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Fannie Mae will begin purchasing fixed-rate jumbo mortgages on April 1, but the single-family loans will have to be manually underwritten until its automated underwriting system is updated. Purchases of adjustable-rate mortgages will begin May 1, the secondary-market agency told lenders in posting its underwriting criteria for the temporary jumbo program authorized by Congress in the economic stimulus bill. On purchase mortgages, loan-to-value ratios (including second liens) cannot exceed 90% on fixed-rate jumbos and 80% on ARMs, which means a homebuyer has to put up a 20% downpayment on a jumbo ARM. On refinancings, the cash take-out is limited to $2,000, and the LTV ratio cannot exceed 75% on the first mortgage or 95% with second liens. Despite the conservative lending standards, Fannie is charging a special fee of 25 basis points on fixed-rate jumbos and a 75-bp fee on ARMs. The government-sponsored enterprise can be found on the Web at http://www.fanniemae.com.

The long-term Issuer Default Ratings of First Horizon National Corp., National City Corp., and Washington Mutual Inc. have been downgraded by Fitch Ratings as a result of concerns about home equity portfolios. Fitch also downgraded the individual rating of Wells Fargo & Co. and placed the long-term IDRs and other ratings of Bank of America Corp., Citigroup Inc., Fifth Third Bancorp, and Sun Trust Banks Inc. and their affiliates on Rating Watch Negative in connection with its home equity concerns. It also downgraded or affirmed various other ratings of First Horizon, National City, WaMu, and Wells Fargo and their affiliates. The IDR downgrades were as follows: First Horizon, from A-minus to BBB-plus; National City, from A-plus to A; and WaMu, from A-minus to BBB. Wells Fargo's individual rating was downgraded from A to A/B. "Recent developments and information Fitch has gained from a variety of internal and external sources suggest that evidence of deterioration within home equity portfolios will clearly emerge in first-quarter 2008, which is earlier than Fitch previously expected," the rating agency said. "More important, pressures from home equity portfolios may very well exceed Fitch's expectations at the time the negative outlook was assigned to the industry [in late 2007]."

An economic adviser to former President Ronald Reagan has proposed a way to help struggling homeowners lower their mortgage payments, and it has caught the eye of White House officials because it could reduce defaults, cushion falling house prices, and lower the loan-to-value ratios of existing mortgages. The federal government would provide an unsecured loan equal to 20% of the homeowner's existing mortgage with a low rate that is payable in 15 years under the proposal outlined by Harvard University Professor Martin Feldstein in a Wall Street Journal editorial. With the pay-down mortgage loan, borrowers would pay less in total interest and have less incentive to default or walk away due to falling house prices because they could not escape repayment of the government loan. The lender/investor ends up with a more secure mortgage and a check for 20% of the mortgage. President Bush's economic adviser Edward Lazear said the White House is looking at "Feldstein's idea." The Harvard professor said the government could implement his "substitution loan" program in a few months without creating a large bureaucracy.

A new professional association has been formed in Alexandria, Va., by U.S. regional bond dealers, some of which are active in the mortgage-backed securities market. The new group, the Regional Bond Dealers Association, says it plans to focus on issues of interest to U.S. regional fixed-income securities dealers. It has 14 members, among them Wells Fargo, Southwest Securities, and First Tennessee.

Citing rapid deterioration in the U.S. housing market in the past several months, Fitch Ratings has announced an "extensive review" of alternative-A residential mortgage-backed securities originated from 2005 to 2007. The review involves 417 alt-A RMBS deals with an outstanding balance of $160 billion, all of which have been placed on Rating Watch Negative. The rating agency said the review will focus first on $10 billion of subordinate alt-A RMBS that face "substantial pressure" from rising mortgage defaults. The review is expected to be "substantively completed" by April 30. "Accelerating home price declines partly due to the recent dramatic contraction in the nonagency mortgage origination and securitization markets [have] been the primary catalyst of the alt-A performance downturn," said Glenn Costello, Fitch managing director and RMBS co-head.

Citing a worse mortgage market than expected even two months ago, Standard & Poor's Ratings Services has lowered the long-term counterparty credit ratings of Washington Mutual Inc., Seattle, and Washington Mutual Bank. WaMu's counterparty rating was downgraded from BBB-plus to BBB, and WaMu Bank's was downgraded from A-minus to BBB-plus. S&P also placed all its WaMu ratings on CreditWatch with negative implications. "We now believe that the severity of losses on all residential mortgages will be higher that we had thought and that the weak housing market will now be a longer cycle," said S&P credit analyst Victoria Wagner. S&P said it also has a more negative view of the overall economy, which could "push loan losses and loan delinquencies much higher than we previously factored into the WaMu ratings." Despite the downgrades, S&P said WaMu "has made significant strides at shoring up bank and holding-company liquidity and has substantial liquidity at the holding company to meet all of its fixed-income and dividend obligations through the next few years."

Closed-end investment fund Carlyle Capital Corp. Ltd. says it is considering "all available options" after receiving "substantial additional margin calls and additional default notices from its lenders." The margin calls stem from recent deterioration in the agency mortgage-backed securities market. "The company believes these additional margin calls and increased collateral requirements could quickly deplete its liquidity and impair its capital," Carlyle Capital said. Carlyle also said that lenders who had previously issued default notices to the company have liquidated some of the fund's MBS. The company can be found on the Web at http://www.carlylecapitalcorp.com.

JPMorgan Chase Bank NA will be exercising its rights in a default on a margin call of about $28 million at Thornburg Mortgage, triggering cross-defaults that Thornburg said could be "material," according to a Securities and Exchange Commission filing. Thornburg, a real estate investment trust based in Santa Fe, N.M., had said earlier that it was in default with one reverse-repurchase counterparty involved in the second of two sets of margin calls it faced recently. But it had said it was working to repay that counterparty, which had not yet exercised its right to liquidate collateral. The SEC filing indicated that JPM "will exercise its rights." The default has "triggered cross-defaults under all of the company's other secured loan agreements," the filing said.

MBIA, Armonk, New York, has announced plans to eliminate 48 positions in its bond insurance operation but redeploy many affected employees into different asset management jobs as it reorganizes in the wake of mortgage-related concerns. MBIA's chairman and chief executive officer, Jay Brown, said the company has tried to make the cuts "quickly and in a manner that is as painless and generous as possible, with the same treatment for every employee who will leave our organization." He said that in addition to the cuts, the reorganization includes filling 15-20 new "strategic roles" in addition to filling "another 10 open positions."

The Federal Deposit Insurance Corp. is working on a policy statement to clarify how it would deal with covered bonds in a failed bank situation so investors are comfortable holding these instruments, which provide lenders with an alternative way to finance their mortgage lending operations. "FDIC wants to bring certainty to the process and lower the cost of issuing covered bonds," agency spokesman Andrew Gray said. Several U.S. banks have issued covered bonds collateralized by mortgages in European markets that have become concerned about FDIC pay-off policies. The FDIC generally has 90 days to decide how to deal with the assets and liabilities when a bank or thrift fails. The policy statement would clarify that the FDIC intends to shorten the period significantly "so there would be the assurance that it wouldn't spread out over three months," the agency spokesman said. The FDIC wants to issue the policy statement in April for public comment so it can go into effect in late summer.