Servicing

The delinquency rate on credit card and home equity loans rose late last year, suggesting that consumer debt remains soft, according to the American Bankers Association.The ABA's quarterly Consumer Credit Delinquency Bulletin showed that the delinquency rate on closed-end home equity loans rose to 1.64% in the fourth quarter from 1.38% in the third. However, the delinquency rate on home equity lines of credit inched down 2 basis points to 0.56%. Home equity lines have the lowest delinquency rate of any consumer loan category tracked by the ABA. Meanwhile, credit card delinquencies, sometimes considered a harbinger of overall consumer credit quality, rose to a record 4.07%, the ABA said. The trade group can be found online at http://www.aba.com.

Alex J. Pollock, president and chief executive officer of the Federal Home Loan Bank of Chicago, has been named to the board of directors of Allied Capital, Washington.Allied Capital noted that Mr. Pollock is the architect of the Chicago FHLBank's Mortgage Partnership Finance Program. Although he and another newly appointed independent director, consultant Ann Torre Grant, will serve on the board effective immediately, they must stand for election in May at Allied Capital's annual stockholders' meeting. Allied Capital is a business development company, and it invests in non-investment-grade commercial mortgage-backed securities. It can be found online at http://www.alliedcapital.com.

Moody's Investors Service has announced that New York State home loans originated after April 1, 2003 -- the effective date of the state's predatory lending act -- may be included in residential mortgage-backed securitizations without increasing risk to investors as long as they are not "high-cost" loans.Moody's said the inclusion of small amounts of high-cost loans in RMBS would be considered on a case-by-case basis because of increased risk. Christine Lachnicht, a Moody's vice president and senior analyst, said the New York law provides clear standards that define the threshold between home loans and high-cost loans that should enable lenders to establish effective compliance procedures. Moreover, the act limits assignee liability for noncompliant high-cost loans. The rating agency said New York home loans may be included in securitizations without adverse credit impact if the issuer demonstrates adequate procedures to ensure compliance with the act. "Generally speaking, a high-cost loan transaction could pass muster if 2% of the pool or less consists of New York high-cost loans that fit neatly within clear, objective standards for compliance," Ms. Lachnicht said. Moody's can be found online at http://www.moodys.com.

The risk to federally insured depository institutions of holding large concentrations of Fannie Mae and Freddie Mac mortgage-backed and corporate debt securities is being monitored by the Treasury Department, according to a Treasury official."Concentration is your enemy -- you want to be careful," said Wayne Abernathy, assistant secretary of the Treasury for financial institutions, in a question-and-answer session following his speech at a Ginnie Mae investor symposium. Mr. Abernathy said the department is awaiting the results of a study requested by Rep. Richard Baker, R-La., that is designed to size up GSE security concentration risk at depositories.

Fitch Ratings has announced that it is undertaking a comprehensive review of subprime mortgage securitizations that it plans to complete by the end of the year.The review, beginning with the earliest transactions, will cover all the more than 875 subprime securitizations rated by Fitch, as well as nearly 150 manufactured housing deals and more than 150 net-interest-margin deals, the rating agency said. The performance review will consider factors such as: valuing excess spread by making assumptions about prepayments and the timing of loss allocations; working with servicers to determine loss severity and cure rates and to assess the timing of delinquencies and foreclosures; and examining the quality of remaining collateral and the nature of unusual structural features. "In addition, as part of its ongoing analysis, Fitch identifies transactions which are performing outside of original expectations through an internal screening process which monitors numerous performance variables," the rating agency said. Fitch can be found online at http://www.fitchratings.com.

Freddie Mac has announced that it will delay the release of its first-quarter earnings until previously announced financial restatements are completed so the results can be reported on a consistent basis with the restated periods.The government-sponsored enterprise said the restatement process is on track and is expected to be completed by the end of the second quarter. The restatements will include annual financial results for 2002, 2001, and 2000 and quarterly financial results for 2002 and 2001. Freddie Mac said it will publish other information about the corporation’s first-quarter performance in late April, including business volume and the results for credit and interest-rate risk management. The restatements and related re-audit stem from the GSE's re-evaluation, in conjunction with its new auditor, PricewaterhouseCoopers, of certain accounting policies previously used by Freddie Mac and concurred with by its prior auditor, Freddie Mac said. The GSE can be found online at http://www.freddiemac.com.

The market for residential mortgage-backed securities is "well protected" from the potential economic impact of the war in Iraq, according to Fitch Ratings.The rating agency said the economy will probably suffer "slightly" from the war in the form of reduced travel and tourism, but that this would affect certain areas -- such as Orlando, Fla. -- more than others. "The geographic diversity and credit enhancement structured into RMBS deals should adequately address the economic impacts of the war and the possibility of terrorism," Fitch said. "However, the war will push some borrowers, already teetering on the edge of default as a result of the prewar economic malaise, over the edge." The rating agency said the effect of any terrorism on RMBS pools would likely be "very limited" as long as the pool is "reasonably" diverse geographically and borrowers do not depend on a few localized industries or military bases. Fitch can be found online at http://www.fitchratings.com.

The percentage of homeowners who were delinquent on their mortgage payments dropped late last year despite a modest increase in the share of loans that were in foreclosure, according to the Mortgage Bankers Association of America.Doug Duncan, chief economist of the MBA, said delinquencies likely peaked in the second quarter of last year, while foreclosures are still working their way through the system. Overall, 4.53% of home loans were delinquent at the end of 2002, down 13 basis points from the level of three months earlier. The percentage of loans in the foreclosure process was 1.18% in the fourth quarter, up 3 bps from that of the third quarter. However, the number of loans entering the foreclosure process fell in the fourth quarter, providing further evidence that late-payment problems may have peaked, though Mr. Duncan said he remains cautious about the employment situation. The MBA can be found online at http://www.mbaa.org.

Limiting advances of principal and interest to 12 months for delinquent loans should remedy the growing problem of interest shortfalls in investment-grade commercial mortgage-backed securities, according to Fitch Ratings.Such interest shortfalls often result in downgrades to CMBS certificates or their placement on Rating Watch Negative, the rating agency said. Fitch advised that advancing be made contingent on recoverability and said a 12-month time limit "would not preclude servicers from making property protection advances" and funding necessary, limited expenses. The rating agency explained that when a servicer determines an advance to be nonrecoverable based on inadequate property value, the servicer is entitled to reimbursement. "A time limit on servicer advances would reduce the likelihood that recovery of servicer advances results in interest shortfalls up to investment-grade," Fitch said. The rating agency can be found online at http://www.fitchratings.com.

Three Federal Home Loan Banks have purchased the senior tranches of a $475 million mortgage-backed securities deal as part of a new program called Shared Funding that is designed to meet the secondary market needs of the FHLBanks' largest members.It is the first MBS transaction under the Mortgage Partnership Finance program, and it is backed by conventional fixed-rate residential mortgages originated by National City Mortgage and Wells Fargo Home Mortgage. A subsidiary of Bank One issued the highly rated mortgage certificates to the Chicago, Des Moines, and Pittsburgh FHLBanks, and the subsidiary, One Mortgage Partners Corp., will retain the subordinated tranches. "Shared Funding will help the MPF program develop to its full potential as a strategic alternative for our members," Chicago FHLBank president Alex Pollock said. Steve Bartlett, president of the Financial Services Roundtable, said the Shared Funding initiative "will attract additional capital to the mortgage market, lower mortgage rates for consumers, and diversify credit risk throughout the financial system."