Servicing

Moody's Investors Service has downgraded 107 tranches from 18 deals issued by Bear Stearns in 2006 and late 2005 and placed 25 tranches under review for possible downgrade.Four downgraded tranches remain on review for possible downgrade. The negative rating actions were based on higher-than-expected rates of delinquency, foreclosure, and real estate owned relative to credit enhancement levels, Moody's said. The collateral backing the classes consists primarily of first lien, fixed- and adjustable-rate, alternative-A mortgage loans. Moody's can be found online at http://www.moodys.com.

In the third quarter, 87% of the homeowners who refinanced their homes got a mortgage at least 5% larger than the original loan, according to Freddie Mac.The percentage was up from 84% in the previous quarter but down slightly from 88% a year earlier, the government-sponsored enterprise said in its quarterly refinance review. "Thirty-year fixed conforming mortgage rates averaged 6.7% in July, the highest level thus far this year, before easing in the latter half of the quarter," said Frank Nothaft, Freddie Mac's chief economist. "At the same time, rates on jumbo mortgages became relatively much more expensive compared to conforming rates, rising to an average of 7.4% for 30-year fixed-rate loans in August. These higher rates during the first part of the third quarter put a damper on mortgage activity and reduced the overall volume of refinancing." Freddie Mac can be found online at http://www.freddiemac.com.

Steel Mountain Capital, a Lakewood, Colo.-based investor in performing, subperforming, and nonperforming assets, has allied with a for-profit subsidiary of America's Community Bankers to assist community banks with valuation and disposition strategies for real estate assets."The specific focus of the partnership will be the purchase of nonperforming residential and commercial real estate mortgages," the Colorado-based investor said. "In addition to member-advantaged pricing, Steel Mountain will provide a quick and efficient response, with a streamlined purchase and sales agreement, a portfolio review and evaluation within 24 hours, and a funding timeline of 30 days or less." ACB and the ABA plan to merge on Dec. 1, and Steel Mountain also plans to offer its services to the ABA at that time.

IndyMac Bancorp Inc., Pasadena, Calif., has reported a net loss of $202.7 million ($2.77 per share) for the third quarter, compared with net earnings of $86.2 million ($1.19 per share) a year earlier.IndyMac said its pretax credit costs totaled $407.7 million in the third quarter, compared with $103.5 million in the second quarter. "We are clearly disappointed with this quarter's results, which were driven by deteriorating mortgage delinquencies and a declining housing market, combined with an unprecedented collapse in the secondary market for non-GSE loans and securities -- IndyMac's primary business," said Michael W. Perry, IndyMac's chairman and chief executive officer. "While this loss is substantially higher than we had been forecasting, it was clearly not unexpected given the magnitude of the losses being reported by others in our industry and the recent decline in our stock price." IndyMac can be found online at http://www.indymacbank.com.

Since July, residential lenders have tightened their underwriting standards on prime jumbo mortgages, as well as alternative-A and subprime loans, according to a Federal Reserve Board survey of senior loan officers.Banks increased their loan fees, spreads, and downpayment and income documentation requirements on prime jumbo mortgages, according to the October survey. Over one-third of respondents said originations of prime jumbos had declined, and 10% reported an increase. Meanwhile, 40% of the loan officers reported tightening credit standards on conforming prime loans, 50% reported tightening on "nontraditional" mortgages (alt-A, interest-only, and payment-option adjustable-rate mortgages), and 55% reported tightening on subprime loans over the past three months. At a fair-lending conference, Fed Governor Randall Kroszner said Fed surveys show significant tightening on subprime loans. He added that delinquencies and foreclosures on subprime loans are "likely to continue to rise for a number of quarters."

Fannie Mae has announced that it will file its first-, second-, and third-quarter financial reports with the Securities and Exchange Commission on Nov. 9 and host a conference call to brief investors and analysts."With these filings, the company will become current in its financial reporting requirements," the giant mortgage company said. Fannie Mae has not filed a quarterly report (Form 10-Q) since the second quarter of 2004 after it was discovered that the company manipulated accounting standards and overstated earnings by billions of dollars. The publicly traded company paid a $400 million fine to the SEC and restated earnings for 2001, 2002, 2003, and the first half of 2004. Fannie's regulator currently requires the company to maintain a 30% capital surplus until it returns to timely financial reporting and corrects its internal controls and accounting systems. Analysts will be waiting to hear how much longer the expensive process of rebuilding those systems will take. Fannie Mae can be found online at http://www.fanniemae.com.

The class C and D deferrable floating-rate notes issued by Dalton CDO Ltd., a collateralized debt obligation linked to residential mortgage-backed securities, have been placed on Rating Watch Negative by Fitch Ratings.The negative rating actions were attributed to a deterioration in the collateral credit quality in the long portfolio, which consists of asset-backed securities CDOs, RMBS, and collateralized loan obligations. Dalton is a hybrid structured finance CDO that combines the use of synthetic and cash assets as well as funded and unfunded liabilities.

The Federal Housing Administration is reaching out to nearly "1.2 million at-risk American homebuyers" to inform them about the new FHA Secure refinancing program.FHA commissioner Brian Montgomery told a congressional panel that his agency is using a direct-mail database to contact subprime borrowers with 2/28 and 3/27 ARMs that are due to reset by 0ctober 2008. Over 1,500 delinquent borrowers have already filed applications to refinance into a FHA Secure mortgage since the agency launched the new program Sept. 5. "Though still a very new program, 575 FHA-approved lenders are already using FHA Secure to rescue delinquent borrowers from the potential loss of their homes," Mr. Montgomery testified. Meanwhile, FHA has received 74,000 applications by current conventional borrowers who want to refinance into a FHA loan since Sept. 5. FHA received 37,500 of these applications in September and another 36,500 in October.

The largest subprime servicers should be able to move ahead with loan modifications now that they have worked through most of the problems associated with the requirements of the mortgage-backed securities contracts, according to Iowa Attorney General Tom Miller."They feel they have the discretion and authority needed to make loan modifications where those modifications benefit the investor and homeowner," Mr. Miller told the House Financial Services Committee. "Upwards of 95% of the pooling and servicing agreements do not pose significant constraints, according to the servicers we have met with." Mr. Miller heads up a working group of state AGs and banking regulators that met with the 10 largest subprime servicers in September and plans to meet the 10 next-biggest servicers during the week of Nov. 5. He noted, however, that piggyback 80/20 loans are a problem because the first and second loans are in separate securitizations with different investors and servicers.

Reeling from a multi-billion dollar decline in U.S. subprime mortgage-related exposures that forced its chief executive to step down, the New York-based Citigroup Inc. has made plans to start a new unit to focus on the problem and repositioned its leadership. The new unit will be solely focused on Citi's approximately $55 billion in subprime mortgage-backed securities and related exposures and be run separately from the other mortgage-related capital markets and banking units, according to a statement issued by Sir Win Bischoff, chairman of Citi Europe and Citi's new acting CEO. Mr. Bischoff and executive committee chairman Robert Rubin, Citi's new chairman of the board, are replacing departing chairman and chief executive officer Charles Prince. Mr. Prince resigned Sunday, citing the large scope of MBS-related losses that are expected to cut Citi's revenue roughly $8 billion-$11 billion and reduce net income approximately $5 billion-$7 billion on an after-tax basis. Citigroup can be found on the Web at http://www.citigroup.com.