Servicing

Two classes of subprime pass-through certificates from Soundview Home Equity Loan Trust series 2001-1 have been downgraded by Fitch Ratings. Class M-1 has been downgraded from AA-minus to CCC/DR1, and class M-2 has been downgraded from CC/DR2 to C/DR5. Fitch also affirmed the triple-A rating of class A.

Citing declining home prices and deteriorating credit trends, Cincinnati-based Fifth Third Bancorp has announced several moves aimed at strengthening its capital position. Fifth Third said it plans to issue $1 billion of convertible preferred shares to shore up its Tier 1 capital, reduce its quarterly dividend from $0.44 per share to $0.15 per share, and sell certain noncore businesses. The company said it has revised its target Tier 1 capital ratio to 8%-9%. Meanwhile, Fitch Ratings downgraded the long- and short-term Issuer Default Ratings, among others, of Fifth Third and its principal bank subsidiaries. The long-term IDRs were downgraded from AA-minus to A-plus, the short-term from F1-plus to F1. The downgrades were attributed to "the company's deteriorating trends in asset quality, expectations for elevated levels of problem assets in the near term, and a decline in profitability.... The majority of credit weakening is concentrated in Michigan and Florida, and centered in the home equity, homebuilder/developer, and residential mortgage portfolios."

Solera National Bank, Lakewood, Colo., has announced a joint marketing agreement and strategic partnership with Countrywide Home Loans under which Countrywide will establish an office in each of Solera's branch locations. "Since we opened our doors late last year, we have had a significant number of ongoing requests from our customers for residential mortgage products and services," said Paul Ferguson, the bank's chief executive officer. "Our relationship with Countrywide Home Loans and their location in our bank lobby will allow Solera National Bank to deepen our relationship with our customers and prospective customers." Countrywide, which is based in Calabasas, Calif., is being acquired by Bank of America. Solera can be found on the Web at http://www.solerabank.com, and countrywide can be found at http://www.countrywide.com.

Despite the record number of foreclosures, housing price declines have been small and will remain so, according to a new paper released by the American Enterprise Institute. Cushioned by such other "fundamental factors" as employment growth and reductions in the housing supply, prices on average will slide by only 4.5% under the study's worst-case scenario, said co-author Charles Calomiris, a professor at Columbia University and a visiting scholar at the conservative think tank. Only 11 states will see prices drop by more than 6% by the end of 2009, he predicted. "Foreclosures and home prices have negative effects on each other over time, but this does not imply a vicious cycle of housing price collapse," Mr. Calomiris said. The paper bases its findings on house-price data compiled by the Office of Federal Housing Enterprise Oversight, maintaining that the more popular S&P/Case-Shiller index is prejudiced toward markets more susceptible to price swings. But Mark Zandi of Moody's Economy.com said it is the OFHEO numbers that are defective because, among other things, they don't include foreclosure sales. Mr. Zandi said 25% of all sales in the first quarter were distress sales, many at 50 cents on the dollar. And with 8.5 million homeowners now owing more than what their properties are worth, the economist warned that the foreclosure problem will get much worse before it gets better.

Morgan Stanley's net income for the fiscal quarter ended May 31 fell from $2.582 billion to $1.026 billion on a year-to-year basis, in part due to $436 million in net losses from mortgage proprietary trading. The company said it also took about $519 million in net losses "primarily related to loans as well as closed and pipeline commitments, due to losses on hedges which were partly offset by mark-to-market gains," said John Mack, chairman and chief executive officer. "Difficult market conditions and lower levels of client activity impacted our results, particularly in fixed income and asset management."

The Goldman Sachs Group Inc., New York, saw net earnings of $2.09 billion in the second fiscal quarter (ended May 30) when it took a loss of about $775 million from credit products that was partially offset by higher net revenue in mortgages. "We continue to benefit from our strong client franchise, a broad and diverse set of businesses, and the deep commitment and experience of our people," said Lloyd C. Blankfein, chairman and chief executive officer. "We are realistic about the market challenges we face, but times of market dislocation also produce opportunities, and we will continue to take advantage of the most attractive of these as they arise."

Several financial services groups, and even the U.S. Chamber of Commerce, say they support a major housing bill pending in the Senate, but they want a section of the bill dealing with the licensing and registration of mortgage originators dropped from the legislative package. Title VI has "serious faults" and imposes suitability requirements on employees of lending institutions that will create uncertainty in the origination and underwriting process, according to the six industry groups. The American Financial Services Association, the Consumer Bankers Association, the Consumer Mortgage Coalition, the House Policy Counsel of the Financial Services Roundtable, the Mortgage Bankers Association, and the CoC signed the June 17 letter. "We strongly support" the GSE regulatory reforms and the FHA modernization provisions in the housing bill, as well as the FHA foreclosure rescue program, says the letter addressed to Sens. Christopher J. Dodd, D-Conn., and Richard C. Shelby, R-Ala. "Therefore, we urge that Title VI be separated from the rest of the bill and be considered separately once the licensing and registration provisions are perfected," the groups say.

New foreclosure regulations that took effect May 1 will produce a temporary lull in Massachusetts foreclosure filings through the end of July, according to ForeclosuresMass.com. The Framingham, Mass.-based company reported that the record high of 3,414 foreclosure filings in April were followed by only 392 filings in May, an 88.5% plunge. The reason for the drop is a law that extended from 30 days to 90 days the "right-to-cure" period after a default on owner-occupied residential mortgage loans, the company said. "We are in the midst of a foreclosure tsunami here in Massachusetts, and this storm is not going away any time soon," said Sheila Farragher-Gemma, co-founder of ForeclosuresMass. "The new filing requirements have created a situation similar to the eye of a hurricane -- it may seem calm now, but the storm will come raging back with even more force in the days ahead." The company can be found online at http://www.foreclosuresmass.com.

Loan servicers participating in the Hope Now alliance have agreed to a uniform approach to loan modifications, repayment plans, partial claims, and forbearance to make foreclosure relief more readily available to troubled homeowners. Faith Schwartz, executive director of Hope Now, said the new guidelines "will greatly expedite the process of preventing foreclosures." The guidelines establish a streamlined timeline to be used by each Hope Now mortgage servicer and encourage servicers to make free, independent credit counseling services available to borrowers. The servicers have agreed to fully implement the uniform approach to foreclosure prevention within 60 days. The agreement also includes guidance for dealing with second mortgages and short-sales.

Nine Republican senators are demanding the right to fully debate and amend a major housing bill that Senate leaders may try to bring to the floor Tuesday, but their demands could delay passage of the bipartisan bill until after the July Fourth recess. The bill would "greatly expand access to taxpayer-backed Federal Housing Administration loans for delinquent borrowers," and "reorganize the regulation of Fannie Mae, Freddie Mac and the Federal Home Loan Banks," according to a June 16 letter the senators sent to Sen. Mitch McConnell, the Republican leader. "Due to the seriousness and complexity of this issue, we ask that you protect our rights to fully debate and amend this legislation." Supporters of the housing bill want to limit debate and amendments. But the nine Republicans, including several Senate Banking Committee members, could stonewall the proceedings when the measure comes up for debate. Meanwhile, sources say that Sen. McConnell wants to move the bipartisan housing bill through the Senate. However, the Republican leader is trying to block other Democratic initiatives, which could also delay legislative action.