Servicing

The Hope Now initiative might help 250,000 subprime borrowers avoid foreclosure, but another 2 million homeowners are likely to lose their homes over the next 24 months if they can't petition the bankruptcy courts for relief, according to economist Mark Zandi."While the Hope Now initiative is laudable, it should not forestall passage of H.R. 3609 to provide hard-pressed homeowners facing foreclosure more protection in a Chapter 13 bankruptcy," the chief economist at Moody's Economy.com told a House Judiciary panel. Former Housing Secretary Jack Kemp also testified in favor of the bill, which would allow bankruptcy judges to reduce the interest rate and principal amount of a residential mortgage. But the Mortgage Bankers Association warned that passage of the bankruptcy bill could destabilize the mortgage market. "This would have an immediate and severe impact on the mortgage market as companies book the diminished value of their loans and servicing rights," MBA chairman-elect David Kittle said.

Countrywide Financial Corp., Calabasas, Calif., said Wednesday that it has been subpoenaed by the Florida attorney general's office, which is looking into its foreclosure practices, among other things. Florida joins several other states, including Illinois and Pennsylvania, that are reviewing allegations that the nation's largest lender/servicer charged excessive fees in regard to foreclosures and used high-pressure sales tactics in pushing payment-option adjustable-rate mortgages. Countrywide can be found on the Web at http://www.countrywide.com.

Fitch Ratings Agency has downgraded bond insurer Financial Guaranty Insurance Co. to AA, making it the third major guarantor to lose its top rating. The other two insurers that have received downgrades to AA are MBIA and Ambac. All three insure asset-backed subprime bonds held by institutional investors, including Fannie Mae and Freddie Mac. It is unclear whether the government-sponsored enterprises -- or any other investors that use Ambac, FGIC, and MBIA -- will have to write down their covered bonds because of the downgrades.

The largest global financial institutions are not likely to be significantly affected by the huge number of downgrades of subprime securities announced by Standard & Poor's Jan. 30 (see above item), but they could boost losses among "smaller players," the rating agency says. S&P said it believes that the total losses for financial institutions will eventually reach more than $265 billion. "In our opinion, the downgrades of mortgage securities could lead to the realization of these losses, especially among some of the smaller players that have yet to feel the full extent of the value impairments on securities held in their available-for-sale securities portfolios," S&P said.

Standard & Poor's Ratings Services has downgraded 3,787 classes from U.S. residential mortgage-backed securities that are collateralized by first-lien subprime mortgage loans rated between January 2006 and June 2007. S&P also announced that 2,602 classes of comparable subprime RMBS have been placed on CreditWatch with negative implications. The rating agency also placed 1,953 classes from 572 global collateralized debt obligations of asset-backed securities and CDO of CDO transactions on CreditWatch negative. The affected U.S. RMBS classes represent approximately $270.1 billion of securities, or approximately 47% of the par amount of U.S. RMBS backed by first-lien subprime mortgage loans rated by S&P during 2006 and the first half of 2007. The rating agency can be found online at http://www.standardandpoors.com.

MBIA Inc., whose credit guarantees stand behind billions of dollars in subprime mortgage bonds, posted a $2.3 billion loss in the fourth quarter, blaming the problem partly on the performance of second liens and "CDO squared" transactions. In the fourth quarter alone, it marked down the value of insured credit derivatives by $3.4 billion, saying the move resulted "from wider spreads for CMBS and RMBS collateral" and downgrades related to bonds held in collateralized debt obligation structures. CDOs include tranches of subprime asset-backed securities. MBIA also announced that it has moved to shore up its capital, selling $500 million in common stock to investment fund Warburg Pincus Inc. If MBIA's credit ratings slip, holders of CDO and ABS bonds it insures may be forced to take writedowns on those securities.

Fitch Ratings has downgraded IndyMac Bank FSB's residential servicer ratings from RPS2-plus to RPS2 in the wake of the issuer default rating downgrades of the bank and IndyMac Bancorp, its parent company. Affected were the bank's servicer ratings for prime, alternative-A, and subprime products, as well as its special servicer rating. The ratings remain on Rating Watch Negative. The downgrades reflect the underlying corporate ratings of the bank and its parent, whose long-term IDRs were downgraded from BBB-minus to BB by Fitch on Jan. 24. They also reflect "the continued pressure on IndyMac's financial flexibility in the increasingly challenged residential mortgage market and its potential impact on IndyMac's loan servicing operation," the rating agency said. Fitch added that conversations with the servicer indicated that the company's announced layoffs "did not materially affect the servicing platform." Fitch can be found online at http://www.fitchratings.com.

Mortgage servicers have picked up the pace of modifying subprime loans to assist borrowers who are in trouble, according to the Hope Now Alliance. "Servicers were modifying loans during the fourth quarter at triple the rate of the third quarter," Hope Now executive director Faith Schwartz told a congressional panel. The first loan workout report compiled by the Mortgage Bankers Association showed that servicers modified only 12,740 subprime adjustable-rate mortgages in the third quarter by reducing the interest rate or principal amount of the mortgages. These results were disappointing, and regulators urged the subprime servicers to pick up the pace on loan modifications. The Hope Now alliance is collecting the workout data for future reports, which will measure trends in delinquencies and resolution outcomes, Ms. Schwartz testified. "We want to provide consistent and informative data reports based on common definitions and to provide information that provides insights into the nature and extent of the current subprime mortgage crisis and helps in the development of workable solutions that avoids foreclosures whenever possible."

The House, in a 383-35 vote, has passed an economic stimulus bill that temporarily increases the loan limits for Fannie Mae, Freddie Mac, and the Federal Housing Administration. The stimulus bill (H.R. 5140) raises the loan limits to 125% of median area home prices in high-cost areas, with a $729,750 cap, and it is expected to increase home sales and help stabilize real estate markets. Raising the loan limits for Fannie and Freddie could generate 300,000 additional home sales, reduce the inventory of unsold homes, strengthen home prices, and help 210,000 families avoid foreclosure, according to the National Association of Realtors. "Simply lifting the loan limit will have an immediate impact on lessening foreclosures," NAR chief economist Lawrence Yun told reporters. Preliminary estimates also indicate that raising the FHA loan limit could generate 200,000 to 250,000 additional home sales and 500,000 refinancings. It would also reduce foreclosures, the association said, but NAR economists have not completed that analysis. The Senate is expected to pass its own stimulus bill by Feb. 1. The association can be found online at http://www.realtor.org.

Capstead Mortgage Corp., a Dallas-based real estate investment trust, has priced a public offering of 8 million shares of common stock at $15.50 per share. The company said the net proceeds of the offering will be used to finance the purchase of additional agency adjustable-rate mortgage securities and for general corporate purposes. Bear, Stearns & Co. and Deutsche Bank Securities Inc. are the joint book-running managers of the offering. The underwriters have been granted an option to buy up to an additional 1.2 million shares to cover any overallotments. The REIT can be found online at http://www.capstead.com.