Servicing

Three classes of notes issued by Enhanced Mortgage Backed Securities Fund III Ltd. have been downgraded by Fitch Ratings and withdrawn. The downgrades were as follows: class A-3, from B-minus to C/DR4; class A-4, from CCC to C/DR6; and the preference shares, from CCC to C/DR4. "These actions reflect EMBS III's portfolio liquidation," Fitch said. ".... The class A-3 notes are expected to receive approximately 40% of note value at the end of September. Class A-4 will not receive any principal payments."

Two classes of subprime second-lien residential mortgage-backed securities insured by XLCA have been downgraded by Fitch Ratings. Classes A1 and A2 of C-BASS series 2007-SL1 were downgraded from BB to CCC. The downgrades were based on Fitch's recent downgrade of XLCA's insurer financial strength rating to CCC, the rating agency said.

Twenty-eight classes from eight mortgage-related transactions insured by Financial Guaranty Insurance Co. have been downgraded by Fitch Ratings, and two classes have been placed on Rating Watch Negative. The downgrades affected deals issued by Ameriquest Mortgage Securities, Aegis, Ace Securities Corp., Morgan Stanley ABS Capital, GMAC Mortgage Corp., and CSFB. Most involve subprime residential MBS. Fitch attributed the downgrades to its recent downgrade of FGIC's insurer financial strength rating to CCC.

Thirty-eight classes of notes issued by five collateralized debt obligations linked to alternative-A and subprime residential mortgage-backed securities have been downgraded by Fitch Ratings. The affected securities include 10 classes from Maxim High Grade CDO I Ltd. and eight classes from Maxim High Grade CDO II Ltd, both static high-grade cash flow structured finance CDOs; and eight classes from Nautilus RMBS CDO I Ltd./LLC, six classes from Nautilus RMBS CDO II Ltd./LLC, and six classes from Nautilus RMBS CDO V Ltd./LLC, all static cash flow structured finance CDOs. Twenty-three of the downgraded classes were removed from Rating Watch Negative. The downgrades were attributed in all cases to collateral or credit deterioration in the portfolios' alt-A RMBS and, in four of the five cases, in their subprime RMBS. Fitch can be found online at http://www.fitchratings.com.

EMC Mortgage Corp. has agreed to $28 million settlement with the Federal Trade Commission for allegedly engaging in "unlawful" servicing practices, abusive collection practices, and charging unauthorized fees. The FTC conducted a multiyear investigation of the Lewisville, Texas, servicing company and found that the subsidiary of Bear Stearns & Co. "allegedly paid inadequate attention to the integrity of consumers' loan information" and made inaccurate claims on consumers. "Like other companies that send a bill, mortgage servicers must make sure that the amount they say is due is really the amount due," said Lydia Parnes, the FTC's director of consumer protection. "Consumers have a right to expect accuracy from the company that collects their mortgage payments." The $28 million will be distributed to homeowners affected by EMC's practices. JPMorgan Chase & Co. acquired Bear Stearns and EMC last May following the collapse of Bear Stearns. The settlement does "not apply" to JPMorgan Chase, the final order says. JPMorgan Chase declined to comment on the settlement. EMC serviced $86.5 billion in mortgage loans as of March 31.

Lenders participating in the Hope for Homeowners program want to restructure underwater mortgages on a trial basis for three or six months to make sure the borrower can make the payments and the Federal Housing Administration will insure the new loan, MortgageWire has learned. During a conference call with industry executives, Department of Housing and Urban Development officials seemed receptive to this idea, sources said. Lenders are expected to reduce the principal to a 90% loan-to-value ratio under the Hope program. And they don't want to take the writedown until they are sure the FHA will insure the new loan. Under HUD rules, the FHA cannot insure a loan if the borrower misses the first payment. Meanwhile, HUD is under tremendous pressure to issue guidelines for the Hope program before Oct. 1. Industry groups are telling HUD that they cannot begin to identify borrowers who could benefit from the foreclosure rescue program until they see the guidelines.

Wachovia Corp., Charlotte, N.C., has announced the liquidation of its $509 million of government-sponsored enterprise preferred stock at a pretax loss of $171 million. The sales, completed July 21, were part of the company's effort to reduce leverage on its balance sheet, Wachovia said. It did not say whether the preferred shares were in Fannie, Freddie, or both GSEs. Several other banking companies have disclosed financial hits on GSE preferred stock since the seizure of Fannie and Freddie was announced Sunday. Wachovia also said it had sold about $1.3 billion of auction-rate securities that it had repurchased under settlements with regulators. When it announced the settlements in August, the $812.4 billion-asset Wachovia estimated that about $8.5 billion of the bonds were eligible for repurchase and that, after redemptions and planned sales, it would hold about $3.1 billion of them at June 30 of next year. It had previously set aside $500 million to cover legal expenses and estimated market losses associated with the auction-rate securities.

Fannie Mae and Freddie Mac will be removed from the S&P 500 Index after the close of trading on Sept. 10, Standard & Poor's has announced. S&P said the reason for the removals is that the market capitalization of both government-sponsored enterprises has fallen far below the $5 billion minimum required for listing on the S&P 500. As of the close of trading on Sept. 9, Fannie's market capitalization totaled approximately $1.04 billion and Freddie's stood at approximately $614 million, S&P reported. Fannie will be replaced in the index by Fastenal Co., and Freddie's place will be taken by Salesforce.com. S&P can be found online at http://www.standardandpoors.com.

Wall Street analysts that cover the stocks of Fannie Mae and Freddie Mac are expected to keep covering the companies, at least for the time being, but the two government-sponsored enterprises are facing eventual delisting from the New York Stock Exchange . One veteran Wall Street analyst put it like this: "They're still public. And we've been in this position before with them -- remember when they weren't reporting earnings? If they're on the pink sheets, we may still cover them." NYSE rules stipulate that companies whose shares close (on average) below $1 over a 30-day period receive a warning letter giving them six months to get their share price back above $1. In some cases, the exchange has given extensions on the six-month rule. Since Sunday's takeover, the two GSEs have traded and closed at under $1, but both were up in trading Wednesday. Fannie's shares stood at $1.13 at deadline time. Fannie can be found on the Web at http://www.fanniemae.com, and Freddie can be found at http://www.freddiemac.com.

The Federal Deposit Insurance Corp. has set a Sept. 15 deadline for the first round of bids on IndyMac Bancorp, telling investors they can bid on the entire franchise or its individual assets, which have been segmented into five different pieces. According to one investment banker who has the offering circular, the assets include: the thrift's gargantuan servicing portfolio ($180 billion in mostly residential rights) and platform; its home equity line of credit portfolio; a whole loan portfolio; its reverse mortgage business; a construction loan portfolio; and its depository franchise. "They can bid for it in totality or in pieces," said the investment banker, who requested that his name not be used. The FDIC took control of IndyMac in July, placing the thrift into a conservatorship.