiterated MBA's contention that if a bankruptcy "cramdown" bill is enacted, it would drive up the cost of mortgages by 150 basis points, adding there are some lenders who have told him it would be more than that. Noting the close vote that defeated the bill in the U.S. Senate, he warned the issue will be coming back, attached to a bill the industry really wants.

Thornburg Mortgage has entered a 364-day agreement with five of its remaining reverse repurchase counterparties and their affiliates that conditionally reduces margin requirements for financing the company's mortgage securities and suspends the counterparties' right to invoke further margin calls and related rights under their reverse repurchase agreements. The reverse repurchase agreement counterparties and their affiliates who entered the override agreement with Thornburg Mortgage include Bear Stearns Investment Products Inc., Citigroup Global Markets Ltd., Credit Suisse Securities (USA) LLC, Credit Suisse International, Greenwich Capital Markets Inc., Greenwich Capital Derivatives, Royal Bank of Scotland PLC, and UBS Securities LLC. "The continued effectiveness of this agreement is contingent upon a variety of factors that are specified in the agreement, the most urgent of which requires that within seven business days Thornburg Mortgage raise a minimum of net proceeds of $948 million in new capital," the company said.

Manufactured housing lender Origen Financial Inc., Southfield, Mich., said its auditor, Grant Thornton, has given the company an unqualified opinion, a move which in accounting terminology raises doubt about the real estate investment trust's ability to continue as a going concern. Based on the value of its assets and discussions with third parties regarding strategic alternatives, Origen said it would be able to raise the additional funds it needs on a timely basis. Meanwhile the company has sold unsecuritized loans with a carrying value of $176 million for proceeds of $155 million. Many of the proceeds were used to pay off its warehouse line. Origen's debt is now $46 million under its supplemental advance facility and $15 million under related party notes secured by servicing fees. Origen previously said it is halting all originations for its own portfolio because of the inability to securitize its production.

Fitch Ratings has placed a "negative outlook" on its short-term and long-term debt ratings for Ocwen Financial Corp. after a deal to privatize the publicly traded company fell through. The failure of Ocwen CEO William Erbey and his investor group to buy all of the outstanding common shares of the company is "a ratings neutral event," Fitch said. But the rating agency added that the "fluid state" of Ocwen's corporate structure, a difficult environment for servicing subprime mortgages, and the challenges related to dislocation in the capital markets all add negative pressure to the company's debt ratings. Fitch said that while recent performance has supported Ocwen's current ratings, higher delinquency and foreclosure rates will increase Ocwen's direct servicing costs and make the financing of servicing advances ore expensive as well. In addition, the company faces long-term pressure because demand for third party, subprime mortgage servicing may diminish, Fitch said.

California thrift Downey Financial Corp. said its nonperforming assets increased to 10.93% at the end of February, an 89% spike over a three-month period. Downey holds $13.4 billion in assets on its balance sheet. In a research note, Credit Suisse cited one positive for the company: its net interest spread expanded 14 basis points to 3.11% during the month thanks, in part, to a decline in deposit costs. Credit Suisse has a "neutral" rating on Downey's stock.