Servicing

FDIC Chairman Sheila Bair says she expects loan modifications to increase, but she is still concerned that servicers continue to rely too heavily on repayment plans. Repayment plans may be "unsustainable for borrowers and lead to delinquencies down the road and ongoing borrower distress," the Federal Deposit Insurance Corp. chairman told the Senate Banking Committee. Hope Now servicers reported that they modified 45,320 subprime loans in January and placed 48,155 subprime borrowers in repayment plans. The FDIC chairman testified that additional approaches may be needed to reduce foreclosures, including writedowns of the principal amount of the "underwater" mortgages. Meanwhile, Federal Reserve Board Chairman Ben S. Bernanke spoke favorably about an Office of Thrift Supervision proposal that would encourage writedowns by giving investors a share in future appreciation. "A writedown that is sufficient to make borrowers eligible for a new loan would remove downsize risk to investors of additional writedowns or a re-default," the Fed chairman told the annual convention of the Independent Community Bankers of America.

Four classes of notes (and three classes of loan interests) issued by Westways Funding XI Ltd., a mortgage market value collateralized debt obligation, have been downgraded by Fitch Ratings. The downgraded notes were as follows: class A-PT, from AAA to AA and placed on Rating Watch Negative; class A-2, from AAA to AA and placed on Rating Watch Negative; class B, from AA to A (and remains on Rating Watch Negative); and class C, from A to BB (and remains on Rating Watch Negative). In addition, the class LA loan interests have been downgraded from AAA to AA and placed on Rating Watch Negative; the class LB loan interests have been downgraded from AA to A (and remain on Rating Watch Negative); and the class LC loan interests have been downgraded from A to BB (and remain on Rating Watch Negative). The negative rating actions were attributed to "the uncertainty in the proceeds that will be achieved during a sale of assets given the price volatility that even highly rated securities have seen in the current market environment."

More than 300 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on Feb. 29 as a result of changes to its subprime loss forecasting assumptions. Fitch also affirmed the ratings on classes with outstanding balances of over $7 billion. The first-lien securities affected by the latest downgrades were 112 classes from 11 Carrington Mortgage Loan Trust deals; 38 classes from three GMAC Residential Funding Co. deals; 38 classes from three Credit Suisse First Boston Home Equity Asset Trust deals; 19 classes from four Residential Asset Mortgage Product Inc. deals; 13 classes from one Goldman Sachs deal; 12 classes from one New Century deal; and 12 classes from one Equifirst Loan Securitization Trust deal. The first- and second-lien securities affected were 63 classes from six Credit-Based Asset Servicing and Securitization LLC deals and 29 classes from two Asset Backed Securities Corp. Home Equity Loan Trust deals. 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.

Fremont General Corp., the Brea, Calif.-based holding company for mortgage servicer Fremont Investment & Loan, will be removed from the S&P SmallCap 600 index after the close of trading March 3, Standard & Poor's has announced. S&P said Fremont has fallen below the $300 million minimum market capitalization required for listing on the index. As of the close of trading on Feb. 29, Fremont's capitalization stood at approximately $79 million, S&P reported. In addition, S&P said Pennsylvania Real Estate Investment Trust will be added to the SmallCap 600 after the close of trading on March 5. S&P can be found online at http://www.standardandpoors.com.

Private equity firm WL Ross & Co. LLC, New York, has agreed to purchase $250 million in common shares of Assured Guaranty Ltd., Hamilton, Bermuda, one of the bond insurers with mortgage exposures that has looked to boost capital as a means of bolstering its ratings. "We believe that Assured has an excellent opportunity during this time of uncertainty in the financial markets," said Wilbur Ross, chairman and chief executive officer of WL Ross. Assured Guaranty can be found online at http://www.assuredguaranty.com.

Security Capital Assurance, a bond insurer that has faced ratings pressure as a result of mortgage market woes, has indicated that it is involved of a review of its "strategic options" and will be delaying the filing of its annual report with the Securities and Exchange Commission. The Hamilton, Bermuda-based SCA is working with Goldman Sachs as a financial adviser, assisted by Rothschild Inc., on the review of its options. The company can be found online at http://www.scafg.com.

Ambac Financial Group Inc., New York, plans to suspend all new structured finance business for six months and reduce its quarterly dividend from 7 cents per share to 1 cent per share to offset problematic mortgage-related exposures. The company plans to "discontinue writing business in a number of sectors in the global structured finance markets where the risk dynamics are not aligned with our vision of the future of Ambac," according to a written statement released by chairman and chief executive officer Michael Callen. He said the company remains "optimistic" about its municipal business, but will be selective about structured finance and international business.

Fannie Mae estimates that it could securitize $200 billion in jumbo loans by the December expiration date of its temporary authority to purchase higher-balance mortgages that exceed the $417,000 conforming loan limit. However, the government-sponsored enterprise cannot use the "to-be-announced" market to securitize these higher-balance loans. So secondary-market executives are fretting that investors will demand higher yields and the interest rate on the GSE jumbo loans might not be low enough to get homeowners to refinance. But researchers at Friedman Billings Ramsey Investment Management point out that the differentials between GSE mortgage interest rates and nonagency mortgage interest rates are the "highest ever." And they say they expect the GSE jumbo programs to "inspire active refinancing of eligible nonagency mortgage loans." Meanwhile, Freddie Mac is gearing up to launch its jumbo program. The GSE wants to provide lenders with 90-day forward pricing and credit terms so that eligible borrowers can lock in rates as early as April. "That is the goal we are working towards," said Freddie spokeswoman Sharon McHale. The two mortgage giants can be found online at http://www.fanniemae.com and http://www.freddiemac.com.

Hope Now servicers modified 45,000 subprime loans in January, up 16% from December's level, and Treasury Secretary Henry Paulson said he expects the numbers to increase now that all the servicers have adopted the American Securitization Forum's protocol for fast-tracking subprime borrowers into loan modifications and refinancings. "I am pleased to announce that as of today, all of the Hope Now members that service subprime mortgages have the protocol in place, ahead of the rising volume of resets in the coming months," Secretary Paulson told the National Association of Business Economists. The Treasury secretary stressed that government-led efforts to prevent foreclosures should be focused on borrowers struggling to make their payments or facing a reset they cannot afford. And he threw cold water on a proposal to restructure "underwater" mortgages so the borrowers have an incentive to stay in their homes. "Any homeowner who can afford their mortgage payments but chooses to walk away from the underwater property is simply a speculator -- and one who is not honoring his obligation," Mr. Paulson said.

The Office of the Comptroller of the Currency will require large national banks that service mortgage loans to provide comprehensive monthly data about their portfolios. The OCC said the reporting requirement will build upon the efforts of the Hope Now alliance, a cooperative initiative among investors, mortgage servicers, and counselors to help distressed homeowners. In a letter to nine large national banks that account for the overwhelming majority of mortgages serviced by national banks, Comptroller John Dugan said the data will help the OCC assess the banks' servicing activities in light of rising loan defaults and foreclosures. The OCC said its data collection includes all mortgage loans, not just subprime loans.