Servicing

Standard & Poor's Ratings Services has placed 1,887 classes of alternative-A, first-lien residential mortgage-backed securities on CreditWatch with negative implications. The classes are from 404 RMBS transactions issued in 2006 and the first half of 2007, and they have a current balance of $12.9 billion, S&P reported. The actions "reflect a persistent rise in the level of delinquencies among the alt-A mortgage loans supporting these transactions," S&P said. The rating agency said it is also reviewing the affected transactions in the light of its revised assumptions for the surveillance of U.S. RMBS. The affected alt-A transactions are collateralized by negative-amortization (payment-option adjustable-rate mortgage), short-reset hybrid ARM (2/28 and 3/27), and fixed-rate and longer-dated hybrid ARM loans. S&P can be found online at http://www.standardandpoors.com.

JPMorgan Chase's retail financial services unit is looking for continued gains in its mortgage market share, but it has some concerns about the related home equity area where losses are continuing to trend higher. In a retail financial services presentation from its "investor day" meeting, the company indicated that it expects to add to its loan loss reserves in the first quarter as a result.

Conditions in the residential construction market are likely to worsen in 2008, with housing starts falling another 25%, according to a research report from the Portland Cement Association. The large number of foreclosures caused by the subprime mortgage crisis will be a major contributor to rising home inventories, which will depress construction activity, said Edward J. Sullivan, PCA's chief economist. "Typically, builders accelerate start activity when the inventory supply reaches five months," Mr. Sullivan said. "A significant improvement in sales and inventory conditions is not expected until the second half of 2009." The economist projected that the housing inventory is likely to stand at a 9.5- to 10-month supply by the end of this year. PCA can be found on the Web at http://www.cement.org.

Fremont General Corp., the Brea, Calif.-based holding company for a bank and mortgage servicer, has announced that it may need to record additional asset writedowns and reserves in its 2007 financial statements that could result in further losses or adjustments to regulatory capital. Fremont, which does business primarily through its wholly owned subsidiary Fremont Investment & Loan, said that either development would "further erode the bank's total equity capital of $448.6 million" reported in its latest Call Report and "could have an adverse effect" on its financial condition. Because of these uncertainties, Fremont's independent auditors have delayed the completion of their 2007 audit and Fremont has delayed filing its Form 10-K with the Securities and Exchange Commission, the company said. Fremont can be found online at http://www.fremontgeneral.com.

A judge in Massachusetts has temporarily barred Fremont Investment & Loan from initiating or advancing foreclosures on "presumptively unfair" mortgage loans unless certain conditions are met, according to Buckley Kolar LLP. However, in granting the state attorney general's motion for a preliminary injunction, a Suffolk County Superior Court judge found that there was no evidence that Fremont had made false representations or had violated any federal or state consumer credit law, the law firm reported. Rather, the court found that the loans at issue fell within the "penumbra" of a state predatory-lending law governing high-cost mortgage loans. The court defined a loan as presumptively unfair if it is an adjustable-rate mortgage with an introductory period of three years or less, has a teaser rate at least 3 percentage points lower than the fully indexed rate, and meets two other tests. The other tests are that it has a loan-to-value ratio of 100%, or carries a substantial prepayment penalty (or a prepayment penalty that extends beyond the initial period), and the borrower has a debt-to-income ratio that would have exceeded 50% if the debt had been measured by the amount due under the fully indexed rate. Buckley Kolar, which serves the financial services industry, can be found online at http://www.buckleykolar.com.

Senate Republicans have blocked Democrats from rushing to the floor a foreclosure prevention bill that allows bankruptcy judges to restructure subprime and certain nontraditional mortgages. Democrats mustered only 48 of the 60 votes needed to invoke cloture and start debate on the bill (S. 3221), which also provides revenue bonds for refinancing subprime borrowers and federal grants to purchase foreclosed properties. Senate Majority Leader Harry Reid called the vote a "big victory" for Wall Street, big banks, and mortgage bankers. But as for the millions of people facing foreclosure, "they lost," Sen. Reid said. The American Financial Services Association's top lobbyist, Bill Himpler, said the industry could support the foreclosure prevention bill if the bankruptcy provision is stripped from the package. With all the market turmoil, this is not the time to consider changes to the bankruptcy code that would "essentially undermine investor confidence in mortgage lending," he said. The Democrats will likely push for another vote before March 15, when the Senate takes a two-week break. Meanwhile, the Senate Judiciary Committee has scheduled a March 6 mark-up of two competing mortgage bankruptcy bills. The bill sponsored by Sen. Richard Durbin, D-Ill., was included in S. 3221. The other bill, sponsored by Sen. Arlen Specter, R-Pa., allows bankruptcy judges to reduce or freeze the interest rate on adjustable-rate mortgages.

Class B-3 of CSFB Seasoned Loan Trust 2006-1 mortgage pass-through certificates has been downgraded from BBB-minus to BB by Fitch Ratings. Fitch also affirmed the ratings on three classes in the subprime deal, while two other classes were left on Rating Watch Negative. The downgrade was attributed to changes to the rating agency's subprime loss forecasting assumptions.

Eight classes from two second-lien securitizations issued by Credit Suisse First Boston Mortgage Securities Corp. Home Equity Mortgage Trust have been downgraded by Fitch Ratings. One other class was placed on Rating Watch Negative. The negative rating actions were based on deterioration in the relationship between credit enhancement and expected losses, Fitch said.

Fitch Ratings has placed $97 billion of notes from 197 collateralized debt obligations with exposure to residential mortgage-backed securities on Rating Watch Negative. The action, which affects 902 tranches of structured finance CDOs, reflects continued deterioration in the U.S. subprime mortgage market stemming from high-risk mortgages and declining home prices. "In light of this ongoing deterioration, Fitch's RMBS group announced increased loss expectations of 21% and 26%, respectively," the rating agency said. The placement of the structured finance CDOs on Rating Watch Negative was based primarily on exposure to subprime RMBS and to other CDOs with such exposure, Fitch said. the rating agency can be found online at http://www.fitchratings.com.

Congressional policy proposals targeting the subprime mortgage crisis do not distribute the costs and benefits equitably, according to a study released by the Washington-based FreedomWorks Foundation. The study, conducted by Todd Sinai, associate professor of real estate at the University of Pennsylvania's Wharton School, found that the proposals "inappropriately reward people who made riskier decisions over those who made prudent decisions" and benefit high-income earners at the expense of others. Titled "The Inequity of Subprime Mortgage Relief Programs," the study also said that proposals to increase the conforming loan limit raise questions of fairness and boost the risk borne by Fannie Mae and Freddie Mac. The foundation can be found on the Web at http://www.freedomworks.org.