Servicing

Freddie Mac is enhancing its disclosures so that investors in its guaranteed mortgage-backed securities can tell whether the underlying loans were originated by mortgage brokers or the borrower's income and assets were verified. "Beginning no later than August 2008, Freddie Mac expects to expand its third-party origination disclosure on all newly issued Participation Certificate securities," the secondary-market agency said, so investors can see whether the loans were made by brokers, correspondents, or retail lenders. Freddie Mac says it also plans to start disclosing in June nine new loan-level variables involving income verification, combined loan-to-value ratios, and debt-to-income ratios starting. "These expanded disclosures are timely, particularly in light of continuing volatility in the housing and mortgage markets, and we believe they will help investors better evaluate our securities and help support our mission to provide stability and affordability to America's home financing system," Freddie vice president Mark Hanson said. The government-sponsored enterprise can be found online at http://www.freddiemac.com.

House Financial Services Committee Chairman Barney Frank, D-Mass., is warning mortgage servicers that they could face very restrictive regulation next year if they don't cooperate in modifying loans for distressed borrowers. The chairman said he is picking up anecdotal evidence that servicers, not investors, are the reason so few mortgages are being restructured. "I want to put the servicers on notice," Rep. Frank said. "If we see a widespread refusal on the part of servicers to cooperate, they can expect much tougher regulation in the future." The lawmaker is working on a regulatory restructuring bill that he wants to pass next year. "We can't abrogate [servicing] contracts, but going forward we can be very restrictive," Rep. Frank said.

Twenty-eight certificates from three transactions issued by First Franklin Mortgage Loan Trust and backed by second-lien loans have been downgraded by Moody's Investors Service. Nine of the downgraded classes remain on review for possible further downgrade. The downgrades were attributed to credit enhancement levels that are too low in view of projected losses, and they take into account the worsening performance of transactions backed by closed-end second-lien collateral. "Substantial pool losses of over the last few months have eroded credit enhancement available to the mezzanine and senior certificates," the rating agency said. "Despite the large amount of write-offs due to losses, delinquency pipelines have remained high as borrowers continue to default."

Twenty-nine certificates from five transactions issued by American Home Mortgage Investment Trust have been downgraded by Moody's Investors Service. Moody's also placed three classes on review for possible downgrade. Most of the affected pools are backed by second-lien loans, the rating agency said. (Group One of American Home Mortgage Investment Trust 2005-SD1, backed primarily by first-lien scratch-and-dent collateral, has experienced a growing proportion of severely delinquent loans, Moody's said.) The downgrades were attributed to credit enhancement levels, including excess spread and subordination, that are deemed to be low in view of projected losses.

More than 100 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on April 7 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed five classes of subprime pass-throughs on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of more than $3 billion. The securities affected by the latest downgrades were: 78 classes from 10 issues of Soundview Home Loan Trust mortgage pass-throughs; 15 classes from three issues of Wells Fargo Home Equity Asset-Backed Securities pass-throughs; nine classes from one issue of CSFB Home Equity Asset Trust pass-throughs; and eight classes from one issue of Meritage Mortgage Loan Trust pass-throughs. 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 750 tranches in 77 subprime residential mortgage-backed security transactions from three issuers. Of the downgraded tranches, 162 remain on review for possible further downgrade. The negative rating actions affected the following securities: 315 tranches from 31 subprime RMBS deals issued by ACE Securities Corp. Home Equity Loan Trust; 238 tranches from 22 RMBS deals supported by subprime loans originated by Long Beach; and 218 tranches from 24 subprime RMBS deals issued by Merrill Lynch Mortgage Investors Trust. 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.

The current response to the foreclosure crisis is "inadequate," and a federally funded program to restructure subprime mortgages in bulk is crucial to avoid the wave of impending foreclosures, according to the National Housing Conference, which is supported by major mortgage lenders and affordable housing advocates. "A bulk restructuring plan, administered and funded by a new agency or division specially empowered to administer this process, would be the most effective solution to the nation's economic crisis," the NHC says in spelling out principles for addressing the mortgage and foreclosure crisis. The housing policy group calls for "substantial principal reductions" along with government assistance to close the affordability gap, which could include a "silent" second mortgage. Freddie Mac, Bank of America, Wells Fargo Home Mortgage, and HSBC Bank USA are key contributors to the nonpartisan council, which was founded in 1931. The NHC noted that the bipartisan housing bill being debated in the Senate "omits any bold plan" for restructuring existing mortgages. The NHC is urging its members to contact their senators and representative and "ask them to take more action in helping families at risk of foreclosure."

More than 50 certificates in 10 second-lien mortgage-backed security transactions from three issuers have been downgraded by Moody's Investors Service. The downgrades affected the following securities: 37 certificates from eight Terwin Mortgage Trust deals; seven certificates from Soundview Home Loan Trust 2006-A; and seven certificates from IndyMac Home Equity Mortgage Loan Asset-Backed Trust, INDS 2006-A. Moody's also placed four certificates on review for possible further downgrade. The rating actions were taken because "credit enhancement levels, including excess spread and subordination, were too low" when compared with projected losses, Moody's said. The actions take into account the "continued and worsening performance" of transactions backed by closed-end second-lien loans and home equity lines of credit.

Over 150 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on April 4 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed 12 classes of subprime pass-throughs on Rating Watch Negative, removed two from Rating Watch Negative, and affirmed the ratings on classes with outstanding balances of nearly $4 billion. The securities affected by the latest downgrades were: 54 classes from nine issues of Barclays Capital mortgage pass-throughs; 47 classes from seven issues of Asset Backed Securities Corp. pass-throughs; 31 classes from six issues of Bear Stearns Asset Backed Securities I Trust pass-throughs; and 30 classes from four issues of CSFB Home Equity Asset Trust pass-throughs. 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.

The servicer quality rating of Fremont Investment & Loan as a primary servicer of subprime loans has been downgraded from SQ4 to SQ4-minus by Moody's Investors Service. The rating remains on review for possible further downgrade. In addition, the outlook for Fremont and its parent, Fremont General Corp., remains negative, and the company's servicing stability assessment has been revised from below average to weak, Moody's said. The rating agency said the action was prompted by continued deterioration of financial and operating conditions as well as regulatory actions affecting Fremont and its parent. The Suffolk Superior Court recently issued a preliminary injunction, sought by the Massachusetts attorney general, barring Fremont from initiating or advancing foreclosures on loans that are "presumptively unfair" without first complying with the court's order, Moody's said. The injunction was later modified to further restrict Fremont's efforts to sell mortgage servicing rights on loans serviced in Massachusetts. Moody's said the rating action also stemmed partly from management turnover at Fremont and its parent. Moody's can be found online at http://www.moodys.com.