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Standard & Poor's Ratings Services has placed the Federal Home Loan Bank of Chicago's counterparty credit rating (AA-plus/A-1-plus) on CreditWatch with negative implications following the recent termination of its merger discussions with the Dallas FHLBank. "The development heightens our concerns regarding the strategic direction and financial condition" of the FHLBank, which is projecting a net loss for 2008, S&P said. As part of its review, S&P said it will consider the FHLBank's "need to name a new president and chart a new course under leadership of a new executive." S&P said the bank's deteriorating profitability has been attributed to hedging losses related to mortgage assets in its Mortgage Partnership Finance program and other hedging adjustments that will hurt future earnings. S&P also recently announced the affirmation of its AAA long-term counterparty credit rating on the FHLBank of Des Moines, and the revision of its outlook from negative to stable. S&P can be found online at http://www.standardandpoors.com.

All the Federal Home Loan Banks could use affordable housing grants to help refinance or restructure nontraditional and subprime mortgages under a proposed rule issued by the Federal Housing Finance Board. The proposal is modeled after a $10 million pilot program initiated by the San Francisco FHLBank to provide matching grants of up to $25,000 to member banks and thrifts that want to refinance troubled mortgages that are "under water" due to negative amortization or declining property values. The Finance Board approved the San Francisco pilot on Jan. 15, and now it is issuing a proposal that would allow the other FHLBanks to develop similar affordable housing programs. "The proposed rule would temporarily add authority for the banks to use the AHP direct set-aside subsidy to refinance or restructure low- and moderate-income households' subprime or nontraditional mortgages held by bank members or their affiliates," the Finance Board said. The proposed rule is being issued for a 60-day comment period.

The House Ways and Means Committee has approved a housing tax bill by a 35-5 vote that provides a $7,500 tax credit for first-time homebuyers, expands the use of revenue bonds to refinance subprime loans, and streamlines the low-income housing tax credit program. The tax bill also clears the way for Federal Home Loan Banks to guarantee general tax-exempt municipal bonds, not just bonds that are used to finance housing programs. Committee Chairman Charles B. Rangel, D-N.Y., said the vote shows there is "strong bipartisan support for this housing tax package designed to help families cope with the housing crisis." Like a tax provision in a Senate foreclosure prevention bill, the Rangel bill allows homeowners that take the standard deduction to deduct their properties taxes. However, the House bill does not include a controversial net-operating-loss carry-back provision for homebuilders and other companies suffering losses in 2008 and 2009, which is contained in the Senate bill. House leaders plan to combine the Rangel tax bill with a bill the House Financial Services Committee is expected to approve soon to refinance 1 million distressed homeowners into Federal Housing Administration loans.

The Bush administration is demanding that Congress produce a stand-alone Federal Housing Administration modernization bill that authorizes the mortgage insurance agency to charge risk-based premiums -- which is deliberately absent from the House-passed and Senate-passed versions. The Senate has placed its FHA bill in larger foreclosure prevention legislation that the White House is trying to derail. The Senate bill contains a 12-month moratorium on risk-based pricing. The House FHA bill places restrictions on RBP. "Any bill must give the FHA the tools needed to price for additional risk," FHA Commissioner Brian Montgomery told a House panel. Congress needs to make the FHA bill a "priority over other housing legislation," Mr. Montgomery testified. "As a first order of business, a good FHA modernization bill must be sent to the president." The FHA commissioner also explained that the White House opposes funding for cities and states to purchase foreclosed properties because it would benefit lenders who own a lot of vacant and foreclosed properties. "In addition, it may have the unintended consequence of making foreclosure a more attractive option for lenders," he said.

The Senate has passed a foreclosure prevention bill by an 84-12 vote that includes a Federal Housing Administration modernization bill, $10 billion in revenue bonds for refinancing subprime mortgages, additional funding for foreclosure counseling, and tax provisions. The bipartisan foreclosure prevention package was cobbled together by Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., and Sen. Richard C. Shelby, R-Ala. It includes $4 billion in Community Development Block Grant funds for cities to purchase and rehabilitate foreclosed properties, a $7,000 tax credit for homebuyers who purchase a foreclosed property, and a loan limit hike on veterans' loans. The tax section also contains a controversial provision that provides a net-operating-loss carry-back provision for homebuilders and others to deduct losses in 2008 and 2009 from their profits in prior years and receive a tax rebate. White House officials say they can't support the bill. But Sen. Dodd said more needs to be done and he wants to move ahead with another bill that expands the FHA to refinance more at-risk borrowers. Sen. Shelby said he wants to make sure Dodd's FHA expansion bill does not use taxpayers' funds to bail out speculators.

More than 250 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on April 8 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed 32 classes of subprime pass-throughs on Rating Watch Negative, removed seven classes from Rating Watch Negative, and affirmed the ratings on classes with outstanding balances of approximately $7 billion. The pass-through securities affected by the latest downgrades were: 80 classes from 12 issues by Morgan Stanley; 60 classes from seven issues by Long Beach Mortgage Co.; 36 classes from five issues by J.P. Morgan Mortgage Acquisition Corp.; 31 classes from three issues by People's Choice Home Loan; 29 classes from five issues by ACE Securities Corp. Home Equity Loan Trust; 13 classes from two issues by GSAMP; and four classes from one issue by Renaissance. 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 more than 350 tranches in over 50 subprime residential mortgage-backed security transactions from two issuers. Of the downgraded tranches, 106 remain on review for possible further downgrade. The negative rating actions affected the following securities: 205 tranches from 33 subprime RMBS deals issued by RASC, and 156 tranches from 20 deals issued by RAMP. The downgrades were generally 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 mortgage loans. Moody's can be found on the Web at http://www.moodys.com.

Highwoods Properties, Raleigh, N.C., has been designated the "Bear of the Day" for April 9 by Zacks Equity Research, Chicago. The designation is given to stocks expected to underperform the markets over the next three to six months. Zacks said the real estate investment trust is still rated a Sell "based on macroeconomic factors" such as the declining economy and rising unemployment. "We think operations will get worse in 2008, and suburban office owners will have difficulties maintaining occupancy and increasing rents when corporate layoffs continue," the research firm said. Zacks can be found online at http://www.zacks.com, and Highwoods can be found at http://www.highwoods.com.

IndymacBank has announced the securitization of $335 million of prime jumbo and alternative-A credit hybrid adjustable-rate mortgages that it traded in a private-label deal slated to settle on April 15. The company said it is taking an approximately $2 million pretax loss on the transaction, which is part of its "capital reduction/capital generation strategy." Indymac sold about $235 million of triple-A rated mortgage-backed securities and retained $100 million in primarily investment-grade bonds. "Other investors have expressed similar interest in these types of bonds, so we will continue to pursue these transactions," the company said. The IMB Report, the bank's online news page, can be found at http://www.theimbreport.com.

Standard & Poor's has downgraded certain ratings of mortgage insurers MGIC, PMI, Radian, and Old Republic International Corp. in response to the "greater-than-expected housing slump," and some have now fallen below what are considered key levels by Fannie Mae and Freddie Mac. At least one downgraded MI, MGIC, said it did not expect the downgrades to affect its business. Commenting on the fact that some of the ratings had slipped below levels considered key for the government-sponsored enterprises, S&P noted that, "in the short term, replacing the capacity provided by those mortgage insurers ... would be extremely difficult" because they "accounted for 58% of the industry's flow market share in 2007." Freddie Mac, which in February changed and eased somewhat its mortgage insurer rules, has asked MIs with ratings below AA-minus to submit remediation plans for their ratings within 90 days or be placed in the Type II category that imposes additional restrictions. Fannie Mae had not responded to a call for comment by deadline time.