Servicing

Standard & Poor's Ratings Services has announced a revision of the criteria it applies to manufactured housing mortgage loans in residential mortgage-backed securities.Effective for transactions closing on or after July 1, S&P is expanding the data requirements and devising loan-level loss coverage assumptions for manufactured housing loans. The following manufactured housing loans will no longer be allowed in S&P-rated RMBS collateral pools: repossessed units; loans with simultaneous seconds; second-lien loans; modified loans (including extensions, loan assumptions, and transfers of equity); land-in-lieu (no cash downpayment); low-side overrides (underwriting exceptions: loans that had been originally rejected); 60-plus-day delinquencies; and chattel paper. Manufactured housing loans should not constitute more than 15% of the total principal balance (plus any prefunding amounts) as of the cutoff date, the rating agency said. Issuers who want to include manufactured housing loans in RMBS transactions must provide various loan-level details for the MH collateral, including new versus used units; current delinquency status; and debt-to-income ratio. S&P can be found online at http://www.standardandpoors.com.

In response to greater availability of mortgage data and changing underwriting practices, Fitch Ratings has introduced a new foreclosure and loss model designed to give investors a more accurate picture of risk within a pool of residential mortgage-backed securities.Fitch said the new loan-level model, version 5.0, evaluates frequency of foreclosure and loss severities based on individual loan characteristics and regional economic forecasts. The new model replaces 11 loan documentation categories with four for easy comparison of credit risk, Fitch said. "Analysis showed that the incremental difference in credit risk for individual loans was not significant enough to merit additional categories," said Susan Kulakowski, a Fitch senior director. Under the new model, loans will be classified in these four documentation categories: full, alternative, reduced, and none. The rating agency can be found online at http://www.fitchratings.com.

Jonathan Kempner has been named president and chief executive officer of the Mortgage Bankers Association of America by the MBA board of directors.The promotion of Mr. Kempner, who formerly held the titles of president and chief operating officer, came at a board meeting during the association's annual Presidents Conference. MBA Chairman John A. Courson credited Mr. Kempner with presiding over "a complete fiscal turnaround" of the organization and the resolution of staffing issues since his arrival in 2001. Mr. Kempner was also credited with balancing the association's budget and strengthening its government affairs, research, education, and communication efforts. The MBA can be found online at http://www.mbaa.org.

A recently enacted Arkansas predatory lending measure will not keep Fitch Ratings from rating structured finance transactions containing loans from the state, Fitch has announced.According to the rating agency, the Arkansas Home Loan Protection Act does not contain a provision creating unlimited assignee liability. As a result, Fitch will continue to rate residential mortgage-backed securities transactions that include home loans, including high-cost home loans, from that state. The statute, which was signed into law April 14, goes into effect July 16. Fitch can be found online at http://www.fitchratings.com.

The overall delinquency rate on home loans stood at 4.52% in the first quarter, a 1-basis-point decline from that of the previous quarter, but the share of loans in foreclosure rose to 1.20%, an all-time survey high, according to the Mortgage Bankers Association of America.The foreclosure percentage represented a 2-bps increase from that of the previous quarter. Douglas Duncan, the MBA's chief economist, told reporters that the trade group is "watchful" of the situation, but he said he would not describe it as troubling. He said a gradual increase in the number of subprime-credit-quality loans that are included in the survey's loan sample may be contributing to the increase in the foreclosure total. The MBA also reported that 11.65% of Federal Housing Administration loans were at least 30 days late in the first quarter, an increase of 20 bps from the rate in the previous quarter. The MBA can be found online at http://www.mbaa.org.

Regulatory changes limiting issuers' flexibility in supporting structured finance deals such as home equity/mortgage securitizations have contributed to narrowing the gap between the default rate of such bonds and that of unsecured corporate debt issues, an analyst told reporters at a June 18 news conference in New York.However, mortgage-related transactions may see less of a narrowing in the default rate gap vis-a-vis corporates than other types of structured finance because they are backed by relatively less volatile and more established asset types, Kevin P. Duignan, a managing director at Fitch Ratings, told MortgageWire. He added that, although the default rate gap between structured finance and corporates is narrowing, he believes the default rate of the former will continue to be somewhat more favorable than that of the latter.

Countrywide's stock got slammed in trading early Thursday, and company chief executive Angelo Mozilo told MortgageWire that short-sellers "are spreading rumors that we have accounting problems."Mr. Mozilo emphasized strongly that the rumors "are totally untrue" and that speculators are trying to drive down the price of the company's stock as a way to make money. (Unlike investors that are "long" stocks, short-sellers profit when a firm's stock price declines.) The CEO of the nation's third-largest residential lender said short-sellers are trying to cash in by using what he called "exquisite" timing and focusing on accounting problems at Freddie Mac and the fact that bond yields are beginning to creep up. At one point, Countrywide's stock was down $6 a share on Thursday, the CEO said. But at MW's deadline early Thursday afternoon, the stock had bounced back a bit and was trading at $71.20, down almost 5%. Countrywide Financial Corp. can be found online at http://www.countrywide.com.

The Fixed Income Clearing Corp., New York, has announced plans to develop central counterparty capabilities for the clearance and settlement of mortgage-backed securities, which it says will "significantly reduce risk, lower costs, and bring increased operational efficiencies to that marketplace."The MBS Division of FICC currently links security buyers and sellers for allocation, clearance, and settlement outside the clearing corporation, requiring settlement with multiple counterparties. The new system would incorporate all the clearing and settlement processes within FICC. The corporation said it would also provide members with a guaranty for eligible trades by interposing itself between the original trading parties and becoming the legal counterparty for settlement purposes. "This approach would break new ground for mortgage-backed securities customers," said Tom Costa, FICC's president and chief operating officer. ".... In fact, a basic objective of this initiative is to provide a seamless processing environment from TBA trade capture straight through to pool delivery and settlement." FICC is a subsidiary of The Depository Trust & Clearing Corp., which can be found online at http://www.dtcc.com.

Fairbanks Capital, the Salt Lake City-based mortgage servicer that has come under fire for controversial collection practices, has finalized the restructuring of the company's financing.The company said the agreement extends financing for servicing advances and working capital through Sept. 30, 2004. However, Fitch Ratings has downgraded Fairbanks' ratings as a servicer of subprime and home equity loans both as a primary and special servicer. However, Fitch removed Fairbanks from Rating Watch Negative and placed it on "evolving" watch status. Fitch said the change, which follows an onsite review of Fairbanks' loan servicing centers, reflects the company's strengthened financial condition, but also reflects uncertainty with regard to the company's "pending settlement with the Federal Trade Commission and the Department of Housing and Urban Development."

Freddie Mac says it is complying with regulators' instructions and has frozen all trading of restricted stock, or the exercise of options, owned by two former executives -- former chairman and chief executive Leland Brendsel, who retired, and former president and chief operating officer David Glenn, who was fired.Freddie Mac's human resources director Mike Hager stressed that the company did not provide Mr. Brendsel with a severance package, even though he worked at Freddie Mac since 1982. However, the former CEO has vested stock options and restricted stock worth $21.1 million. Meanwhile, Mr. Glenn will forfeit $11.2 million in unvested stock options and restricted stock because he was fired, according to the company. Mr. Glenn was fired for failing to cooperate with an internal inquiry into the company's accounting problems. The Office of Federal Housing Enterprise Oversight and the Securities and Exchange Commission asked for the freeze while they investigate Freddie Mac's accounting problems. OFHEO maintains that it has the authority to approve the compensation packages, but Mr. Brendsel's attorney argues otherwise. "We are complying in all respects with OFHEO and SEC," Mr. Hager said. "These executives will not get a nickel more than their 1990 [employment] agreements provide. OFHEO will decide if they get a nickel less." Mr. Glenn's attorney, Tom Vartanian, could not be reached for comment.