Servicing

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.

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.