Servicing

A.M. Best Co., Oldwick, N.J., has given Stewart Title Group a financial strength rating of "B++(Good)" and an issuer credit rating of "bbb+," stating the Houston-based global title insurer's ratings reflect its adequate capitalization along with its moderate underwriting leverage. Parent company Stewart Information Services Corp. received an ICR of "bb+." In its statement, Best added that in spite of the 35% decline in statutory surplus at the company, this is still "relatively moderate compared to that of the title insurance industry as a whole." The rating agency said it expects the statutory surplus to increase at the end of this year as Stewart Title Guaranty Co., the lead underwriting unit, retires short-term debt through the use of longer term debt issued by the parent company in the form of convertible senior notes. Stewart's underwriting results in 2009 have been affected by reserve strengthening because of an increase in claims from prior policy years, along with large title claims, some resulting from agency defalcations. Best noted that Stewart is not only the third largest underwriter of title insurance with a 14% market share in the U.S., it does business in approximately 40 countries, enhancing its geographic diversification.

Specialized Portfolio Servicing LLC, Salt Lake City, Utah, has had its primary servicer ratings for alt-A, subprime and home equity lines of credit upgraded by Fitch Ratings, New York, from "RPS3+" to "RPS2-." The company's residential special servicer rating and residential primary specialty servicer rating for second lien products received the same upgrade. Fitch cited the company's seasoned management team, technology enhancements and improvements in customer service and default management, which have increased its ability to proactively target problem accounts. The special servicer rating reflects Specialized Portfolio Servicing's "ability to liquidate nonperforming assets utilizing its focused default management expertise." These ratings also reflect the company's ability to attract, hire and retain key employees. It also reflects the ratings of its parent company, Shinsei Bank Ltd., which are "BBB/F2" with a negative outlook. Specialized Portfolio Servicing has a portfolio with an unpaid principal balance of $9.35 billion, of which 2.3% is special servicing. Approximately 37% of the loans are first lien and 63% second lien. By product it includes 20% subprime loans, 28% closed end seconds, 8% HELOCs and 6% alt-A.

Fitch Ratings has placed $20.6 billion in bonds from 33 floating-rate U.S. CMBS on Rating Watch Negative. The rating agency also said it has assigned negative rating outlooks to 22 classes totaling $1.1 billion that currently have fairly high AAA and AA+ investment grade ratings. "The Rating Watch Negative placements are the result of the significant stress on cash flow experienced by floating-rate loans in 2009 and Fitch Ratings' expectation that cash flows will continue to be stressed for the foreseeable future," Fitch said. "Floating-rate loans are transitional in nature and more susceptible to declining market conditions."

Luxembourg-based investment companies affiliated with private investment firm Elliott Management Corp. have agreed to buy all of the outstanding shares of Capmark Financial's Tokyo-based servicing business, Premier Asset Management Co. Financial terms for the transaction were not disclosed. Elliott said it will keep Premier's current management in place and expects to maintain its existing platform in the Japanese market. Premier is a commercial mortgage-backed securities and warehouse non-recourse loan servicer that also provides special servicing to defaulted non-recourse loans as well as third party nonperforming loan collections. A U.S. bankruptcy court has approved the transaction and it is expected to close by Jan. 29, 2010.

The Federal Reserve has purchased more than $1 trillion in agency mortgage-backed securities to support the mortgage market this year and Fed officials are trying to wind down its $1.25 trillion purchase program by March 31. The New York Federal Reserve Bank purchased $1.09 trillion in Fannie Mae, Freddie Mac and Ginnie Mae MBS this year, according to the Federal Housing Finance Agency. At the start of the program in early January, the New York Federal Reserve Bank was purchasing $20 billion to $25 billion in agency MBS a week. Now the Fed is purchasing agency MBS at a $16 billion weekly rate, which means it could continue at that pace for another 10 weeks. At the conclusion of its monetary policy meeting on Dec. 16, Fed officials said they are "gradually slowing" the pace of MBS purchases so the last transactions will be completed by the end of the first quarter of 2010. Mortgage strategists at Credit Suisse say the slowdown in Fed purchases will not affect MBS spreads to any large degree. "The Fed's exit from the MBS purchase program will likely be well absorbed by the market," according to a weekly Credit Suisse "Market Watch" publication. After March 31, the "Fed will likely assume a backstop role for the MBS market to prevent a double dip in housing," Credit Suisse strategists say.

The Treasury Department has purchased over $200 billion in Fannie Mae and Freddie Mac mortgage-backed securities to support the mortgage market, but now it has to decide if will continue that support. "We expect to provide guidance by the end of the year," Treasury spokeswoman Meg Reilly said. Treasury began the MBS purchase program after the two government-sponsored enterprises were placed in conservatorships in September 2008. At the time, Treasury said it would terminate the MBS purchase program by the end of 2009. During the summer, Treasury reduced its MBS purchases and it is currently buying about $10 billion a month. The Federal Reserve is slowing its $1.25 trillion agency MBS purchase program at the same time and plans to end the program by March 31.

The serious delinquency rate on prime loans has doubled over the past year and hit 3.6% in the third quarter, up 20% from the previous quarter, according to the Office of the Comptroller of the Currency and Office of Thrift Supervision. Overall, 87% of the loans in the servicing portfolios of large banks and thrifts are performing and 6.2% are 60-days or more past due (seriously delinquent), according to the OCC/OTS quarterly Mortgage Metrics Report. The third quarter report also shows continued deterioration in the performance of payment-option adjustable rate mortgages. Only 67.7% of options ARMs are performing, 16% are seriously delinquent and 11.9% are in the process of foreclosure. In the second quarter, 15.2% were seriously delinquent and 10% were in the process of foreclosure. The national bank and thrift servicers completed more than 130,000 loan modifications in the third quarter. In total, more than 680,000 home loan modifications and payment plans (including those done on a trial basis) were implemented during the period. Despite the growth of loan modifications, more than half of all modifications are 60-days or more past due after six months. In cases where the monthly principal and interest payment is reduced by at least 20%, the redefault rate is only 26.7%. After 12 months, the redefault rate is 38.6%, compared to 66% where the modification leaves the borrower's payment unchanged. In the third quarter, more than 80% of the loan modifications resulted in some reduction in monthly payments.

Fitch Ratings has placed $20.6 billion in bonds from 33 floating-rate U.S. CMBS on Rating Watch Negative. The rating also said it also has assigned negative rating outlooks to 22 classes totaling $1.1 billion that currently have fairly high AAA and AA+ investment grade ratings. "The Rating Watch Negative placements are the result of the significant stress on cash flow experienced by floating-rate loans in 2009 and Fitch Ratings' expectation that cash flows will continue to be stressed for the foreseeable future," Fitch said. "Floating-rate loans are transitional in nature and more susceptible to declining market conditions."

The Federal Reserve has purchased more than $1 trillion in agency mortgage-backed securities to support the mortgage market this year and Fed officials are trying to wind down its $1.25 trillion purchase program by March 31. The New York Federal Reserve Bank purchased $1.09 trillion in Fannie Mae, Freddie Mac and Ginnie Mae MBS this year, according to the Federal Housing Finance Agency. At the start of the program in early January, the New York Federal Reserve Bank was purchasing $20 billion to $25 billion in agency MBS a week. Now the Fed is purchasing agency MBS at a $16 billion weekly rate, which means it could continue at that pace for another 10 weeks. At the conclusion of its monetary policy meeting on Wednesday (Dec. 16), Fed officials said they are "gradually slowing" the pace of MBS purchases so the last transactions will be completed by the end of the first quarter of 2010. Mortgage strategists at Credit Suisse say the slowdown in Fed purchases will not affect MBS spreads to any large degree. "The Fed's exit from the MBS purchase program will likely be well absorbed by the market," according to a weekly Credit Suisse "Market Watch" publication. After March 31, the "Fed will likely assume a backstop role for the MBS market to prevent a double dip in housing," Credit Suisse strategists say.

Concerns that housing and employment woes will persist into the second half of next year have contributed to a rating criteria change at Moody's Investors Service that leaves thousands of prime jumbo residential MBS on review for possible downgrade. Moody's has placed 4,474 tranches of jumbo RMBS with an original balance of $234 billion and a current outstanding balance of $143 billion on review. The rating agency said the move "will have the greatest impact on senior securities issued in 2005." At 3.8%, this vintage's new projected cumulative losses are much less than for 2006 securitizations of this type (8%) as well as 2007 and 2008 jumbo RMBS (10.9% and 12.3%, respectively). "Even though the Case-Shiller index in recent months has reported very modest home price gains, Moody's believes the overhang of impending foreclosures will impact home prices negatively in the coming months," the rating agency said. "Adding to borrowers' financial pressure, unemployment is now projected to peak at around 10.6% from previous projections of 9.8% from the first quarter of this year. Both measures are expected to reach their peaks some time in the second half of 2010, after which recovery is expected to be slow."