Servicing

The Federal Agricultural Mortgage Corp. and the National Rural Utilities Cooperative Finance Corp. have announced the sale of $400 million of five-year notes secured by National Rural to Farmer Mac. The notes are secured by mortgage debt issued by rural electric distribution cooperatives that are members of National Rural, a not-for-profit finance cooperative. Farmer Mac, a congressionally chartered corporation that provides a secondary market for rural housing and agriculture-related mortgage debt, said the deal provides National Rural with greater liquidity for its rural utility cooperative members and advances Farmer Mac's role as an investor in rural America. The organizations can be found online at http://www.farmermac.com and http://www.nrucfc.coop.

The default rate on securitized subprime loans hit 25.2% in December, up 185 bp from that of the previous month, but defaults on alternative-A loans are also surging, according to a report by Friedman Billings Ramsey Investment Management. Defaults on alt-A mortgages jumped to 8.26% in January, up 106 basis points from the level in December and 250 bps from that of November. Alt-A borrowers have high credit scores, but are generally self-employed and highly leveraged. There are 2.8 million securitized alt-A loans totaling $839 billion, and nearly 20% of the loans are secured by second homes and investment properties. The alt-A world is vulnerable in today's market with falling house prices and deteriorating labor market conditions. "It is really a double-whammy for alt-A," said FBRIM managing director Michael Youngblood. (The default rate includes loans 90 days or more past due, in foreclosure, and real estate owned.) FBRIM is a subsidiary of Friedman Billings Ramsey, which can be found online at http://www.fbr.com.

The Federal Reserve Board is soliciting public input on Bank of America's acquisition of the nation's largest mortgage lender and servicer, Countrywide Financial Corp., and plans to hold two public hearings in April. The hearings are scheduled for April 22 in Chicago and April 28-29 in Los Angeles. In weighing the public benefits of a bank merger, the Fed normally considers competitive issues as well as the institutions' Community Reinvestment Act ratings. Based in Calabasas, Calif., Countrywide originated $408.3 billion in mortgages in 2007, and it serviced $1.48 trillion in mortgages as of Feb. 28.

Response to the Federal Reserve's first auction designed to address liquidity concerns via financings that allow a greater range of collateral seems to indicate that liquidity concerns have dissipated somewhat. The response to the Fed auction Thursday suggests that "financing needs are less dire than expected," according to Noah Estrin, mortgage-backed securities trading strategist at RBS Greenwich Capital. Also suggesting that the "flight to quality" in the market has diminished is the increase in the benchmark 10-year Treasury yield to around 3.5%, according to Yahoo Finance. During the latest round of liquidity concerns, the benchmark yield was closer to 3.3%.

Three tranches of mortgage-backed securities from Sequoia Alternative Loan Trust 2006-1 have been downgraded by Moody's Investors Service. The downgrades were as follows: class B-1, from Aa3 to B2 (and placed under review for possible further downgrade); class B-2, from B1 to Ca; and class B-3, from Caa2 to Ca. In addition, class A-2 was placed on review for possible downgrade. The negative rating actions 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, adjustable-rate, alternative-A mortgage loans.

Three tranches of mortgage-backed securities from Luminent Mortgage Trust 2005-1 have been downgraded by Moody's Investors Service. The downgrades were as follows: class M-1, from Aa1 to Aa3; class M-2, from Aa2 to A3; and class B-1, from Aa3 to Baa1. 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, adjustable-rate, alternative-A mortgage loans.

Eleven tranches from two transactions issued by GSC Capital in 2006 have been downgraded by Moody's Investors Service. Six downgraded tranches remain on review for possible further downgrade, and four other tranches were placed on review for possible downgrade. The negative rating actions 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, adjustable-rate, alternative-A mortgage loans.

Twenty-two tranches from four subprime deals issued by Structured Asset Investment Loan Trust in 2004 and 2005 have been downgraded by Moody's Investors Service. The downgrades were based on an "analysis of the credit enhancement provided by subordination, overcollateralization and excess spread relative to expected losses," Moody's said. The transactions are backed primarily by first-lien, fixed- and adjustable-rate subprime mortgage loans.

Thirty-eight tranches from four transactions issued by Opteum Mortgage Acceptance Corp. have been downgraded by Moody's Investors Service. Ten downgraded tranches remain on review for possible further downgrade, and six other tranches were placed on review for possible downgrade. The negative rating actions 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, fixed- and adjustable-rate, alternative-A mortgage loans.

Sixty-three tranches from 17 mortgage-backed securities deals issued by Bear Stearns have been downgraded by Moody's Investors Service. One tranche was placed on review for possible further downgrade. The downgrades were attributed to "an increasing proportion" of severely delinquent loans. "The timing of losses coupled with the passing of stepdown triggers for most of the transactions has caused the protection available to the subordinated bonds to be diminished," Moody's said. The collateral consists primarily of first-lien subprime mortgage loans, the rating agency said.