Servicing

The outlook for The PMI Group Inc., which owns 57% of Fairbanks Capital Corp., has been revised from stable to negative by Standard & Poor's following S&P's lowering of Fairbanks' residential subprime and residential special servicer rankings.The rating agency also affirmed the A-plus counterparty credit rating on PMI and its operating units. "The serious difficulties Fairbanks has encountered in servicing one of the largest portfolios of subprime mortgage loans and the possibility, though remote, that there might be material legal actions arising from these difficulties could affect [PMI]," said S&P credit analyst Donovan Fraser. S&P said Fairbanks operates independently of PMI, but that PMI's majority ownership, minority board representation, and size "could still expose it and its operating carriers to litigation."

Meanwhile, Standard & Poor's has decided to exclude from its rated structured finance deals those New Jersey loans for which the new law allows assignee liability.S&P said loans falling in that category are those defined as Covered Home Loans, those defined as High-Cost Home Loans, home improvement loans, and manufactured housing loans, as well as loans that are cash-out refinancings or junior-lien mortgage loans. Damages for some of the loan categories are capped, the rating agency said. S&P pointed to a provision of the law that allows a borrower to elect to recover damages either under the act or under New Jersey's Consumer Fraud Act, which provides for treble damages plus costs. "Because Standard & Poor's believes the act is unclear as to whether a borrower may recover under the CFA in a suit against assignees for a violation under the act, Standard & Poor's believes it must adopt the more conservative approach and factor into its credit analysis the possibility that treble actual damages might be recoverable against an assignee," S&P said. The rating agency can be found online at http://www.standardandpoors.com.

Wilshire Financial Services Group Inc., Beaverton, Ore., has announced the resignation of Bruce A. Weinstein as executive vice president and chief financial officer.Wilshire said Mr. Weinstein resigned "to pursue other interests." Stephen P. Glennon, the company's chief executive officer, has assumed the post of CFO on an interim basis, the company said. Wilshire Financial, the parent company of mortgage servicer Wilshire Credit Corp., can be found on the Web at http://www.wfsg.com.

Fairbanks Capital Corp., Salt Lake City, has responded to the lowering of its servicer ratings by Standard & Poor's, disagreeing with the extent of the rating change and calling attention to S&P's statement that the company has made "significant progress" in handling customer complaints.S&P lowered the company's residential subprime and residential special servicer ratings from Strong to Below Average, citing "insufficient management oversight and controls, inadequate technology and training, and ineffective vendor oversight." S&P also assigned an outlook of Stable, saying Fairbanks had significantly improved its handling of customer complaints over the last three quarters. "We recognize that S&P has raised a number of important issues, including a number of issues related to customer service, and the company is focused on addressing them," Fairbanks said. It went on to say that it is being "fully responsive" to increased regulatory scrutiny and expects to take further steps to improve its management, training, oversight, and technology. "Despite these issues, it is important to note that Fairbanks continues to meet or exceed industry performance standards traditionally used to evaluate mortgage servicers by the mortgage security market," Fairbanks said.

Mortgage companies added 3,000 new employees to their payrolls in the month of April as the mortgage boom shows few signs of slowing anytime soon.The U.S. Bureau of Labor Statistics reported that jobs in the mortgage banker/broker sector increased from 421,800 in March to 424,800 in April. In the past 12 months, employment in the mortgage sector grew by 18%. "From January 2001 to February 2003, this [mortgage] industry added 123,000 workers, accounting for all the net growth in the finance industry," BLS said in its April employment report. Meanwhile, the unemployment rate rose from 5.8% in March to 6.0% in April. BLS reported that 48,000 workers lost their jobs in April. "This followed two months of job losses totaling 477,000," the BLS said. The agency can be found online at http://stats.bls.gov.

H&R Block Mortgage Corp., Kansas City, Mo., has announced the appointment of David J. Vida Jr. as vice president of prime secondary marketing and finance and Wilbur A. McKesson Jr. as vice president of affordable housing.Mr. Vida will be responsible for the company’s prime and government loan product development and delivery strategies, and for financial planning and coordination, H&R Block Mortgage said. Before joining the company, Mr. Vida was executive vice president and chief financial officer at Delphi Global Solutions, a technology company, and he was a co-founder and president of City Mortgage Services. Mr. McKesson will be responsible for developing and implementing an affordable housing business plan that focuses on the mortgage needs of H&R Block tax clients. He was most recently senior vice president and director of emerging markets at CitiMortgage.

The residential subprime and residential special servicer ratings of Fairbanks Capital Corp. have been lowered from Strong to Below Average and removed from CreditWatch negative by Standard & Poor's.As a result, Fairbanks' status as an S&P Select Servicer has been withdrawn, which means it can no longer be named as a primary servicer on future S&P-rated residential mortgage-backed securities deals. S&P said it has conducted surveillance of Fairbanks' servicing operations over the past 18 months, and that recent information from the company reveals "a number of process breakdowns," including a pattern of apparent violations of the Fair Debt Collection Practices Act. "Fairbanks has not fully managed the portfolio growth and integration of functions and platforms associated with the acquisitions that occurred during the past 36 months," S&P said. "The reasons include insufficient management oversight and controls, inadequate technology and training, and ineffective vendor oversight, resulting in an environment that poses significant risk exposure." S&P also pointed to "the amount of consumer-oriented litigation" against Fairbanks in the past year, which has prompted reviews by the Department of Housing and Urban Development and the Federal Trade Commission. S&P can be found online at http://www.standardandpoors.com.

Forty-three percent of the homeowners who refinanced their homes in the third quarter tapped into their equity by getting a mortgage at least 5% larger than the original loan, according to Freddie Mac's quarterly refinance review.The figure was up slightly from 41% in the fourth quarter but down dramatically from 60% in the first quarter of 2002, the government-sponsored enterprise said. "Interest rates on 30-year fixed-rate mortgages have been below 6% for the last 18 weeks, setting five record lows this year," said Amy Crews Cutts, Freddie Mac's deputy chief economist. "This added tremendous fuel to the longest refi boom in U.S. history. Additionally, homeowners have continued to extract equity from their homes when they refinance due to the strong growth in home values over the past several years and the very low cost of mortgage financing." Freddie Mac can be found online at http://www.freddiemac.com.

A key U.S. mortgage-backed security price hit an all-time high April 30 as a Treasury rally brought the benchmark 10-year government bond yield into a lower trading range close to 3.8% and month-end buying boosted the market's appetite for MBS, a Nomura Securities International researcher said.Art Frank, director of MBS research at Nomura, said the benchmark Fannie Mae 5.5% mortgage pass-through coupon slated for May settlement set a record when it closed at 102 7/8 on April 30 and was trading slightly lower at mid-day May 1. The rate-indicative 10-year Treasury bond yield, which moves in the opposite direction from that of bond prices, has been drifting lower but had remained more or less in the 3.9% to 4.0% range until April 30.

Fannie Mae's charter as a government-sponsored enterprise is "a balancing of pluses and minuses," according to Franklin D. Raines, the GSE's chairman and chief executive officer.Mr. Raines made the comment in response to a question at the UBS Warburg Global Financial Services Conference in New York, asking whether Fannie Mae would ever consider giving up its GSE status. If the minuses began to outweigh the pluses, he would have "a fiduciary duty" to the company's stockholders to do something about that, Mr. Raines said. "The burdens on us are not so overwhelming that it makes it impossible to raise private capital," he continued. Later, at the breakout session, he was asked about Fannie Mae's battles with opposition groups in Washington. Mr. Raines said these groups have hired lobbyists "who are being paid to stir the pot," but that they are not making any progress. FM Watch is losing supporters, he continued, but he stopped short of declaring victory over the group. Fannie Mae can be found online at http://www.fanniemae.com.