Servicing

Ten classes of notes issued by Duke Funding High Grade II-S/EGAM I Ltd., a collateralized debt obligation used to acquire mortgage-backed securities, have been downgraded by Fitch Ratings.The downgraded notes were as follows: class A2 and series 2 class A2, from BBB-minus to CCC; class B1 and series 2 class B1, from BB to CC; class B2 and series 2 class B2, from BB-minus to CC; class C and series 2 class C, from B to CC; and class D and series 2 class D, from CCC to CC. All the notes remain on Rating Watch Negative. The downgrades were attributed to "significant declines in portfolio value." Fitch said the proceeds of the notes are used to buy a diversified portfolio of triple-A rated, primarily private-label residential MBS.

Freddie Mac has announced the pricing of $6 billion of fixed- to floating-rate, nonconvertible, noncumulative perpetual preferred stock.The 240 million shares of preferred stock (CUSIP: 313400624) are being offered to investors at $25 per share with a fixed dividend rate of 8.375% through Dec. 31, 2012, the government-sponsored enterprise said. Thereafter, the dividend rate will be the three-month London interbank offered rate plus 416 basis points, or 8.375%, whichever is higher. Freddie Mac said it will have the option to redeem some or all of the shares on Dec. 31, 2012, and on each fifth anniversary thereafter at $25 per share plus accrued dividends. The preferred stock is being offered via a syndicate of dealers headed by Lehman Brothers Inc. and Goldman, Sachs & Co. Freddie Mac can be found online at http://www.freddiemac.com.

More than 224,000 foreclosure filings were reported nationwide in October, up 2% from the level recorded in September and up 94% from that of a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif.The nation's foreclosure rate stood at one foreclosure filing for every 555 households, the company said in its October 2007 U.S. Foreclosure Market Report. (Foreclosure filings include default notices, auction sale notices, and bank repossessions.) "Overall foreclosure activity continues to register at a high level compared to last year, but it appears to have leveled off over the past two months after hitting a high for the year in August," said James J. Saccacio, chief executive officer of RealtyTrac. "Default notices were down nearly 9% in October, indicating that some of the efforts on the part of homeowners, lenders, and advocacy groups to find alternatives to foreclosure may be starting to have an impact. On the other hand, bank repossessions were up nearly 35%, evidence that more homeowners who enter foreclosure are losing their homes." The company said Nevada, California, and Florida recorded the highest foreclosure rates in October. The company can be found online at http://www.realtytrac.com.

Treasury officials and mortgage servicers agree on the need to expedite loan modifications for certain subprime borrowers but have yet to reach a consensus on the specifics of a plan that could lead to a massive restructuring of ARMs that will reset in 2008 and 2009.As one veteran mortgage banker put it: "Who's going to pay for this plan?" The plan centers on identifying borrowers who cannot afford a reset and freezing the interest rate for at least three (and maybe five) years to prevent a default. Several servicers are already allowing borrowers to remain at the starter rate for five years. Treasury Secretary Henry Paulson wants a commitment from large servicers to take an aggressive approach and expedite such loan modifications. However, there are concerns about litigation risk and restrictions in servicing contracts, as well as the losses that lenders, investors, and servicers might take. At a Washington forum scheduled for Dec. 3, Secretary Paulson is expected to discuss the status of the loan modification talks he has held with servicers, including Bank of America, Countrywide Home Loans, Washington Mutual, and Wells Fargo.

Class B-3 of Credit Based Asset Servicing and Securitization LLC series 2002-CB5 has been downgraded from B-plus to B and removed from Rating Watch Negative by Fitch Ratings.Fitch also placed class B-4 of C-BASS series 2004-CB8 on Rating Watch Negative and affirmed the ratings on 11 other classes in the two deals. The negative rating actions were attributed to a deterioration in the relationship between credit enhancement and expected losses. The collateral consists primarily of first-lien subprime mortgage loans.

Nine classes of Asset Backed Securities Corp. mortgage pass-through certificates from three ABSC deals have been downgraded by Fitch Ratings, and four classes have been removed from Rating Watch Negative.The negative rating actions were attributed to a deterioration in the relationship between credit enhancement and expected losses. The collateral consists of first- and second-lien residential mortgage loans.

Seven classes of mortgage-backed securities from two issuers have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions.Fitch also placed one class on Rating Watch Negative, removed one from Rating Watch Negative, and affirmed the ratings on classes with outstanding balances of about $2 billion. The securities affected by the latest downgrades were six classes from two Asset-Backed Securities Corp. transactions and one class from a Credit Based Asset Servicing and Securitization LLC deal. The rating actions were attributed to changes to 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."

Ten tranches from three Specialty Underwriting and Residential Finance Trust deals issued in 2003 have been downgraded by Moody's Investors Service.Although the losses on the deals -- series 2003-BC1, series 2003-BC2, and series 2003-BC3 -- fall within original expectations, the downgrades are based on recent and expected pool losses and the resulting actual and expected erosion of credit support, Moody's said. Overcollateralization in series 2003-BC1 and 2003-BC2 has been fully depleted, and the class B-2 certificates are realizing losses. "In addition, the overcollateralization amount in the 2003-BC1 transaction is significantly below its floor, and pipeline losses are likely to cause further erosion of the overcollateralization," the rating agency said. The collateral consists of first-lien residential mortgage loans.

Seventeen tranches from five Equifirst Mortgage Loan Trust transactions closed in 2003 and 2004 have been downgraded by Moody's Investors Service.The downgrades were based on the fact that the bonds' credit enhancement levels, including excess spread, were too low in view of projected losses. All the transactions are backed primarily by fixed- and adjustable-rate first-lien subprime mortgage loans. Moody's can be found on the Web at http://www.moodys.com.

Freddie Mac has updated its offering of $6 billion of preferred stock, announcing that it will only involve an offering of nonconvertible, noncumulative perpetual preferred stock.The company said it no longer plans to offer convertible noncumulative perpetual preferred stock, as it had indicated in a recent announcement.