Servicing

President Bush did not single out for criticism a Democratic plan to expand the Federal Housing Administration program in his speech about what should and should not be done in dealing with the housing correction. FHA commissioner Brian Montgomery also avoided commenting on the proposal, which the House and Senate banking committee chairmen are working on to help 1 million distressed borrowers refinance into an FHA loan. The Democratic plan would require the lender/investor to accept severe writedowns in the principal amount of the mortgage. "There are all sorts of options being floated out there," Mr. Montgomery told reporters. "We are exploring some options on our own, and we will have more to say about that in the next few weeks." Lenders are expecting the agency to liberalize its underwriting criteria under the FHA Secure program so more delinquent subprime borrowers can refinance into an FHA loan. Lenders also expect the FHA to issue a mortgagee letter soon that tightens its underwriting criteria on jumbo mortgages.

WL Ross, the buyout firm headed by Wilbur Ross, is adding to its mortgage holdings by purchasing Option One's mortgage servicing business for $1.1 billion. The firm, which previously bought the servicing rights of bankrupt American Home Mortgage, will take over all of Option One's servicing rights on $53 billion of subprime home mortgages. Combined with the American Home portfolio, the WL Ross unit will service $95 billion of subprime mortgages, making it the second largest subprime mortgage servicer after Countrywide Financial. Option One's servicing facilities in Irvine, Calif.; Jacksonville, Fla.; Las Vegas; and Pune, India, are included in the sale. "Notwithstanding the problems of the subprime lending industry, we regard mortgage servicing as an attractive business and believe that there are considerable economies of scale attached to it. We shall therefore continue to seek acquisitions of prime, alt-A and subprime servicing," Mr. Ross said. The deal is subject to regulatory approvals and other closing conditions, including the completion of a $1.2 billion financing transaction that has been committed from Option One's existing lenders. Closing is expected to occur before the end of May, WL Ross said.

Class B-3 of UBS Mortgage Asset Securitization Transactions Adjustable Rate Mortgages Trust series 2004-10 has been downgraded from BBB-minus to B by Fitch Ratings. Fitch also affirmed the ratings on five classes from two MASTR issues. The downgrade was attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral consists of 30-year, fixed- and adjustable-rate first-lien mortgages.

Three classes of Washington Mutual residential mortgage-backed certificates, series 2002-AR12, have been downgraded and placed on Rating Watch Negative by Fitch Ratings. The downgrades were as follows: class B3, from AA-plus to A-plus; class B4, from AA-minus to A-minus; and class B5, from A-minus to BBB-minus. The negative rating actions were attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral consists of 15- and 30-year, first-lien, adjustable-rate mortgages.

Nine classes of UBS MASTR Alternative Loan Trust mortgage pass-through certificates have been downgraded by Fitch Ratings. Fitch also affirmed the ratings on 39 classes from 11 securitizations issued in 2002, 2003, and 2004. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses. The rating agency said the collateral consists of fixed-rate, first-lien mortgage loans on residential properties and condominiums, a majority of which were originated under a reduced-documentation program.

Twenty-eight classes of subprime mortgage pass-through certificates from three Residential Asset Mortgage Products transactions have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions. Fitch also placed three RAMP classes on Rating Watch Negative and affirmed the ratings on nine other classes. 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 on the Web at http://www.fitchratings.com.

The ratings of 131 tranches (backed by Impac-originated mortgage collateral) in 17 alternative-A securitizations from various issuers have been downgraded by Moody's Investors Service. Seventy two of the downgraded tranches remain on review for possible further downgrade, and 42 other tranches were placed on review for possible downgrade. The negative rating actions were attributed generally to 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 alt-A mortgage loans. Moody's can be found on the Web at http://www.moodys.com.

The Federal Deposit Insurance Corp. board of directors has decided to keep the assessment rates it charges banks and thrifts for deposit insurance unchanged for 2008 as it builds reserves to deal with more bank failures. The FDIC fund stood at 1.22% of estimated insured deposits at year-end 2007, and the agency wants the reserve ratio to reach 1.25% before the end of 2009. "We will closely monitor the progress of the fund along with the condition of the banking industry," FDIC Chairman Sheila Bair said. "As the fund reaches the 1.25% target, I expect the board to consider reducing rates to a maintenance level." The American Bankers Association contends that the FDIC has adequate reserves, and it wanted the assessments lowered. The ABA said it is "deeply disappointed" by the board's decision. "Every excess dollar pulled from bank capital into FDIC coffers means $10 of lending and related banking services that will not be available to support economic recovery," ABA executive vice president Wayne Abernathy said.

Municipal Mortgage & Equity LLC, Baltimore, has addressed strains from municipal bond market woes by entering into an agreement with Merrill Lynch Capital Services to meet future margin calls without posting additional cash as collateral. "Under the agreement, Merrill Lynch has received a security interest in MuniMae's ownership of the common shares of MuniMae TE Bond Subsidiary LLC, an entity that holds the company's housing bonds and interests in housing bonds originated by the company, in place of collateral related to margin calls," the Baltimore-based company said. MuniMae said it retained the right to terminate the agreement at any time, but it would have to do so by posting cash equal to the then-outstanding margin balance. The agreement protects MuniMae "against future margin calls up to the lesser of $100 million or 50% of the value from time to time of TE Bond Subsidiary shares as determined by Merrill Lynch," the Baltimore-based company said. MuniMae can be found online at http://www.munimae.com.

Standard & Poor's has raised its global estimate for total subprime mortgage-related securities writedowns but has indicated that "the end is in sight." S&P has increased the estimate from $265 billion to $285 billion and said that total writedowns to date "are likely past the halfway mark." A recent estimate for total mortgage writedowns from Wall Street firms and academics, in comparison, was $400 billion. But experts citing that figure said it was "very uncertain."