Servicing

Reflecting on how the mainstream press has treated the mortgage business in the past year, Mortgage Bankers Association chairman Kieran Quinn told attendees at the Regional Conference of Mortgage Bankers Associations in Atlantic City, "I'm convinced there is an endless supply of bad headlines and they are going to run through 2008." He called for a release of the portfolio caps on Fannie Mae and Freddie Mac as well as an expansion of the higher loan limits to all 50 states and not just selected areas. "We're not done" pushing for that to happen, Mr. Quinn said. As for dealing with troubled loans, "I'm almost ready for the second coming of the RTC," he said, but in this case the R would stand for residential. Furthermore, participation would be voluntary. He reiterated MBA's contention that if a bankruptcy "cramdown" bill is enacted, it would drive up the cost of mortgages by 150 basis points, adding there are some lenders who have told him it would be more than that. Noting the close vote that defeated the bill in the U.S. Senate, he warned the issue will be coming back, attached to a bill the industry really wants.

Thornburg Mortgage has entered a 364-day agreement with five of its remaining reverse repurchase counterparties and their affiliates that conditionally reduces margin requirements for financing the company's mortgage securities and suspends the counterparties' right to invoke further margin calls and related rights under their reverse repurchase agreements. The reverse repurchase agreement counterparties and their affiliates who entered the override agreement with Thornburg Mortgage include Bear Stearns Investment Products Inc., Citigroup Global Markets Ltd., Credit Suisse Securities (USA) LLC, Credit Suisse International, Greenwich Capital Markets Inc., Greenwich Capital Derivatives, Royal Bank of Scotland PLC, and UBS Securities LLC. "The continued effectiveness of this agreement is contingent upon a variety of factors that are specified in the agreement, the most urgent of which requires that within seven business days Thornburg Mortgage raise a minimum of net proceeds of $948 million in new capital," the company said.

Manufactured housing lender Origen Financial Inc., Southfield, Mich., said its auditor, Grant Thornton, has given the company an unqualified opinion, a move which in accounting terminology raises doubt about the real estate investment trust's ability to continue as a going concern. Based on the value of its assets and discussions with third parties regarding strategic alternatives, Origen said it would be able to raise the additional funds it needs on a timely basis. Meanwhile the company has sold unsecuritized loans with a carrying value of $176 million for proceeds of $155 million. Many of the proceeds were used to pay off its warehouse line. Origen's debt is now $46 million under its supplemental advance facility and $15 million under related party notes secured by servicing fees. Origen previously said it is halting all originations for its own portfolio because of the inability to securitize its production.

Fitch Ratings has placed a "negative outlook" on its short-term and long-term debt ratings for Ocwen Financial Corp. after a deal to privatize the publicly traded company fell through. The failure of Ocwen CEO William Erbey and his investor group to buy all of the outstanding common shares of the company is "a ratings neutral event," Fitch said. But the rating agency added that the "fluid state" of Ocwen's corporate structure, a difficult environment for servicing subprime mortgages, and the challenges related to dislocation in the capital markets all add negative pressure to the company's debt ratings. Fitch said that while recent performance has supported Ocwen's current ratings, higher delinquency and foreclosure rates will increase Ocwen's direct servicing costs and make the financing of servicing advances ore expensive as well. In addition, the company faces long-term pressure because demand for third party, subprime mortgage servicing may diminish, Fitch said.

California thrift Downey Financial Corp. said its nonperforming assets increased to 10.93% at the end of February, an 89% spike over a three-month period. Downey holds $13.4 billion in assets on its balance sheet. In a research note, Credit Suisse cited one positive for the company: its net interest spread expanded 14 basis points to 3.11% during the month thanks, in part, to a decline in deposit costs. Credit Suisse has a "neutral" rating on Downey's stock.

President Bush did not single out for criticism a Democratic plan to expand the Federal Housing Administration program in his speech about what should and should not be done in dealing with the housing correction. FHA commissioner Brian Montgomery also avoided commenting on the proposal, which the House and Senate banking committee chairmen are working on to help 1 million distressed borrowers refinance into an FHA loan. The Democratic plan would require the lender/investor to accept severe writedowns in the principal amount of the mortgage. "There are all sorts of options being floated out there," Mr. Montgomery told reporters. "We are exploring some options on our own, and we will have more to say about that in the next few weeks." Lenders are expecting the agency to liberalize its underwriting criteria under the FHA Secure program so more delinquent subprime borrowers can refinance into an FHA loan. Lenders also expect the FHA to issue a mortgagee letter soon that tightens its underwriting criteria on jumbo mortgages.

WL Ross, the buyout firm headed by Wilbur Ross, is adding to its mortgage holdings by purchasing Option One's mortgage servicing business for $1.1 billion. The firm, which previously bought the servicing rights of bankrupt American Home Mortgage, will take over all of Option One's servicing rights on $53 billion of subprime home mortgages. Combined with the American Home portfolio, the WL Ross unit will service $95 billion of subprime mortgages, making it the second largest subprime mortgage servicer after Countrywide Financial. Option One's servicing facilities in Irvine, Calif.; Jacksonville, Fla.; Las Vegas; and Pune, India, are included in the sale. "Notwithstanding the problems of the subprime lending industry, we regard mortgage servicing as an attractive business and believe that there are considerable economies of scale attached to it. We shall therefore continue to seek acquisitions of prime, alt-A and subprime servicing," Mr. Ross said. The deal is subject to regulatory approvals and other closing conditions, including the completion of a $1.2 billion financing transaction that has been committed from Option One's existing lenders. Closing is expected to occur before the end of May, WL Ross said.

Class B-3 of UBS Mortgage Asset Securitization Transactions Adjustable Rate Mortgages Trust series 2004-10 has been downgraded from BBB-minus to B by Fitch Ratings. Fitch also affirmed the ratings on five classes from two MASTR issues. The downgrade was attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral consists of 30-year, fixed- and adjustable-rate first-lien mortgages.

Three classes of Washington Mutual residential mortgage-backed certificates, series 2002-AR12, have been downgraded and placed on Rating Watch Negative by Fitch Ratings. The downgrades were as follows: class B3, from AA-plus to A-plus; class B4, from AA-minus to A-minus; and class B5, from A-minus to BBB-minus. The negative rating actions were attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral consists of 15- and 30-year, first-lien, adjustable-rate mortgages.

Nine classes of UBS MASTR Alternative Loan Trust mortgage pass-through certificates have been downgraded by Fitch Ratings. Fitch also affirmed the ratings on 39 classes from 11 securitizations issued in 2002, 2003, and 2004. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses. The rating agency said the collateral consists of fixed-rate, first-lien mortgage loans on residential properties and condominiums, a majority of which were originated under a reduced-documentation program.