Servicing

Fitch Ratings has placed 2,972 classes of 2006 and 2007 subprime residential mortgage-backed securities (totaling approximately $139 billion) on Rating Watch Negative. Fitch said the actions resulted from an adjustment to its loss projections for subprime RMBS stemming from a significant deterioration in subprime mortgage performance in recent months. The rating agency attributed the deterioration to accelerating home price declines caused partly by "the dramatic contraction in the mortgage origination and securitization markets." Fitch said it has also increased its loss expectations for U.S. subprime RMBS backed predominantly by first-lien mortgages originated in 2006 and the first half of 2007. The rating agency can be found online at http://www.fitchratings.com.

Mortgage companies cut 5,600 full-time employees from the payrolls in December to end a terrible year in which 114,600 workers -- nearly a quarter of the industry's work force -- lost their jobs. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell from 374,600 in November to 369,000 in December -- down 23.7% from that of December 2006. (The BLS revised all the employment numbers in its latest report.) The mortgage industry started the year with 483,600 employees. But the subprime meltdown that sent the credit markets reeling forced scores of mortgage companies to shut their doors and others to cut their staffs. Industry employment may stabilize or even rise in coming months, however, due to an increase in refinancings and hiring by servicers to deal with rising defaults and resets of adjustable-rate subprime mortgages. The Bureau of Labor Statistics can be found online at http://stats.bls.gov.

Fitch Ratings has placed 188 tranches from 18 commercial real estate collateralized debt obligations, representing $8.4 billion in total, on Rating Watch Negative following a review in its surveillance methodology. Analysts at the rating agency wished to clarify that the CDOs are not technically CMBS deals, as described in a Jan. 16 item in MortgageWire, although the underlying collateral may be commercial mortgage-backed securities.

Seven classes of Sequoia Mortgage Funding Corp. mortgage pass-through certificates have been downgraded by Fitch Ratings. The affected securities are in series 2006-1 and series 2007-1. Fitch also affirmed the ratings on five other classes in the two deals. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral consists of prime hybrid adjustable-rate mortgage loans indexed to the London interbank offered rate. Fitch can be found online at http://www.fitchratings.com.

A poll of late-paying mortgage borrowers finds that 57% aren't aware that their lender may be able to offer plans that would help them avoid foreclosure. However, when specific workout alternatives were mentioned, the percentage of homeowners aware of options like repayment plans and loan modifications actually increased. The poll, commissioned by Freddie Mac and conducted by Roper Public Affairs and Media, also found that 44% of delinquent borrowers are aware of the existence of housing counselors who can talk to them about their mortgage problems. The survey indicated that the percentage of delinquent homeowners who say they recall their mortgage servicer reaching out to them has increased, to 86%, up from 75% in a similar survey three years ago.

The Hope Now initiative might help 250,000 subprime borrowers avoid foreclosure, but another 2 million homeowners are likely to lose their homes over the next 24 months if they can't petition the bankruptcy courts for relief, according to economist Mark Zandi."While the Hope Now initiative is laudable, it should not forestall passage of H.R. 3609 to provide hard-pressed homeowners facing foreclosure more protection in a Chapter 13 bankruptcy," the chief economist at Moody's Economy.com told a House Judiciary panel. Former Housing Secretary Jack Kemp also testified in favor of the bill, which would allow bankruptcy judges to reduce the interest rate and principal amount of a residential mortgage. But the Mortgage Bankers Association warned that passage of the bankruptcy bill could destabilize the mortgage market. "This would have an immediate and severe impact on the mortgage market as companies book the diminished value of their loans and servicing rights," MBA chairman-elect David Kittle said.

Countrywide Financial Corp., Calabasas, Calif., said Wednesday that it has been subpoenaed by the Florida attorney general's office, which is looking into its foreclosure practices, among other things. Florida joins several other states, including Illinois and Pennsylvania, that are reviewing allegations that the nation's largest lender/servicer charged excessive fees in regard to foreclosures and used high-pressure sales tactics in pushing payment-option adjustable-rate mortgages. Countrywide can be found on the Web at http://www.countrywide.com.

Fitch Ratings Agency has downgraded bond insurer Financial Guaranty Insurance Co. to AA, making it the third major guarantor to lose its top rating. The other two insurers that have received downgrades to AA are MBIA and Ambac. All three insure asset-backed subprime bonds held by institutional investors, including Fannie Mae and Freddie Mac. It is unclear whether the government-sponsored enterprises -- or any other investors that use Ambac, FGIC, and MBIA -- will have to write down their covered bonds because of the downgrades.

The largest global financial institutions are not likely to be significantly affected by the huge number of downgrades of subprime securities announced by Standard & Poor's Jan. 30 (see above item), but they could boost losses among "smaller players," the rating agency says. S&P said it believes that the total losses for financial institutions will eventually reach more than $265 billion. "In our opinion, the downgrades of mortgage securities could lead to the realization of these losses, especially among some of the smaller players that have yet to feel the full extent of the value impairments on securities held in their available-for-sale securities portfolios," S&P said.

Standard & Poor's Ratings Services has downgraded 3,787 classes from U.S. residential mortgage-backed securities that are collateralized by first-lien subprime mortgage loans rated between January 2006 and June 2007. S&P also announced that 2,602 classes of comparable subprime RMBS have been placed on CreditWatch with negative implications. The rating agency also placed 1,953 classes from 572 global collateralized debt obligations of asset-backed securities and CDO of CDO transactions on CreditWatch negative. The affected U.S. RMBS classes represent approximately $270.1 billion of securities, or approximately 47% of the par amount of U.S. RMBS backed by first-lien subprime mortgage loans rated by S&P during 2006 and the first half of 2007. The rating agency can be found online at http://www.standardandpoors.com.