Servicing

Franklin Credit Management Corp., a Jersey City, N.J.-based company engaged in the servicing and resolution of residential mortgage loans, has announced that it has entered into interest rate swap agreements to hedge part of its interest-rate-sensitive borrowings against increases in short-term interest rates. The $725 million of nonamortizing fixed-rate swap agreements are for periods ranging from one to four years. Under the agreements, Franklin Credit will make interest payments to its lead lending bank at fixed rates and will receive interest payments from the bank on the same notional amounts at variable rates based on the London interbank offered rate, the company said. The specialty finance company can be found online at http://www.franklincredit.com.

The Principal Financial Group, Des Moines, Iowa, has disclosed in a Securities and Exchange Commission filling that as of Dec. 31 it had $996.5 million of exposures to monoline bond insurers and mortgage insurers. In other news related to pressures on insurers from the mortgage-related credit crunch, California Treasurer Bill Lockyer has asked Fitch Ratings, Moody's Investors Service, and Standard & Poor's Ratings Services to create a new rating standard for municipal debt, citing issues highlighted by the crunch's effect on bond insurers and their ratings. None of the three rating agencies had a comment on the issue as of late Wednesday morning. Meanwhile, multiple reports indicated that closely watched billionaire Warren Buffett has withdrawn an offer to reinsure three financial guarantors' positions in $800 billion of municipal bonds because the companies had not been receptive to the offer.

House Financial Services Committee Chairman Barney Frank, D-Mass., plans to circulate a bill next week that would create a government program to buy distressed mortgages that have been written down to an affordable level and meet Federal Housing Administration eligibility standards. Chairman Frank said he expects the mortgages to be purchased in an auction and that "we will buy the cheapest ones." He noted that his foreclosure prevention proposal is similar to one by the Office of Thrift Supervision, except that the government would take a "soft second" mortgage and share in any appreciation in the property. Rep. Frank has the backing of House Democratic leaders for the new program, which will require an initial $10 billion to $12 billion investment to start. He also told reporters that the bill might include a provision to shield servicers from investor lawsuits. Many servicers are reluctant to write down loans because of disgruntled investors. In related news, the committee chairman said a House/Senate conference on the FHA reform bill is going well and he expects to send the bill to the president in April.

Three classes of certificates issued by Citigroup Mortgage Loan Trust series 2004-CB3 have been downgraded by Moody's Investors Service. The downgrades were as follows: class B2, from Baa2 to Ba1; class B3, from Baa3 to B1; and class B4, from Ba1 to B3. "The stepping down and continuous losses have left this deal with thin credit enhancement levels and made it more vulnerable to pool deterioration in the tail end of its life," the rating agency said. Moody's can be found on the Web at http://www.moodys.com.

Four classes from two GS Mortgage Securities Corp. deals issued in 2005 have been downgraded by Fitch Ratings. The downgrades were as follows: series 2005-SD1, class M-3, from BBB-plus to BBB, class B-1, from BBB to BB, and class B-2, from BBB-minus to B (and placed on Rating Watch Negative); and series 2005-SD2, class B-4, from BBB to BB. Fitch also affirmed the ratings on 10 classes in the two deals. The negative rating actions were attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral consists of mortgage loans secured by residential properties or manufactured homes.

More than 250 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on March 3 as a result of changes to its subprime loss forecasting assumptions. Fitch also affirmed the ratings on classes with outstanding balances of over $15 billion. The securities affected by the latest downgrades included 100 classes from eight Securitized Asset Backed Receivables LLC Trust deals; 56 classes from four HSI Asset Securitization Corp. Trust deals; 32 classes from two IndyMac deals; 28 classes from two Natixis deals; 28 classes from two Washington Mutual deals; seven classes from one Morgan Stanley deal; and five classes from two GSAMP deals. Fitch also placed 11 classes from one UBS MASTR Asset Backed Securities Trust deal on Rating Watch Negative. 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 long-term issuer default rating and the senior unsecured debt rating of Residential Capital LLC have been downgraded from BB-plus to BB-minus by Fitch Ratings. In addition, Fitch downgraded ResCap's subordinated debt rating from BB-minus to B-minus. All the ratings, including the company's short-term IDR and short-term debt rating (both B) remain on Rating Watch Negative, Fitch said. "This action follows ResCap's extremely difficult 2007 and uncertain prospects for 2008," the rating agency said. "While ResCap has aggressively addressed near-term liquidity issues, the company's return to even a modicum of sustainable profitability in 2008 would be difficult if mortgage market dislocation continues."

Fremont General Corp., Brea, Calif., has received notifications from two affiliated third-party purchasers of $3.15 billion of residential subprime mortgage loans alleging that Fremont is in default in connection with the loan sales. "To support the bank's obligation to repurchase any loans that were sold in the transaction, ... Fremont General provided each of the purchasers with a guaranty to honor any of the bank's obligations under such loan sale agreements," Fremont said. The company said it has failed to deliver specified financial statements and certifications as required under the covenants, but stressed that the notifications do not allege that Fremont is in breach of its obligations under the loan sale agreements. Fremont said it cannot confirm its ability to satisfy a tangible net worth covenant due to its efforts to complete its 2007 consolidated financial statements. The company said it is in discussions with the purchasers to seek a waiver of the requirement. Fremont can be found online at http://www.fremontgeneral.com.

Irwin Financial Corp., a mortgage lender based in Columbus, Ind., has announced the suspension of quarterly dividends on its common, preferred, and trust preferred securities. Will Miller, chairman and chief executive officer of Irwin Financial, said the company's dividends have exceeded its earnings over the past two years. "Until we return to normal levels of profitability, that is neither a sustainable nor a wise strategy," he said. Irwin can be found on the Web at http://www.irwinfinancial.com.

Thornburg Mortgage Inc., a troubled real estate investment trust based in Santa Fe, N.M., has completed a collateralized mortgage debt transaction backed by $992 million of the company's prime hybrid adjustable-rate mortgages. Thornburg said it expects "an increased use of collateralized mortgage debt financing and reduced reliance on reverse repurchase financing." The company has recently faced hundreds of millions of dollars in margin calls related to reverse repurchase financing that it said could potentially have a negative "material" impact on its finances if the company is unable to meet the payment demands from its counterparties. Thornburg can be found online at http://www.thornburg.com.