Servicing

Senate Democrats are pushing for a cloture vote Feb. 26 on a foreclosure prevention bill that would allow bankruptcy judges to restructure mortgages for distressed homeowners, and the financial services industry is mobilizing to defeat it. If the Democrats can get 60 votes, it opens the door to debate and amendments before final passage. But industry groups like the Mortgage Bankers Association are adamantly opposed to giving bankruptcy courts the leeway to reduce the principal amount or interest rate on a single-family mortgage. "We are fighting this," said MBA vice president Francis Creighton. "There is not a lot of room for compromise." The bill also provides funding for refinancing subprime borrowers and for grants to cities to purchase and rehabilitate foreclosed properties. In addition, it has a tax sweetener that allows lenders, homebuilders, and other companies to carry back 2006 and 2007 losses and receive refunds on taxes paid in prior years. Mr. Creighton said the outcome of Tuesday's vote is "really up in the air" and that the MBA is calling on its members to contact their senators.

Seventy-eight additional classes of first-lien subprime mortgage pass-through certificates were downgraded by Fitch Ratings on Feb. 20 as a result of changes to its subprime loss forecasting assumptions. Fitch also affirmed the ratings on classes with outstanding balances of more than $800 million. The securities affected by the latest downgrades were 67 classes from five Long Beach deals and 11 classes from one Washington Mutual 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 online at http://www.fitchratings.com.

DBRS, a Toronto-based rating agency, has downgraded 202 classes from 40 residential mortgage-backed securities transactions. Citing a "significant increase in serious delinquencies," DBRS said excess spread for the classes backed chiefly by first-lien collateral is not expected to be sufficient to cover anticipated losses. The downgrades of classes backed by second-lien collateral reflect "rapid deterioration in credit enhancement" resulting from a significant increase in collateral delinquencies and losses, the rating agency said. "Overcollateralization has been depleted in many transactions, and excess spread continues to diminish," DBRS said. "Additionally, in many cases, subordinate classes have already been impaired, further weakening the available credit support for the remaining senior and mezzanine classes."

Mission Capital Advisors is taking bids on a $131.2 million portfolio of nonperforming mortgages secured by commercial and residential properties in western Florida. Buyers can bid on individual loan pools or the entire portfolio. According to the New York-based Mission, most of the loans have recent appraisals, and all carry "personal guarantees that are expected to add significant value." Preliminary bids are due March 4.

The long- and short-term issuer default ratings of Citizens Republic Bancorp Inc. and its principal subsidiaries have been downgraded by Fitch Ratings, which cited increased losses and nonperforming loans in its commercial real estate loan portfolio. The company's long-term IDR was downgraded from BBB to BBB-minus, and the short-term IDR was downgraded from F2 to F3. The rating outlook is stable. The downgrades were attributed to a deterioration of asset quality "evidenced by the sharp rise and sheer volume" of nonperforming assets and loan losses. "Credit problems are generally concentrated in the land development, land hold, and construction portions of the commercial real estate loan portfolio, and largely represent loans originated by Republic Bancorp Inc., which CRBC acquired on Dec. 29, 2006," Fitch said.

Friedman, Billings, Ramsey Group lost $270 million in the fourth quarter and is blaming its performance partly on the bankruptcy of its subprime division, First NLC Financial Services of Florida. For the year, the publicly traded real estate investment trust -- once a major player in the subprime sector -- lost $660 million. On Wednesday, FBRG's affiliate, FBR Capital Markets Corp., posted a $27.8 million loss for the quarter. FBRG is traded on the New York Stock Exchange, FBR Capital on the Nasdaq. (FBRG owns 52% of the affiliate.) In a statement, company president Rock Tonkel said the firm has "eliminated" most of its subprime whole-loan mortgages and on-balance-sheet residuals. Its exposure in this asset category is roughly $30 million. The REIT is putting its available cash into agency-quality mortgage-backed securities. It had $1.1 billion invested in MBS at the end of December.

Thirty-seven tranches from six mortgage-backed securities deals issued by RAMP in 2005 and 2006 have been placed under review for possible downgrade by Moody's Investors Service. The actions were attributed to projected reductions in available credit enhancement. The collateral consists primarily of first-lien residential mortgage loans with high loan-to-value ratios. Moody's can be found on the Web at http://www.moodys.com.

Seventy-four additional classes of first-lien subprime mortgage pass-through certificates were downgraded by Fitch Ratings on Feb. 19 as a result of changes to its subprime loss forecasting assumptions. Fitch also affirmed the ratings on classes with outstanding balances of more than $1.4 billion. The securities affected by the latest downgrades were: 44 classes from four Residential Funding Co. Residential Asset Securities Corp. deals; 15 classes from one ResMae deal; and 15 classes from one People's Choice 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 online at http://www.fitchratings.com.

National Real Estate Information Services, a privately held vendor management company based in Pittsburgh, has announced the formation with Howard Hanna Real Estate Services of a comprehensive platform for managing and selling real estate owned. The new company, National Real Estate Asset Management, is aimed at leveraging Howard Hanna's real estate marketing experience and NREIS's expertise in vendor management and property preservation to form the first partnership of its kind, NREIS said. The partnership will enable customers holding foreclosed properties to work with one entity that handles every aspect of property dissolution, from eviction to sale. The two parent companies can be found online at http://www.nreis.com and http://www.howardhanna.com.

Investment banker FBR Capital Markets Corp., which recently threw its subprime division into bankruptcy, lost $27.8 million in the fourth quarter. In a statement, FBR blamed the performance on impairment charges tied to its investment portfolio and merchant banking business as well as severance costs. Last month FBR's First NLC Financial Services unit filed for Chapter 11 bankruptcy protection. At one time, First NLC was a top-20-ranked subprime lender. Between 2002 and 2005, FBR took several subprime mortgage firms public, converting them to a REIT ownership structure.