Servicing

MBIA Inc., whose credit guarantees stand behind billions of dollars in subprime mortgage bonds, posted a $2.3 billion loss in the fourth quarter, blaming the problem partly on the performance of second liens and "CDO squared" transactions. In the fourth quarter alone, it marked down the value of insured credit derivatives by $3.4 billion, saying the move resulted "from wider spreads for CMBS and RMBS collateral" and downgrades related to bonds held in collateralized debt obligation structures. CDOs include tranches of subprime asset-backed securities. MBIA also announced that it has moved to shore up its capital, selling $500 million in common stock to investment fund Warburg Pincus Inc. If MBIA's credit ratings slip, holders of CDO and ABS bonds it insures may be forced to take writedowns on those securities.

Fitch Ratings has downgraded IndyMac Bank FSB's residential servicer ratings from RPS2-plus to RPS2 in the wake of the issuer default rating downgrades of the bank and IndyMac Bancorp, its parent company. Affected were the bank's servicer ratings for prime, alternative-A, and subprime products, as well as its special servicer rating. The ratings remain on Rating Watch Negative. The downgrades reflect the underlying corporate ratings of the bank and its parent, whose long-term IDRs were downgraded from BBB-minus to BB by Fitch on Jan. 24. They also reflect "the continued pressure on IndyMac's financial flexibility in the increasingly challenged residential mortgage market and its potential impact on IndyMac's loan servicing operation," the rating agency said. Fitch added that conversations with the servicer indicated that the company's announced layoffs "did not materially affect the servicing platform." Fitch can be found online at http://www.fitchratings.com.

Mortgage servicers have picked up the pace of modifying subprime loans to assist borrowers who are in trouble, according to the Hope Now Alliance. "Servicers were modifying loans during the fourth quarter at triple the rate of the third quarter," Hope Now executive director Faith Schwartz told a congressional panel. The first loan workout report compiled by the Mortgage Bankers Association showed that servicers modified only 12,740 subprime adjustable-rate mortgages in the third quarter by reducing the interest rate or principal amount of the mortgages. These results were disappointing, and regulators urged the subprime servicers to pick up the pace on loan modifications. The Hope Now alliance is collecting the workout data for future reports, which will measure trends in delinquencies and resolution outcomes, Ms. Schwartz testified. "We want to provide consistent and informative data reports based on common definitions and to provide information that provides insights into the nature and extent of the current subprime mortgage crisis and helps in the development of workable solutions that avoids foreclosures whenever possible."

The House, in a 383-35 vote, has passed an economic stimulus bill that temporarily increases the loan limits for Fannie Mae, Freddie Mac, and the Federal Housing Administration. The stimulus bill (H.R. 5140) raises the loan limits to 125% of median area home prices in high-cost areas, with a $729,750 cap, and it is expected to increase home sales and help stabilize real estate markets. Raising the loan limits for Fannie and Freddie could generate 300,000 additional home sales, reduce the inventory of unsold homes, strengthen home prices, and help 210,000 families avoid foreclosure, according to the National Association of Realtors. "Simply lifting the loan limit will have an immediate impact on lessening foreclosures," NAR chief economist Lawrence Yun told reporters. Preliminary estimates also indicate that raising the FHA loan limit could generate 200,000 to 250,000 additional home sales and 500,000 refinancings. It would also reduce foreclosures, the association said, but NAR economists have not completed that analysis. The Senate is expected to pass its own stimulus bill by Feb. 1. The association can be found online at http://www.realtor.org.

Capstead Mortgage Corp., a Dallas-based real estate investment trust, has priced a public offering of 8 million shares of common stock at $15.50 per share. The company said the net proceeds of the offering will be used to finance the purchase of additional agency adjustable-rate mortgage securities and for general corporate purposes. Bear, Stearns & Co. and Deutsche Bank Securities Inc. are the joint book-running managers of the offering. The underwriters have been granted an option to buy up to an additional 1.2 million shares to cover any overallotments. The REIT can be found online at http://www.capstead.com.

Class B-4 of Morgan Stanley's series 2005-3AR issue of residential mortgage-backed securities has been downgraded from BB to B by Fitch Ratings. Fitch also affirmed the ratings on 10 classes from three Morgan Stanley RMBS issues. The downgrade was attributed to deterioration in the relationship between credit enhancement and expected losses.

Servicers of commercial mortgage-backed securities are facing challenges in the current less-than-liquid environment, according to Fitch Ratings. The rating agency said servicers now face more inquiries from investors. Other challenges include increased bidding competition for fewer securitizations and the need to add more staff, redeploy staff, or create specialized groups to deal with new concerns. In the case of special servicers, they will not be able to easily get rid of real-estate-owned assets because of decreased liquidity and may end up taking more losses, Fitch said. "Although there is still capital in the real estate market, the profile of the buyers has changed, and individual real estate investors are less likely to be able to purchase property because their financing options are limited," said Stephanie Petosa, a Fitch managing director. Institutional investors and opportunistic funds are likely to be more active. One positive fallout from this environment is that fewer loans are defeasing or prepaying, which is good for the stability of master servicers' portfolios, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

The Core Mortgage Risk Index increased 9.0% in the first quarter, reflecting the pressures of rising delinquency and foreclosure rates, flat or declining price appreciation, and slower job growth, according to First American CoreLogic, Sacramento, Calif. Among the largest 100 markets in the country, CoreLogic said the five with the highest risk are: Bakersfield, Calif.; Stockton, Calif.; Fresno, Calif.; Warren-Troy-Farmington Hills, Mich.; and Grand Rapids-Wyoming, Mich. "While Michigan markets overall are not as highly ranked as they were in the past, it is not because the risk has declined or even stabilized, but rather that California markets are deteriorating at a faster rate," the company reported. CoreLogic, a provider of mortgage risk assessment and fraud prevention systems, can be found on the Web at http://www.corelogic.com.

More than 2.2 million foreclosure filings were reported nationwide in 2007, up 75% from the level recorded in 2006, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif. In December, 215,749 foreclosure filings were reported, up 97% from the total of a year earlier, the company said in its 2007 U.S. Foreclosure Market Report. (Foreclosure filings include default notices, auction sale notices, and bank repossessions.) "The year ended with a monthly increase of 7% in December, making it the fifth straight month with more than 200,000 foreclosure filings reported and giving the fourth quarter the highest quarterly total we've seen since we began issuing our report in January 2005," said James J. Saccacio, chief executive officer of RealtyTrac. RealtyTrac said Nevada, Florida, and Michigan recorded the highest foreclosure rates in 2007. The company can be found online at http://www.realtytrac.com.

Fannie Mae and Freddie Mac will be able to securitize jumbo mortgages originated between July 1, 2007, and the end of this year under the economic stimulus package that the House of Representatives was expected to pass Tuesday afternoon. The stimulus bill (H.R. 5140) temporarily raises the GSE conforming loan limit to 125% of median area home prices in high-cost areas, with a $729,750 cap. H.R. 5140 also includes "sense of Congress" language that encourages the government-sponsored enterprises to securitize the jumbo mortgages -- but leaves it up to Fannie and Freddie to decide the best execution. Fannie Mae president and chief executive Daniel Mudd told Bloomberg News that his preference is to securitize the loans. "That is a good business for us," he said. "It is not capital-intensive. But there may be instances where it makes sense to put them on the balance sheet." The stimulus bill also temporarily raises the loan limits for Federal Housing Administration loans in high-cost areas.