Servicing

Three large portfolios of mortgage servicing rights have just been put out for bidding. Interactive Mortgage Advisors, Denver, is selling servicing rights on a $5.5 billion portfolio of subprime mortgage loans. The two-part offering includes both primary and master servicing rights on the portfolio. The portfolio has an average loan size of $160,686; an average weighted interest rate of 8.523%; an average weighted servicing fee of 45.3 basis points; and a total 30-day-plus delinquency rate of 19.6%. Bids are due May 28. Separately, IMA is also taking master and primary servicing bids on alternative-A and subprime deals involving $5.0 billion and $3.9 billion, respectively. The portfolios have similar characteristics to the previous one. Bids are due May 28. Also separately, the Prestwick Mortgage Group, Alexandria, Va., is brokering the sale of monthly flow servicing rights on an estimated $5 million per month of Fannie Mae loans. The seller desires to start deliveries in July. Bids are due May 21.

At the end of March, 36% of subprime mortgages being serviced by Countrywide Financial Corp. were in some stage of delinquency, according to a recent public filing by the company. Countrywide services roughly $100 billion in subprime mortgages, which means that nearly $36 billion worth of loans are at risk of going into foreclosure. According to the Quarterly Data Report, Countrywide is the nation's largest subprime servicer. The 90-day-plus late ratio on the portfolio is 21.04%. A year ago the 90-day rate was 7.82%. Countrywide is being sold to Bank of America, and the sale is expected to close by the end of the third quarter. The company, based in Calabasas, Calif., can be found on the Web at http://www.countrywide.com.

Facing a liquidity crunch, Residential Capital Corp. says it hopes to sell $600 million worth of assets by June 30 and is considering the auction of European mortgage-backed securities held on its balance sheet. "We are highly leveraged relative to our cash flow," the company says in a new filing with the Securities and Exchange Commission. "There is a significant risk that we will not be able to meet our debt service obligations...." ResCap, the parent of GMAC Mortgage, Horsham, Pa., the nation's seventh-largest servicer, is renegotiating its bank loans and hopes to receive a $3.5 billion senior secured credit facility from its parent company, GMAC LLC. Hedge fund giant Cerberus Capital owns a controlling stake in GMAC.

Fitch Ratings has downgraded 12 classes of notes from three collateralized debt obligations backed partly by subprime residential mortgage-backed securities. The affected securities are: six classes issued by Coronado CDO Ltd.; three classes issued by Blue Heron Funding VI Ltd.; and three classes issued by Blue Heron Funding VII Ltd. Fitch attributed the downgrades to "significant collateral deterioration" in the portfolios' subprime RMBS and, in some cases, alternative-A RMBS and structured finance CDOs with underlying exposure to subprime RMBS.

Over 50 classes in 19 scratch-and-dent mortgage-backed securities transactions from four issuers have been downgraded by Fitch Ratings. The affected securities were: 32 classes from nine Structured Asset Securitizations Corp. issues; 12 classes from seven C-BASS Mortgage Loan Trust issues; six classes from two Goldman Sachs issues; and one class from a Wilshire issue. Fitch also placed 13 classes of securities on Rating Watch Negative and affirmed the ratings on nearly $1.4 billion of scratch-and-dent MBS.

Prudential Bancorp Inc., Philadelphia, has reported a mortgage-related net loss of $682,000 ($0.06 per share) for the first quarter, compared with net income of $965,000 ($0.08 per share) a year earlier. Prudential said the loss stemmed from the recognition of a $1.5 million pretax impairment charge related to a $35 million investment in a mutual fund that holds mortgage-backed securities. "The impairment charge was related to declines in fair value due to interest rate movements and significantly reduced investor interest in mortgage-related securities, and was not related to any credit quality concerns with respect to the assets underlying the mutual fund," the company said. Prudential Bancorp is the mid-tier holding company for Prudential Savings Bank, which can be found online at http://www.prudential savingsbank.com.

Fitch Solutions has acquired an equity stake in Portsmouth Financial Systems, a Portsmouth, N.H.-based provider of advanced structured finance analytics. The terms of the transaction were not disclosed. "Portsmouth has developed a cutting-edge software platform that supports the modeling and analysis of structured finance transactions, with products ranging from collateral-level analytics to cash flow modeling tools," Fitch Solutions said. The platform has been beta-tested with investment banks, asset managers, and hedge funds, and production versions will be launched within a few months, the company said. Fitch Group, the parent company of Fitch Ratings, launched Fitch Solutions in January "to provide further separation of Fitch's analytical activities from its commercial activities" and to accelerate the development of fixed-income data and analytics solutions. The company can be found online at http://www.fitchsolutions.com.

Fitch Ratings has placed Fannie Mae's preferred stock, rated AA-minus, on Rating Watch Negative in the wake of Fannie's announcement that it plans to raise $6 billion in new capital and reduce its common stock dividend. "While Fitch views the prospect of incremental capital and dividend reduction positively, the proportion of preferred stock to total capital may grow higher from already elevated levels," the rating agency said. "As a result, Fitch believes that preferred shareholders could absorb higher losses as their proportion of total capital increases. This scenario would warrant a one-notch differential between [Fannie Mae's] subordinated and preferred stock ratings." Fitch expressed skepticism about Fannie's projection that the additional capital will fund growth and absorb higher credit losses, opining that it will not be sufficient to fund new business. The rating agency can be found online at http://www.fitchratings.com.

Fitch Ratings has moved all its ratings on Countrywide Financial Corp., Calabasas, Calif., from Rating Watch Positive to Rating Watch Evolving. Fitch said the action stems from further disclosures about Bank of America's planned treatment of Countrywide debt after its proposed acquisition. The rating agency said it believes the acquisition will be completed, but that the rating action reflects "uncertainty over the transaction's final structure." Fitch can be found on the Web at http://www.fitchratings.com.

Mortgage-backed securities investors and servicers should start thinking about becoming landlords so a troubled borrower can remain in a house with an option to buy the property back, according to a conservative academic panel that monitors regulation of the financial services industry. The Shadow Financial Regulatory Committee says it would be less disruptive and costly to offer homeowners facing foreclosure a lease in exchange for the deed to the property. Investors would incur a loss as part of the deed-in-lieu transaction, but avoid foreclosure maintenance and resale costs, according to Kenneth Scott, professor of law and business at Stanford University. The shadow committee noted that the Treasury Department's Hope Now initiative does not address the problem of delinquent borrowers with negative equity. This approach "might be able to deal with a large portion of these delinquencies without the taxpayer bailing out the homebuyer or the investor." Mr. Scott said.