Servicing

Freddie Mac has reported that only 56% of the homeowners who refinanced their homes in the first quarter got a mortgage at least 5% larger than the original loan, the smallest cash-out refi percentage since the second quarter of 2004. The percentage was far lower than the 77% recorded in the previous quarter and the 83% recorded a year earlier, the government-sponsored enterprise said in its quarterly refinance review. "A tightening of mortgage underwriting standards throughout the lending industry, coupled with declining home values across much of the nation, has curtailed the amount of home equity cashed out by homeowners," said Frank Nothaft, Freddie Mac's chief economist. "While equity conversion is down, regular refinance activity has stepped up. Fixed mortgage rates reached four-year lows and prompted large volumes of refinancing in the first quarter: more than half of borrowers who refinanced into a fixed-rate mortgage lowered their mortgage rate in the first three months of the year." Freddie Mac can be found online at http://www.freddiemac.com.

The Federal Housing Administration refinancing bill is on a fast-track in the House of Representatives but has hit a bump in the Senate Banking Committee, where a scheduled May 6 mark-up has been postponed. The House Financial Services Committee passed the FHA refinancing bill on May 1, and the full House is expected to vote on it during the week of May 5. The foreclosure prevention bill provides the Federal Housing Administration with $300 billion in loan commitment authority to refinance "underwater" mortgages. House leaders want to attach the FHA refinancing bill to a larger legislative package that includes FHA modernization and GSE reform bills the House passed last year. The bills increase the loan limits for the FHA, Fannie Mae, and Freddie Mac to $729,750. The package also includes a tax bill that provides revenue bonds to refinance subprime loans and a $7,500 tax credit for first-time homebuyers. Meanwhile, it appears that negotiations over a government-sponsored enterprise bill to strengthen regulation of Fannie and Freddie has bogged down, and Senate Banking Committee leaders will reschedule the May 6 mark-up. Committee Chairman Christopher J. Dodd, D-Conn., wants to tackle the GSE reform and FHA refinancing bills in the same mark-up.

Six classes of notes issued by Pyxis ABS CDO 2006-1 Ltd., a collateralized debt obligation backed partly by subprime mortgage-backed securities, have been downgraded by Fitch Ratings. The downgrades were as follows: class A-1, from BBB-minus to CC; class A-2, from BB to CC; class B, from BB-minus to CC; class C, from B to CC; class D, from CCC-plus to CC; and class X, from CCC to CC. The downgrades reflect "significant collateral deterioration" in the portfolio of the hybrid cash and synthetic CDO, specifically subprime residential MBS and structured finance CDOs with underlying exposure to subprime RMBS, Fitch said.

Eight classes from Silver Martin CDO I Ltd., a collateralized debt obligation backed partly by subprime mortgage-backed securities, have been downgraded by Fitch Ratings, and seven of the classes have been removed from Rating Watch Negative. Fitch attributed the downgrades to "significant collateral deterioration" in the portfolio, especially subprime residential MBS, alternative-A RMBS, and structured finance CDOs with underlying exposure to subprime RMBS. Since the last rating action on the transaction in November, nearly 66% of the portfolio has been downgraded, the rating agency said.

Ten classes from Ridgeway Court Funding II Ltd., a collateralized debt obligation backed partly by subprime mortgage-backed securities, have been downgraded by Fitch Ratings, and nine of the classes have been removed from Rating Watch Negative. Fitch attributed the downgrades to "significant collateral deterioration" in the portfolio, especially subprime residential MBS, alternative-A RMBS, and structured finance CDOs with underlying exposure to subprime RMBS. Since the last rating action on the transaction in November, nearly 77% of the portfolio has been downgraded, the rating agency said.

Thirty certificates from seven transactions issued by Merrill Lynch Mortgage Investors Trust and backed by second-lien loans have been downgraded by Moody's Investors Service. Moody's also placed three classes of certificates on review for possible downgrade. The downgrades were attributed to credit enhancement levels, including excess spread and subordination, that were deemed to be too low in view of projected losses. "The actions take into account the continued and worsening performance of transactions backed by closed-end-second collateral," the rating agency said, adding that "substantial pool losses" in recent months have eroded credit enhancement available to the mezzanine and senior certificates.

Sixty-three certificates from 19 First Franklin Mortgage Loan Trust transactions backed by first-lien subprime mortgage loans have been downgraded by Moody's Investors Service. Moody's also placed 11 certificates under review for possible downgrade. The downgrades were attributed to the fact that credit enhancement provided by subordination, overcollateralization, and excess spread for each deal is low compared to projected pipeline losses. "Stepdown and continuous losses have left the deals with thin credit enhancement levels and made them more vulnerable to pool deterioration in the tail end of the deals' lives," the rating agency said. Moody's can be found online at http://www.moodys.com.

More than 100 additional classes of subprime mortgage-backed securities were downgraded by Fitch Ratings on April 30. Fitch also affirmed the ratings on classes with outstanding balances of more than $5 billion. The securities affected by the latest downgrades were: 54 classes from 23 issues by Structured Asset Investment Loan; 31 classes from eight issues by CDC Mortgage Capital Trust; 20 classes from 19 issues by Chase Funding Loan Acquisition Trust; 17 classes from four issues by Structured Asset Securities Corp.; and nine classes from two issues by People's Choice Home Loan. Fitch can be found online at http://www.fitchratings.com.

The number of severely delinquent mortgage accounts rose 15% from February 2007 to February 2008, according to a National Score Index study conducted by Experian Consumer Direct. The national average credit score for those with a severely delinquent mortgage account stood at 599 in February 2008, compared with 605 a year earlier, Experian reported. "Conversely, the average credit score in February 2008 for those with a mortgage account with no delinquencies was 750," the credit report provider said. (The company said its definition of severely delinquent mortgage accounts includes chargeoffs, short sales, foreclosures, repossessions, collections, voluntary surrenders, and bankruptcies.) The study also found that the average mortgage balance for those with a severely delinquent account was $131,699 in February 2008, compared with $124,465 a year earlier, and that the states with the highest number of such accounts were California (where 12.4% of mortgage accounts are severely delinquent), Florida (8.0%), and Texas (6.3%). The company can be found on the Web at http://www.experian.com.

Hammered by accelerating delinquencies in its home equity portfolio, Cal State 9 Credit Union, Concord, Calif., lost $53.1 million in the first quarter. Cal State, which lost $61.6 million last year, is being managed by its regulator, the National Credit Union Administration. The agency is trying to sell the California lender. Delinquencies in the credit union's home equity loan portfolio rose 38% in the quarter from year's end. Meanwhile, depositors continued to withdraw their funds from the ailing CU, with $29 million in accounts walking out the door in the first quarter. Cal State 9 at one time had $465 million in assets.