Servicing

Citing a survey showing that mortgage loans entering foreclosure have reached a 25-year high in California, the Center for Responsible Lending is taking California lawmakers to task for not responding to the subprime mortgage crisis.The Oakland, Calif.-based CRL pointed to the Mortgage Bankers Association's recently released delinquency survey for the second quarter, which indicated that the national delinquency rate for single-family home loans jumped to 5.12% in the second quarter and the number of loans entering foreclosure reached a record high. The MBA "failed to acknowledge the risky products and deterioration of lending practices in their own industry," the CRL said, criticizing brokers and lenders for promoting "risky products that maximized their profits" while "los[ing] sight of the basic fundamentals of lending." Unlike other states, California "has not acted to stem the foreclosures or tighten safeguards for borrowers," the organization said. The CRL said the state should provide emergency funding for housing counselors, bar prepayment penalties in subprime loans, and set lending standards that qualify borrowers based on the fully indexed interest rate and verified income. The group can be found online at http://responsiblelending.org.

Only $9 billion in subprime mortgage-backed securities were issued in August, and the credit enhancement on at least one adjustable-rate securitization exceeded 40%, according to a Friedman Billings Ramsay report."We observed credit enhancement of the AAA rated classes of an adjustable rate subprime RMBS, from a first tier issuer, as high as 41.25%," FBR managing director Michael Youngblood said. Credit enhancements were much lower when $42.1 billion in subprime residential MBS were issued in August 2006. "We believe that such lofty credit enhancement should lead to more conservative underwriting of non-agency mortgage loans and to equally lofty non-conforming mortgage rates, and both will curtail borrower demand and hence the volume of new mortgage loans and RMBS," the FBR researcher says in the report. FBR researchers recently reported that the default rate on subprime loans stood at 13.43% in June. They are now forecasting that defaults will rise to 16.11% by June 2008. (The default rate includes loans 90 days or more past due, in foreclosure and real estate owned.)

Mortgage companies cut their payrolls by 2,100 full-time employees in July, according to a newly released government report that is generally slow to react to changing conditions in the mortgage industry.The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell from 459,200 in June to 457,100 in July. BLS data indicate that 32,700 jobs have been lost in the mortgage industry since February. The credit crunch that has nearly halted subprime lending and severely restricted the availability of jumbo mortgages is forcing many lenders to cut their payrolls dramatically. Recently, Lehman Brothers said it would shut down its subprime mortgage unit in a move that affects 1,200 employees. Countrywide Financial Corp. is cutting its work force by 900 employees, and more layoffs are expected. The BLS can be found online at http://stats.bls.gov.

Four classes from two issues of UBS Mortgage Asset Securitization Transactions Asset Back Securities Trust mortgage pass-through certificates have been downgraded by Fitch Ratings.The downgrades were as follows: series 2003-WMC2, class M-5, from BBB to BB, and class M-6, from BB-plus to B-/DR1; and series 2004-OPT1, class M-6, from BBB-minus to BB, and class M-7, from BB-plus to CCC/DR2. In addition, Fitch affirmed the ratings on nine classes from the two deals. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral for the transactions consists of fixed- and adjustable-rate subprime mortgage loans secured by first and second liens on residential properties.

Eight classes from four issues of Morgan Stanley mortgage-backed securities have been downgraded by Fitch Ratings, and one class has been placed on Rating Watch Negative.The negative rating actions, involving classes in series 2002-AM2, series 2003-SD1, series 2004-NC3, series 2004-NC4, and series 2004-NC6, were attributed to a deterioration in the relationship between credit enhancement and expected losses. Fitch also affirmed the ratings on 35 Morgan Stanley classes. The collateral in the deals consists of fixed- and adjustable-rate subprime mortgage loans secured by first and second liens on residential properties.

Thirty-two classes from nine issues of Ameriquest Mortgage Securities Inc. mortgage pass-through certificates have been downgraded by Fitch Ratings.In addition, Fitch affirmed the ratings on 41 classes from 10 Ameriquest transactions. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses.

Thirty-seven more classes of mortgage- and asset-backed securities have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions.Fitch also affirmed the ratings on classes with outstanding balances of more than $12 billion. The latest downgrades affect the following securities: 29 classes from six issues of Ameriquest Mortgage Securities mortgage pass-through certificates; six classes from two issues of Morgan Stanley mortgage pass-through certificates; and two classes from one issue of SG Mortgage Securities asset-backed certificates. 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." Fitch can be found online at http://www.fitchratings.com.

BearingPoint Inc., a management and technology consulting firm based in McLean, Va., has announced tools aimed at helping lenders manage growing portfolio risks before they result in loan defaults and foreclosures.BearingPoint's Credit Navigation Tools provide capabilities to help evaluate portfolio risk and manage and improve lending processes, the company said. "The industry is demanding tighter control of their loans through improvements to what has largely been an inexact process," said Christopher Formant, executive vice president of BearingPoint's Global Financial Services. "To help manage the immediate needs of banks and lenders, we can put a set of tools in place that will help deliver cost and process improvements in the context of the current crisis." The company can be found online at http://www.bearingpoint.com.

New York Mortgage Trust Inc., a New York-based real estate investment trust, has reported that trading of its common stock on the New York Stock Exchange will be suspended before the market opening on Sept. 11 and that the NYSE will take action to delist the stock.The company said it has filed an application to list its common stock on another national securities exchange. New York Mortgage Trust said the reason cited by the NYSE for the delisting action is that the company has fallen below the exchange's continued listing standard of not less than a $25 million average global market capitalization over a consecutive 30-trading-day period. The company, which invests in and manages residential adjustable-rate mortgage loans and mortgage-backed securities, can be found online at http://www.nymtrust.com.

The Federal Housing Administration on Wednesday released details of a new program called "FHASecure" that could help delinquent borrowers struggling with higher loan payments because of "resets" on their adjustable-rate mortgages.Mortgagee letter 2007-11 notes that the agency will only insure ARMs if the consumer was current on the payments prior to the rate reset. However, it will insure loan amounts that include the missed payments, provided there is enough equity in the home. Depending on the closing costs, the FHA said it will insure loans with loan-to-value ratios as high as 98.75%.