Servicing

Freddie Mac has announced that it is requiring its 2,300 mortgage servicers to extend forbearance automatically to borrowers recently released from active duty in the armed forces.Freddie Mac said the new policy, which appears in a June 10 update to Freddie's Single-Family Seller/Servicer Guide, aims to help returning service personnel face financial problems and avoid foreclosure, and is not part of the requirements of the Service Members Civil Relief Act designed to protect service members from creditors only when they are on active duty. "We're extending this forbearance to make sure that lenders do not initiate or resume foreclosure for at least 90 days from a borrower's release date," said Ingrid Beckles, Freddie Mac's vice president of default asset management. "This change gives lenders more time to work with servicemen and women and explore all relief options available." If service members need assistance under Freddie's policy, they should contact their mortgage servicer, who will assess individual circumstances. Freddie Mac can be found online at http://www.freddiemac.com.

The foreclosure of a single-family home, especially one that leaves the home vacant and unsecured, may generate municipal costs in excess of $30,000, according to a new study by the Joint Center for Housing Studies at Harvard University.In addition, area homeowners, business owners, and landlords stand to lose "if a rash of foreclosures brings down property prices, accelerating the decline of an entire neighborhood," the study says. Entitled "Collateral Damage: The Municipal Impact of Today's Mortgage Foreclosure Boom," the report was conducted by William Apgar, a senior scholar at the Joint Center, and Mark Duda, a research fellow there. It was funded by the Minneapolis-based Homeownership Preservation Foundation. "Foreclosures are on the rise across the country -- especially foreclosures of higher-risk nonprime mortgages," said Mr. Apgar, a former commissioner of the Federal Housing Administration. The report concludes that serious delinquencies and foreclosures for nonprime loans can be 10 times higher than for prime loans. The study urges that government, the mortgage industry, and community leaders work together to support grassroots efforts to help homeowners facing foreclosure; reduce the incidence of poorly underwritten or fraudulent loans; and encourage industry participants to "pay their fair share" of foreclosure-related costs.

The senior debt rating of Doral Financial Corp., San Juan, Puerto Rico, has been downgraded from Baa2 to Baa3 by Moody's Investors Service and remains on review for possible further downgrade.Moody's said the rating action reflects Doral's pending restatement of past financial reports to adjust for the value of its interest-only strips. "The company also plans to change its current business model by reducing loans sales that create IOs, thus lowering its profitability," the rating agency said. Doral has estimated an impairment charge of approximately $600 million on its IO strips, and it is determining how to allocate the charge among the affected periods from 2000 to 2004. The rating downgrade reflects "weak internal controls" at Doral, and Moody's also cited corporate governance issues. "Finally, a prolonged delay in the filing of its financial reports could result in liquidity pressures," Moody's said. "Thus, the ratings remain under review for possible further downgrade." Moody's can be found online at http://www.moodys.com.

Class B-2 of Residential Accredit Loan Inc. mortgage pass-through certificates series 2001-QS17 has been downgraded from B to CCC by Fitch Ratings.In addition, Fitch affirmed the ratings on five other classes from the same RALI securitization. The downgrade was due to high delinquencies and losses, Fitch said. The rating agency can be found on the Web at http://www.fitchratings.com.

Residential Capital Corp., the newly formed holding company for Residential Funding Corp. and GMAC Mortgage Corp., has been assigned a negative rating outlook by Fitch Ratings.In addition, Fitch upgraded the long-term and short-term ratings of GMAC Bank from BBB-minus to BBB and F3 to F2, respectively, and assigned the bank a negative rating outlook. Fitch said ResCap was created by General Motors Acceptance Corp. (which retains 100% ownership) to provide more operational and financial flexibility and to improve the liquidity of the residential mortgage business. The rating agency said approximately $8.2 billion of GMAC's intercompany debt remained outstanding as of March 31, of which $5.0 billion will be converted to long-term subordinated debt. Fitch said it expects that "a portion of proceeds raised through any ResCap corporate debt issuance may be used to repay intercompany debt to GMAC." The credit ratings of Detroit-based GMAC were recently downgraded to "junk" status due to financial woes at its automotive corporate parent.

The recent drop in long-term interest rates will spark additional refinancing, but much of it will likely come from borrowers refinancing out of adjustable-rate loans and home equity products, the chief economist of Freddie Mac has told MortgageWire.Economist Frank Nothaft said that because rates have remained "low and relatively stable" over a number of years, most people who could refinance to improve their rate and terms have already done so. But with the yield curve between short- and long-term interest rates tightening, and many hybrid ARMs approaching a conversion to one-year adjustable status, some borrowers will find that at today's rates, they can refinance into a fixed-rate product with a lower interest rate than their fully adjusted ARM. In addition, borrowers with home equity lines of credit may find that their HELOC rate, often about 3 percentage points above the prime rate, exceeds current fixed mortgage rates. That may lead them to refinance their first loan, rolling their HELOC debt into a cash-out refinancing.

Thornburg Mortgage Inc., Santa Fe, N.M., has priced a follow-on offering of 4.0 million shares of common stock at $30.80 per share.The offering raised net proceeds of $117.3 million, Thornburg reported. The book-running lead manager was Citigroup Global Markets Inc., and A.G. Edwards & Sons, Piper Jaffray & Co., RBC Capital Markets Corp., and Flagstone Securities LLC were the co-managers. Thornburg has granted the underwriters a 30-day option to purchase up to 600,000 additional shares to cover any overallotments. The company can be found online at http://www.thornburgmortgage.com.

New foreclosed residential properties declined by 17% in May, according to Foreclosure.com, an online foreclosure listing service based in Boca Raton, Fla.Such foreclosures totaled 22,734 in May, and the nationwide inventory of foreclosed residential properties totaled 74,011, down 4% from April's level, the company reported. "Foreclosure inventory in 2005 has reflected the current volatility and geographic variations of the overall housing market," said Brad Geisen, president and chief executive officer of Foreclosure.com. "The tendency for homeowners to enter into adjustable-rate mortgages, no-downpayment loans, and other low-initial-cost options has resulted in an atmosphere where slight changes in interest rates or economic conditions have a dramatic effect on ownership." The company can be found online at http://www.foreclosure.com.

Prepayment rates for 30-year Fannie Mae and Freddie Mac mortgage-backed securities rose slightly in May, spurred by seasonal increases in turnover in the face of mixed refinancing activity, according to Bear Stearns.Fannie Mae 30-year MBS speeds increased from a constant prepayment rate of 18.7 CPR to 19.2 CPR overall, while comparable Freddie Mac speeds remained nearly unchanged, said Bear Stearns analyst Dale Westhoff. Meanwhile, Ginnie Maes saw "larger, more consistent" speed-ups across the coupon stack, resulting in a widening of the Ginnie Mae-conventional prepayment gap, he reported. Mr. Westhoff noted that the conforming 30-year mortgage rate had dropped more than 40 basis points from its recent peak of 6.10% in April. "This has increased the proportion of fixed-rate borrowers facing refinancing opportunities of 40 bps or more from just 21% at the beginning of April to roughly 34% at the current 30-year mortgage rate of 5.68%," he said/ The increase in refi opportunities "should boost June prepayments by roughly 10%-15%," Mr. Westhoff said. Bear Stearns can be found online at http://www.bearstearns.com.

MuniMae, a Baltimore-based investor in multifamily mortgage debt and equity, has announced an agreement to acquire Glaser Financial Group Inc., a commercial mortgage banker based in St. Paul, Minn.If certain performance standards are met, the acquisition price will be approximately $67 million payable in cash and stock, MuniMae said. After the closing of the transaction, Glaser will operate as part of MMA Financial, an operating subsidiary of MuniMae. "This acquisition brings significant scale to our origination platform in the upper Midwest as well as our Fannie Mae and Freddie Mac servicing portfolios, and further strengthens our product offerings related to senior housing," said Michael Falcone, MuniMae's president and chief executive officer. The company said about 40% of Glaser's originations are related to housing for senior citizens, and that its servicing portfolio totals $3.5 billion. MuniMae can be found online at http://www.munimae.com.