Servicing

Nine classes of mezzanine/subordinate bonds from two alternative-A Chase Flex Trust mortgage-backed securities deals have been downgraded by Fitch Ratings. The downgrades were based on expected defaults and losses from delinquent loans and projected losses from the currently performing pool, the rating agency said. Fitch said the first phase of its review of 2005-2007 alt-A transactions, focused on mezzanine and subordinate bonds, is nearing completion. "The second phase, which will begin shortly, will be a review of all the senior bonds that, in many instances, require additional cash flow analysis to evaluate the risk of the various individual classes within the senior tranche," Fitch said. The rating agency can be found on the Web at http://www.fitchratings.com.

Nineteen tranches from four "scratch-and-dent" transactions issued by GSRPM Mortgage Loan Trust have been downgraded by Moody's Investors Service. The actions are part of a wider review of all residential mortgage-backed securities in light of the deteriorating housing market and rising delinquencies and foreclosures, the rating agency said. Moody's said many scratch-and-dent pools originated since 2004 are exhibiting higher-than-expected rates of delinquency, foreclosure, and real estate owned. Moody's can be found online at http://www.moodys.com.

TierOne Corp., Lincoln, Neb., has announced the sale by TierOne Bank of a $63.8 million portfolio consisting primarily of delinquent residential construction loans in Florida. The more than 300 loans in the portfolio were originated primarily by TransLand Financial Services, a Florida-based mortgage brokerage, and chiefly involve single-family properties in the Cape Coral area of southwest Florida. TierOne said it does not expect to take "any material additional charge" as a result of the sale. The bank can be found on the Web at https://www.tieronebank.com.

The sales of existing single-family detached homes in California were up 18.1% in May from the level recorded a year earlier, surpassing 400,000 for the first time since early 2007, according to the California Association of Realtors. The seasonally adjusted annualized rate of closed-escrow resales totaled 423,700 in May, up from the revised 358,640-unit rate recorded in May 2007, CAR reported. The median price of an existing single-family detached home in California totaled $384,840 in May, down 35.3% from a revised $594,530 a year earlier, the association said. The statewide price decline was "a record for year-to-year percentage decreases in the median, reflecting the effect of large numbers of short sales and foreclosures in the market," said CAR vice president and chief economist Leslie Appleton-Young. CAR can be found online at http://www.car.org.

Stewart Information Services Corp., Houston, has announced the formation of Stewart Default Services to offer foreclosure services in California, Nevada, and Arizona. SDS will offer residential, commercial, and homeowners' association foreclosure services to banks, mortgage and loan servicing companies, credit unions, government agencies, and private investors in the three states, Stewart said. It will also extend the services to other parts of the country via its "comprehensive attorney network," the parent company said. Stewart said SDS will leverage the resources and knowledge of another Stewart subsidiary, Stewart Title Guaranty Co., by offering services that include loss mitigation, foreclosure processing, title and escrow services, online access to title products, bankruptcy/eviction referral and monitoring, vacant property insurance, and post-sale conveyance. The parent company can be found online at http://www.stewart.com.

A study by Clayton Holdings, an analytics and due diligence firm, has found that 70% of subprime adjustable-rate mortgages that are in default went into delinquency before borrowers faced rate resets on their monthly payments. The analysis of loans tracked by Clayton suggests that, despite all the attention to rate resets, deeper "systemic market failures" are primarily responsible for the poor performance, the company said. Clayton's June early performance snapshot of residential mortgage-backed securities also found that loans originated in 2006 remain the poorest-performing recent vintage. Regionally, the South and West now have the highest rate of delinquent subprime ARMs rolling into foreclosure, Clayton said. The company, based in Shelton, Conn., can be found online at http://www.clayton.com.

Banks and thrifts holding fairly conservative one- to four-family mortgages would see their risk-based capital requirement jump from a 35% to a 100% risk weighting if the borrower missed three monthly payments under an RBC proposal federal banking regulators call the Basel II "standardized approach." Riskier residential mortgages with higher loan-to-value ratios or stand-alone home equity loans that become 90 days or more past due could end up with a 150% risk weighting, according to Federal Deposit Insurance Corp. officials. The FDIC board has approved the issuance of the proposed standardized approach for a 90-day comment period. The Federal Reserve Board was slated to meet June 26 to consider the notice of proposed rulemaking. The regulators have decided to scrap a Basel Ia RBC rule and move toward the standardized approach that could be adopted by most FDIC-insured institutions. The 11 largest U.S. banking organizations are required to implement the more advanced Basel II approach. The standardized approach incorporates the more risk-sensitive risk weightings for mortgage loans in Basel Ia and adds a surcharge for operational risk based on 15% of net interest income. It also imposes a capital surcharge on nontraditional mortgages to address risks associated with negative amortization. Restructured single-family loans would generally fall into a 100% risk weighting.

Fannie Mae has tightened its underwriting guidelines to prevent homeowners who are preparing to default on their mortgage from purchasing a more affordable home with Fannie-guaranteed financing. To prevent these "buy-and-bail" schemes, Fannie is requiring the borrowers who are proposing to rent their home to show they have 30% equity in the property, a copy of the lease agreement, and a receipt for the security deposit. Usually buy-and-bail transactions involve borrowers with upside-down mortgages. If they don't have 30% equity, the borrowers must show that they have the resources to service both mortgages and reserves to cover six months of mortgage payments (including insurance and taxes) for both properties. These requirements go into effect Aug. 1. The June 25 seller guide announcement also requires lenders that sell loans seasoned six to 12 months to provide warranties that the original value of the property has not declined. Fannie also updated it policies on how long it takes borrowers involved in bankruptcies and foreclosures to quality for a new mortgage. Fannie Mae can be found online at http://www.fanniemae.com.

The level of foreclosure activity continues to rise and is not likely to peak in the near term, according to chief economist Mark Zandi of Moody's Economy.com. Mr. Zandi, speaking at a Demos news conference in Washington June 25, estimated that some 9 million homeowners are in a negative equity position, meaning they owe more on their mortgage than their home is worth. And in May, some 2.75 million home loans were in default, more than three times the level of defaults in 2005, the recent low point, Mr. Zandi said. "The problem is not going away," Mr. Zandi said. "It is likely to intensify for the remainder of this year and into next." The company can be found online at http://www.economy.com

Meanwhile, Countrywide Financial Corp.'s litigation problems are growing as California and Washington state officials filed separate complaints against the giant mortgage lender for its lending practices. California Attorney General Edmund G. "Jerry" Brown Jr. has sued Countrywide and its chairman Angelo Mozilo and president David Sambol for allegedly using deceptive practices to "push" borrower into complex, risky, and expensive loans they did not understand and could not afford so the company could sell as many loans as possible to Wall Street securitizers at the highest premiums. "The lawsuit seeks relief for California who were ripped off by Countrywide's deceptive scheme," Mr. Brown said. The Washington Department of Financial Institutions has charged Countrywide with allegedly engaging in discriminatory lending and fined the Calabasas, Calif.-based lender $1 million. In addition, the state is seeking to revoke Countrywide's lending license. As previously reported, the Illinois attorney general has sued Countrywide and Mr. Mozilo for allegedly engaging in unfair and deceptive lending practices. Countrywide had no comment on the California complaint, but said, "We continue to be duly authorized to conduct business in Washington and are actively serving homebuyers and existing customers there."