Servicing

Twenty classes from eight EMC Mortgage Loan Trust transactions have been downgraded by Fitch Ratings. Fitch also placed five EMC classes on Rating Watch Negative and affirmed the ratings on 25 other EMC classes. The negative rating actions were based on deterioration in the relationship between credit enhancement and loss expectations, Fitch said. The collateral for the EMC transactions, 10 in all, consists primarily of first- and second-lien residential mortgage loans.

More than 50 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on March 5 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed 18 classes of subprime pass-throughs on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of more than $200 million. The securities affected by the latest downgrades were 54 classes from four Soundview Home Loan Trust deals. Fitch also placed the following securities on Rating Watch Negative: 12 classes from one Bear Stearns Asset Backed Securities Trust deal and six classes from one Soundview Home Loan Trust deal. 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." Fitch can be found on the Web at http://www.fitchratings.com.

The Issuer Default Rating of Thornburg Mortgage Inc., a real estate investment trust based in Santa Fe, N.M., has been downgraded from CCC to RD by Fitch Ratings as a result of defaults under the company's reverse repurchase agreements. The RD rating (which was removed from Rating Watch Negative) was assigned because the company has failed to meet a margin call for one of its reverse repo agreements "but continues to honor other classes of obligations," Fitch said. The default triggered cross-defaults under the company's other reverse repo agreements, which "represent the primary short-term funding source for the company," the rating agency said. Meanwhile, Zacks Equity Research's Analyst Blog noted that Thornburg's shares had lost 70% of their value in the previous two days. "While we think the company will be able to meet the current $300 million [margin] call on its repurchase agreements, if values on the company's mortgage assets continue to fall, [Thornburg] will not have enough cash to meet future obligations," the Zacks blog said.

Ambac Financial Group, New York, is seeking to bolster flagging ratings strained by the U.S. mortgage-woe-sparked global credit crunch through a public offering for at least $1 billion of shares of its common stock and a concurrent $500 million public offering of equity units. "This capital raise, along with our recent strategic actions, our increased emphasis on risk-adjusted returns over the course of an economic cycle, and a six-month suspension of the structured finance business, will strengthen our capital base," said Michael Callen, Ambac's chairman and chief executive officer. One of the three major rating agencies, Fitch Ratings, has questioned whether the move will be enough to give the company the triple-A rating it seeks.

Spreads between agency mortgage-backed securities and comparable Treasuries have hit their widest levels since the mid-1980s, according to mortgage researchers. The spread between the 30-year Fannie Mae current-coupon MBS and the average of on-the-run five- and 10-year Treasuries recently stood at its widest level since the summer of 1986, said Art Frank, director and head of MBS research at Deutsche Bank Securities. He said supply-demand imbalances resulting in part from heavy sales by servicers, leveraged investors, and money managers caused the spread widening. "The past three sessions have seen mortgages lose all of their gains as the pace of servicer buying has declined and hedge funds continue to de-leverage," said Noah Estrin, an RBS Greenwich Capital MBS trading analyst, in a March 5 report.

The Department of Housing and Urban Development has issued the new loan limits for Federal Housing Administration, Fannie Mae, and Freddie Mac mortgages in high-cost counties of California and will soon release the loan limits for the rest of the country. Congress has temporarily increased the loan limits in high-cost areas to 125% of median home prices, up to a maximum of $729,750, until Dec. 30. Under this authority, lenders will be able to originate mortgages with a principal balance of $729,750 in the counties of Los Angeles, San Francisco, Orange, and Santa Barbara. HUD is also issuing a mortgagee letter that gives FHA lenders the green light to make the higher-balance loans. Lenders can check the new loan limits in their state by going to the FHA website, looking under "Hot Topics," and clicking on "Stay Informed of FHA Mortgage Limits." The FHA can be found online at http://www.fha.gov.

The overall home mortgage delinquency rate jumped to 5.82% in the fourth quarter, the highest level since 1985, according to the national delinquency survey of the Mortgage Bankers Association. When the foreclosure inventory is added to the delinquency rate, nearly 8% of all homeowners with a mortgage were not making payments in the fourth quarter. Foreclosures reached the highest level in the history of the MBA survey, with the inventory of loans in the foreclosure process rising to 2.04% and 0.83% of loans entering the foreclosure process during the fourth quarter. In a conference call with reporters, MBA chief economist Doug Duncan noted that adjustable-rate mortgages to subprime borrowers accounted for 42% of the loans entering foreclosure during the fourth quarter, though subprime ARMs only account for 7% of loans outstanding. "Roughly a third of subprime adjustable-rate loans are late on their payments," Mr. Duncan said. The MBA can be found online at http://www.mortgagebankers.org.

Merrill Lynch, which a year ago paid $1.3 billion for subprime giant First Franklin Financial Corp. and two affiliates, has officially pulled the plug on the unit and plans to sell FFFC's servicing division, Home Loan Services. Over the past two months, account executives at the San Jose, Calif.-based First Franklin have been telling MortgageWire that the unit was funding hardly any new loans and that a plan to retrain AEs to originate Fannie Mae loans was never implemented. At one time First Franklin -- which Merrill had purchased from National City Corp. -- ranked among the nation's top five residential subprime lenders. Among subprime servicers, the Pittsburgh-based HLS ranks sixth nationwide, according to the Quarterly Data Report. The closure will affect at least 650 workers at First Franklin and its affiliate, NationsPoint. "Since July, we have reduced staffing at First Franklin by nearly 70%, but after evaluating a number of strategies, we believe it is appropriate to discontinue mortgage origination," said David Sobotka, head of Merrill's fixed-income division. (For further details, see the March 10 issue of National Mortgage News.)

The floating-rate notes of Thornburg Mortgage Capital Resources LLC have been placed on Rating Watch Negative by Fitch Ratings. Fitch said all the outstanding floating-rate notes in the program have extended for 30 business days, with a final maturity of April 14, 2008. "The program documents allow for a one-time extension to the maturity of outstanding notes at the option of the manager in the event that additional notes cannot be issued," Fitch said. "Since June 1, 2007, the outstanding liabilities of the program have declined from $9.2 billion to the current $300 million level." Fitch said the negative rating action was based on concerns about further declines in the market value of the residential mortgage-backed securities (backed by hybrid adjustable-rate mortgages) supporting the notes. The rating agency also reported that the issuer default rating and senior unsecured notes of Thornburg Mortgage Inc. remain on Rating Watch Negative.

More than 200 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on March 4 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed more than 100 classes of subprime pass-throughs on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of more than $5 billion. The securities affected by the latest downgrades were 95 classes from six Structured Asset Securities Corp. deals, 53 classes from nine J.P. Morgan deals, 29 classes from two BNC deals, 24 classes from two Wells Fargo Home Equity Trust deals, and 11 classes from one Societe Generale Mortgage Securities Trust deal. Fitch also placed the following securities on Rating Watch Negative: 31 classes from two Saxon deals, 29 classes from two SASCO deals, 25 classes from two Asset Backed funding Corp. deals, and 18 classes from one First Franklin Mortgage Loan Trust deal. 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." Fitch can be found on the Web at http://www.fitchratings.com.