Servicing

Fannie Mae has helped 68,000 subprime borrowers refinance through its HomeStay loan purchase program that was launched in April, and loan volumes are increasing every month, according to a Fannie Mae executive. "We have been able to put most borrowers into a fixed-rate loan," Fannie Mae vice president Jef Kinney said. And in most cases, the interest rate is lower than the teaser rate on their subprime adjustable-rate mortgage. So far, Fannie has purchased $13 billion HomeStay loans, up from $6 billion in September. Fannie Mae can be found on the Web at http://www.fanniemae.com.

Standard & Poor's Ratings Services has lowered its financial strength and issuer credit ratings on Financial Guaranty Insurance Co. from AAA to AA and placed various ratings on MBIA Insurance Corp., XL Capital Assurance Inc., and their related entities on CreditWatch with negative implications. The rating agency also downgraded its senior unsecured and issuer credit ratings on FGIC Corp. from AA to A and placed all FGIC ratings on CreditWatch with developing implications. S&P said the actions take into account its recently announced negative rating actions on thousands of residential mortgage-backed securities and collateralized debt obligations and are "the result of our most recent review of all the bond insurance companies' capital plans." The review is part of S&P's "ongoing assessment of the potential subprime-related losses that these bond insurers might incur and how they are managing their capital positions to handle the losses," the rating agency said. S&P can be found online at http://www.standardandpoors.com.

Moody's Investors Service has revised its expected loss assumptions for structured finance collateralized debt obligations holding 2006 vintage subprime residential mortgage-backed securities due to expectations that the performance of the latter asset class will continue to deteriorate. The rating agency said it would "apply the revised loss assumptions and revise specific CDO ratings within the coming weeks." Moody's can be found online at http://www.moodys.com.

Defaults on securitized subprime mortgage loans are accelerating and hit a new high of 21.3% in November, up 188 basis points from the level of the previous month, according to a report by Friedman Billings Ramsey Investment Management. The default rate on these nonagency loans has accelerated "briskly" since August, according to the Structured Finance Insights report, which indicates that the default rate on subprime mortgages has doubled since November 2006. FBRIM managing director Michael Youngblood attributes the rapidly deteriorating performance to falling house prices and weakening labor market conditions that are "characteristic" of a recession. The default rate on alternative-A loans rose 31 bps to 5.7% in November, up from 1.4% in November 2006. Meanwhile, the foreclosure rate on subprime mortgages stood at 8.6% in November and at 2.7% on alt-A mortgages.

Despite the turmoil in the housing market, homebuilder D.R. Horton and Option One Mortgage's parent company, H&R Block, have been added to Mergent Inc.'s Dividend Achievers indices, though Freddie Mac has been removed. Mergent, a New York-based provider of business information, said Dividend Achievers are companies that have increased annual regular dividends for at least the past 10 consecutive years and have met certain liquidity criteria. Mergent can be found on the Web at http://www.mergent.com.

Freddie Mac has announced that the company will release its fourth quarter and full-year 2007 financial results before the New York Stock Exchange opens on Feb. 28. The company said it will hold a conference call at 10 a.m. EST on that date to discuss the results. To listen to the call, domestic investors should call 1-800-230-1074, and international investors should call 1-612-288-0329, approximately 10 to 15 minutes before the start of the call. A spokesman for Freddie's rival Fannie Mae told MortgageWire that Fannie will release its 2007 results before the end of February. A live webcast of Freddie's call and related information will be available through its website at http://www.freddiemac.com/investors/webcasts.

The acquisition of Countrywide Financial Corp. by Bank of America Corp., Charlotte, N.C., has drawn opposition from SRM Global Fund, a Cayman Islands-based hedge fund that controls 5.19% of Countrywide's stock. In a Securities and Exchange Commission filing, SRM said "the merger agreement does not provide sufficient value to holders of [Countrywide's] common stock." The company also issued a news release saying it will vote against the merger and that the Calabasas, Calif.-based Countrywide is "strong and will rapidly return to profit on a standalone basis." If this is not true, SRM said it wants to know what management did to maximize shareholder value. As the deal now stands, SRM said Countrywide shareholders would get less than $8 dollars per share. But even after the fourth-quarter loss, it maintained that Countrywide still has a book value "in excess of $20 per share, in addition to its substantial franchise value as the leading mortgage business in the United States and its insurance business." It added that it is not surprised that BoA will proceed on the deal because it is paying a substantial discount to book value. SRM also asked the SEC to investigate movements in Countrywide's stock price in the days before the merger was announced.

Credit unions moved billions of additional dollars into their loan loss reserves in the fourth quarter, creating some of the biggest losses in the history of the industry, according to preliminary fourth-quarter data submitted to the National Credit Union Administration. According to the Credit Union Journal, the biggest loser in the fourth quarter was Wescom CU, a $4 billion Pasadena, Calif.-based credit union that boosted its loan loss reserves by $24.3 million, or 68%, causing losses of $26.3 million for the quarter and a whopping $33.2 million for the year. Several other large California credit unions, where the mortgage market has been hit harder than in most states, also reported huge losses for 2007, like USA FCU, with a loss of $5.8 million; Sterlent CU, $4.8 million: Kaiperm FCU, $3.8 million: Xerox FCU, $3.4 million: E1 Financial CU, $1.4 million; and Kaiser Lakeside CU, $1.4 million.

Now that Congress has changed the tax laws on debt forgiveness, it is more feasible for servicers to write down the principal amount of a mortgage to help struggling borrowers, according to a federal regulator. "Such an option might be considered for borrowers having financial difficulties making their payments after their loans reset and where foreclosure is a looming possibly," FDIC Chairman Sheila Bair told a Senate panel. The Federal Deposit Insurance Corp. chairman noted that Congress has passed the Mortgage Forgiveness Debt Relief Act, so borrowers no longer have to pay taxes when the principal amount of their mortgage is reduced. Servicers should "carefully consider" whether writedowns or forgiveness of arrearages of principal and interest are "better options than foreclosure, or even short sales in appropriate circumstances," Ms. Bair testified.

Meanwhile, Fitch has announced enhancements to ResiLogic, its mortgage default and loss model for U.S. residential mortgage-backed securities. Fitch said the enhancements are designed to further its goal of incorporating a "robust forecast" of national and regional economic conditions into the ResiLogic model. The three major enhancements are as follows: expansion of state-level risk multipliers to include 25 specific metropolitan statistical area multipliers; the incorporation of MSA and state risk multipliers as factors influencing the loss severity for a defaulted mortgage in addition to the risk of mortgage default or frequency of foreclosure; and the inclusion of a national risk index that changes default and loss expectations in accordance with national macroeconomic trends. The rating agency also released a quarterly update to its regional risk multipliers. "The combined impact of these revisions generally produces a higher expected loss for subprime and alt-A mortgages, and to a lesser extent, for prime mortgages," Fitch said. "This is primarily due to Fitch's expectations of additional substantial stress on mortgage performance due to declining home prices and a weakening economy."