Servicing

The House Financial Services Committee has approved by voice vote a bill that would shield mortgage servicers from investor lawsuits so they can modify loans and help more troubled borrowers avoid foreclosure. The bill (H.R. 5579), sponsored by Reps. Michael Castle, R-Del., and Paul Kanjorski, D-Pa., would create a safe harbor for servicers who carefully consider loss mitigation options and decide to modify a mortgage. "Homeowners and investors alike benefit by finding terms and conditions that would allow at-risk homeowners to stay in their homes, while providing investors some rate of return for their investments," Rep. Castle said. Industry groups oppose the bill. But Rep. Castle said his bill would "eliminate some of the payoffs" required under a Federal Housing Administration refinancing bill the committee was scheduled to mark up on April 24. The FHA bill requires investors/servicers to write down the loan amount to refinance an "underwater" mortgage into an FHA-insured mortgage.

Three classes of notes issued by Westways Funding XI Ltd., a mortgage market value collateralized debt obligation, have been downgraded and their ratings withdrawn by Fitch Ratings. The downgraded notes were as follows: class A-PT, from AA to C/DR1 and withdrawn; class LA loan interests, from AA to C/DR1 and withdrawn; and class P, from AA to AA-minus and withdrawn. Fitch also withdrew the ratings on seven other classes. The negative rating actions were taken, and the ratings withdrawn, because the program has liquidated after breaching its overcollateralization tests, the rating agency said. Only class A-1 notes have been paid in full.

Fannie Mae and Freddie Mac are abandoning their affordable housing mission by tightening lending practices and imposing new fees that will put homeownership out of reach for minority and low-income homeowners, according to 80 fair-housing and civil rights organizations that are urging the government-sponsored enterprises to reverse course. "We the undersigned are deeply troubled by the recent announcement of your intentions to raise the cost of low-down payment loans for all but the smallest percentage of homebuyers with near perfect credit," the groups say in a letter to the top executives of Fannie and Freddie. The new "pricing scheme" violates "your charter," the April 22 letter says, and it is "tantamount to both ethnic and gender discrimination." Fannie and Freddie have tightened underwriting standards and imposed new delivery fees on almost all their mortgage programs, including affordable housing products.

Ambac Financial Group, whose guarantees stand behind billions of dollars worth of subprime asset-backed securities, lost $1.6 billion in the first quarter, blaming its problems on the company's "direct exposures" to the mortgage-backed securities market. At deadline time, the company's shares were trading down 38% to $3.73 a share, reaching a new 52-week low. (Its high was $96.) The New York-based Ambac took a $1 billion writedown in the quarter on its mortgage guarantee business. It also took a noncash charge of $1.7 billion to cover losses on credit derivatives. Commenting on the results, company chief executive Michael Callen noted that, "The housing market crisis continues to disrupt the global credit markets, and our credit derivatives and direct mortgage portfolios were severely impacted once again." The company can be found on the Web at http://www.ambac.com.

Forty-eight additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on April 21 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed one class on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of $1.5 billion. The pass-through securities affected by the latest downgrades were: 45 classes from eight issues by Residential Asset Mortgage Products; and three classes from one issue by Own It Mortgage Loan Trust. The rating actions were attributed to changes to Fitch's subprime loss forecasting assumptions that "better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness." Fitch can be found online at http://www.fitchratings.com.

Moody's Investors Service has downgraded the ratings of more than 800 tranches in nearly 100 subprime residential mortgage-backed securities transactions from six issuers. The affected securities were as follows: 286 tranches from 30 issues by First Franklin Mortgage Loan Trust; 220 tranches from 25 issues by Citigroup Mortgage Loan Trust; 208 tranches from 27 issues by Securitized Asset Backed Receivables LLC Trust; 90 tranches from 12 issues by Specialty Underwriting and Residential Finance; 27 tranches from three issues by Aegis Asset Backed Securities Trust; and 14 tranches from two issues by Park Place Securities Inc. Of the downgraded tranches, 164 remain on review for possible further downgrade. Moody's said the downgrades were based, in general, on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels. The collateral consists primarily of first-lien, fixed- and adjustable-rate subprime residential mortgage loans.

The Mortgage Bankers Association and the Commercial Mortgage Securities Association have joined with the Real Estate Roundtable and the National Association of Realtors to oppose differentiation between the ratings of structured finance products and those of other asset classes. In a letter to Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., and the panel's ranking member, Sen. Richard C. Shelby, R-Ala., the groups warn that differentiating between ratings, as some are proposing, would further erode investor confidence and threaten a fragile economy. "At a time when we need to restore liquidity and confidence in the market, the last thing we ought to be doing is be making the ratings process more complicated," said Kieran P. Quinn, chairman of the MBA. "We recognize improving the ratings process is a key to getting players back in the market, and we want to work with Congress to find the best way to do that. This just isn't it." The letter recommends educating investors about the risk associated with all securities, as opposed to focusing exclusively on structured securities. The letter was sent in advance of a committee hearing on the role of credit rating agencies in U.S. credit market turmoil.

Downey Financial Corp., Newport Beach, Calif., lost $248 million in the first quarter, citing "ongoing" weakness in the housing market. The thrift, which ranks 44th among all residential funders, set aside $236 million to cover credit losses and noted that during the quarter its average loan-to-value ratio had improved to 65% (from 67% in the first quarter of 2007). Its average FICO score was 745 in the first quarter, compared with 721 a year earlier. The company reported that it is seeing a pickup "in the rate at which our foreclosed homes are being sold." Downey said 23% of its inventory of unsold homes "was either in escrow to be sold or in negotiation to be sold" at the end of March. The company can be found online at http://www.downeysavings.com.

Royal Bank of Scotland -- the parent of Greenwich Capital, for years a major player in subprime asset-backed securities -- early Tuesday morning said it would take almost $12 billion in mortgage-related writedowns and raise $24 billion in new capital. Great Britain's second-largest bank blamed its problems on the U.S. subprime mess and the spreading credit crunch that is now affecting many sectors of the financial services industry. Based in Connecticut, Greenwich has been a major securitizer of subprime mortgages. Its client list once included some of the largest subprime funders in the United States, including Ameriquest Mortgage of California. Sources say Greenwich has slashed its warehouse lending business to the bone and is even margin-calling investors in delinquent mortgages. One investment banker who visited Greenwich recently described the atmosphere in Connecticut as "a lot of traders sitting around gabbing" and "people going home early." Greenwich has not responded to telephone calls from National Mortgage News.

Six classes of mortgage pass-through certificates from American Home Mortgage Investment Trust 2005-SDI have been downgraded by Fitch Ratings. The downgrades were as follows: group 1, class I-M2, from A to BBB, class I-M3, from BBB to B, and class I-M4, from BB to CC/DR3; and group 2, class II-M2, from A to BBB (and placed on Rating Watch Negative), class II-M3, from BBB-minus to C/DR4, and class II-M4, from B to C/DR6. Fitch also affirmed the ratings on four other classes in the scratch-and-dent transaction.