Servicing

Sen. Charles E. Schumer, D-N.Y., has urged the regulator of the Federal Home Loan Banks to undertake a special review of the loans that Countrywide Bank has pledged to collateralize $51 billion in advances from the FHLBank of Atlanta.The thrift subsidiary of Countrywide Finance Corp. increased its advance borrowings in the third quarter by $28.2 billion -- up nearly 80% from those of the previous quarter. In a letter to the Federal Housing Finance Board, Sen. Schumer urged the regulator to "probe" the underlying risk of Countrywide's collateral, which includes payment-option mortgages. The senator said in a CNBC-TV interview that he has concerns about the Atlanta FHLBank's ability to assess the risk of Countrywide's collateral. "At a time when Countrywide's mortgage portfolio is deteriorating, the Federal Home Loan Bank's exposure to Countrywide poses an unreasonable risk," the Senate Banking Committee member said. A Finance Board spokesman said the agency would "respond to Sen. Schumer," but declined to comment further.

Four classes from two Long Beach Mortgage Loan Trust transactions have been downgraded by Fitch Ratings.The downgrades were as follows: series 2003-2, class M-4, from BBB-minus to B, and class M-5, from BB-plus to CCC/DR1; and series 2004-2, class M-7, from BBB-minus to BB-minus, and class B, from BB to CCC/DR1. Fitch also placed class M-3 of series 2003-2 and class M-6 of series 2004-2 on Rating Watch Negative and affirmed the ratings on eight other classes in the two deals. The negative rating actions were attributed to deterioration in the relationship between credit enhancement and loss expectations. The collateral in the deals consists of subprime loans secured by first- and second-lien mortgages or deeds of trust.

Five classes from several issues of Residential Asset Securities Corp. mortgage pass-through certificates have been downgraded by Fitch Ratings.The downgrades were as follows: series 2003-KS3 total group 1 & 2, class M-1, from AA-plus to A-plus (and remains on Rating Watch Negative), and class M-2, from A to BBB-minus (and placed on Rating Watch Negative); series 2004-KS3 total 2-3, class M-II-3, from BBB to BB (and placed on Rating Watch Negative); series 2004-KS8 group 2, class M-II-3, from BBB to BB; and series 2004-KS11, class B, from BB-plus to B. Fitch also placed class M-II-2 of series 2004-KS3 total 2-3, class M-II-2 of series 2004-KS8 group 2, and class M-6 of series 2004-KS11 on Rating Watch Negative and affirmed the ratings on 17 other classes in RASC deals. The negative rating actions were attributed to deterioration in the relationship between credit enhancement and loss expectations. The collateral in the deals consists of first- and second-lien subprime mortgage loans.

Fifteen U.S. collateralized debt obligations backed in whole or in part by trust preferred securities issued by mortgage lenders, real estate investment trusts, and homebuilders have been placed on Rating Watch Negative by Derivative Fitch.The issuance amount of the 120 affected tranches totals $5.4 billion. The rating agency attributed the downgrades to "continued credit deterioration" in underlying collateral. The 15 CDOs were issued by Attentus, Kodiak, Taberna Preferred Funding, and Trapeza. Derivative Fitch Inc., a subsidiary of Fitch Ratings Ltd., can be found on the Web at http://www.derivativefitch.com.

Thirty-three classes of mortgage-backed securities have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions.Fitch also affirmed the ratings on classes with outstanding balances of over $4 billion. Among the securities affected by the latest downgrades were: 26 classes from four issues of Long Beach mortgage pass-through certificates; four classes from one issue of Residential Asset Securities Corp. mortgage pass-throughs; two classes from one Residential Asset Mortgage Product transaction; and one class from a Fieldstone Mortgage Investment Trust 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 Ratings has downgraded the CDO asset manager ratings of six asset managers of collateralized debt obligations: Declaration Management and Research LLC, Duke Funding Management LLC, GE Asset Management, Rabobank, Trust Company of the West, and Vertical Capital LLC.Fitch said the ratings of four CDO asset managers were also placed on Rating Watch Negative, and the ratings of seven were affirmed. The downgrades were as follows: Declaration Management and Research, from CAM2-minus to CAM3; Duke Funding Management, from CAM1-minus to CAM2-plus (and placed on Rating Watch Negative); GE Asset Management, from CAM2-minus to CAM3-plus; Rabobank, from CAM2 to CAM2-minus (and placed on Rating Watch Negative); Trust Company of the West, from CAM1-minus to CAM2; and Vertical Capital, from CAM2 to CAM3-plus. The asset manager ratings of First Republic Investment Management (Trainer Wortham) and Solent Capital were also placed on Rating Watch Negative. Fitch rates asset managers of collateralized debt obligations by asset class on a scale of 1 to 5, with 1 being the highest rating.

Residential Capital LLC, Minneapolis, has announced the commencement of a cash tender offer for up to $750 million in aggregate principal amount of four issues of its debt securities.ResCap said the total consideration for each $1,000 in principal amount of notes accepted for purchase will be as follows (and in the following order of acceptance priority): $830 for floating-rate notes due June 9, 2008; $760 for floating-rate notes due Nov. 21, 2008; $760 for 6.125% notes due Nov. 21, 2008; and $500 for subordinated floating-rate notes due April 17, 2009. The tender offer will expire at midnight Eastern time on Dec. 19. ResCap can be found on the Web at http://www.rescapholdings.com.

Countywide Bank turned to the Atlanta Federal Home Loan Bank during the tumultuous third quarter and dramatically increased its borrowings of advances to $51 billion.While other mortgage lenders were facing a funding crunch, Countrywide Financial Corp., Calabasas, Calif., had integrated its mortgage lending operations into its McLean, Va.-based thrift, which is the Atlanta FHLBank's largest borrower, with 36.8% of outstanding advances. Nearly 90% of Countrywide's loan production was funded through the thrift in September. Countrywide Bank is the third-largest federal savings bank in the United States. At the end of 2006, Countrywide Bank had $28.2 billion in advances from the Atlanta FHLBank. The FHLBank's second-largest borrower was SunTrust Bank, with $7.4 billion in advances. Countrywide can be found on the Web at http://www.countrywide.com.

California Gov. Arnold Schwarzenegger has enlisted four major subprime servicers to streamline their loan modification procedures for adjustable-rate mortgages with the aim of mitigating a "foreclosure crisis" in his state.Countrywide Financial Corp., GMAC Residential Holding Corp., Litton Loan Servicing LP and Barclays' HomeEq unit have agreed to keep subprime borrowers at their initial interest rates if they can't afford their resets. The governor said his state is facing a foreclosure crisis and half a million California borrowers have subprime mortgages that will reset to a higher rate in the next two years. "With this kind of cooperation from loan servicers, we can save tens of thousands of people from being added to the foreclosure lists," Gov. Schwarzenegger said.

Hanover Capital Holdings lost $31 million, or $3.83 per share, in the third quarter, and the company said it will not pay a third quarter dividend.Hanover said the loss primarily reflects a $30.2 million impairment expense in the fair value of the company's subordinate MBS portfolio. The company also saw net interest income decline by $1.5 million due to higher financing costs under a new fixed-term credit facility the company established in August. John Burchett, president and CEO, said the company's board did not declare a dividend "due to continued uncertainties in the mortgage industry, the current interest rate environment and our net loss for the quarter."