Servicing

Fitch Ratings has downgraded the residential primary servicer rating for subprime loans of Kansas City, Mo.-based NovaStar Mortgage Inc. from RPS2-minus to RPS3-plus and removed it from Rating Watch Negative.Fitch said the downgrade reflects "the challenging subprime mortgage environment," uncertainties regarding the company's profitability, and concerns that financial challenges may hurt its servicing operation and servicing quality. Fitch rates residential servicers on a scale of 1 to 5, with 1 being the highest rating.

Federal Deposit Insurance Corp. Chairman Sheila Bair says accounting firms and industry groups have concluded that there is latitude in the accounting rules governing securitizations that allow servicers to actively restructure subprime loans facing foreclosure.She noted that the industry groups are committed to working with borrowers to prevent foreclosures and with community activists to reach borrowers that need to restructure their loans. The Mortgage Bankers Association has asked the Financial Accounting Standards Board for guidance on the FAS 140 servicing issues. "MBA believes restructurings of certain securitized residential mortgage loans that are widely anticipated to go into default will not cause qualified special-purpose entities holding restructured loans to be disqualifying, thereby forcing the transferors to record a repurchase of the loans," the association said. The FDIC chairman also reported that the regulators are near agreement on the subprime lending guidance when it comes to curbing stated-income loans and other issues. She said she expects the guidance to be issued no later than July.

The multifamily housing revenue bonds of the St. Cloud (Minn.) Housing & Redevelopment Authority (Parkview Terrace Apartments Project), series 1999A, have been downgraded from B to D by Standard & Poor's."The downgrade reflects a missed debt service payment on June 1, 2006, in the amount of $86,000 and the project's long history of poor financial performance," said Renee Berson, an S&P credit analyst. The rating agency said the trustee, U.S. Bank NA, has indicated that future principal payments are "uncertain."

Two classes from a pair of Finance America Mortgage Loan Trust subprime securitizations have been placed on review for possible downgrade by Moody's Investors Service.The affected securities are class M-8 of series 2004-1 and class M-9 of series 2004-2. Moody's said the negative rating actions were taken because credit enhancement levels on the two classes may be low in view of projected losses. The transactions are backed primarily by first-lien adjustable- and fixed-rate subprime mortgage loans.

Ginnie Mae president Robert Couch says his agency is on track to securitize its first pool of Federal Housing Administration-insured reverse mortgages in September."We think it is going to improve pricing for consumers and help originators find an efficient secondary-market execution," Mr. Couch told a Mortgage Bankers Association government housing finance conference. The Ginnie Mae home equity conversion mortgage structure will allow reverse mortgage lenders to securitize lump-sum payouts as well as monthly draws in pools as small as $1 million. Once there is significant volume, Wall Street dealers will be able to aggregate the HECM mortgage-backed securities into real estate mortgage investment conduits. "It is a fairly simply structure for investors," Mr. Couch said in an interview. The complexity comes with the servicing, because one reverse mortgage could have participations in multiple securities. "Ginnie has one servicer ready for the September rollout, and we've got others that may be ready," the Ginnie president said. Mr. Couch is in line to be the new general counsel for the Department of Housing and Urban Development. If confirmed by the Senate, he will give up his post at Ginnie Mae.

Seven classes from three Ameriquest Mortgage Securities Inc. home equity issues have been downgraded by Fitch Ratings.The downgrades were as follows: series 2003-1, class M-4, from B to C/DR4; series 2004-R2, class M-8, from BBB to BB; and series 2004-R4, class M-2, from A to A-minus, class M-3, from A-minus to BB-plus, class M-4, from BBB-plus to BB, class M-5, from BBB-minus to B, and class M-6, from BB-minus to CCC/DR1. In addition, Fitch affirmed the ratings on 36 classes from five Ameriquest deals. The downgrades were attributed to a continued deterioration in the relationship between credit enhancement and expected losses.

PremierWest Bancorp, Medford, Ore., has announced the selection of PHH Mortgage as a strategic partner in providing mortgage services to the bank's customers.Jim Ford, president of PremierWest Bancorp and PremierWest Bank, said the alliance will enable customers to apply for a loan "via their channel of choice, including personal loan officers in PremierWest branches, through the Internet 24 hours a day, or by telephone." All loans will be serviced by PHH Mortgage, Mt. Laurel, N.J. The companies can be found on the Web at http://www.premierwestbank.com and http://www.phh.com.

Anne V. Lee has been named acting president and chief executive officer of Coast Financial Holdings Inc., Bradenton, Fla., to replace Brian F. Grimes, who was fired in part because of a federal and state cease-and-desist order involving its residential construction loan program.Coast Bank, a subsidiary, recently agreed to the entry of the C&D order from the Federal Deposit Insurance Corp. and the Florida Office of Financial Regulation relating to the bank's residential construction-to-permanent loan portfolio. James K. Toomey, chairman of Coast Federal, said the company has "already addressed a large number of the corrective actions outlined in the C&D, and several of these issues have already been resolved." The FDIC order directs Coast Bank to take measures regarding board oversight, management planning and auditing, equity management, loan-loss allowance, loan portfolio review, liquidity management, and information technology, Coast Financial reported. Ms. Lee will be the company's chief liaison with state and federal regulators regarding the residential construction loan program. The company can be found online at http://www.coastfl.com.

A contraction in subprime lending is well under way, and it is "not unusual for financial markets to overreact following losses," according to a study commissioned by the American Financial Services Association.However, there is a "real danger" that aggressive legislation or regulation could "exacerbate the effect this contraction has on the availability of credit, leaving huge numbers of Americans out in the cold," said George Wallace, executive director of the Center for Statistical Research, which conducted the study. The CSR study shows that a 10% contraction in subprime lending could cut off mortgage credit to 580,000 American families, and a 20% contraction could affect 1.1 million borrowers. The Alexandria, Va., research firm points out that subprime foreclosure rates are rising but are not unusually high by historical standards. "The increases in foreclosure rates are not an indication that the mortgage marketplace is structurally flawed or requires regulatory intervention," the CSR study says.

The Center for Responsible Lending says the worst of the subprime foreclosure wave is not over and that its research shows that well over one million borrowers (possibly up to 1.5 million) will lose their homes over the next few years."A closer look shows that subprime loans originated in 2005 and 2006 alone will account for over a million projected foreclosures," CRL president Michael Calhoun said. In a recent speech, Mortgage Bankers Association chairman John Robbins took issue with the CRL's research and said it showed that there have been 1.6 million subprime foreclosures since 1998 and that the CRL is projecting another 600,000 foreclosures in the near future. "It's still a lot of people, but out of 75 million homeowners and 50 million mortgage holders, it's not an eyebrow-raising number when looked at over that period of years," Mr. Robbins said in a speech at the National Press Club. The MBA apparently misread the CRL's data and "reversed our estimate" of the number of foreclosures that have occurred and future foreclosures, Mr. Calhoun said. "Mr. Robbins suggested that the worst is over for subprime foreclosures," he said. "That is simply not the case."