Servicing

Class B-3 of CSFB Seasoned Loan Trust 2006-1 mortgage pass-through certificates has been downgraded from BBB-minus to BB by Fitch Ratings. Fitch also affirmed the ratings on three classes in the subprime deal, while two other classes were left on Rating Watch Negative. The downgrade was attributed to changes to the rating agency's subprime loss forecasting assumptions.

Eight classes from two second-lien securitizations issued by Credit Suisse First Boston Mortgage Securities Corp. Home Equity Mortgage Trust have been downgraded by Fitch Ratings. One other class was placed on Rating Watch Negative. The negative rating actions were based on deterioration in the relationship between credit enhancement and expected losses, Fitch said.

Fitch Ratings has placed $97 billion of notes from 197 collateralized debt obligations with exposure to residential mortgage-backed securities on Rating Watch Negative. The action, which affects 902 tranches of structured finance CDOs, reflects continued deterioration in the U.S. subprime mortgage market stemming from high-risk mortgages and declining home prices. "In light of this ongoing deterioration, Fitch's RMBS group announced increased loss expectations of 21% and 26%, respectively," the rating agency said. The placement of the structured finance CDOs on Rating Watch Negative was based primarily on exposure to subprime RMBS and to other CDOs with such exposure, Fitch said. the rating agency can be found online at http://www.fitchratings.com.

Congressional policy proposals targeting the subprime mortgage crisis do not distribute the costs and benefits equitably, according to a study released by the Washington-based FreedomWorks Foundation. The study, conducted by Todd Sinai, associate professor of real estate at the University of Pennsylvania's Wharton School, found that the proposals "inappropriately reward people who made riskier decisions over those who made prudent decisions" and benefit high-income earners at the expense of others. Titled "The Inequity of Subprime Mortgage Relief Programs," the study also said that proposals to increase the conforming loan limit raise questions of fairness and boost the risk borne by Fannie Mae and Freddie Mac. The foundation can be found on the Web at http://www.freedomworks.org.

REO Sentinel, Jacksonville, Fla., has announced the introduction of a technology that offers "an inexpensive but high-value solution" to the problem of monitoring and maintaining presale and real-estate-owned properties. Rich Rollins, chief executive officer of the company, said the device, also called REO Sentinel, was developed in conjunction with loan servicers and a property inspection and preservation company. "For the first time, lenders and their property preservation managers can have real-time views into what is occurring in every defaulted property they are trying to market thanks to a small, patented device installed in each house," Mr. Rollins said. ".... [REO Sentinel] can detect many types of gases, the presence of smoke and high humidity conditions, and even takes a photo of anyone entering the property." The company can be found online at http://www.reosentinel.com.

Thornburg Mortgage, a jumbo lending real estate investment trust, revealed Thursday that it has been hit with $300 million in margin calls from its lenders since Feb. 14. The margin calls were sparked by a reduction in value on $2.9 billion in holdings of alternative-A adjustable-rate mortgages. A spokeswoman for the REIT told MortgageWire that "We have met all margin calls to date, and expect to continue to do so." In trading, Thornburg's stock was down almost 18% to $9.47 a share. The lender/servicer has an on-balance-sheet portfolio of about $35.4 billion, 97% of which is triple-A or double-A rated. Thornburg, a nondepository, is one of the largest jumbo lenders in the United States, according to the Quarterly Data Report. At year's end, its portfolio was yielding 5.75% with a cost of funds of 5.04%. The 60-day-plus delinquency rate on its ARM holdings stood at 0.44% as of Dec. 31, up from 0.27% in the previous quarter.

Fannie Mae has announced the introduction of a mortgage workout option under which servicers can offer an unsecured personal loan to enable qualified borrowers to cure the payment default on a mortgage loan owned or securitized by Fannie Mae. The option, called HomeSaver Advance, "will help Fannie Mae streamline its loss mitigation efforts and offer loan servicers a new way to cope with a delinquent loan," said Mike Quinn, Fannie's senior vice president for single-family credit risk management. Fannie Mae said it expects the new option to reduce the number of delinquent mortgage loans it buys from its mortgage-backed securities trusts and decrease the fair-value losses it would record in connection with those purchases. Fannie Mae can be found on the Web at http://www.fanniemae.com.

Fannie Mae's B-plus Bank Financial Strength Rating has been placed on review for possible downgrade by Moody's Investors Service. Moody's affirmed several other ratings on the government-sponsored enterprise: senior debt, Aaa; short-term debt, Prime-1; subordinated debt, Aa2; and preferred stock, Aa3. The rating actions followed Fannie Mae's announcement of a $3.6 billion loss for the fourth quarter and a $2.1 billion loss for all of 2007. "This loss exceeded our expectations and represents a significant deterioration of surplus regulatory capital," which stood at $3.9 billion as of Dec. 31 based on the required 30% surplus to the statutory minimum, the rating agency said. "Additionally, Moody's expects the company to record sizable losses in the first half of 2008 and possibly a net loss for the year due to the continued deterioration in the residential mortgage sector." Moody's said its concerns about Fannie's capital position were "partially mitigated" by an announcement by the Office of Federal Housing Enterprise Oversight that it will discuss with the housing GSEs a gradual decrease in the required 30% capital surplus. Moody's can be found online at http://www.moodys.com.

The mortgage industry is facing the prospect of 1.8 million foreclosures this year, up from 1.5 million in 2007, according to a prediction by the Mortgage Bankers Association's chief economist. Doug Duncan, who will soon join Fannie Mae as its chief economist, made the prediction during a panel discussion at the MBA National Mortgage Servicing Conference in New Orleans. The panel agreed that foreclosures are not just a subprime problem, but a broader economic problem affecting different regions, especially the Midwest and previously overheated markets. Amy Crews Cutts, deputy chief economist at Freddie Mac, said delinquencies and foreclosures are also rising in prime loans. Ms. Cutts said it will take time, perhaps until the third quarter, before home prices stop falling. "The recession risk is higher," she said. "And unemployment will creep up on us." Alternative-A and negative-amortization loans were also cited as possible causes for concern when they reset in 2010.

Senate Democrats have narrowed the scope of the bankruptcy provisions in a foreclosure prevention bill so that only nontraditional and subprime mortgages could be restructured by bankruptcy judges. The Democrats were pushing for a cloture vote on the bill Thursday (Feb. 28), and the financial services industry was lobbying to defeat it because of the bankruptcy provisions. The White House has threatened to veto the bill. If the Democrats can get 60 votes, it opens the door to debate and amendments before final passage. The original bill (S. 2636) would have given the bankruptcy courts the authority to reduce the principal amount or interest rate on any single-family mortgage. In trying to get Republican support, the authors limited the scope to nontraditional and subprime mortgages originated before the date of enactment. The Democrats also allow lenders to recoup any increase in the property's value if the bankruptcy filer sells the house within five years.