Servicing

As the yield curve flattened, mortgage rates dropped by about 32 basis points in August, dragging down the value of mortgage servicing rights, according to Mortgage Industry Advisory Corp., New York.According to the MIAC index, the value of servicing rights on 30-year, agency loans declined by 10.7% on average between Aug. 1 and Sept. 1. However, MIAC noted that several portfolios of mortgage servicing rights were offered for sale in August. "Although volumes are still down substantially from their peak, there is no question that the supply of bulk portfolios being offered for sale has increased dramatically this year," MIAC said in its monthly MSR update. MIAC is located at http://www.servicing.com on the Internet.

Five classes of IndyMac Home Equity Mortgage Loan Asset Backed Trust series SPMD 2000-C have been placed under review for possible downgrade by Moody's Investors Service.The affected classes are: class MF-1, class MF-2, class BF, class MV-2, and class BV. The securitization is backed by subprime mortgage and manufactured housing loans that were originated by IndyMac Bank FSB. The negative rating action was attributed to erosion of credit support and a pipeline of seriously delinquent loans. "The transaction has lender-paid mortgage insurance which will reduce the severity of loss associated with many of the riskier loans, including the manufactured housing loans," Moody's said. "However, the mortgage insurance may not fully insulate investors against the losses associated with defaulted loans."

Two classes of CIT Group Securitization Corp. II manufactured housing securitizations have been downgraded by Moody's Investors Service.The downgrades were as follows: series 1995-1, class A-5, from Aa2 to A2; and series 1995-2, class B, from Baa2 to Ba1. Moody's attributed the downgrades to delinquency and repossession rates that have exceeded original expectations. As of the Sept. 15 remittance report, cumulative losses and cumulative repossessions totaled 9.09% and 17.05%, respectively, for the 1995-1 transaction and 9.30% and 18.50%, respectively, for the 1995-2 deal. CIT, a diversified finance company, discontinued the origination of manufactured home financing in April 2002, Moody's said.

Four classes of subordinate certificates from two Access Financial Manufactured Housing Contract Trust deals have been downgraded by Moody's Investors Service.The downgrades were as follows: series 1995-1, class B-1, from Baa3 to Ba2, and class B-2, from Ba2 to C; and series 1996-1, class B-1, from Baa3 to Caa2, and class B-2, from Ba2 to C. In addition, Moody's confirmed the ratings on four other Access MH classes. The downgrades were prompted by "continued deterioration in the performance of Access Financial's manufactured housing pools, and the resulting erosion in credit support," Moody's said. The 1996-1 deal is undercollateralized, while overcollateralization in the 1995-1 transaction is "almost completely eroded," the rating agency said. Access Financial Lending Corp., Minneapolis, is a wholly owned subsidiary of Cargill Financial Services Corp.

Twelve classes from the Lehman ABS manufactured housing contract senior/subordinate asset-backed certificates, series 2001-B, have been downgraded by Moody's Investors Service.The downgrades were as follows: class A-IO2, from Aaa to A1; class A-IOC, from Aaa to A1; class A-1, from Aaa to A1; class A-2, from Aaa to A1; class A-3, from Aaa to A1; class A-4, from Aaa to A1; class A-5, from Aaa to A1; class A-6, from Aaa to A1; class M-1, from Aa2 to Baa3; class M-2, from A2 to B2; class B-1, from Baa2 to Caa2; and class B-2, from Ba2 to Caa3. (Class A-7 is not being downgraded because it benefits from an insurance policy issued by Ambac Assurance Corp., Moody's said.) The downgrades were prompted by delinquencies and repossessions that have exceeded original expectations, the rating agency said.

Sixteen classes of selected manufactured housing securitizations of United Companies Financial Corp. have been downgraded by Moody's Investors Service.The downgrades of UCFC Funding Corp. securitizations were as follows: series 1996-1, class A-5, from Aa3 to A2, class A-6, from Aa3 to A2, and class M, from B3 to Ca; series 1997-1, class A-4, from Aa3 to A1, and class M, from B3 to Ca; series 1997-2, class M, from Baa1 to B2, and class B-1, from Ca to C; series 1997-3, class A-4, from A1 to Baa2, and class M, from B3 to Ca. In addition, Moody's downgraded the following classes: series 1997-4, class A-4, from A3 to B1, and class M, from B3 to Ca; series 1998-1, class A-3, from A3 to Baa3, and class M, from B3 to Ca; and series 1998-2, class A-3, from A3 to Ba2, class A-4, from A3 to Ba2, and class M-1, from B3 to Ca. Moody's also confirmed the ratings on two classes of UCFC deals. The downgrades were prompted by high cumulative losses that cannot be covered by available excess spread, thus eroding subordination, Moody's said. The rating agency can be found online at http://www.moodys.com.

Fannie Mae will no longer purchase or securitize loans with mandatory arbitration clauses starting Nov. 1, according to a new Fannie seller/servicer guide."While Fannie Mae does not believe arbitration provisions are inherently abusive, we believe that mandatory arbitration can be used in an abusive fashion," guide announcement 04-06 says. Fannie Mae is allowing one exception, however, if the loan contract contains a waiver that states that the arbitration requirements are "null and void" once the loan is sold or transferred to Fannie Mae. "The seller will provide the borrower with written notice of the triggering of the waiver within 60 days of the transfer or sale," Fannie Mae says. On Aug. 1, Freddie Mac stopped purchasing asset-backed securities whose underlying loans contain mandatory arbitration clauses. The Fannie Mae guide also alerts lenders that a Massachusetts predatory-lending law goes into effect Nov. 7 and that the secondary-market agency will not purchase home loans that the state classifies as "high cost."

A second major rating agency, Moody's Investors Service, has changed its outlook for certain Fannie Mae ratings.Moody's revised its outlooks for Fannie's subordinated debt and preferred stock ratings from stable to negative Sept. 28 and placed the government-sponsored enterprise's financial strength rating on review for possible downgrade. Moody's said the rating actions "reflect findings by the Office of Federal Housing Enterprise Oversight which have created uncertainty with respect to Fannie's capital levels." Analysts from another major rating agency, Standard & Poor's Ratings Services, had said in a teleconference a day earlier that Fannie Mae's ability to meet regulators' requirements in terms of capital will be a key determinant in what happens to S&P's ratings of Fannie's subordinate debt and preferred stock, which are on watch for a possible downgrade.

The last of the three major rating agencies has responded to recent actions by Fannie Mae's regulator by lowering certain Fannie ratings (rather than warning of possible downgrades, as the others did), thus bringing some ratings more in line with those of its peers.Approximately $17 billion in securities are affected by Fitch Ratings' downgrade of Fannie Mae's subordinated debt and preferred stock from AA to AA-minus, the rating agency reported. Fitch said it based its downgrade partly on the assumption that regulatory actions will "negatively impact profitability and reduce future financial flexibility" at Fannie Mae. In addition, Fitch also said it is concerned because Fannie's management "faces a number of regulatory and political matters as well as potential requirements to improve internal controls and enhance accounting systems."

Embroiled in an explosive accounting scandal, Fannie Mae may stop reporting its earnings, predicted one stock analyst who follows the company.Analyst Mike McMahon, in a research note released Tuesday morning, said, "it's conceivable that [Fannie] may soon have to stop reporting its earnings if it is required to restate the past six years." Last year Freddie Mac -- which was entangled in a $5 billion accounting scandal -- stopped reporting earnings as it cleaned up its books. That company, which restated past earnings upward by $5 billion over three years, is still playing catch-up and isn't yet fully current on its earnings releases. (It hopes to be so by some time next year.) It's anticipated that Fannie will have to restate earnings, but so far it is unclear by how much and when. In the same research report, Mr. McMahon foresees that management changes at Fannie are coming sooner rather than later. Industry officials predict that Fannie chief financial officer Timothy Howard, who was in charge of both setting financial targets and measuring how well they were met, will be among the first to go.