Servicing

Opteum Inc., a real estate investment trust based in Vero Beach, Fla., has announced a sale by its majority-owned subsidiary Orchid Island TRS LLC of substantially all its remaining mortgage servicing portfolio.The terms of the agreement were not disclosed. The aggregate unpaid principal balance of the loans underlying the mortgage servicing rights sold was approximately $2.97 billion as of June 30, Opteum said. The proceeds of the sale will be used to repay debt currently secured by Orchid Island's mortgage servicing portfolio and for other corporate purposes, Opteum said. The company can be found on the Web at http://www.opteum.com.

Four classes of Residential Accredit Loan Inc. mortgage pass-through certificates have been downgraded by Fitch Ratings.The downgrades were as follows: series 2005-QS5, class B-1, from BB to B-plus, and class B-2, from B to C/DR4; and series 2005-QS17, class B-1, from BB to B-plus, and class B-2, from B to C/DR4. In addition, Fitch placed nine classes on Rating Watch Negative and affirmed the ratings on 66 classes from 13 RALI securitizations. The negative rating actions were due to a deteriorating relationship between credit enhancement and loss expectations, Fitch said. The collateral for the deals consists primarily of 15- and 30-year fixed-rate mortgage loans extended to alternative-A borrowers, the rating agency said. Fitch can be found online at http://www.fitchratings.com.

The Securities and Exchange Commission has ruled that servicers of mortgage-backed securities can take the lead in restructuring or modifying subprime loans that are headed for default without running into adverse accounting consequences.The agency's professional staff believe that "modifications undertaken when loan default is reasonably foreseeable should be consistent with the nature of modification activities undertaken that would be permitted if a default had occurred," SEC Chairman Christopher Cox says in a letter to House Finance Services Committee Chairman Barney Frank, D-Mass. The SEC letter also clarifies that such loan modifications would not trigger a Financial Accounting Standard 140 requirement and force the lender to repurchase the loan. Rep. Frank thanked the SEC chairman for such a quick response to the issue. "This is a constructive approach that will allow mortgage lenders to provide help at the earliest possible moment to people who might otherwise be trapped in bad loans or forced into foreclosure," the committee chairman said. A few months ago, the Mortgage Bankers Association circulated a position paper concluding that servicers have a lot of latitude in helping borrowers avoid foreclosure. MBA senior director Alison Utermohlen said the SEC letter is good news. "We thought we were on firm ground," she said.

The chief economist of Moody's Economy.com says he expects mortgage credit quality to "erode measurably" between now and the summer of 2008.Speaking with reporters on a conference call, prominent housing economist Mark Zandi predicted that the industry will see slightly more than 1.2 million mortgage defaults this year and 1.3 million next year. By contrast, about 800,000 mortgages defaulted in 2005. Mr. Zandi said those defaults will lead to about $125 billion of losses for investors in mortgage-backed securities, an estimate significantly higher than Federal Reserve Board Chairman Ben Bernanke's recent prediction that the subprime lending crisis could cause $50 billion to $100 billion in losses.

Four certificates from two Finance America Mortgage Loan Trust securitizations issued in 2004 have been downgraded by Moody's Investors Service.The downgrades were as follows: series 2004-1, class M6, from A3 to Baa2, class M7, from Baa1 to Ba2, and class M8, from Baa2 to B3; and series 2004-2, class M-9, from Baa3 to Ba2. The downgrades were attributed to credit enhancement levels that may be low given the projected losses. "Both transactions have stepped down, causing the subordinated certificates to start receiving their share of unscheduled prepayments," Moody's reported. "In addition, the severity of loss on liquidated loans has begun to increase." The transactions are backed primarily by first-lien adjustable- and fixed-rate subprime mortgage loans.

ECC Capital Corp., a real estate investment trust based in Irvine, Calif., has announced that it plans to deregister its common stock because of the costs of compliance with the Sarbanes-Oxley Act and other reporting requirements.The REIT said it will file a Form 15 with the Securities and Exchange Commission to deregister the stock on or about July 30. ECC Capital is eligible to deregister because it has fewer than 300 common stockholders of record, the company said. "ECC Capital is deregistering because it believes that the incremental cost of compliance with the Sarbanes-Oxley Act of 2002 and other public company reporting requirements does not provide a discernible benefit to ECC Capital and is not in the best interest of its shareholders," the company said. The mortgage finance REIT can be found online at http://www.ecccapital.com.

Weak earnings from Countrywide Financial Corp. have sparked renewed concern about the housing sector, helping fuel a widespread selloff in the stock market.Countrywide, which reported earnings that missed Wall Street's consensus estimate and were down sharply from year-earlier levels, led the stock downturn among mortgage stocks. Countrywide's share price fell $3.73, or almost 11%, in trading on July 24. But the biggest decline came at subprime shop Accredited Home Lenders, where the share price fell $1.95, or 15%. News reports attributed the drop to concern about whether Accredited's deal to be acquired by a private equity firm will be completed. Another subprime lender, Delta Financial Corp., saw its stock price fall 10% for the day. Mortgage insurance stocks also were hard hit, with Triad Guaranty, PMI, Radian, and MGIC all seeing their share prices fall more than 6% on the day. The Dow Jones industrial average fell 226 points, or 1.62%, on the day. By midday Wednesday, the Dow had regained more than 40 points.

Twenty-six classes from 12 structured finance collateralized debt obligations have been placed on Rating Watch Negative by Fitch Ratings.The actions, which affect approximately $603 million of notes in CDOs issued between 2001 and 2006, were attributed to collateral deterioration related to recently downgraded or watchlisted subprime residential mortgage-backed securities. The affected CDOs are as follows: Bluegrass ABS CDO III Ltd.; Diversified Asset Securitization Holdings III LP; Fulton Street CDO Ltd./Funding Corp.; Independence IV CDO Ltd.; Independence V CDO Ltd.; Independence VII CDO Ltd.; Libertas Preferred Funding I Ltd.; Northlake CDO I Ltd.; Oceanview CBO I Ltd.; Pacific Coast CDO Ltd.; South Coast Funding III Ltd.; and Whately CDO I Ltd./Corp. Fitch said CDO tranches placed on Rating Watch Negative as a result of recent subprime RMBS credit deterioration now total approximately $1.4 billion of notes from $16 billion of CDOs, representing approximately 17% of Fitch-rated U.S. CDOs.

Twenty-two tranches issued by CSFB Home Equity Asset Trust have been downgraded by Moody's Investors Service, and 32 HEAT tranches have been placed on review for possible downgrade.The collateral backing each deal consists primarily of first-lien, subprime fixed- and adjustable-rate mortgage loans. The negative rating actions were attributed to an increasing rate of "severely delinquent" loans and recent losses that have eroded overcollateralization below its targeted level. "The timing of losses, coupled with passing of performance triggers, has caused the protection available to the subordinate bonds to be diminished," Moody's said. The rating agency can be found on the Web at http://www.moodys.com.

The issuance of subprime mortgage-backed securities totaled $25.9 billion in June, down nearly 55% from the level recorded in June 2006, and a Friedman Billings Ramsey researcher says he expects subprime securitizations to remain at the $25 billion-a-month level for the rest of the year."It looks like a sustainable rate," FBR managing director Michael Youngblood said, considering that the rate on the 10-year Treasury note dropped below 5% recently, which should help to make subprime fixed-rate product more attractive to borrowers. However, the FRB researcher said he will be looking to FBR's August report for confirmation. He noted that July is a seasonally weak month for subprime MBS issuance. Mr. Youngblood said there are multiple factors involved in the sharp decline in subprime MBS and originations, including the decision by some major lenders to stop offering popular subprime products -- adjustable-rate 2/28 and 3/27 mortgages. In addition, there is a shift to fixed-rate products as lenders tighten and underwrite ARMs at the fully indexed rate. Right now a newly originated subprime fixed-rate loan at 9.5% is more attractive to a borrower stretching to buy a home or refinance than a 2/28 ARM at 9% because the fully indexed rate is 11.25%. "If you are underwritten at a higher rate, you will go for the fixed rate," Mr. Youngblood said in an interview.