Servicing

Two classes of Structured Asset Security Corp. Amortizing Residential Collateral Trust series ARC 2001-BC5 have been downgraded by Fitch Ratings.Class M-1 was downgraded from AA to AA-minus, and class M-2 was downgraded from A to BBB-plus. Fitch also affirmed the rating on one other class in the transaction. The downgrades were attributed to a deterioration in the relationship between credit enhancement and expected losses due to higher-than-expected serious delinquencies and to overcollateralization that is below the target amount. Approximately 41% of the pool is more than 60 days delinquent, and in five of the past 12 months the excess spread has not been sufficient to cover the monthly losses, the rating agency reported. The pool consists of subprime fixed- and adjustable-rate mortgage loans secured by first and second liens, primarily on one- to four-family residential properties.

Seven classes in four CSFB Mortgage Securities Corp. mortgage-backed certificate transactions have been downgraded by Fitch Ratings.The downgrades of mortgage-backed pass-through certificates were as follows: series 2002-5 G4, class IVB4, from BB to B; series 2002-18 G2, class IIB3, from BB to B, and class IIB4, from CCC to CC; and series 2002-22 G3 and 4, class DB3, from BB to B, and class DB4, from CC to C. Also downgraded were mortgage-backed certificates series 2002-32R: class M, from BB-minus to CCC, and class B-1, from CCC to C. (This series was a type of real estate mortgage investment conduit called a re-REMIC, consisting of select tranches from six different CSFB transactions.) In addition, Fitch upgraded three classes and affirmed the ratings on 29 classes from eight CSFB issues. The downgrades were attributed to a deterioration of credit enhancement relative to consistent or rising monthly losses. The re-REMIC has been incurring monthly losses of approximately $300,000, and the class B1 could be entirely written down in less than 12 months, at which time the class M would begin taking losses, Fitch explained.

PHH Mortgage Corp.'s residential primary servicer rating for home-equity-related products has been upgraded from RPS1-minus to RPS1 by Fitch Ratings.In addition, Fitch affirmed the Mt. Laurel, N.J.-based company's RPS1 residential primary servicer ratings for prime and alternative-A products. The rating agency said the actions reflect PHH Mortgage's "tenured and experienced management team, impressive technology platform, and extensive risk management practices." Fitch also cited the "solid financial condition" of PHH Corp., the parent company of PHH Mortgage. Fitch rates residential servicers on a scale of 1 to 5, with 1 being the highest rating.

Class B-2 of Empire Funding Home Loan Owner Trust, series 1998-1, has been removed from Rating Watch Negative by Fitch Ratings.The rating agency affirmed the BB rating on the class, as well as the ratings on 37 other classes in nine Empire Funding transactions. The collateral consists primarily of closed-end, fixed-rate junior-lien loans with original loan-to-value ratios of greater than 100%, Fitch reported. The loans were originated or acquired by Empire Funding, which filed for bankruptcy in May 2000. Ocwen Financial Corp. bought Empire Funding's assets in January 2001 and is currently the primary servicer of the transactions, the rating agency said.

Class B4 of DLJ Mortgage Acceptance Corp. residential mortgage pass-through certificates, series 1993-19, has been downgraded from B to CC by Fitch Ratings.Fitch also affirmed the ratings on 10 classes from four DLJ transactions. The rating agency attributed the downgrade to projected losses, explaining that the value of the certificate supporting the downgraded B4 class (the nonrated B5 class) has declined to $26,951. Meanwhile, the mortgage pool is experiencing delinquencies of 90 days or more in loans representing 2.71% of the outstanding loan balances. "Even at a loss severity rate 30%, losses projected with these delinquencies would exceed remaining protection for the B-4 bond," Fitch said. All loans in the transaction consist of fixed- and adjustable-rate prime mortgages secured by first and second liens, primarily on one- to four-family and multifamily properties, the rating agency reported. Fitch can be found online at http://www.fitchratings.com.

Class BF-4 of Salomon Brothers Mortgage Securities VII mortgage pass-through certificates, series 2001-UP2 group 1, has been downgraded from B to CCC by Fitch Ratings.Fitch also affirmed the ratings on 10 classes in the transaction. The downgrade was attributed to poor collateral performance and a deterioration of asset quality beyond original expectations. The series consists of 30-year fixed-rate and 15-year adjustable-rate mortgage loans. The rating agency can be found on the Web at http://www.fitchratings.com.

The Federal Home Loan Bank of Seattle has reported a profitable third quarter but says it still expects to book a loss in the fourth quarter and break even for the year.The Seattle bank posted $14.3 million in earnings for the third quarter, compared with a $15.7 million loss in the second quarter, as it struggles to refocus on its advance business and mothball its mortgage purchase program. The FHLBank, which is operating under a supervisory agreement, said outstanding advances declined by $1 billion during the third quarter and totaled $17.7 billion as of Sept. 30. The Seattle bank also reported the results of a $1.9 billion mortgage loan sale in August. It recorded a $7 million gain on the sale of $1.4 billion in government-insured mortgages. But it ended up taking a $1.1 million "unrealized loss" on the remaining loans it could not sell and retained in portfolio.

Class B-4 of Salomon Brothers Mortgage Securities VII Inc. mortgage pass-through certificates, series 1997-HUD1, has been downgraded from CC to C by Fitch.In addition, the ratings on four other classes in the deal and four classes from Salomon 1997-HUD2 were affirmed. The rating agency attributed the downgrade to depleted credit support and high delinquencies. Fitch can be found online at http://www.fitchratings.com.

Fannie Mae's mortgage portfolio may be stabilizing after declining by over $200 billion, or 22.6%, over the 12 months ended in November.The government-sponsored enterprise reported that its giant portfolio had declined to $715.5 billion in November, down from $912.6 billion in November 2004. Freddie Mac, which used to be Fannie's smaller brother, now has a $692.7 billion portfolio. Freddie reported on Dec. 22 that its mortgage portfolio has grown at a 6.7% annual rate so far this year. However, Fannie is beginning to shift gears, and its portfolio shrank by only a 2.6% annual rate in November, compared with 16.1% in October. In September, Fannie sold $32.1 billion in assets as it struggled to achieve a 30% capital surplus mandated by its regulator. In November, Fannie sold only $2.5 billion in assets, and purchases totaled $16.0 billion. Freddie reported $32.6 billion in purchases during November. The GSEs can be found online at http://www.fanniemae.com and http://www.freddiemac.com.

Standard & Poor's Rating Services has clarified its criteria for high-cost home loans in Massachusetts in view of recent amendments to the state's anti-predatory-lending regulations.S&P said it will continue to exclude Massachusetts "high cost home mortgage loans" (under the Massachusetts Predatory Home Loan Practices Act) from its rated structured finance deals. The rating agency said last year that such loans might be subject to indeterminate liability, preventing it from estimating their potential liability. S&P also noted that the definition of such loans was different from that of "high cost home loans" in the state's anti-predatory-lending regulations, which were not subject to indeterminate liability. Such "regulation loans" were permitted into S&P rated structured finance deals if its credit enhancement criteria were satisfied, as long as they were not also high cost home mortgage loans under the act. However, the Massachusetts Division of Banks recently amended the regulations to conform them to the act, and thus all regulation loans are now also high cost home mortgage loans under the act, the rating agency reported. S&P can be found online at http://www.standardandpoors.com.