Servicing

The Federal Reserve, in conjunction with several other central banks, has announced new measures to promote liquidity in financial markets. Under the new Term Securities Lending Facility, the Fed will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, agency residential-mortgage-backed securities, and nonagency triple-A rated private-label residential MBS. Securities will be sold via weekly auctions, beginning March 27. In addition, the Federal Open Market Committee has authorized increases in its temporary reciprocal currency arrangements, or swap lines, with the European Central Bank and the Swiss National Bank. The latest actions supplement measures announced March 7 to boost the size of the Fed's Term Auction Facility to $100 billion, among other things. Sen. Christopher J. Dodd, D-Conn., chairman of the Senate Banking Committee, termed the Fed move "a significant step" to address the "liquidity lock-down" in U.S. credit markets, but he called for further steps to address "the foreclosure crisis." He said he is preparing legislation to do so.

Refinance.com has received government approval to refinance subprime borrowers that are a few months delinquent into Federal Housing Administration-insured loans once the mortgage insurer, investor, or servicer makes up the necessary payments to bring the loan current. The New York-based lender received FHA approval a few weeks ago. "We have told our servicers and mortgage insurance companies of its availability," Refinance.com chairman and chief executive Nicholas Bratsafolis told MortgageWire. Mr. Bratsafolis noted that a lot of refinances will face loan-to-value problems, and he is encouraging servicers to use a shared-equity mortgage to reduce the principal amount of the mortgage to an affordable level. His branded "Appreciating America Second Mortgage" does not trigger a writedown until it is paid off or the property appreciates by 15%. FHA officials have "confirmed it would be appropriate" to use a shared appreciation mortgage in FHA refinancing, the CEO said. The borrower does not have to make payments on the SAM and receives a 30% share of the appreciation plus reimbursement for improvements when it's paid off. The company, also known as Homebridge Corp., is launching a marketing campaign for the Appreciating America Second Mortgage in a few weeks.

Treasury Secretary Henry Paulson continues to dismiss calls for helping borrowers with "underwater" mortgages through principal reductions that are being advocated by some federal banking regulators. It's not the "government's job" to help borrowers who would walk away from their homes because the properties' values have dropped and they don't want to pay the mortgage, Secretary Paulson told the American Bankers Association. The Treasury secretary played an important role in getting mortgage servicers to join the Hope Now alliance, which is focused on helping struggling homeowners who want to stay in their homes but can't afford their mortgage payment because of a change in their ability to pay or the reset of an adjustable-rate mortgage. He stressed that it is important for the Hope Now servicers to publicly disclose the results of their workout efforts so that everyone can see whether the servicers are following through on the commitments. "I won't look kindly on free riders," Mr. Paulson said. Last week, Federal Reserve Board Chairman Ben S. Bernanke called on lenders to make permanent reductions in the principal amount of a mortgage to help troubled borrowers stay in their homes or refinance into a Federal Housing Administration-insured mortgage.

The class A-1 floating-rate notes of Ballantyne Re PLC, which holds "significant" amounts of subprime residential asset- and mortgage-backed securities, has been downgraded from BB to B-plus and placed on Rating Watch Negative by Fitch Ratings. Fitch also placed the class B-1 subordinated notes and class B-2 subordinated floating-rate notes on Rating Watch Negative. The actions were attributed to "Fitch's heightened concern about subprime and alt-A ABS/RMBS."

Thirty tranches from five subprime mortgage deals issued by Structured Asset Investment Loan Trust in 2005 have been downgraded by Moody's Investors Service, and eight tranches have been placed under review for possible downgrade. The actions were based on the fact that the number of seriously delinquent loans in the pools continues to grow for all five transactions, Moody's said. "In addition, pending stepdown on some of the transactions may make certain securities more vulnerable to pool deterioration in the future," the rating agency said. The deals are backed by first- and second-lien subprime mortgage loans.

Moody's Investors Service has downgraded 163 tranches from 15 transactions issued by Bear Stearns ALT-A Trust. Seventy-eight downgraded tranches remain on review for possible further downgrade. Additionally, 155 tranches were placed on review for possible downgrade. The downgrades, in general, were 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. Moody's can be found on the Web at http://www.moodys.com.

Freddie Mac's board of directors has announced a dividend of $0.25 per share on the corporation's voting common stock for the first quarter. The board also declared the following preferred stock dividends per share: $0.53 on 1996 and 1998 variable-rate stock; $0.72625 on 1997, 2001, and 2002 5.81% stock; $0.625 on 5% stock; $0.6375 on 1998 and 1999 5.1% stock; $0.6625 on 5.3% stock; $0.72375 on 5.79% stock; $0.4475 on 1999 variable-rate stock; $0.585 on January 2001 variable-rate stock; $0.63194 on March 2001 variable-rate stock; $0.645 on May 2001 variable-rate stock; $0.66 on 2006 variable-rate stock; $0.75 on 6% stock; $0.7125 on 5.7% stock; $0.8025 on 6.42% stock; $0.36875 on 5.9% stock; $0.348125 on 5.57% stock; $0.35375 on 5.66% stock; $0.37625 on 6.02% stock; $0.409375 on 6.55% stock; and $0.67465 on 2007 fixed- to floating-rate stock. The dividends will be payable on March 31 to stockholders of record as of March 17. Freddie Mac can be found online at http://www.freddiemac.com.

InsideValuation, a real estate valuation company based in Reno, Nev., has announced a partnership with International Financing Engineering Group, Rockville, Md., that has created a ZIP code-level mortgage default projection. The two companies offer combined access to millions of recent loan histories and "a large quantity" of subprime loan default information, according to InsideValuation. "This product presently allows mortgage risk managers to determine the relative safety of loans based on econometric and demographic variables relating to property location, such as median home price, median household income, affordability, unemployment, and rent-versus-price ratios," the company said. InsideValuation can be found online at http://www.insidevaluation.com.

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]."