Servicing

Classes B-5 and B-6 of Structured Asset Mortgage Investments II Trust mortgage pass-through certificates, series 2004-AR1, have been placed on review for possible downgrade by Moody's Investors Service.The actions are based on an analysis of the credit enhancement provided by subordination, overcollateralization, excess spread, and mortgage insurance relative to expected losses, Moody's said. The transaction is backed by adjustable-rate alternative-A mortgage loans.

Two tranches from Structured Asset Mortgage Investments II Trust series 2006-AR3 have been downgraded by Moody's Investors Service.Class II-B-2 was downgraded from A2 to Baa1, and class II-B-3 was downgraded from Baa2 to B1. The downgrades were attributed to higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels. The collateral classes consists primarily of first-lien, adjustable-rate alternative-A mortgage loans.

Five classes of notes (and their series 2 counterparts) 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 AAA to BBB-minus; class B1 and series 2 class B1, from AA-plus to BB; class B2 and series 2 class B2, from AA-minus to BB-minus; class C and series 2 class C, from BB to B; and class D and series 2 class D, from B to CCC. All the classes remain on Rating Watch Negative. The downgrades were attributed to continued concerns about the availability of repo funding with terms similar to those now in place. Fitch said the proceeds of the notes are used to buy a diversified portfolio of triple-A rated, primarily private-label residential MBS. The rating agency can be found online at http://www.fitchratings.com.

Twelve tranches from three mortgage securitizations issued by Banc of America Funding Corp. in 2006 have been downgraded by Moody's Investors Service, and six tranches have been placed under review for possible downgrade.The negative rating actions were attributed to higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels. The collateral consists primarily of first-lien, fixed- and adjustable-rate alternative-A mortgage loans.

The ratings of 62 tranches from 12 mortgage securities deals issued by Deutsche Bank in 2006 and late 2005 have been downgraded by Moody's Investors Service, and 18 tranches have been placed under review for possible downgrade.The negative rating actions were based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels. The collateral consists chiefly of first-lien, fixed- and adjustable-rate alternative-A mortgage loans. Moody's can be found on the Web at http://www.moodys.com.

California foreclosure sales surged by 40% in October (and by 568% from the level recorded a year earlier) and they are unlikely to peak until late next year, according to ForeclosureRadar, Discovery Bay, Calif.The company reported that 12,336 California foreclosures (with a total loan value of $5.0 billion) were sold at auction in October, compared with 8,118 (with a total value of $3.6 billion) in September. "We see no sign of a foreclosure peak at this point, and we don't expect to see one until the third or fourth quarter of 2008 at the earliest," said Sean O'Toole, founder and chief executive officer of ForeclosureRadar. "The sales we are seeing now are from missed payments in March. So current auction sales really have not yet been impacted by either August's liquidity crunch or the [adjustable-rate mortgage] reset peaks this month and again in March '08." ForeclosureRadar, a foreclosure listings and software company, can be found on the Web at http://www.foreclosureradar.com.

The Laborers' International Union of North America has announced shareholder proposals that it terms "the most aggressive effort yet by any institutional investor" to protect workers' pension funds and restore accountability to the mortgage industry.The proposals focus on: helping investors understand mortgage securities risk by requiring disclosure of the types of mortgages bought and sold and their underlying value; limiting conflict of interest between rating agencies and mortgage buyers and sellers by requiring a cooling-off period before hiring key staff from financial services and mortgage holding companies; and enacting succession plans and executive compensation policies to deal with the likelihood that many chief executives will be replaced due to the mortgage crisis. "As many as 1 million residential construction workers will lose their jobs, up to 3 million homeowners face foreclosure, and hundreds of billions of dollars in shareholder value have been destroyed because of a system riddled with conflicts of interest, lack of disclosure, and lack of oversight," said Terence M. O’Sullivan, LIUNA general president. A "real solution" must also include legislative action and self-regulation by homebuilders, lenders, and rating agencies, he said.

NovaStar Financial Inc., Kansas City, Mo., has reported a net loss of $598.0 million ($64.05 per share) for the third quarter, compared with net income of $25.3 million ($2.91 per share) one year prior.Among the noncash items that contributed to the loss are a tax charge of $245.8 million (pretax) related to the revocation of the company's real estate investment trust status during the quarter and a $99.2 million (pretax) provision for credit losses. Overall, NovaStar reported six separate noncash items totaling $544.7 million (pretax) that hurt its results. The company has a waiver for compliance with the net worth covenant in its financing facilities with Wachovia that expires on Nov. 30. NovaStar said it will still be out of compliance on that day and there are no assurances it will be able to obtain additional waivers or that it will be able to repay Wachovia. Scott Hartman, chairman and chief executive of NovaStar, said the company's strategy is "to manage the cash flows from our portfolio of mortgage-backed securities and operate our retail brokerage operations." NovaStar can be found online at http://www.novastarmortgage.com.

The Office of Federal Housing Enterprise Oversight has given Fannie Mae the green light to restart its construction lending program, but the government-sponsored enterprise is still waiting for the Department of Housing and Urban Development to complete a review.OFHEO Director James Lockhart told MortgageWire that he "signed off" on the program, but included some "growth" parameters on Fannie's purchases of acquisition, development, and construction loans from lenders. A HUD spokesman confirmed that the department has started a review of the ADC program, but could not say when it would be completed. HUD is the GSE's mission regulator. Fannie Mae could not be reached for comment. In July 2006, OFHEO ordered Fannie to suspend its ADC program until it had fixed certain operational and control problems. Fannie Mae can be found online at http://www.fanniemae.com.

Freddie Mac has decided to immediately exit the "no-income, no-asset" verification loan market and is hiking delivery fees on other nonconforming loan types.According to a seller/servicer bulletin dated Nov. 15, it is also hiking "delivery" fees on mortgages with loan-to-value ratios above 70% and FICO scores below 680. A loan with a FICO score below 620 will cost a seller/servicer 200 basis points. (This affects loans that settle on or after March 1, 2008.) "In response to deteriorating trends in credit quality, today we are announcing that we are immediately discontinuing the purchase of no income/no asset (NINA) mortgages and similar no documentation loans that we purchase on a negotiated basis," Freddie says in the seller/servicer bulletin. The secondary-market giant said it has also made underwriting changes on 80-10-10 loans. Freddie Mac can be found on the Web at http://www.freddiemac.com.