Servicing

Six classes from GS Mortgage Securities Corporation II series 2006-RR2 have been downgraded by Moody's Investors Service. The downgrades were as follows: class L, from Ba1 to Ba2; class M, from Ba2 to Ba3; class N, from Ba3 to B1; class O, from B1 to B3; class P, from B2 to Caa1; and class Q, from B3 to Caa2. In addition, classes E, F, G, H, J, and K were placed on review for possible downgrade. Moody's also affirmed the ratings on five other classes in the transaction. The negative rating actions were attributed to "the overall deteriorating pool performance." Moody's can be found on the Web at http://www.moodys.com.

Deutsche Bank AG took 2.3 billion euros ($3.6 billion) in residential mortgage-backed securities writedowns during the second quarter but generated a net profit of 645 million euros ($1 billion). Despite the profit, an analyst at Standard & Poor's lowered S&P's long-term counterparty credit ratings on the company, citing the addition of the most recent writedown to others and the company's performance relative to that of its peers. "The downgrade reflects that we no longer consider Deutsche Bank's performance to be materially stronger than that of the leading peers in the currently difficult operating environment," said S&P credit analyst Bernd Ackermann. "Although the bank's performance is still reasonably sound, its earnings for the past 12 months have been affected by 7.1 billion euros [$11.0 billion] in major markdowns, impairments, and credit-valuation adjustments."

The personal financial services division of HSBC's U.S. operation booked $6.8 billion in loan impairment and credit risk charges in the first half, according to a new report issued by the company. The London-based bank also reported that its subprime portfolio (housed in "mortgage services") fell 13%, to $31 billion. It said 60% of the decline was due to loan repayments. The bank's personal finance division lost $2.2 billion in the first half. "The U.S. remains a difficult market, with rising unemployment and falling house prices," it said in a statement. HSBC still originates subprime loans, but only through the retail branches of the old Household Finance network.

By the end of next year, financial institutions will be looking at $2 trillion in writedowns due to the current credit crisis, according to an economics professor at New York University. Speaking on CNBC Monday morning, Nouriel Roubini of NYU's Stern School of Business said the $2 trillion price tag includes not only subprime loans, but "A paper" mortgages, credit cards, auto loans, municipal bonds, and other asset categories. "The consumer is on the ropes," said Professor Roubini. "Banks have barely started [taking writedowns]," he said. To date, Wall Street firms, banks, and other financial institutions have suffered mortgage-related asset writedowns of more than $300 billion. He predicted that the Federal Deposit Insurance Corp. will have to "bail out hundreds of banks."

WMD Capital Markets, Santa Barbara, Calif., has announced the purchase by an investment affiliate of approximately $65 million of single-family mortgage loans secured by properties in Massachusetts. The purchase by the affiliate, GI-XXVI, was made as part of an affordable loan modification and foreclosure prevention agreement with Massachusetts Attorney General Martha Coakley. WMD Capital said GI-XXVI will offer borrowers the option of adjusting their monthly mortgage payment to an affordable level or receiving a payment that can be used for relocation costs. The company can be found online at http://www.wmdcapital.com.

The California commercial loan delinquency ratio tripled in the second quarter, but the rate remained at a near-record low of 0.06%, according to the California Mortgage Bankers Association. The Quarterly Commercial Loan Delinquency Survey found that only seven loans were more than 30 days delinquent, representing $53.9 million of a $96.1 billion servicing portfolio. This represents a delinquency ratio of 0.06%, compared with 0.03% a year ago. Fifteen of the 17 commercial mortgage banking firms reported no loans more than 30 days delinquent. For survey purposes, a loan is considered delinquent if it is two or more payments past due, although loans in foreclosure are included regardless of the number of payments past due. The CMBA, based in Sacramento, can be found online at http://www.cmba.com.

Origen Financial Inc., a real estate investment trust that had been a major lender and servicer in the manufactured housing sector, has reported a net loss of $4.8 million ($0.19 per share) for the second quarter, compared with net income of $2.8 million ($0.11 per share) a year earlier. The company said that on July 31 it completed the sale of "certain assets of our origination and insurance business" to an affiliate of ManageAmerica, a provider of services to the manufactured housing industry. This followed the July 1 sale by Origen of its servicing operations and platform to Green Tree Servicing LLC. The company took in proceeds of $36.7 million from that transaction. Origen said its business model is now focused on managing residual interests in securitized manufactured housing loan portfolios. Origen can be found online at http://www.origenfinancial.com.

Minority borrowers, regardless of income level, are more likely to receive high-cost home mortgage loans than other consumers, according to a new report by the National Community Reinvestment Coalition. The report says minorities pay more for mortgages even as their incomes levels rise, and that loan price disparities (with white counterparts) were more common for middle- to upper-income African-American and Hispanic borrowers than for low- and moderate-income minority borrowers. For example, middle- and upper-income African-Americans were at least twice as likely to receive high-cost loans in 2006 as whites with similar income in 155 (71.4%) of the metropolitan areas analyzed, the NCRC said. In comparison, low- and moderate-income black borrowers were at least twice as likely to receive high-cost loans as whites with similar income in 87 (47.3%) of the metro areas, according to the report. "The data reminds us that the current housing crisis was overwhelmingly the result of the explosion of bad loan products in financially vulnerable communities," said John Taylor, president and chief executive of the NCRC. "It is not surprising that foreclosures have been concentrated among African-Americans and Latinos, because predatory and problematic loans are more prevalent in those communities." The organization can be found online at http://www.ncrc.org.

Ambac Financial Group has agreed to pay a counterparty $850 million to cover losses on mortgage-related collateralized debt obligations. The New York-based bond insurer would not identify the counterparty or provide details about the transaction. The CDO was collateralized by subprime and other types of residential mortgages. "The loans weren't all necessarily subprime," an Ambac spokeswoman told MortgageWire. Ambac was originally on the hook for $1.4 billion in losses on the investment, which has been described as a "CDO-squared." In March Ambac had booked $1 billion in mark-to-market losses on the deal and can now recapture $150 million. "It's a good deal for us," said the spokeswoman. Ambac is slated to release earnings on Aug. 6. The bond insurer and its competitors are potentially on the hook for billions of dollars in losses on subprime-related bonds that they insured. The transaction that Ambac settled, known as "AA Bespoke," was one of its "largest CDO exposures," the company said. Ambac can be found on the Web at http://www.ambac.com.

Treasury Secretary Henry Paulson says he expects foreclosures and inventories of unsold homes to remain elevated into next year but that the worst of the housing correction could be over in the coming months. "I believe we can move through the bulk of the correction in months rather than years," he told financial services executive and lobbyists July 31 at the Exchequer Club in Washington. But to turn the corner, the Treasury secretary says the availability of affordable mortgage financing must be increased. He noted that the housing bill signed by the president strengthens supervision of Fannie Mae and Freddie Mac and grants their regulator new powers to set minimum capital requirements and address the risks posed by their $700 billion mortgage investment portfolios. "We have long sought this result, and our work is far from done," Mr. Paulson said. "All parties must get to work immediately to begin to address the systemic risk issues posed by the GSEs."