Servicing

Five classes of notes issued by Delphinus CDO 2007-1 Ltd., a collateralized debt obligation consisting largely of residential mortgage-backed securities, have been placed on Rating Watch Negative by Fitch Ratings.The affected securities are classes C, D-1, D-2, D-3, and E. Fitch also affirmed the ratings on eight other classes in the transaction. The negative rating actions were attributed to deterioration in collateral credit quality. The deal has a revolving portfolio, of which RMBS constitute 88.9%, commercial MBS constitute 0.6%, and structured finance CDOs constitute 6.75%, Fitch reported. It consists primarily of 2006 and 2007 vintage subprime collateral. The rating agency can be found online at http://www.fitchratings.com.

Seven subprime certificates from Meritage Mortgage Loan Trust 2004-1 and 2004-2 have been placed under review for possible downgrade by Moody's Investors Service.The affected classes are as follows: series 2004-1, classes M-4, M-5, M-6, M-7, and M-8; and series 2004-2, classes M-9 and M-10. The rating actions were taken because "credit enhancement provided by subordination, overcollateralization, and excess spread for each deal is low compared to the projected pipeline losses of the underlying pool," Moody's said. Both transactions are backed by first- and second-lien fixed- and adjustable-rate subprime mortgage loans originated by Meritage Mortgage Corp.

Moody's Investors Service has downgraded the servicer quality rating of EMC Mortgage Corp. as a primary servicer of subprime residential mortgage loans from SQ1 to SQ1-minus.Moody's also affirmed EMC's SQ2 rating as a primary servicer of prime residential mortgages (including alternative-A), its SQ2 rating as a primary servicer of second-lien residential mortgages, and its SQ2-plus rating as a special servicer. The downgrade was prompted by "the high level of volatility that has been experienced in the subprime market as well as a reduction from strong to above average in Moody's assessment of the company's foreclosure and REO timeline management," the rating agency said. EMC is a wholly owned subsidiary of The Bear Stearns Cos. Its servicing operations are based in Lewisville, Texas. Moody's can be found online at http://www.moodys.com.

The House Ways and Means Committee has passed a bill that removes tax penalties for homeowners involved in a mortgage restructuring or foreclosure and extends for seven years a deduction for mortgage insurance premiums."Families dealing with the pain of foreclosure should not have the double-whammy of a large tax bill for terminating their mortgage through no fault of their own," said Rep. Charles B. Rangel, D-N.Y., the committee chairman. The Bush administration proposed temporary relief from paying taxes on the forgiveness of debt, but the provision in the committee bill (H.R. 3648) is a permanent exclusion. So far, its does not appear that the White House will oppose the bill. Families with incomes of $100,000 or less who refinanced or purchased a home in 2007 can deduct the cost of their mortgage insurance premium. But this deduction is due to expire at the end of the year. By going with a seven-year extension, the House tax writers signaled that it is not appropriate to extend the MI deduction one year at a time, like many other provisions in the tax code.

Twenty-five classes of notes and loan interests issued by Westways Funding VI, VII, VIII, IX, and XI mortgage market value collateralized debt obligations have been downgraded by Derivative Fitch.In addition, 14 classes from the CDOs have been placed on Rating Watch Negative. The negative rating actions were attributed to "uncertainty in the proceeds that will be achieved during a possible forced sale of assets given the price volatility that even highly rated securities have seen in the current market environment." Fitch can be found on the Web at http://www.derivativefitch.com.

Fannie Mae has priced an offering of $1 billion of noncumulative, perpetual, variable-rate preferred stock.The 40 million shares of series P stock have a stated value of $25 per share, with a dividend rate that will reset quarterly. The rate will be set at 4.50%, or 75 basis points above the three-month London interbank offered rate, whichever is greater. Goldman, Sachs & Co. and Merrill Lynch & Co. served as placement agents for the transaction, Fannie Mae said. Fannie can be found online at http://www.fanniemae.com.

Zacks Equity Research, Chicago, has declared Cleveland-based National City Corp., the parent company of National City Mortgage, its "Bear of the Day" for Sept. 26.National City recently projected that its after-tax mortgage banking loss is likely to be in the neighborhood of $160 million in the third quarter, Zacks noted. NatCity's nonperforming assets rose 20% in the first two months of the quarter and its net chargeoffs climbed 36%, the research firm said. "Our new six-month target price of $23 per share (down by $8 per share) implies a negative return of about 9% during the period," Zacks said. "We are thus downgrading our recommendation on the shares of NCC from Hold to Sell." Zacks said the Bear of the Day is a stock expected to underperform the markets over the next three to six months. The research firm can be found online at http://www.zacks.com, and NatCity can be found at http://www.nationalcity.com.

Mortgage lenders and servicers are not restructuring loans for troubled homeowners, according to the Center for Responsible Lending and a bankruptcy judge, who urged Congress to amend the bankruptcy code to prevent unnecessary foreclosures.Marilyn Morgan, a bankruptcy judge in Northern California, said she sees too many foreclosures and has not heard of a "single meaningful workout with a home lender." CRL executive Eric Stein told a House Judiciary panel that servicers fear being sued by investors if they restructure mortgages. Amending the bankruptcy code to allow restructurings by judges would "remove the fear" so that servicers can voluntarily modify loans. Steve Bartlett, president of the Financial Services Roundtable, testified that the industry has adopted principles that encourage loan modifications, and "we should expect more and more homeowners with subprime mortgages to get needed relief."

Gerald J. Ford, the former chairman and chief executive of Golden State Bancorp Inc., has told Fremont General Corp., Santa Monica, Calif., that he does not want to invest in the company under the terms of an agreement reached in May.The announcement comes amid rumors that Fremont is having trouble selling its $20 billion subprime servicing portfolio. Mr. Ford leads an investor group that agreed to put $80 million into Fremont, in exchange for a possible 20% stake. Mr. Ford was slated to become chairman of Fremont and its subsidiary, Fremont Investment & Loan. In a statement, Fremont said that while it did not agree with the factual positions taken by Mr. Ford, it is in discussions with him over revising the terms of the transaction. The convertible preferred stock the investor group was to acquire had a conversion price of $8.66 per share. Before the deal was announced on May 21, Fremont was trading in the area of $7; in the following days it went as high as $13.06 per share. Shortly before 11 a.m. Sept. 26, the day of the announcement, Fremont's stock was down $1.03 (over 20%) from the previous day's close to $4.10 per share.

Investor Wilbur Ross Jr., a bottom-fisher who has made millions investing in ailing steel plants, has emerged as the leading bidder for the mortgage servicing platform of the bankrupt American Home Mortgage, Melville, N.Y.The sale, however, needs to be approved by a bankruptcy judge in Wilmington, Del., where the company filed for Chapter 11 protection in August. According to the Quarterly Data Report, AHM services about $45 billion in residential loans, ranking 24th nationwide. At a speech Tuesday night in New York, Mr. Ross said that eventually the company would fund mortgages again. AHM was a Fannie Mae/Freddie Mac approved lender/servicer. It also played in the jumbo and alternative-A markets. The real estate investment trust can be found online at http://www.americanhm.com.