Servicing

UBS has closed on the sale of billions of dollars of primarily subprime and alternative-A U.S residential mortgage-backed securities to a newly created distressed-asset fund that will be managed by the BlackRock investment management firm. "Risk reduction remains a critical part of our ongoing financial restructuring, and this sale is a big step toward further reducing our positions in this asset class," said Marcel Rohner, group chief executive officer of UBS. UBS said it sold positions with a nominal value of about $22 billion to the new fund for an aggregate sale price of approximately $15 billion.

Fannie Mae and Freddie Mac have been criticized somewhat for how few jumbo loans they have bought since being granted the authority in February, but officials from the GSEs told Congress Thursday that their companies are beginning to see significant increases in loan submissions. Thomas Lund, executive vice president of Fannie Mae's single-family business, said the government-sponsored enterprise's top 10 seller/servicers now have $3 billion worth of jumbo loans in their pipelines. "We've done $80 million through the end of May," he said. Patti Cook, EVP and chief business officer for Freddie Mac, held onto an earlier prediction that Freddie might buy $15 billion worth of GSE jumbos by year's end. (Under the new authority, Fannie and Freddie can purchase mortgages with balances of up to $729,750 in certain high-cost areas.) The executives told elected officials that their ability to buy jumbos has been hurt because the mortgages cannot be sold forward into TBA (to-be-announced) securities. However, since changing their pricing on jumbos, loan submissions have risen, and rates charged have fallen to the point where they are comparable to those of conventional loans. (For the full story, see the May 26 issue of National Mortgage News.)

The residential servicer ratings of Residential Capital LLC, Minneapolis, have been placed on Rating Watch Negative by Fitch Ratings. The affected ResCap ratings are as follows: residential primary servicer for prime and alternative-A products RPS2-plus; residential primary servicer for subprime, high loan-to-value, and home equity/home equity line of credit product, RPS2; residential primary specialty -- subservicer, RPS2-plus; residential special servicer, RSS2-plus; and residential master servicer, RMS2-plus. The rating actions "reflect the continued pressure on ResCap's liquidity position and financial flexibility and the potential impact on the company's servicing operations," the rating agency said. Fitch downgraded ResCap's Issuer Default Rating from BB-minus to C on May 2 after the company announced a debt exchange offer. The company's corporate ratings remain on Rating Watch Negative pending the execution of the offer, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

The residential servicer ratings of Indymac Bank FSB and a subsidiary have been downgraded by Fitch Ratings. Indymac Bank's primary servicer rating for prime product was downgraded from RPS2 to RPS3-plus, its primary servicer ratings for alternative-A and subprime product were downgraded from RPS2 to RPS3, and its special servicer rating was downgraded from RSS2 to RSS3. The ratings remain on Rating Watch Negative. In addition, the residential primary specialty-reverse servicer rating of Financial Freedom Senior Funding Corp., the company's reverse mortgage subsidiary, has been downgraded from RPS3-plus to RPS3 and placed on Rating Watch Negative. The actions "reflect the company's challenges in returning to profitability and [its] decision to defer dividend payments on preferred stock" issued by Indymac Bank and its holding company, Indymac Bancorp, Fitch said.

Reinforcing their position as the cornerstones of the American housing market, Fannie Mae and Freddie Mac now have enough capital on hand to purchase all $2 trillion worth of mortgages that are expected to be originated this year, their safety-and-soundness regulator said at the Conference of State Bank Supervisors' annual meeting. Two years ago, the two GSEs touched less than 40% of the mortgages that were written. Now that figure is up to 70% of all home loans and 80% of all securitizations, James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told the meeting. "They have become the secondary market, and they are being asked to do a lot more," Mr. Lockhart said. While Fannie and Freddie have been slow to purchase so-called jumbo conforming loans, they are now quickening their pace, the OFHEO director said. In the first two weeks of May, their volume in mortgages ranging from $417,000 to $729,250 was four times what it was in all of April, he reported. "They started out pretty cautiously," Mr. Lockhart said, "but now they are starting to ramp up." He also said he was "satisfied overall" with the Senate housing bill, which was voted out of committee Tuesday, because it "underscores the importance" of a single, world-class regulator for the GSEs. "It checks off all the boxes," he said.

The Federal Deposit Insurance Corp. will issues guidelines next week on managing third-party risks, FDIC Chairman Sheila Bair has told the Conference of State Bank Supervisors' annual meeting. The guidelines will deal, in part, with compensation of mortgage brokers. Until now, the FDIC has been dealing with the issue on a case-by-case basis, Ms. Bair said at the meeting at Amelia Island Plantation in Florida. But in that loan brokers "could steer" consumers into dangerous loans or mortgages they don't fully understand, how state-chartered banks pay third-party originators "deserves closer scrutiny," she added. Ms. Bair also held out hope for her plan to prevent a million foreclosures by reworking "underwater" mortgages. While expansion of the Federal Housing Administration's loan programs will be "extremely helpful" in the long term, her rescue plan would "give borrowers a breather" in the short term, she said. "It's for people who want to stay in their homes and ride out the housing crisis," she told the state banking regulators. Ms. Bair said it's possible that a floor amendment incorporating her proposal would be added to the Senate housing bill as a "nice complement" to FHA expansion. The FDIC chair also urged lenders and regulators to move back to common-sense underwriting. "If I'm going to point to two culprits" for the mortgage market calamity, she said, it would be the failure to underwrite at the fully indexed rate and the ability of borrowers to repay.

The GSE reform bill passed by the Senate Banking Committee gives the new regulator broad powers to raise Fannie Mae's and Freddie Mac's capital requirements and determine the appropriate size of their investment portfolios, according to a Credit Suisse report. It is likely that the new regulator will determine that the government-sponsored enterprises "should be less leveraged," CS research analyst Moshe Orenbuch says. "Such a determination by the regulator could either limit the growth of the GSEs or require that they raise additional equity." He reiterated an Underperform rating for Fannie and Freddie. Freddie Mac says it supports the legislation. "We would stress, however, that if not applied carefully, the bill could adversely impact the mortgage market," a spokesman said. Fannie Mae also has concerns about "elements in the bill that could inhibit the GSEs' ability to provide the greatest possible support for mortgage markets and housing affordability," a Fannie spokesman said.

Impac Mortgage Holdings, Irvine, Calif., posted a net loss of $2 billion for 2007, compared with a $75 million loss the year before. Impac, a nondepository real estate investment trust that once specialized in alternative-A lending, is no longer funding new loans and is surviving off its servicing and master servicing portfolios. According to a new filing with the Securities and Exchange Commission, the company, in an attempt to stave off its lenders, is transferring "certain net interest margin" certificates and subordinated bonds held on its balance sheet to satisfy "reverse repurchase agreements." In 2007 it took $1.4 billion in charges to cover loan losses. It also had real-estate-owned charges of $281 million. Impac's shares continue to trade on the New York Stock Exchange. At deadline time, its stock price stood at $1.20, compared with a 52-week low of $0.20 and a high of $6.75.

The American Securitization Forum has issued guidelines to help mortgage servicers and borrower-counseling organizations implement procedures for reimbursing counseling-related expenses. The ASF advised in October 2007 that borrower counseling fees may be reimbursable from securitization cash flows if the servicer concludes that the counseling has mitigated losses and maximized recovery (or is likely to do so) on loans that are in default or seen as likely to default. The latest guidance, intended chiefly for securitized residential mortgage loans, advises that servicers may reimburse up to $150 out of securitization trust proceeds for an approved counseling session. The ASF also recommended contracting with high-quality counseling organizations that will help borrowers connect with servicers, collect information relevant to loss mitigation evaluations, recommend appropriate loss mitigation options to servicers, or assist borrowers in restructuring their overall debt to better meet their mortgage obligations. The ASF can be found online at http://www.americansecuritization.com.

The housing sector could get a real boost this summer if Congress can pass a housing bill with GSE and FHA reforms along with a homebuyer tax credit, according to the chief executive of the National Association of Home Builders. NAHB executive vice president and chief executive Jerry Howard said in an interview that the government-sponsored enterprises Fannie Mae and Freddie Mac have taken some positive steps in scrapping their declining-markets policies and stepping up to buy jumbo mortgages. "We are hoping with some of these [GSE] changes and what we hope will be the passage of this bill before the Fourth of July that we will see some uptick in credit availability, in construction lending, and in consumer confidence," Mr. Howard said. The homebuyer tax credit could be a "real shot in the arm for the economy and the housing sector," he said, particularly if it is improved in conference when House and Senate leaders meet to iron out a final bill.