Servicing

The Office of Federal Housing Enterprise Oversight is lifting the portfolio caps on Fannie Mae and Freddie Mac, which will allow the two government-sponsored enterprises to provide more liquidity to the mortgage market and invest in jumbo mortgages. "OFHEO will remove the portfolio growth caps for both companies on March 1, 2008," OFHEO Director James Lockhart said. The unexpected action gives the GSEs more room to use their new authority to purchase jumbo mortgages and hold them in portfolio until they can securitize the higher-balance mortgages. Mr. Lockhart noted that Fannie and Freddie are filing their 2007 annual financial reports on time, which shows they have made "substantial progress" in fixing their accounting systems and internal controls as specified in separate consent orders. The consent orders also require the GSEs to maintain a 30% capital surplus. The OFHEO director signaled that he will begin discussions with Fannie and Freddie to gradually lower the capital surplus.

Forty tranches from 14 transactions issued in 2004 and 2005 by Bear Stearns Asset Backed Securities I Trust have been placed on review for possible downgrade by Moody's Investors Service. The negative rating actions were based on a comparison of credit enhancement levels with projected losses, Moody's said.

Fifty-eight tranches from seven transactions issued under the RAMP 2005-RS shelf have been placed on review for possible downgrade by Moody's Investors Service. The negative rating actions were based on reductions in projected available credit enhancement from a significant build-up of delinquent loans, Moody's said. The collateral consists primarily of first-lien mortgage loans acquired by Residential Funding Corp. under the Negotiated Conduit Asset Program. The NCA Program was established to buy loans that do not comply with some of the criteria of RFC's standard programs.

Seventy-eight tranches from 20 chiefly subprime mortgage-backed securities deals issued by Terwin Mortgage Trust from 2003 through 2005 have been downgraded by Moody's Investors Service. Moody's also placed 10 additional tranches on review for possible downgrade. The downgrades were attributed mainly to weak performance in the underlying collateral pool, though many of the deals "have only experienced deterioration in performance at the tail end of the collateral pool, with pool factors near or below 10%," the rating agency said. "Additionally, the vast majority of these tranches have experienced diminished credit support as a result of passing performance triggers in prior periods." The collateral consists primarily of first- or second-lien subprime residential mortgage loans. Moody's can be found online at http://www.moodys.com.

More than 100 additional classes of first-lien subprime mortgage pass-through certificates were downgraded by Fitch Ratings on Feb. 25 as a result of changes to its subprime loss forecasting assumptions. Fitch also affirmed the ratings on classes with outstanding balances of $1.6 billion. The securities affected by the latest downgrades were 128 classes from 10 Ameriquest deals. 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.

Standard & Poor's Ratings Services has announced the release of new versions of its CDO Evaluator Desktop models to reflect recently revised analytic assumptions. S&P released two versions of the model: CDO Evaluator 4.0, which replaces CDO Evaluator 3.3 and 3.1; and CDO Evaluator 2.6, which replaces the 2.4.3 model. CDO Evaluator 4.0 incorporates asset re-classifications, correlation revisions for certain residential mortgage-backed securities and RMBS-related securities, a Chinese interface, and several other enhancements, the rating agency said. S&P said it is also in the process of updating its CDO Evaluator Engine, CDS Accelerator, and CDS Xpress tools. The rating agency can be found on the Web at http://www.standardandpoors.com.

Federally insured banks and thrifts have reported earnings of $5.8 billion for the fourth quarter, an 84% drop from those of a year earlier, as turmoil in the credit and mortgage markets produced large trading loses, record-high loss provisions, and the largest increase in noncurrent one- to four-family loans in 17 years, according to the Federal Deposit Insurance Corp. Noncurrent loans (90 days or more past due) rose by $26.9 billion, or 32.5%, in the fourth quarter, and residential and commercial real estate loans accounted for more than 80% of the increase. Noncurrent one- to four-family loans grew by $11.1 billion, or 31.7%, in the fourth quarter, and chargeoffs were up $1.3 billion, or 144%. The percentage of noncurrent one- to four-family loans rose from 1.57% in the third quarter to 2.06% in the fourth quarter -- the highest level in 17 years. Meanwhile, noncurrent construction and development loans increased by $8.4 billion, or 73.2%, in the fourth quarter. The FDIC is keeping a close eye on housing, CRE, credit card, and small business loan portfolios. "All of these are showing signs of stress, as weakness in the housing market continues," FDIC Chairman Sheila Bair said.

RealtyTrac, an online foreclosure marketplace based in Irvine, Calif., has reported that new foreclosure filings rose 8% in January and were 57% higher than the level recorded a year earlier. The company's U.S. Foreclosure Market Report indicates that 233,001 new foreclosure properties were added to the rolls in January. "January's foreclosure numbers demonstrate that foreclosure activity is continuing on its upward trend, substantially increasing from a year ago in many states," said James J. Saccacio, RealtyTrac's chief executive officer. "However, the 8% monthly increase in January is not as precipitous as the 19% spike the previous month." The company said Nevada, California, and Florida recorded the highest foreclosure rates in January. RealtyTrac can be found online at http://www.realtytrac.com.

Four classes of mezzanine floating-rate notes from Triaxx Funding High Grade I Ltd., which invests in residential mortgage-backed securities, have been downgraded by Fitch Ratings. The downgrades were as follows: class B-1, from BB to CCC; class B-2, from B to CCC; and class C and D deferrable interest notes, from CCC to C. Classes B-1 and B-2 remain on Rating Watch Negative, and classes C and D were removed from Rating Watch Negative. The downgrades were due to "concerns about potential margin calls by the repo counterparty if there is a further drop in market prices, the short-term nature of the repo financing, and delevering of the program that has led to further realization of losses," the rating agency said. Triaxx invests in triple-A rated RMBS assets using proceeds raised by issuing notes and equity and using repo funding, Fitch said.

More than 200 additional classes of first-lien subprime mortgage pass-through certificates were downgraded by Fitch Ratings on Feb. 22 as a result of changes to its subprime loss forecasting assumptions. Fitch also affirmed the ratings on classes with outstanding balances of over $1.6 billion. The securities affected by the latest downgrades were 99 classes from seven Asset Backed Securities Corp. deals; 69 classes from five IndyMac ABS Inc. deals; 55 classes from four Asset Backed Funding Corp. deals; and seven classes from one BASIC 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.