Servicing

California foreclosure sales surged by 40% in October (and by 568% from the level recorded a year earlier) and they are unlikely to peak until late next year, according to ForeclosureRadar, Discovery Bay, Calif.The company reported that 12,336 California foreclosures (with a total loan value of $5.0 billion) were sold at auction in October, compared with 8,118 (with a total value of $3.6 billion) in September. "We see no sign of a foreclosure peak at this point, and we don't expect to see one until the third or fourth quarter of 2008 at the earliest," said Sean O'Toole, founder and chief executive officer of ForeclosureRadar. "The sales we are seeing now are from missed payments in March. So current auction sales really have not yet been impacted by either August's liquidity crunch or the [adjustable-rate mortgage] reset peaks this month and again in March '08." ForeclosureRadar, a foreclosure listings and software company, can be found on the Web at http://www.foreclosureradar.com.

The Laborers' International Union of North America has announced shareholder proposals that it terms "the most aggressive effort yet by any institutional investor" to protect workers' pension funds and restore accountability to the mortgage industry.The proposals focus on: helping investors understand mortgage securities risk by requiring disclosure of the types of mortgages bought and sold and their underlying value; limiting conflict of interest between rating agencies and mortgage buyers and sellers by requiring a cooling-off period before hiring key staff from financial services and mortgage holding companies; and enacting succession plans and executive compensation policies to deal with the likelihood that many chief executives will be replaced due to the mortgage crisis. "As many as 1 million residential construction workers will lose their jobs, up to 3 million homeowners face foreclosure, and hundreds of billions of dollars in shareholder value have been destroyed because of a system riddled with conflicts of interest, lack of disclosure, and lack of oversight," said Terence M. O’Sullivan, LIUNA general president. A "real solution" must also include legislative action and self-regulation by homebuilders, lenders, and rating agencies, he said.

NovaStar Financial Inc., Kansas City, Mo., has reported a net loss of $598.0 million ($64.05 per share) for the third quarter, compared with net income of $25.3 million ($2.91 per share) one year prior.Among the noncash items that contributed to the loss are a tax charge of $245.8 million (pretax) related to the revocation of the company's real estate investment trust status during the quarter and a $99.2 million (pretax) provision for credit losses. Overall, NovaStar reported six separate noncash items totaling $544.7 million (pretax) that hurt its results. The company has a waiver for compliance with the net worth covenant in its financing facilities with Wachovia that expires on Nov. 30. NovaStar said it will still be out of compliance on that day and there are no assurances it will be able to obtain additional waivers or that it will be able to repay Wachovia. Scott Hartman, chairman and chief executive of NovaStar, said the company's strategy is "to manage the cash flows from our portfolio of mortgage-backed securities and operate our retail brokerage operations." NovaStar can be found online at http://www.novastarmortgage.com.

The Office of Federal Housing Enterprise Oversight has given Fannie Mae the green light to restart its construction lending program, but the government-sponsored enterprise is still waiting for the Department of Housing and Urban Development to complete a review.OFHEO Director James Lockhart told MortgageWire that he "signed off" on the program, but included some "growth" parameters on Fannie's purchases of acquisition, development, and construction loans from lenders. A HUD spokesman confirmed that the department has started a review of the ADC program, but could not say when it would be completed. HUD is the GSE's mission regulator. Fannie Mae could not be reached for comment. In July 2006, OFHEO ordered Fannie to suspend its ADC program until it had fixed certain operational and control problems. Fannie Mae can be found online at http://www.fanniemae.com.

Freddie Mac has decided to immediately exit the "no-income, no-asset" verification loan market and is hiking delivery fees on other nonconforming loan types.According to a seller/servicer bulletin dated Nov. 15, it is also hiking "delivery" fees on mortgages with loan-to-value ratios above 70% and FICO scores below 680. A loan with a FICO score below 620 will cost a seller/servicer 200 basis points. (This affects loans that settle on or after March 1, 2008.) "In response to deteriorating trends in credit quality, today we are announcing that we are immediately discontinuing the purchase of no income/no asset (NINA) mortgages and similar no documentation loans that we purchase on a negotiated basis," Freddie says in the seller/servicer bulletin. The secondary-market giant said it has also made underwriting changes on 80-10-10 loans. Freddie Mac can be found on the Web at http://www.freddiemac.com.

The House has passed a predatory-lending bill by a bipartisan vote of 291-127 that clamps down on abusive lending practices, makes securitizers responsible for loans they package, and lowers the points-and-fees trigger on the Home Ownership and Equity Protection Act to cover more high-cost subprime loans.Mortgage lenders, along with the Bush administration, oppose key provisions of the bill, contending that the lending standards are too subjective and that the assignee liability provisions (along with the HOEPA provisions) will reduce access to mortgage credit. However, Rep. Spencer Bachus, R-Ala., said the bill will "protect consumers from predatory lending practices" and preserve access to credit. "We are dealing with legislation that seeks to prevent a repetition of the events that caused one of the most serious financial crises in recent times," said House Financial Services Committee Chairman Barney Frank, D-Mass. The National Association of Mortgage Brokers succeeded in getting language in the bill (H.R. 3915) clarifying that a broker's fee can be financed into the loan. However, mortgage bankers are concerned that this language might require the disclosure of servicing-released premiums for the first time. Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., said he will introduce a predatory-lending bill soon.

Class B4 of Lehman Mortgage Trust series 2006-1 has been downgraded from Baa3 to Ba2 by Moody's Investors Service, and class M of series 2006-3 has been placed under review for possible downgrade.The negative rating actions were based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels. The collateral consists primarily of first-lien, fixed-rate alternative-A mortgage loans.

Six tranches from three deals issued by HarborView Mortgage Loan Trust in 2006 and late 2005 have been downgraded by Moody's Investors Service, and two tranches have been placed under review for possible downgrade.The downgrades were as follows: series 2005-14, class B-4, from Ba2 to Ba3; series 2006-11, class B-4, from A1 to A2, class B-5, from A3 to Baa1, and class B-6, from Baa2 to Ba1; and series 2006-3, class B-2, from A2 to Baa3, and class B-3, from Baa2 to B3. Class B-3 of series 2006-11 and class B-1 of series 2006-3 were placed on review for possible downgrade. The negative rating actions were based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels, Moody's said. The collateral consists primarily of first-lien, fixed- and adjustable-rate alternative-A mortgage loans.

Thirteen tranches from five alternative-A mortgage securitizations issued by American Home in 2006 and late 2005 have been downgraded by Moody's Investors Service, and six tranches have been placed under review for possible downgrade.The negative rating actions, affecting classes in American Home Mortgage Assets Trust and American Home Mortgage Investment Trust transactions, were based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels, Moody's said. The collateral consists primarily of first-lien, fixed- and adjustable-rate alt-A mortgage loans.

Fifteen tranches from five alternative-A mortgage deals issued by Terwin Mortgage Trust in 2006 have been downgraded by Moody's Investors Service, and three tranches have been placed under review for possible downgrade.Moody's said the negative rating actions were based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels. The collateral consists primarily of first-lien, fixed- and adjustable-rate alt-A mortgage loans. Moody's can be found on the Web at http://www.moodys.com.