Servicing

Merrill Lynch & Co. -- which took $7.9 billion of writedowns on subprime and collateralized debt obligation assets in the third quarter -- may take an additional $10 billion in charges in the fourth quarter, according to a new research report issued by Sandler O'Neill.Sandler's estimate comes two days after Merrill sold a "passive" stake in itself to Temasek Holdings, a Singapore company, and Davis Selected Advisors, New York, for $6.2 billion. On Christmas Eve, Merrill sold most of its commercial finance operation to GE Capital for an undisclosed price. The sale, however, will free up about $1.3 billion in capital. The commercial unit is not involved in commercial mortgage lending. In its research report, Sandler called Merrill's equity sale a "necessary evil," noting that "we updated our expected CDO and subprime marks to $10 billion from $3.5 billion and estimated that [Merrill's] tangible equity ratio could fall to an uncomfortably low 2.2%."

Federal Realty Investment Trust, Rockville, Md., has announced the pricing of a public offering of 2 million common shares of beneficial interest at $81.21 per share.The joint book-running managers of the offering are Merrill Lynch & Co. and Wachovia Securities. Federal Realty, a real estate investment trust, can be found on the Web at http://www.federalrealty.com.

Fitch Ratings has assigned Greenpoint Mortgage Funding Inc., Novato, Calif., an SBPS3 primary servicer rating for small-balance commercial loans.Greenpoint was also assigned an SBSS3 special servicer rating for such loans. Fitch said the ratings are based on the company's "experienced management team and established technology and internal controls." Fitch rates small-balance commercial servicers on a scale of 1 to 5, with 1 being the highest rating.

Bank of America's residential primary servicer rating for home equity-related products has been upgraded from RPS1-minus to RPS1 by Fitch Ratings.The rating agency also affirmed at RPS1 BoA's residential primary servicer ratings for prime and alternative-A products. (Fitch rates residential servicers on a scale of 1 to 5, with 1 being the highest rating.) Fitch attributed the upgrade to "process improvements" in investor accounting, bankruptcy, and payoffs, and the completion of BoA's acquisition of the reverse mortgage business of the Seattle Mortgage Co. The rating agency also cited advancements in cash management and customer service.

Three hundred and eighty-eight classes of asset-backed securities supported by financial guaranty policies from Ambac Assurance Corp. have been placed on Rating Watch Negative by Fitch Ratings.Fitch said the actions followed its placement of Ambac Financial Group (the parent company of Ambac Assurance) on Rating Watch Negative. Also placed on Rating Watch Negative were the Insurer Financial Strength ratings of Ambac's financial guaranty insurance subsidiaries.

Fitch Ratings also issued a flurry of news releases Dec. 21 regarding various rating actions, including over 40 downgrades, on mortgage-backed securities from six issuers.Among the downgraded securities were 20 classes from Morgan Stanley subprime issues in 2002, 2003, and 2004; eight classes of Aegis mortgage pass-through certificates; and five classes of Structured Asset Investment Loan mortgage pass-throughs. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses. Fitch can be found on the Web at http://www.fitchratings.com.

Over 260 classes of mortgage-backed securities from 22 issuers were downgraded by Fitch Ratings on Dec. 21 as a result of changes to its subprime loss forecasting assumptions.Fitch also affirmed the ratings on classes with outstanding balances of approximately $27 billion. Among the securities affected by the latest downgrades were: 42 classes of Structured Asset Investment Loans mortgage pass-through certificates; 35 classes of Ameriquest, Argent, and Park Place mortgage pass-throughs; 31 classes of Soundview Home Equity Loan Trust asset-backed certificates; 15 classes from three Bear Stearns Asset-Backed Securities issues; 13 classes of Fremont Home Loan Trust mortgage pass-throughs; 13 classes of NovaStar mortgage pass-throughs; 12 classes of WaMu asset-backed certificates; 12 classes of Citigroup Mortgage Loan Trust mortgage pass-throughs; 11 classes of Option One mortgage pass-throughs; and 11 classes of People's Choice Home Loan mortgage pass-throughs. The rating actions were attributed to changes in 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."

Loan purchases by Fannie Mae and Freddie Mac rose in November but their retained portfolios continued to shed assets.Fannie Mae purchased $63.7 billion in mortgages during the month, a 28% rise from the level recorded a year earlier. Freddie's purchases rose a more modest 8%, to $41.4 billion. At the end of November Fannie held $722 billion in mortgages, a 1.4% decline from the level on Oct. 31. Freddie's holdings fell 0.3%, to $701.3 billion. In a research note, Credit Suisse said, "Freddie disclosed that wider spreads on mortgage products adversely affected the fair value of its common equity during November." Credit Suisse has an "underperform" rating on Freddie and a price target of $22, which is $8 below its current trading value. Fannie can be found online at http://www.fanniemae.com, and Freddie can be found at http://www.freddiemac.com.

Class M-2 of GS Mortgage Securities Corp. mortgage pass-through certificates series GSRPM 2002-1 has been downgraded from BB to B-minus/DR1 by Fitch Ratings.Fitch also affirmed the ratings on two other classes in the transaction. The downgrade was attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral for the deal consists of seasoned residential mortgage loans.

Two classes of mortgage pass-through certificates from Structured Asset Securities Corp. series 1998-8 have been downgraded by Fitch Ratings.Class M-1 was downgraded from AA to A-minus, and class M-2 was downgraded from A to BBB-minus. Fitch also affirmed the triple-A rating of class A. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses. Fitch explained that the securities are made up of four component classes that support four groups, and each component is backed by a separate mortgage pool. "Although each mortgage group performs differently, since the component bonds are not severable, each component bond reflects the performance of the weakest of all the components," the rating agency said.