Servicing

New York City has announced the launch of The Center for NYC Neighborhoods, a not-for-profit organization created "to assist homeowners at risk of mortgage foreclosure throughout the five boroughs."Its projected first-year budget of $5.3 million is expected to assist 18,000 New Yorkers. According to city officials, it will be the largest program of its kind in the nation. Mayor Michael R. Bloomberg and New York City Council Speaker Christine Quinn announced that funding in the first year includes $1 million from the administration via the Department of Housing Preservation and Development and $1.8 million from the City Council. In addition, the city said the program planning committee is seeking philanthropic support, which is expected to provide the remainder of the funds from private and foundation sources. The program will operate as an independent entity dedicated to "a major expansion and coordination" of counseling and referral services, legal assistance, loan remediation, preventive outreach, and education, training, research, and advocacy around subprime lending and mortgage foreclosures.

Fitch Ratings has affirmed the triple-A issuer default and senior debt ratings of Fannie Mae and affirmed the other outstanding debt ratings of the government-sponsored enterprise.The actions came in the wake of Fannie Mae's Dec. 5 announcement that it plans to issue $7 billion of nonconvertible preferred stock in December. Fitch affirmed Fannie's preferred stock rating at AA-minus. (That action came on the heels of Fitch's Dec. 4 downgrade of Freddie Mac's preferred stock rating from AA-minus to A-plus following Freddie's $6 billion preferred stock offering.) Fitch said it believes Fannie Mae has been "prudently" managing its balance sheet, retained portfolio purchases, interest rate risk, and credit risk and will continue to do so. The rating agency can be found online at http://www.fitchratings.com.

The Federal Reserve Board will issue long-awaited revisions to its Home Ownership and Equity Protection Act regulations in two weeks to address abusive lending practices, a Fed governor has testified.The proposed HOEPA rule will address prepayment penalties, failure to escrow taxes and insurance, stated-income and low-documentation lending, and ability to repay, Fed Governor Randall Kroszner told a congressional panel. The Fed will also propose changes to its Truth in Lending Act rules to require "earlier disclosures by lenders and to address concerns about misleading mortgage loan advertisements," he testified.

The delinquency rate on residential, single-family mortgage loans reached 5.59% in the third quarter, nearly half a percentage point higher than in the second quarter, according to the MBA's national delinquency survey.The third-quarter delinquency rate was up 47 basis points from the level recorded in the second quarter and up 92 bps from that of a year earlier. The percentage of loans in foreclosure also increased sharply, rising to 1.69% of all loans outstanding. That was up 29 bps from the second quarter and up 64 basis points from one year earlier. The percentage of loans entering foreclosure rose 13 bps from the second quarter to 0.78%. Both the foreclosure inventory and foreclosure start levels were at record highs. The overall delinquency rate was the highest reported by the Mortgage Bankers Association since 1986.

Two senior members of the Senate Judiciary Committee support the Bush administration's effort to get lenders and servicers to freeze the interest rate resets on adjustable-rate subprime mortgages, but they still want to craft legislation that would allow the bankruptcy courts to provide relief for distressed homeowners.Sens. Richard Durbin, D-Ill., and Arlen Specter, R-Pa., said they support Treasury Secretary Henry Paulson's plan to increase loan modifications. "It can be done promptly and help people," Sen. Specter told reporters. He noted that it is difficult to pass legislation in the Senate. "We don't do anything fast around here," he said. Secretary Paulson's plan to freeze the interest rate on subprime mortgages will reduce defaults and rising foreclosures, Sen. Durbin said. But allowing bankruptcy judges to reduce the principal amount and interest rate on residential mortgages would provide more relief, he said, and encourage more loan modifications. Efforts to pass a similar bill in the House have stalled. The Illinois senator said he plans to redouble his efforts in working out a compromise with his Republican colleague. Sen. Specter said their talks so far have not produced much progress.

The Bush administration's plan to freeze resets on subprime adjustable-rate mortgages is flawed because it will not provide any relief for borrowers with credit scores above 660, according to the chairman of the House Financial Services Committee.Rep. Barney Frank, D-Mass., the committee chairman, said he welcomes the administration's effort to freeze ARM resets for five years. However, it is a "grave error that there is a cutoff at a 660 FICO score," he said. Rep. Frank argued that a credit score is not a good proxy for income and means that people who were careful with their credit may not qualify for relief. "I think it is a great mistake morally and politically," Rep. Frank said. Senate Majority Leader Harry Reid, D-Nev., called the administration's plan a "positive step" that could help about 200,000 people -- but said more needs to be done. Sen. Reid urged Republican senators to stop blocking a vote on a Federal Housing Administration reform bill that could provide refinancing options for troubled subprime borrowers.

Delta Financial Corp., Woodbury, N.Y., says it will file for bankruptcy protection after being unable to successfully securitize a mortgage loan portfolio.The securitization was key to the company's completion of a recapitalization (through the issuance of notes and common stock to an affiliate of Angelo, Gordon & Co.) that was announced on Nov. 15. At the same time, Delta had negotiated a standstill agreement with three of its warehouse providers. But because Delta could not do the securitization, the company's warehouse lenders notified the company that events of default had occurred. This subjected Delta to acceleration clauses under agreements making it subject to substantial payment obligations and causing it to incur cross-default claims from other creditors. The next domino to fall was the agreement with Angelo Gordon. Delta said it does not believe it can continue as a going concern, and it has suspended taking new mortgage loan applications. Delta said it is in discussions with parties interested in acquiring assets or operations in conjunction with a bankruptcy proceeding. But it added a disclaimer that the discussions are preliminary and no assurance can be given that a transaction will be completed. Delta can be found online at http://www.deltafinancial.com.

Two classes from two series of Chase Funding mortgage pass-through certificates have been downgraded by Fitch Ratings.Class IIB of series 2003-3 group 2 and class IIB of series 2003-4 group 2 were placed on Rating Watch Negative. Fitch also affirmed the ratings on 13 classes of Chase mortgage pass-throughs. The rating agency said the group 2 certificates in both series are backed by adjustable-rate loans chiefly secured by first and second liens or deeds of trust on residential properties.

Meanwhile, three other classes of GS Mortgage Securities Corp. mortgage pass-through certificates have been downgraded by Fitch Ratings.The downgrades in series 2005-SEA1 were as follows: class B-1, from BBB-plus to BB; class B-2, from BBB to B; and class B-3, from BBB-minus to CC/DR3. Fitch also placed class M-2 on Rating Watch Negative and affirmed the ratings on several other classes. Fitch said the downgrades were based on a deterioration in the relationship between credit enhancement and loss expectations. The collateral for the deal consists primarily of first- and second-lien residential mortgage loans.

Four classes of GS Mortgage Securities Corp. mortgage pass-through certificates have been downgraded by Fitch Ratings as a result of changes in the rating agency's subprime loss forecasting assumptions.The downgrades in GSAMP Trust 2005-S1 were as follows: class M-2, from A to BBB (and placed on Rating Watch Negative); class B-1, from BBB to CCC/DR2; class B-2, from BB to C/DR5; and class B-3, from BB-minus to C/DR6. Fitch said the updated subprime assumptions "better capture the deteriorating performance of pools from 2007, 2006, and late 2005."