Servicing

Upgrades continued to represent the bulk of rating activity involving U.S. residential mortgage-backed securities in the first quarter, according to Standard & Poor's Ratings Services.S&P's latest Structured Finance Global Ratings Roundup quarterly report indicated that there were 128 performance-related upgrades, six performance-related downgrades, and 21 guarantor-related downgrades in that market in the first quarter. The affected collateral types included prime, home equity, and home improvement mortgage loans. Transactions backed by prime residential mortgage collateral recorded the highest number of upgrades, followed by deals backed by home equity loans, S&P said. In contrast, the only rating actions on home improvement loan deals were negative. "The prime sector's strong performance continues to showcase the stability of prime collateral, evidenced by the consistency of rating activity over the course of the past few years," said Ernestine Warner, a director in S&P's Structured Finance Surveillance group.

Freddie Mac has reported that its total market share (vis-a-vis that of Fannie Mae) fell from 41% to 32% in the first quarter and its total mortgage portfolio declined at a 1% annualized rate.The report was made in lieu of a first-quarter earnings report, which is being delayed pending previously announced restatements of annual financial results for 2000, 2001, and 2002 and quarterly financial results for 2001 and 2002. The government-sponsored enterprise attributed its loss of market share primarily to "the implementation of higher fees and weak PC security price performance early in the quarter" and predicted that its market share would return to "more typical levels" over the remainder of the year. The GSE's retained portfolio grew by $1 billion during the quarter (a 1% annualized rate), while its total PC portfolio declined by $9 billion (a 3% annualized rate). Freddie Mac also reported that its non-credit-enhanced single-family delinquency rate stood at 0.30% at the end of February, and its multifamily delinquency rate was 0.01%. The pending financial restatements stem from the GSE's re-evaluation, in conjunction with its new auditor, PricewaterhouseCoopers, of certain former accounting policies. Freddie Mac can be found online at http://www.freddiemac.com.

Class B-5 of Bear Stearns Mortgage Securities Inc. mortgage pass-through certificates, series 1996-3, has been downgraded from B to CCC by Fitch Ratings.The rating agency said the action was due to high delinquency levels in the deal relative to applicable credit support. Fitch can be found online at http://www.fitchratings.com.

The delinquency rate on securities backed by home equity loans declined by 25 basis points in the fourth quarter, according to Moody's Investors Service.The delinquency rate on Moody's Home Equity Index Composite was 8.79% at the end of last year, down from 9.04% in the third quarter. However, the chargeoff rate rose slightly, from 1.22% in the third quarter to 1.28%. Moody's analyst Julia Tung said strong issuance helped boost performance, since the average seasoning on home equity deals has fallen to 19 months. Delinquency rates tend to rise rapidly through the first 24 months of a deal's life, Moody's said. Despite the rise in chargeoffs, Moody's said both the delinquency and chargeoff rates remain strong by historical standards. The rating agency can be found on the Web at http://www.moodys.com.

Fidelity National Financial Inc., Irvine, Calif., has announced an agreement to acquire the flood insurance business of Omaha Property and Casualty Insurance Co., a subsidiary of Mutual of Omaha.The terms of the agreement were not disclosed. The transaction involves more than 220,000 flood insurance policies originated through 6,000 independent agents under the National Flood Insurance Program. "This acquisition expands our penetration in the flood insurance business and makes us the nation's largest flood insurance company," said William P. Foley II, FNF's chairman and chief executive officer. "Flood insurance provides a recurring stream of revenue and earnings that is not solely dependent on the mortgage origination cycle, and the federal government retains the risk associated with potential claims." In addition to the flood insurance business, FNF said it obtained the rights to offer renewal to OPAC's personal lines policyholders. FNF can be found online at http://www.fnf.com.

The refi boom is continuing to cause problems for Cendant Mortgage, Mt. Laurel, N.J. In the first quarter, the nondepository's parent reported that it took a $196 million servicing impairment charge.In the same quarter a year ago, the company took a $124 million impairment charge. But even with the charge, Cendant reported strong revenue growth in its mortgage division (up 86%) compared with the level recorded in the same quarter last year. With $115 billion in servicing rights on its books, Cendant is the ninth-largest residential servicer in the United States, according to figures compiled by the Quarterly Data Report, a MortgageWire affiliate. Like most major servicers, Cendant has had to contend with servicing "runoff," a byproduct of the never-ending refinancing boom. Cendant officials could not be reached for comment by MW's deadline. (See the April 28 issue of National Mortgage News for more details.)

Royal Bank of Scotland subsidiary RBS Greenwich Capital has reported the expansion of its mortgage- and asset-backed securities department.The Greenwich, Conn.-based company said it has hired a total of eight experienced institutional salespeople in the past two years, most recently Scott Auker and Kevin Blaney. Both were previously vice presidents in the mortgage division at J.P. Morgan Chase. RBS Greenwich Capital can be found online at http://www.greenwichcapital.com.

The Bank of New York Co. Inc. has reported that BNY Trust Co. of Missouri, an indirect subsidiary based in St. Louis, has agreed to acquire the corporate trust business of Intrust Bank NA, Wichita, Kan.The terms of the agreement were not disclosed. The transaction involves the transfer of more than 300 bond trust and agency appointments for corporations and municipalities in Kansas and surrounding states. The Bank of New York provides trust services for a variety of debt products, including mortgage- and asset-backed securities.

AmeriServ Financial Inc., Johnstown, Pa., which recently sold the servicing rights on $450 million of mortgage loans, has been downgraded by Fitch Ratings, along with its banking subsidiary, AmeriServ Financial Bank.The long-term debt rating of the parent company was lowered from BB to B and the long-term debt and long-term deposit ratings of the bank were lowered from BB-plus to BB-minus. Their individual ratings were lowered from C/D to D. The ratings actions were "driven by the increased uncertainty regarding the company's ability to meet future financial obligations, particularly with respect to its trust preferred debt," Fitch said. The rating agency cited the sale of the mortgage servicing rights and other strategic initiatives as "steps in the right direction. However, the Rating Outlook Negative reflects execution risk in improving the company's financial and credit profile, heightened by minimal financial flexibility."

New Jersey-based Garden State Mortgage Corp. has announced the establishment of a corporate employee stock ownership plan, making it the first mortgage company in the United States to do so.Arthur Aranda, Garden State's president and chief executive officer, said the move will bring increased productivity and personal financial benefits for company employees. More than 10,000 companies nationwide have ESOPs covering over 10 million employees.