Servicing

The Department of Housing and Urban Development has issued the new loan limits for Federal Housing Administration, Fannie Mae, and Freddie Mac mortgages in high-cost counties of California and will soon release the loan limits for the rest of the country. Congress has temporarily increased the loan limits in high-cost areas to 125% of median home prices, up to a maximum of $729,750, until Dec. 30. Under this authority, lenders will be able to originate mortgages with a principal balance of $729,750 in the counties of Los Angeles, San Francisco, Orange, and Santa Barbara. HUD is also issuing a mortgagee letter that gives FHA lenders the green light to make the higher-balance loans. Lenders can check the new loan limits in their state by going to the FHA website, looking under "Hot Topics," and clicking on "Stay Informed of FHA Mortgage Limits." The FHA can be found online at http://www.fha.gov.

The overall home mortgage delinquency rate jumped to 5.82% in the fourth quarter, the highest level since 1985, according to the national delinquency survey of the Mortgage Bankers Association. When the foreclosure inventory is added to the delinquency rate, nearly 8% of all homeowners with a mortgage were not making payments in the fourth quarter. Foreclosures reached the highest level in the history of the MBA survey, with the inventory of loans in the foreclosure process rising to 2.04% and 0.83% of loans entering the foreclosure process during the fourth quarter. In a conference call with reporters, MBA chief economist Doug Duncan noted that adjustable-rate mortgages to subprime borrowers accounted for 42% of the loans entering foreclosure during the fourth quarter, though subprime ARMs only account for 7% of loans outstanding. "Roughly a third of subprime adjustable-rate loans are late on their payments," Mr. Duncan said. The MBA can be found online at http://www.mortgagebankers.org.

Merrill Lynch, which a year ago paid $1.3 billion for subprime giant First Franklin Financial Corp. and two affiliates, has officially pulled the plug on the unit and plans to sell FFFC's servicing division, Home Loan Services. Over the past two months, account executives at the San Jose, Calif.-based First Franklin have been telling MortgageWire that the unit was funding hardly any new loans and that a plan to retrain AEs to originate Fannie Mae loans was never implemented. At one time First Franklin -- which Merrill had purchased from National City Corp. -- ranked among the nation's top five residential subprime lenders. Among subprime servicers, the Pittsburgh-based HLS ranks sixth nationwide, according to the Quarterly Data Report. The closure will affect at least 650 workers at First Franklin and its affiliate, NationsPoint. "Since July, we have reduced staffing at First Franklin by nearly 70%, but after evaluating a number of strategies, we believe it is appropriate to discontinue mortgage origination," said David Sobotka, head of Merrill's fixed-income division. (For further details, see the March 10 issue of National Mortgage News.)

The floating-rate notes of Thornburg Mortgage Capital Resources LLC have been placed on Rating Watch Negative by Fitch Ratings. Fitch said all the outstanding floating-rate notes in the program have extended for 30 business days, with a final maturity of April 14, 2008. "The program documents allow for a one-time extension to the maturity of outstanding notes at the option of the manager in the event that additional notes cannot be issued," Fitch said. "Since June 1, 2007, the outstanding liabilities of the program have declined from $9.2 billion to the current $300 million level." Fitch said the negative rating action was based on concerns about further declines in the market value of the residential mortgage-backed securities (backed by hybrid adjustable-rate mortgages) supporting the notes. The rating agency also reported that the issuer default rating and senior unsecured notes of Thornburg Mortgage Inc. remain on Rating Watch Negative.

More than 200 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on March 4 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed more than 100 classes of subprime pass-throughs on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of more than $5 billion. The securities affected by the latest downgrades were 95 classes from six Structured Asset Securities Corp. deals, 53 classes from nine J.P. Morgan deals, 29 classes from two BNC deals, 24 classes from two Wells Fargo Home Equity Trust deals, and 11 classes from one Societe Generale Mortgage Securities Trust deal. Fitch also placed the following securities on Rating Watch Negative: 31 classes from two Saxon deals, 29 classes from two SASCO deals, 25 classes from two Asset Backed funding Corp. deals, and 18 classes from one First Franklin Mortgage Loan Trust deal. 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 on the Web at http://www.fitchratings.com.

Franklin Credit Management Corp., a Jersey City, N.J.-based company engaged in the servicing and resolution of residential mortgage loans, has announced that it has entered into interest rate swap agreements to hedge part of its interest-rate-sensitive borrowings against increases in short-term interest rates. The $725 million of nonamortizing fixed-rate swap agreements are for periods ranging from one to four years. Under the agreements, Franklin Credit will make interest payments to its lead lending bank at fixed rates and will receive interest payments from the bank on the same notional amounts at variable rates based on the London interbank offered rate, the company said. The specialty finance company can be found online at http://www.franklincredit.com.

The Principal Financial Group, Des Moines, Iowa, has disclosed in a Securities and Exchange Commission filling that as of Dec. 31 it had $996.5 million of exposures to monoline bond insurers and mortgage insurers. In other news related to pressures on insurers from the mortgage-related credit crunch, California Treasurer Bill Lockyer has asked Fitch Ratings, Moody's Investors Service, and Standard & Poor's Ratings Services to create a new rating standard for municipal debt, citing issues highlighted by the crunch's effect on bond insurers and their ratings. None of the three rating agencies had a comment on the issue as of late Wednesday morning. Meanwhile, multiple reports indicated that closely watched billionaire Warren Buffett has withdrawn an offer to reinsure three financial guarantors' positions in $800 billion of municipal bonds because the companies had not been receptive to the offer.

House Financial Services Committee Chairman Barney Frank, D-Mass., plans to circulate a bill next week that would create a government program to buy distressed mortgages that have been written down to an affordable level and meet Federal Housing Administration eligibility standards. Chairman Frank said he expects the mortgages to be purchased in an auction and that "we will buy the cheapest ones." He noted that his foreclosure prevention proposal is similar to one by the Office of Thrift Supervision, except that the government would take a "soft second" mortgage and share in any appreciation in the property. Rep. Frank has the backing of House Democratic leaders for the new program, which will require an initial $10 billion to $12 billion investment to start. He also told reporters that the bill might include a provision to shield servicers from investor lawsuits. Many servicers are reluctant to write down loans because of disgruntled investors. In related news, the committee chairman said a House/Senate conference on the FHA reform bill is going well and he expects to send the bill to the president in April.

Three classes of certificates issued by Citigroup Mortgage Loan Trust series 2004-CB3 have been downgraded by Moody's Investors Service. The downgrades were as follows: class B2, from Baa2 to Ba1; class B3, from Baa3 to B1; and class B4, from Ba1 to B3. "The stepping down and continuous losses have left this deal with thin credit enhancement levels and made it more vulnerable to pool deterioration in the tail end of its life," the rating agency said. Moody's can be found on the Web at http://www.moodys.com.

Four classes from two GS Mortgage Securities Corp. deals issued in 2005 have been downgraded by Fitch Ratings. The downgrades were as follows: series 2005-SD1, class M-3, from BBB-plus to BBB, class B-1, from BBB to BB, and class B-2, from BBB-minus to B (and placed on Rating Watch Negative); and series 2005-SD2, class B-4, from BBB to BB. Fitch also affirmed the ratings on 10 classes in the two deals. The negative rating actions were attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral consists of mortgage loans secured by residential properties or manufactured homes.