Servicing

Fannie Mae's and Freddie Mac's safety-and-soundness regulator has issued a statement reassuring nervous financial markets that the big mortgage agencies are still viable. Following an extraordinary sell-off of the agencies' stocks after a former Federal Reserve Board official said they were insolvent, Office of Federal Housing Enterprises Oversight director James Lockhart said the two "are adequately capitalized." OFHEO "continues to monitor closely Fannie Mae, Freddie Mac, and the mortgage and financial markets," he said.

Standard & Poor's Ratings Services has downgraded 77 classes of mortgage pass-through certificates from 22 U.S. subprime residential mortgage-backed securities deals from various issuers. S&P also affirmed the ratings on 235 other classes from the transactions and 16 additional deals. With the exception of two classes from different transactions that experienced principal writedowns, S&P said it downgraded the securities due to credit support and projected credit enhancement, based on the dollar amount of loans in the delinquency pipelines of the affected deals. In recent months, these deals have experienced deterioration in credit support and "the delinquency pipelines indicate that the pattern of losses could continue," the rating agency said.

Standard & Poor's Ratings Services has lowered its ratings on 109 tranches (totaling $29.3 billion) from 36 U.S. cash flow and hybrid collateralized debt obligation transactions. S&P said 22 of the affected transactions are mezzanine structured finance CDOs of asset-backed securities, which are collateralized in large part by mezzanine tranches of residential mortgage-backed securities and other structured finance securities. Nine 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 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.

Moody's Investors Service has lowered the residential servicer quality rating of Popular Mortgage Servicing. Moody's dropped the rating one notch from SQ3-plus to SQ3 for the primary servicing of subprime home loans. Moody's also placed the Puerto Rico-based bank's servicer rating on review for further possible downgrade. Moody's said the downgrade was prompted by a decline in the rating agency's assessment of PMSI's collection capabilities. Further review of the company's level of investment in its servicing platform, maintenance of key staffing levels, and ability to retain managers will be among the factors behind future rating actions, Moody's said. PMSI, which serviced $10.9 billion of mortgages as of April 30, is a subsidiary of Popular Inc., the largest commercial bank in Puerto Rico. Moody's can be found online at http://www.moodys.com.

Columbia Banking System Inc., Tacoma, Wash., has announced that it expects to make a $15.4 million provision for loan losses for the second quarter as a result of a housing-related slowdown in the Pacific Northwest. The company said chargeoffs are expected to total $1.6 million for the second quarter, up from $761,000 in the first quarter. "The decision to increase our provision is a prudent step on the part of Columbia's management in light of the continuing weakness in the for-sale housing industry and the economy," said Melanie Dressel, the bank's president and chief executive officer. "As we have previously stated, Columbia is not immune to the instability in the residential real estate markets and mortgage-related industries, which already has affected other financial institutions in the markets we serve." The bank can be found online at http://www.columbiabank.com.

FHM Mortgage Group LLC, a mortgage broker based in Parsippany, N.J., has announced that it is joining forces with collection agencies to help overextended homeowners resolve their past-due debts. FHM president Nick Mastrandrea said he established the company with the goal of serving as an ally of the collections industry. "To make that partnership a reality, we've built a state-of-the-art call center with experienced loan officers prepared to accept inbound calls from collection staff and their customers," he said. The company can be found on the Web at http://www.fhmmortgagegroup.com.

The Department of Housing and Urban Development is starting a pilot program in Detroit to purchase Federal Housing Administration single-family loans from lenders after all loss-mitigation options have been exhausted and foreclosure is the next step. "Under this program, we will create means for lenders or investors to sell their nonperforming mortgages before foreclosure to HUD and a joint-venture partner who will be responsible for servicing the loan and helping families stay in their homes," HUD Secretary Steve Preston said. HUD expects to purchase the FHA loans at a "significant discount" so the joint-venture partner can modify the loans and make it more affordable for the homeowners.

Foreclosure filings declined 3% in June but were still 51% higher than the level recorded a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif. The company's U.S. Foreclosure Market Report indicates that foreclosure filings -- default notices, auction sale notices, and bank repossessions -- were reported on 252,363 properties in June. "June was the second straight month with more than a quarter million properties nationwide receiving foreclosure filings," said James J. Saccacio, RealtyTrac's chief executive officer. "Foreclosure activity slipped 3% lower from the previous month, but the year-over-year increase of more than 50% indicates we have not yet reached the top of this foreclosure cycle." Bank repossessions continued to increase much faster than default notices or auction notices in June, he said. The company reported that Nevada, California, and Arizona again recorded the highest foreclosure rates in June. RealtyTrac can be found online at http://www.realtytrac.com.

Five classes of mortgage-related securities from Bear Stearns Asset Backed Securities Trust 2005-2 have been downgraded by Standard & Poor's Ratings Services. The downgrades were as follows: class M-3, from A-minus to BB-plus; class M-4, from BBB-plus to BB; class M-5, from BBB to B; class M-6, from BBB-minus to CCC; and class M-7, from B to D. S&P also affirmed the ratings on four classes in the transaction. The downgrades were attributed to pool performance that has caused the decline of actual and projected credit support, as delinquencies escalated over the past six months. The collateral backing the certificates originally consisted of a pool of scratch-and-dent mortgage loans secured by first and second liens, S&P said.

Advantus Capital Management, St. Paul, Minn., has announced the launch of a high-yield mortgage investment strategy and the hiring of Dean Di Bias as the portfolio manager to oversee it. Mr. Di Bias was most recently with GMAC-RFC in Bloomington, Minn., where he was managing director and senior vice president of credit portfolio management. "The timing to enter this market is excellent because spreads have widened substantially on residential and commercial mortgage securities rated AAA to BB-minus," said Chris Sebald, executive vice president and chief investment officer at Advantus. "Yield spreads on many mortgage securities are very wide, creating substantial value." Advantus said the securitization markets have been so damaged by fallout from the housing downturn that the company believes premiums to invest in the sector "will remain attractive for some time to come." Advantus can be found online at http://www.advantuscapital.com.