Servicing

Rising interest rates will probably increase the payment-shock risk for borrowers in the U.S. market for option adjustable-rate mortgages, which may lead to higher defaults and losses on option-ARM pools compared with interest-only or hybrid mortgage pools, according to Fitch Ratings.In a report on its revised rating methodology for option ARMs, Fitch said the degree of payment-shock risk and loan balance growth is determined largely by the initial teaser rate, the volatility of a particular index, and balance caps. "The higher payment-shock risk for the option ARMs is due to the minimum-payment option that keeps payments low for up to five years, but then can result in a 'recast' requiring a much higher payment," said Glenn Costello, a Fitch managing director. "That payment may reflect a larger balance, due to negative amortization. .... The borrower's risk of default is exacerbated in a rising rate environment." Fitch recently completed a historical analysis of over 65,000 negatively amortizing loans from 1994 through 2004. Fitch can be found online at http://www.fitchratings.com.

Delinquency and foreclosure rates fell across the board in the first quarter of this year, according to the Mortgage Bankers Association.Overall, 4.31% of loans were at least 30 days overdue at the end of the first quarter, down 15 basis points from year-end. The seasonally adjusted delinquency rate was also a 15-basis-point improvement from that of a year earlier. The foreclosure inventory declined to 1.08%, a drop of 21 bps from a year earlier. And the number of loans entering the foreclosure process also declined. Doug Duncan, chief economist of the MBA, attributed the improvement in credit quality to strong economic growth and the low interest rate environment. Moreover, he said that the likelihood of continued economic strength and job growth with only modestly rising interest rates bodes well for the future. "These expectations likely mean we will continue to see moderate declines in delinquencies for the next few quarters," Mr. Duncan said. The MBA can be found online at http://www.mortgagebankers.org.

Class B3 of Structured Asset Securities Corp. residential mortgage-backed certificates, series 2001-2, has been downgraded from BB to B by Fitch Ratings.In addition, Fitch affirmed the ratings on three other classes in the transaction. The downgrade was attributed to high monthly pool losses and delinquency levels. As of May 25, 13.66% of the pool was over 90 days delinquent, and cumulative losses were 0.98% of the original pool balance, the rating agency said. "It should be noted, however, that concurrent with May's losses of nearly $500,000, the percentage of loan principal in the most severe delinquency buckets -- foreclosure and real estate owned -- fell precipitously from 14% down to 7%," Fitch reported. Estimated losses associated with the liquidation of such loans would result in the writedown of just over 50% of the remaining B4 bond, the rating agency said.

Three classes of notes issued by HarbourView CDO III Ltd., a collateralized debt obligation that includes mortgage-backed securities, have been downgraded and removed from Rating Watch Negative by Fitch Ratings.The downgrades were as follows: class A, from AA-minus to A-minus; class B, from BBB-minus to CCC; and class C, from B-minus to C. The rating agency said the deal has been in a technical default since March, and that a majority of class A noteholders accelerated the maturity of the transaction. "As a result, all principal and interest proceeds available -- less senior transaction fees and expenses, including the hedge counterparty payment -- will be used to pay the class A interest and principal until the notes are paid in full," the rating agency said. Fitch said HarbourView III is composed of 35.0% residential MBS, 29.6% asset-backed securities, 16.4% commercial MBS, 8.6% real estate investment trusts, 7.8% CDOs, and 2.6% corporate debt. The rating agency can be found online at http://www.fitchratings.com.

Central Pacific Bank, Honolulu, has announced the signing of a letter of intent to acquire Hawaii HomeLoans Inc. for an undisclosed amount.Hawaii HomeLoans is a full-service mortgage broker with two offices, one in Honolulu and one in Kona on the island of Hawaii. It originated $555 million in residential mortgages in the fiscal year ended Feb. 28 and services approximately $750 million in loans owned by third parties, Central Pacific said. Tom Zimmerman, president of Hawaii HomeLoans, will oversee Central Pacific Bank's residential mortgage operations upon the completion of the deal. "With an expanded portfolio and the addition of top mortgage professionals, our bank will be better positioned to service larger residential real estate development projects, from start to finish," said Clint Arnoldus, chief executive officer of Central Pacific. The bank can be found online at http://www.centralpacificbank.com.

Three certificates from two asset-backed transactions issued by Long Beach Mortgage Co. in 2002 have been placed under review for possible downgrade by Moody's Investors Service.The affected Long Beach Mortgage Loan Trust asset-backed certificates are as follows: class M-3 of series 2002-1, and classes M4A and M4B of series 2002-2. The rating actions were attributed to credit enhancement levels that may be low given the projected losses on the underlying pools. "The transactions have taken significant losses, causing gradual erosion of the overcollateralization," Moody's said. "In addition, the severity of loss on the liquidated loans has begun to increase due to a higher concentration of manufactured housing loans." The transactions are backed primarily by first-lien adjustable- and fixed-rate subprime mortgage loans originated by Long Beach. Moody's can be found online at http://www.moodys.com.

New Century Financial Corp., a real estate investment trust based in Irvine, Calif., has priced a public offering of 4.2 million shares of 9.125% series A cumulative redeemable preferred stock at $25 per share.The sole book-running manager of the offering is Bear, Stearns & Co., and the co-managers are Deutsche Bank; Piper Jaffray; Stifel, Nicolaus & Co.; JMP Securities; and Roth Capital Partners. The underwriters have been granted an option to buy up to 630,000 additional shares of the stock to cover any overallotments. New Century, the parent company of New Century Mortgage Corp. and Home 123 Corp., can be found on the Web at http://www.ncen.com.

Thomson IFR Markets, New York, has announced the hiring of three market veterans as part of an initiative to enhance its credit and structured products coverage.The analysts -- Stephen Carter, John Nash, and Christopher Reich -- bring more than 45 years of industry experience in covering such markets as commercial mortgage-backed securities, asset-backed securities, and collateralized debt obligations, the company said. "A major focus of this initiative will be improving IFR Markets' distribution of real-time deal-related information by providing customers with more timely news and analysis on deals when they are announced," the company said. IFR Markets' parent company, The Thomson Corp., can be found online at http://www.thomson.com.

Twenty-one classes from six Bombardier Capital Mortgage Securitization Corp. manufactured housing deals issued from 1998 to 2001 have been downgraded by Fitch Ratings.In addition, the ratings on 11 other classes were affirmed. Fitch noted that Bombardier provided retail financing for manufactured homes before exiting the business in September 2001, and continues to service the loans from a servicing center in Jacksonville, Fla. "When estimating future collateral losses, Fitch assumed a modest decline in default rates based on improving delinquency pipeline trends (i.e., the rate at which repo property being liquidated is outpacing the rate at which borrowers are becoming delinquent)," the rating agency said. Fitch said it expects each pool to incur losses between 30% and 40% of the remaining pool balance.

Twenty-four classes from six Oakwood Homes Corp. manufactured housing transactions have been downgraded by Fitch Ratings.Fitch also affirmed the ratings on 36 classes from 19 MH deals. "The rating actions reflect the continued poor performance of the collateral and the increased rate of credit enhancement deterioration due to adjustments in servicing practices," the rating agency said. Fitch said it expects the collateral performance to improve modestly, but that most bonds will not be able to re-establish the credit enhancement, which deteriorated as a result of the high loss rate in recent months. Oakwood Homes Corp., which was engaged in the production, sale, and financing of manufactured homes, filed for Chapter 11 bankruptcy protection in November 2002, and the company's operations and noncash assets were acquired by Clayton Homes Inc. in April 2004, Fitch said. Clayton Homes is a subsidiary of Berkshire Hathaway Inc. The loans continue to be serviced under Clayton management at the servicing center in Greensboro, N.C.