Servicing

Nearly half of all loan workouts on subprime mortgages in January and February involved loan modifications, according to the latest update by Hope Now servicers. The new data show that servicers modified 81,885 subprime mortgages in the first two months of the year, compared with 90,420 subprime borrowers who ended up in repayment plans. Only 30% of troubled prime borrowers got a loan modification that included a reduction in their mortgage payments. Federal regulators have been pressing servicers to modify subprime adjustable-rate mortgages by freezing the interest rate at the starter rate. Hope Now also reported that 60,000, or 43%, of 2/28 and 3/27 subprime ARMs that were scheduled to reset in January and February had been paid off. These loans were "paid in full through refinancing or sale," the Hope Now update says.

Resolution may be near for the market's funding crisis, but capital concerns are likely to persist until the housing market recovers, according to a recent Deutsche Bank report. "It might be the end of the funding crisis, at least in the U.S.," said economics/strategy researchers Mustafa Chowdhury, Marcus Huie, and Anish Lohokar. But the researchers said they see "the capital crisis persisting for quite a while, at least to the end of the year."

Clayton Holdings Inc., a due diligence and surveillance provider based in Shelton, Conn., has announced its entry into a merger agreement with an affiliate of a fund managed by Greenfield Partners LLC, a private equity firm. Under the agreement, the affiliate will acquire all outstanding common shares of Clayton for $6 per share (approximately $134 million) plus the repayment of $23.8 million of debt, the company said. The purchase price represents a premium of approximately 24% over Clayton's closing price on April 11. Investment funds affiliated with TA Associates, which own approximately 37% of Clayton's outstanding common stock, have agreed to vote in favor of the transaction, Clayton said. "For our clients and employees, the transaction will strengthen our balance sheet and allow us to continue to invest in European operations and in the development of products and services that will deliver the greater transparency and predictive solutions that the market will require," said Frank Filipps, chairman and chief executive officer of Clayton Holdings. Clayton can be found on the Web at http://www.clayton.com.

Eight-five classes of subprime mortgage pass-through certificates from 11 transactions issued by First Franklin Mortgage Loan Trust have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions. Fitch also placed five First Franklin classes on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of $2.3 billion. The rating actions were attributed to changes in 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." The rating agency can be found online at http://www.fitchratings.com.

RealtyTrac, an online foreclosure marketplace, and Reliance Network LLC, a developer of Web-based real estate applications, have announced a strategic partnership that will allow Reliance Network's clients to have real-time access to RealtyTrac's nationwide foreclosure database. Several clients of the Holland, Pa.-based Reliance Network will start receiving the data immediately, the companies said. "This new search application will pull real-time data directly from RealtyTrac's nationwide foreclosure database, providing users of Reliance Network-powered websites with a method to access distressed properties, including properties in pre-foreclosure, auction or bank-owned properties," said Rick Sharga, vice president of marketing at the Irvine, Calif.-based RealtyTrac. "That in turn will help drive more traffic and leads to the agent websites." The companies can be found online at http://www.realtytrac.com and http://www.reliancenetwork.com.

Five classes from the Credit Based Asset Servicing and Securitization LLC series 2004-CB8 transaction have been downgraded by Fitch Ratings. The downgrades were as follows: class M-3, from A to A-minus; class B-1, from A-minus to BBB-plus; class B-2, from BBB-plus to BBB-minus; class B-3, from BBB to BB; and class B-4, from BB to B (and removed from Rating Watch Negative). The downgrades were based on deterioration in the relationship between credit enhancement and loss expectations, Fitch said. The collateral consists primarily of first-lien subprime mortgages.

Seventy-eight additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on April 9 as a result of changes to its subprime loss forecasting assumptions. Fitch also affirmed the ratings on classes with outstanding balances of more than $1.1 billion. The pass-through securities affected by the latest downgrades were: 47 classes from six issues by C-BASS; 20 classes from three issues by Fieldstone; and 11 classes from three issues by Terwin Mortgage 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."

Moody's Investors Service has downgraded more than 500 tranches in over 50 subprime residential mortgage-backed securities transactions from four issuers. Of the downgraded tranches, 146 remain on review for possible further downgrade. The negative rating actions affected the following securities: 268 tranches from 27 subprime RMBS deals issued by Bear Stearns; 104 tranches from 11 subprime deals issued by Argent; 92 tranches from nine subprime deals issued by INABS; and 63 tranches from seven deals issued by Ixis. The downgrades, in general, were based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels, Moody's said. The collateral consists primarily of first-lien subprime residential mortgage loans. The rating agency can be found online at http://www.moodys.com.

The exposure of U.S. property-and-casualty insurance companies to subprime mortgage-related collateral is "manageable," according to Fitch Ratings. In a special report on the subject, Fitch analyzed 2007 financial results for publicly traded U.S. property-and-casualty insurers and found "manageable impact on stockholders' equity" from writedowns and realized and unrealized losses related to residential mortgage-backed securities, asset-backed securities, and collateralized debt obligations. Fitch noted that it has taken "very limited" negative rating actions in the P&C sector due to subprime exposure, but said it expects "poor collateral performance in subprime-related investments to continue in 2008, and has growing concerns in the [alternative-A] sector." The rating agency added that "highly illiquid, volatile market conditions have spread somewhat to other asset classes which could impact insurers' broader investment portfolio performance." Fitch can be found online at http://www.fitchratings.com.

The risk of home price declines in the nation's 50 largest housing markets is still rising in states where price growth has far exceeded historical norms, but has begun to decline elsewhere, according to PMI Mortgage Insurance Co., Walnut Creek, Calif. According to the PMI U.S. Market Risk Index, there are now 13 markets with a greater than 60% chance of price declines over the next two years. Risk is largely concentrated in various MSAs in California and Florida as well as in Las Vegas and Phoenix, PMI reported. "Excess supply is responsible for much of the risk we're seeing in the market," said David W. Berson, chief economist and strategist for The PMI Group. "The excess supply of housing in the United States is 9.2 months for existing homes (the 20-year average has been 6.0) and 9.8 months for new homes (the 20-year average has been 5.5), which will continue to depress prices for MSAs in risk ranks 1 and 2." PMI can be found online at http://www.pmigroup.com.