Servicing

The House has passed a tax relief bill by a 386-27 vote that removes a tax penalty on homeowners when the principal amount of their mortgage is reduced due to loan modifications, short sales, or deeds in lieu.Up to $2 million in debt reduction could be taken by a homeowner facing foreclosures without a tax penalty under the Mortgage Forgiveness Debt Relief bill (H.R. 3648). The bill would also extend for seven years a tax deduction on mortgage insurance premiums. "The Administration supports House passage of H.R. 3648, which advances the President's proposal to help financially troubled homeowners by shielding mortgage write-offs from taxation," the White House Office of Management and Budget said in a Statement of Administration Policy. However, the Bush administration "strongly believes" the relief should be temporary. The SAP also says the administration does not believe it is "necessary" to change the capital gains rules for second homes to offset the costs of the debt forgiveness provisions. An effort to strip the capital gains provision from the bill failed on a 201-212 vote. The Senate has not taken any action on a mortgage debt forgiveness bill.

State attorneys general and bank commissioners have initiated an effort to monitor the top 20 subprime mortgage servicers to ensure that borrowers get the loan modifications they need."We feel this is a serious effort to avert a foreclosure avalanche that we potentially face," Iowa AG Tom Miller told MortgageWire. A working group of 11 AGs and three bank commissioners recently met with the top 10 subprime servicers in Chicago to discuss loan modifications. The working group expects the servicers to provide regular reports on their loss mitigation efforts. The state officials also expect to have contact with the servicers on a weekly or even daily basis.

Washington Mutual, Seattle, says its third-quarter net income will likely fall by 75% because of subprime and home equity-related writedowns of almost $1 billion.WaMu, the nation's largest thrift, anticipates not only chargeoffs in its loans "held-for-sale" account, but also securities trading losses of $150 million and an impairment charge of $110 million on investment-grade mortgage-backed securities. In a new research note, Credit Suisse called WaMu's exposure to higher credit risk "outsized." CS says WaMu "is far from being out of the woods," adding that, "We expect the trend of higher NPAs [nonperforming assets]" to persist through 2008. According to the Quarterly Data Report, WaMu is the nation's 13th-largest subprime servicer. with $45 billion in receivables.

Merrill Lynch has estimated that it will take $4.5 billion in credit crunch-related writedowns (net of hedges) to subprime mortgages, collateralized debt obligations, and leveraged finance commitments in the fiscal third quarter.The company pegged its expected net loss for the quarter at up to 50 cents per share. "While market conditions were extremely difficult and the degree of sustained dislocation unprecedented, we are disappointed in our performance in structured finance and mortgages," said Merrill Lynch chairman and chief executive officer Stan O'Neal. "We can do a better job in managing this risk." The company also has confirmed multiple reports that at least two of its fixed-income executives, Osman Samerci and Dale Lattanzio, have left and that it has promoted David Sobotka -- head of commodities in the fixed-income, currencies, and commodities unit -- to global head of that unit.

The mortgage industry suffered an astounding job loss of 27,200 positions in August as the subprime industry collapsed amid concerns about foreclosures and a near-dormant secondary market for many nonconforming loan types.In mid-September, National Mortgage News reported that publicly traded lenders alone had cut at least 20,000 positions during August. On Friday, the U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell to 428,300 positions from 455,500 in July. Revised figures show that 4,200 mortgage full-timers lost their jobs in July, not 2,100 as originally reported. The government says 76,800 jobs have been lost in the mortgage industry since the start of this year. The BLS can be found online at http://stats.bls.gov.

The class C notes issued by Visage CDO I Ltd., a managed hybrid collateralized debt obligation composed of asset-backed security CDO and commercial real estate CDO tranches, have been placed on Rating Watch Negative by Fitch Ratings.The negative rating action resulted from collateral deterioration, as 14.2% of the portfolio has been placed under review for possible downgrade by at least one rating agency, Fitch reported. The CDO is based on a portfolio of mezzanine and high-grade ABS and commercial real estate CDOs.

Seven classes of notes issued by Visage CDO II Ltd., a hybrid collateralized debt obligation composed partly of residential mortgage-backed securities, have been placed on Rating Watch Negative by Fitch Ratings.The affected securities were classes A2, B, C, D, E, F, and G. The negative rating actions resulted from collateral deterioration, as 31.2% of the portfolio has been placed under review for possible downgrade by at least one rating agency, Fitch reported. The CDO is based on a static portfolio of RMBS and mezzanine and high-grade commercial real estate asset-backed security CDOs.

Seven classes of notes issued by Dutch Hill Funding II Ltd., a cash-flow mezzanine structured finance collateralized debt obligation based partly on subprime residential mortgage-backed securities, have been placed on Rating Watch Negative by Fitch Ratings.The affected securities were the class A2, B, C, D-1, D-2, and D-3 notes and the class C loan. The negative rating actions resulted from collateral deterioration, as 30.8% of the long portfolio has been downgraded or placed under review for possible downgrade by at least one rating agency, Fitch reported. The CDO is based on a cash and synthetic portfolio and short contracts on $253.9 million of RMBS.

Fitch Ratings has completed the "re-rating" of its rated universe of 2006 vintage U.S. subprime residential mortgage-backed security transactions, consisting of 228 deals with an outstanding balance of $173 billion.Fitch's most severe rating actions affected a subsector of the subprime market, RMBS exclusively backed by closed-end second-lien loans, consisting of 274 rated classes with a par balance of $6.6 billion. Fitch downgraded 32 of 51 triple-A rated closed-end second-lien classes from this cohort. For first- and second-lien transactions combined, Fitch said it downgraded 1,003 classes with a par balance of $18.4 billion and affirmed 2,228 classes with a par balance of $155.1 billion. Fitch is now reviewing subprime RMBS ratings from the first quarter of 2007. Fitch said it initiated the review of subprime RMBS ratings in July due to the "unprecedented reversal in home prices and the resulting impact on high-risk mortgage products." The rating agency can be found online at http://www.fitchratings.com.

A pilot program aimed at the nation's estimated 6.8 million non-owners with "thin" credit files is being tested in the nation's capital, where an alliance of public and private entities have pledged $200 million to get the initiative started.Under the R-Home program, consumers who are often unable to qualify for financing under traditional underwriting guidelines or are steered toward high-price loans will be qualified using an innovative automated program powered by Anthem, First American Corp.'s alternative credit-evaluation model. CitiMortgage will buy loans generated by nonprofit and private-sector participants and sell them on the secondary market, but retain the servicing rights. Borrowers will be counseled before the purchase, and counseling will be made available afterwards if they have trouble making payments. If problems persist longer than 60 days, the Neighborhood Housing Services of America says it will repurchase the loans and work "personally and patiently" with borrowers to get them back on track. "We see this as a model of how all borrowers should be supported, not just low-income borrowers," said Mary Lee Widener, president of NHSA.