Servicing

President Bush called on Congress to pass legislation that will "help more responsible homeowners weather this rough patch" during a June 6 ceremony to swear in Steven Preston as the new secretary of the Department of Housing and Urban Development. The president noted that foreclosures continue to rise despite the efforts of the Federal Housing Administration and Hope Now servicers to help struggling borrowers. "As Steve takes office, his first priority will be to help lead my administration's response to the challenges in the housing market," President Bush said. In calling on Congress to pass legislation that strengthens regulation of government-sponsored enterprises Fannie Mae and Freddie Mac and updates the FHA mortgage insurance programs, the president did not mention an FHA foreclosure prevention bill that is pending in Congress and could help 500,000 borrowers refinance into FHA loans. However, House Financial Services Committee Chairman Barney Frank, D-Mass., told CNBC-TV that talks with Treasury Department and Federal Reserve officials are continuing and are "getting close" to an agreement on a legislative package that includes GSE and FHA reforms along with the foreclosure prevention program.

Nearly 100 classes of subprime mortgage pass-through certificates from seven issuers have been downgraded by Fitch Ratings. The affected securities were as follows: 31 classes from 10 Lehman-related deals; 25 classes from eight Credit Based Asset Servicing and Securitization LLC deals; 11 classes from three Asset Back Funding Corp. deals; 10 classes from three Residential Funding Mortgage Securities II deals; nine classes from four GE Capital home equity deals; seven classes from five Saxon deals; and three classes from one Fremont Home Loan Trust deal. Fitch also placed four classes on Rating Watch Negative and affirmed the ratings on over 130 classes from more than 60 subprime transactions.

The ratings of 259 certificates from 50 subprime mortgage-backed securities deals backed by Ameriquest collateral have been downgraded by Moody's Investors Service. The downgrades were based on "recent and expected pool losses and the resulting erosion of credit support," the rating agency said. "Moreover, increasing delinquencies along with step-down, or the possibility thereof, is likely to cause further erosion of credit enhancement levels." The transactions are backed primarily by first-lien subprime mortgage loans originated through Ameriquest's retail and wholesale channels. Moody's can be found on the Web at http://www.moodys.com.

REOTrans LLC, Los Angeles, an online provider of systems for managing and selling residential foreclosures, reports that it has sold over 150,000 real-estate-owned homes totaling $22 billion via its Web-based platform since the inception of the company in September 2003. "We are definitely starting to see higher numbers of properties selling, even in areas like California and Florida, which have been significantly impacted by the current real estate and mortgage crisis," said REOTrans chief executive officer Chris Saitta. Approximately 175,000 properties are now available through the REOTrans platform, which offers buyers and investors free access to REO listings nationwide. The company can be found online at http://www.reotrans.com.

Standard & Poor's Rating Services has lowered its financial strength ratings on Ambac Assurance Corp. and MBIA Insurance Corp. from AAA to AA and placed them on CreditWatch with negative implications. S&P also lowered the ratings on the holding companies, Ambac Financial Group and MBIA Inc., from AA to A and from AA-minus to A-minus, respectively, and placed them on CreditWatch with negative implications. Among the reasons given for the moves was "continuing deterioration in key areas of the U.S. residential mortgage sector." S&P can be found online at http://www.standardandpoors.com.

The long- and short-term Issuer Default Ratings of Residential Capital LLC, Minneapolis, have been downgraded from C to D by Fitch Ratings following the company's recent distressed debt exchange. ResCap was also removed from Rating Watch Negative. Fitch said the downgrades indicate that a default has occurred under the rating agency's criteria on distressed debt exchanges. The exchange was necessary "to extend debt maturities and increase ResCap's financial flexibility," Fitch said. ResCap and its parent company, New York-based GMAC Financial Services, announced a $60 billion global refinancing June 4 in which, among other things, ResCap renewed "critical funding lines" and boosted its liquidity support from GMAC. Fitch can be found on the Web at http://www.fitchratings.com.

Although falling house prices and credit losses continue to be a problem, Freddie Mac chairman and chief executive Richard Syron has told investors that the mortgage giant is on the right track and that they will not see a repeat of the $3.1 billion loss the company suffered last year. "We believe our 2008 results will be significantly better than [those of] 2007," Mr. Syron said at Freddie's annual shareholder meeting. The CEO reported that Freddie will probably increase its provisions for loan losses by $5 billion to $6 billion this year. However, he said he expects to achieve 15% to 20% growth in the mortgage guarantee business and "very strong growth" in net interest income from the investment portfolio. "The bottom line is that while our credit costs are increasing in this tough environment, we believe they are manageable in any realistic scenario and mitigated by our revenue growth going forward," Mr. Syron said. The CEO also reported that Freddie is close to completing the stock registration process with the Securities and Exchange Commission. Freddie can be found online at http://www.freddiemac.com.

Mortgage companies cut their payrolls by 3,900 full-time employees in April, and it looks like the industry will continue to shed jobs now that the unemployment rate has jumped to 5.5%, dashing hopes for a recovery in the housing market this year. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell from 360,700 in March to 356,800 in April. But the real bad news for the industry is that Friday's jobs report showed an increase of 861,000 (to 8.5 million) in the number of unemployed people in May, the biggest monthly increase since 1996. Wells Fargo & Co. senior economist Scott Anderson said the dismal jobs report confirms that the downturn in the housing market will be prolonged. He said he expects house price declines to continue into 2009 and that a bottom for home sales might be pushed back to the end of the year or the first part of 2009. "This is what we were afraid of," Mr. Anderson said, that a weakening jobs market would compound the problems in the housing market.

Six classes in four net-interest-margin mortgage securities from two issuers have been downgraded by Fitch Ratings. The affected securities were as follows: five classes from three Ixis NIM issues; and one class from an Ameriquest NIM issue. The rating agency said the actions "reflect actual pay-down performance of the NIM securities to date compared to initial projections, as well as changes that Fitch previously made to its subprime loss forecasting assumptions for the underlying transactions."

Twenty-seven tranches from five scratch-and-dent transactions issued by GSAMP Trust have been downgraded by Moody's Investors Service. The downgrades were based on the fact that many scratch-and-dent pools originated since 2004 are experiencing higher-than-expected rates of delinquency, foreclosure, and real estate owned, Moody's reported. "The rating adjustments will vary based on current ratings, level of credit enhancement, collateral characteristics, pool-specific historical performance, quarter of origination, and other qualitative factors," the rating agency said. Moody's can be found online at http://www.moodys.com.