Servicing

The Royal Bank of Scotland Group PLC took a loss of more than 690 million pounds ($1.32 billion) in the first half of the year due to massive, partially mortgage-related writedowns that were largely expected. The corporate parent of U.S. investment banking subsidiary RBS Greenwich Capital took 5.9 billion pounds ($11.3 billion) in writedowns during the period. While the writedown total roughly matched April estimates, the portion of it stemming from credit valuation adjustment exposure to monoline bond insurers was higher than expected, the company said. "The results we have published today demonstrate progress in a number of important areas, and it is all the more unsatisfactory, therefore, that they record a loss as a result of our credit market writedowns," said Fred Goodwin, the group's chief executive. "We are determined to ensure that the inherent strengths of the group's diverse business model are not obscured in this way again."

Standard & Poor's Ratings Services has downgraded its subordinated debt and preferred stock ratings on Freddie Mac from AA-minus to A-minus and its risk-to-the government rating from AA-minus to A. S&P also affirmed its senior unsecured debt rating of AAA/Stable/A-1-plus on Freddie Mac. The ratings were removed from CreditWatch Negative, but the outlook is negative. "The lower risk-to-the-government, subordinated debt, and preferred stock ratings reflect Freddie Mac's pressured capital position in the face of higher operating losses," said S&P credit analyst Victoria Wagner. "....Higher credit expenses are the driver of net operating losses, as Freddie Mac is not immune to the weak housing markets." The lower subordinated debt and preferred stock ratings reflect "heightened subordination risk," S&P said, noting that recent housing legislation creates a new regulatory structure with receivership powers that would place nonsenior creditors at a greater risk of nonpayment, especially on preferred stock dividends.

Following in Fannie Mae's footsteps, Freddie Mac is doubling its market risk delivery fee to 50 basis points, which will be added to other delivery fees currently in place starting Nov. 7. "We are increasing the Market Condition delivery fee from 25 basis points to 50 basis points," Freddie says in an Aug. 8 bulletin to lenders. Like its fellow secondary-market agency, Freddie is cushioning the delivery fee hike for borrowers with loan-to-value ratios of 85% to 95% and credit scores above 680 by reducing their existing delivery fees by 25 bps or giving them a 25-bp credit. Freddie also notified its lenders about increases in its delivery fees for investor loans and said it will stop purchasing cash-out refinancings with LTVs above 85% starting Nov. 7. In addition, the agency raised its delivery fees on A-minus loans from 3.25% to 4.00% for borrowers with lower credit scores. On Aug. 4, Fannie Mae said it would double its "adverse market" delivery fee to 50 bps effective Oct. 1. Freddie Mac can be found on the Web at http://www.freddiemac.com.

Two classes from American Home Mortgage Investment Trust's series 2007-2 group II have been downgraded by Standard & Poor's Ratings Services. Class II-A was downgraded from CCC to D, and class III-M-1 was downgraded from CC to D. "The downgrades reflect the erosion of credit support for the two classes, as of the July 25, 2008, distribution date, which we believe is attributable to the significant monthly net losses being experienced by the underlying collateral," the rating agency said.

Twelve classes from two residential mortgage-backed securities deals backed by alternative-A mortgage loan collateral issued in 2005 have been downgraded by Standard & Poor's Ratings Services. S&P also removed all the ratings from Credit Watch with negative implications and affirmed the ratings on 13 other classes. The rating agency attributed the downgrades to "our opinion that projected credit support for the affected classes is insufficient to maintain the previous ratings given the current delinquency and loss levels for these transactions and our projection of future losses." Both transactions -- Nomura Asset Acceptance Corp. Alternative Loan Trust series 2005-AR6, and RALI series 2005-QA6 -- are backed by "a significant percentage" of adjustable-rate loans with initial reset periods of three years or less, S&P said.

Sixty classes from 12 residential mortgage-backed securities deals backed by alternative-A mortgage loan collateral issued in 2005, 2006, and 2007 have been downgraded by Standard & Poor's Ratings Services. S&P also removed 41 of the ratings from Credit Watch with negative implications, affirmed the ratings on 89 other classes, and removed those ratings from Credit Watch negative. The rating agency attributed the downgrades to "our opinion that projected credit support for the affected classes is insufficient to maintain the previous ratings given our current projected losses." All the transactions are backed by fixed-rate loans or by adjustable-rate loans with initial reset periods of at least five years, S&P said.

Standard & Poor's Ratings Services has placed 206 classes from 94 U.S. cash flow and hybrid collateralized debt obligations of asset-backed securities on CreditWatch negative. S&P attributed the negative rating actions to "continued deterioration in the credit quality of the residential mortgage- backed securities backing these CDO transactions." The rating agency said 58 of the 94 affected CDOs are mezzanine structured finance CDOs collateralized substantially by RMBS and other structured finance assets rated single-A and triple-B at origination. Twenty-six are high-grade structured finance CDOs of ABS backed largely by RMBS and other structured finance assets rated single-A through triple-A at origination, and the remaining 10 are CDOs of CDOs backed chiefly by tranches from other CDO transactions, the rating agency said.

Standard & Poor's Ratings Services has lowered its ratings on 171 tranches (totaling $29.46 billion) from 43 U.S. cash flow and hybrid collateralized debt obligation transactions. The rating agency also removed 93 of the downgraded ratings from CreditWatch with negative implications and affirmed four ratings and removed them from CreditWatch negative. S&P said 27 of the affected transactions are mezzanine structured finance CDOs of asset-backed securities, which are collateralized largely by mezzanine tranches of residential mortgage-backed securities and other structured finance securities. Twelve are "high-grade" structured finance CDOs of ABS, which the rating agency defined as those backed at origination primarily by tranches of RMBS and other structured finance assets that are rated from single-A through triple-A. The other four are CDOs of CDOs backed chiefly by notes from other CDOs. The downgrades reflect various factors, including credit deterioration and recent negative rating actions on subprime RMBS securities, the rating agency said. S&P can be found on the Web at http://www.standardandpoors.com.

The CPS2 commercial mortgage-backed securities primary servicer rating of Capstone Realty Advisors LLC has been placed on Rating Watch Negative by Fitch Ratings. The rating action was attributed to a notice that the entire senior management team is leaving the company. "In addition, Capstone's parent company, National City Corp., is currently rated A by Fitch with a negative outlook," the rating agency said. Fitch rates commercial mortgage servicers on a scale of 1 to 5, with 1 being the highest rating. Fitch can be found on the Web at http://www.fitchratings.com.

Barclays PLC, London, continued to suffer mortgage-related writedowns in the first half of this year, but saw 2.75 billion pounds ($5.34 billion) of group pretax profit during the period. Group chief executive John Varley said the pretax figure was positive in that it represented stable year-over-year income. But the company's net income attributable to shareholders for the first half, 1.72 billion pounds ($3.34 billion), was "acutely disappointing" in that it represented a 33% decline in profit, he said. During the period, Barclays saw more than 2 billion pounds ($3.9 billion) in total charges and impairments that were partially related to U.S. mortgages. U.S. subprime mortgage-related charges and other credit market exposures represented about 1.1 billion pounds ($2.1 billion) of those total writedowns.