Servicing

Consumer groups are contending that the Senate's housing bill provides "very little" relief for homeowners at risk of foreclosure now that Sen. Richard Durbin, D-Ill., has withdrawn an amendment that would have allowed bankruptcy judges to modify mortgages. "We are left with a bill loaded with special considerations for mortgage companies and homebuilders that does very little for homeowners who were sold predatory loans by mortgage lenders," says a coalition of consumer and civil rights groups. The Senate bill includes a net operating loss carry-back provision that would allow homebuilders and other companies to deduct losses in 2008 and 2009 from their profits in prior years. The Senate is expected to complete action soon on the housing bill, and Sen. Arlen Specter, R-Pa., may offer a bankruptcy amendment targeting adjustable-rate mortgages. The Specter bill would allow judges to roll back increases in the mortgage interest rate, but the lender would have to consent to a reduction in the principal amount of the mortgage. The Specter bill would "not be acceptable to the Bankruptcy Coalition," said Bill Himpler, the American Financial Services Association's top lobbyist. Republicans blocked a vote on Sen. Durbin's amendment, which would allow judges to unilaterally reduce the interest rate and principal of a mortgage. The mortgage industry strongly opposes any bankruptcy code change affecting the treatment of a debtor's primary residence.

Employment in the mortgage industry appears to be stabilizing, with a loss of only 700 jobs in February, as refinancing activity and loan workouts keep the current work force busy. The U.S. Bureau of Labor Statistics reported Friday that employment in the mortgage banker/broker sector fell from 364,800 in January to 364,100 in February. The industry has lost 28% of its work force since February 2006, and it is back to the level last seen in July 2002, according to the Mortgage Bankers Association's senior director of economic forecasting, Orawin Velz. "Job losses seem to be stabilizing," Ms. Velz said. "That is good news for us." However, the forecaster sees industry employment continuing to decline at a moderate rate for the rest of the year as the economy pulls out of a mild recession. "Originations will be quite strong in the first half" due to refinancings, she predicted. But refis will slow considerably in the second half as the economic stimulus package takes effect and the Federal Reserve stops easing, the MBA economist said. The BLS can be found online at http://stats.bls.gov.

More than 30 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on April 2 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed three classes of subprime pass-throughs on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of over $570 million. The securities affected by the latest downgrades were 33 classes from four issues of IndyMac mortgage 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.

Frost Mortgage Banking Group has entered into an arrangement to operate as a division of Primary Residential Mortgage Inc., Salt Lake City, allowing Frost to focus on borrower relationships while PRMI provides a platform of financial and operational support. Under the agreement, Frost Mortgage will have access to PRMI's support services (including accounting, compliance/licensing, information technology, marketing, and quality control) and retail operation services (including secondary marketing and underwriting/risk management), the companies said. Frost Mortgage operates offices in New Mexico, Arizona, and Utah. "By allowing [PRMI] to handle our back office needs, we can continue doing what we do best -- originating mortgages," said Greg Frost, who manages Frost Mortgage and has been named vice president of national training at PRMI. Mr. Frost started in the mortgage industry in 1985, and founded Frost Mortgage Banking Group in 1991.

A federal judge in Pittsburgh has ruled that a bankruptcy trustee can subpoena loan documents from Countrywide Financial Corp. and interview company executives under oath as part of a civil case involving the nation's largest residential servicer. Judge Thomas Agresti is overseeing a months-old case in which 293 Pennsylvania homeowners sued Countrywide, charging that the servicer sought improper fees and payments from distressed borrowers that violated bankruptcy regulations. In a Tuesday ruling, the judge said it has not been proven that Countrywide did anything wrong but that a bankruptcy trustee involved in the case "has made a showing of a common thread of potential wrongdoing" in several instances where it moved to foreclosure on bankrupt homeowners. At deadline time, a Countrywide spokesman had not returned a telephone call about the matter. Countrywide's foreclosure practices are under investigation in Florida, Georgia, and Ohio. The company is being sold to Bank of America. The sale is expected to close by the third quarter. Countrywide can be found online at http://www.countrywide.com.

Consumer loan delinquency rates, including those for home equity lines and loans, increased sharply in the fourth quarter of last year, according to the American Bankers Association. The delinquency rate on closed-end home equity loans rose 11 basis points from the level recorded in the third quarter to 2.39%, according to the ABA. The delinquency rate on home equity lines of credit rose 12 bps to 0.96%, the ABA reported. All eight consumer loan types saw an increase in overdue rates, with the largest increase being posted by indirect auto loans. The ABA's composite consumer loan delinquency rate rose to its highest level since 1992. "The rise in consumer credit delinquencies is consistent with a rapidly slowing economy," chief economist James Chessen said. "Stress in the housing market still dominates the story, but it's a broader tale of an overall weak economy." The ABA can be found on the Web at http://www.aba.com.

Hanover Capital Mortgage Holdings, a mortgage investing REIT based in Edison, N.J., lost $37.7 million in the fourth quarter, signaling that it may not survive as a going concern unless it receives a capital infusion. "Additional sources of capital are required for the company to generate positive cash flow and continue operations beyond 2008," the real estate investment trust said in a statement. Hanover lost $80 million in all of 2007, compared to a slight loss in 2006. Hanover invests in prime mortgage securities and mortgage loans on a leveraged basis. Its portfolio of investments includes subordinated tranches of mortgage-backed securities whose value has slipped greatly over the past year. It noted that its net loss "is primarily due to an impairment expense of $73.6 million for other than temporary declines in fair value" of its MBS portfolio. Hanover said it is seeking additional capital and has engaged Keefe, Bruyette & Woods Inc. as an investment adviser.

Seven classes of notes and loan interests from Westways Funding XI Ltd., a mortgage market value collateralized debt obligation, have been downgraded by Fitch Ratings. The downgrades were as follows: class A-2 notes, from AA to C/DR4; class B notes, from A to C/DR6; class LB loan interests, from A to C/DR6; class C notes, from BB to C/DR6; class LC loan interests, from BB to C/DR6; class D notes, from CCC/DR5 to C/DR6; and class E income notes, from CCC/DR6 to C/DR6. The downgrades were attributed to "preliminary payment calculations that give a good indication of final payment levels."

Nearly 140 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on April 1 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed 17 classes of subprime pass-throughs on Rating Watch Negative, removed nine from Rating Watch Negative, and affirmed the ratings on classes with outstanding balances of over $2.6 billion. The securities affected by the latest downgrades were: 47 classes from six issues of Citigroup Mortgage Loan Trust mortgage pass-throughs; 34 classes from four issues of MASTR Asset Backed Securities Trust pass-throughs; 31 classes from four issues of IXIS Real Estate Capital Trust pass-throughs; and 27 classes from six issues of Morgan Stanley 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.

Nearly 280 tranches from 27 alternative-A transactions issued by Lehman XS Trust Series have been downgraded by Moody's Investors Service. Of the 279 downgraded tranches, 162 remain on review for possible further downgrade. An additional 97 tranches were also placed on review for possible downgrade. 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 alt-A mortgage loans. Moody's can be found online at http://www.moodys.com.