Servicing

Twenty-five classes of notes issued by four collateralized debt obligations with exposure to subprime residential mortgage-backed securities have been downgraded by Fitch Ratings. All the downgraded classes were removed from Rating Watch Negative. The affected securities are as follows: nine classes from Norma CDO I Ltd., a hybrid cash and synthetic arbitrage CDO; six classes from GSC ABS CDO 2006-4u Ltd., a hybrid cash and synthetic arbitrage CDO; five classes from Fort Point Funding II Corp., a cash flow structured finance CDO; six classes from Straits Global ABS CDO I Ltd., a cash flow CDO; and five classes from Saybrook CBO II Ltd., a structured finance CDO. The downgrades were attributed to collateral deterioration in the portfolios, especially in subprime RMBS, or underlying exposure to subprime RMBS.

Residential Credit Solutions Inc., Fort Worth, Texas, has been added to the Standard & Poor's Select Servicer List as a residential subprime and special servicer. S&P admits servicers to the list based on a positive assessment of their financial position, regulatory compliance, and management strengths, RCS said. "RCS provides high-touch special servicing for its bank and thrift partners and owners of mortgage credit risk that need additional servicing capacity to manage at-risk, subperforming, and nonperforming residential loans," the company said. The company is backed by Equifin Capital Partners, a private equity firm, and Och-Ziff Capital Management Group, an alternative asset manager. The companies can be found online at http://www.residentialcredit.com and http://www.standardandpoors.com/ratings.

First American Field Services and First American Real Estate Tax Service have announced the availability of a new vacant-property registration service aimed at helping lenders and servicers comply with changing municipal ordinances. The service identifies properties in a lender's servicing or real-estate-owned portfolio that require vacant-property registration and then manages the registration process, including the disbursement of fees. "As new ordinances are passed in various jurisdictions, our vacant-property registration database is updated and we are able to revise the registration information on behalf of our clients as needed," said Paul Dauterive, president of First American Field Services. ".... This new service reduces the lender's risk of compliance-related penalties by ensuring that all necessary properties remain properly registered throughout the default process." The First American Corp., the Dallas-based parent company of the two units, can be found online at http://www.firstam.com.

The long-term rate-indicative 10-year Treasury yield has fallen below 3.7% for the first time since spring. The benchmark yield was 3.66% at noon on Thursday, according to Yahoo Finance. The move to a lower yield was "influenced by deal flow that generated rate lock unwinds and spreads widening" in agencies, mortgages, and credit default swaps, according to a Sept. 4 U.S. Treasury market report by the fixed-income division of Jefferies & Co., a securities firm.

In response to Hurricane Gustav, the Department of Housing and Urban Development has declared a 90-day moratorium on Federal Housing Administration foreclosures in the Gulf Coast disaster areas. "HUD is ready to support families in getting back on their feet as quickly as possible," HUD Secretary Steve Preston said. "One way to do that is call a time-out on foreclosures in these disaster areas and call on the rest of the mortgage lending community to follow suit." The moratorium applies to counties that have been declared disaster areas by the federal government. Freddie Mac told its servicers to be lenient with Gulf Coast homeowners and that they have the "discretion to reduce or suspend mortgage payments or foreclosures for up to 12 months." Fannie Mae has told its servicers they can suspend or reduce borrowers' mortgage payments for up to four months or offer loan repayment plans that may extend up to 18 months, a company spokeswoman said. Fannie servicers also have the discretion to suspend foreclosures on a case-by-case basis.

GMAC Financial Services shocked the market Wednesday, announcing that it will close all 200 of its retail residential branches and cease table funding through its broker division, Homecomings Financial. According to figures compiled by National Mortgage News and the Quarterly Data Report, GMAC's mortgage division, Residential Capital LLC of Minneapolis, ranks sixth nationwide among all home mortgage originators. The company said it will still fund loans on a correspondent basis and through what it calls "direct lending channels." In total, 5,000 mortgage jobs (60% of the work force) will disappear. "While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment," said new ResCap chairman and chief executive Tom Marano. "Conditions in the mortgage and credit markets have not abated and, therefore, we need to respond aggressively by further reducing both operating costs and business risk." ResCap is also the nation's 10th-largest servicer, with $449 billion in receivables. ResCap can be found online at https://www.rescapholdings.com.

GMAC Financial Services says its overall residential loan production may not drop by much despite the fact that it is closing its wholesale and traditional retail branches [see item below]. A company spokeswoman said Residential Capital will aggressively market its Ditech direct-to-consumer brand and maintain a presence as a correspondent buyer of mortgages. Asked about origination volume, she cautioned, "I don't want to make any predictions, but volumes may not drop much." In the first quarter, ResCap funded $20.8 billion in home mortgages, a 44% decline from the level of a year earlier, according to the Quarterly Data Report. In the first quarter, roughly half its production came through the correspondent channel, with retail and wholesale accounting for about 25% each. (Second-quarter results were not available.) In addition, no breakouts were available for Ditech. "We hope to do a lot of volume," she added. "We stand behind these two channels."

GMAC Financial Services on Wednesday shocked the market, announcing that it will close all 200 of its retail residential branches and cease table funding through its broker division, Homecomings Financial. According to figures compiled by National Mortgage News and the Quarterly Data Report, GMAC's mortgage division, Residential Capital LLC of Minneapolis, ranks sixth nationwide among all home mortgage originators. The company said it will still fund loans on a correspondent basis and through what it calls "direct lending channels." At press time no further details were available. Public relations officials could not be reached for comment. In total, 5,000 mortgage jobs (60% of the workforce) will disappear. "While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment," said new ResCap chairman and CEO Tom Marano. "Conditions in the mortgage and credit markets have not abated and, therefore, we need to respond aggressively by further reducing both operating costs and business risk." ResCap is also the nation's 10th largest servicer with $449 billion in receivables.

Lenders and servicers choosing to participate in a special Federal Housing Administration refinancing program will have to worry about "second guessing" by FHA, which has a reputation for seeking indemnification for losses when loans go into default, according to mortgage banking attorney Laurence Platt. "Presumably, lenders that closely follow the new underwriting requirements developed by the [Hope for Homeowners Oversight] Board will be insulated from attack by FHA," the K&L Gates partner says in a Mortgage Banking Alert to clients. However, the Hope program loans are expected to have high default rates because lenders will be refinancing subprime borrowers that have defaulted or are expected to default. "It will be interesting to see how 'squishy' the new underwriting guidelines are, because the risk of second-guessing is greater when the standards are more ambiguous," the Sept. 2 alert says. Meanwhile, the House Financial Services Committee is holding a hearing Sept. 17 to see if FHA and the oversight board will be ready to launch the Hope program by Oct. 1. Committee chairman Barney Frank, D-Mass., also wants to know if servicers are holding off on foreclosures for borrowers who might be refinanced through the Hope program.

Foreclosure deeds in Massachusetts jumped 34% in July from a year ago, but declined slightly from June, according to a new report by The Warren Group. A total of 1,097 foreclosure deeds were filed in July, up from 819 in July 2007. July's foreclosures deeds were 3% lower than June when 1,131 deeds were recorded. Foreclosure activity has doubled so far this year, with 7,804 deeds filed through July 2008 compared to 3,902 during the same period in 2007. The number of deeds from January through July has already exceeded the total number recorded for all of 2007, when there were 7,653 deeds. "The bad news is that we have more foreclosures so far this year than all of last year. But on a more positive note, foreclosure activity appears to have moderated," said Timothy Warren Jr., CEO of The Warren Group. "The number of foreclosure deeds has dropped 22% from a peak in May of this year, when 1,405 deeds were recorded." Petitions to foreclose rose 43.4% to 502 in July from 350 in June. But petitions fell 79.8% from July 2007, when lenders filed 2,485 foreclosure petitions. The sharp drop-off is connected to a law that took effect in May that requires lenders intending to foreclose to give borrowers 90 days to pay off loan defaults, the company said.