Servicing

The House is on track to pass a Mortgage Reform and Anti-Predatory Lending bill Thursday, and the lawmakers will likely attach a separate bill that addresses escrow, appraisal, and servicing issues.The House Financial Services Committee approved the predatory-lending bill by a 45-19 vote Nov. 6. The next day the committee approved the servicing reform bill (H.R. 3837), sponsored by Rep. Paul Kanjorski, D-Pa., by voice vote. The Kanjorski bill establishes enforceable national appraisal independence standards with tough penalties for lenders who pressure appraisers to inflate property values. The bill also requires escrow accounts for taxes and insurance on most subprime mortgages and creates standards for force-placed insurance. New York Attorney General Andrew Cuomo endorsed the appraisal reforms at a news briefing arranged by Rep. Kanjorski last week. The New York AG has raised issues about major institutions that have allegedly been pressuring appraisers.

E*Trade Financial -- which on Friday admitted that it has $450 million in "exposure" on its asset-backed securities portfolio -- saw its stock price crumble 55% Monday morning after an analyst at Citigroup said there's a 15% chance the depository could go bankrupt.As of MortgageWire's deadline, E*Trade's shares were trading down $4.71, at $3.89. Its 52-week high is $26. In a recent public filing, the New York-based company said it has set aside $240 million to cover "deterioration" in its home equity portfolio. Its ABS portfolio totals $3 billion. Even though E*Trade could take more hits on the portfolio in the quarters ahead, the company said in a statement that it "expects to remain well capitalized based on regulatory standards." In September, E*Trade closed its residential wholesale division. The company can be found on the Web at http://www.etrade.com.

Twenty-one certificates from nine Residential Asset Securities Corp. Trust transactions issued in 2004 have been placed on review for possible downgrade by Moody's Investors Service.The negative rating actions were attributed to levels of credit enhancement that "may be inadequate" in view of current and projected pipeline losses, Moody's said.

Three tranches from two closed-end, second-lien residential mortgage securitizations issued by Structured Asset Securities Corp. in 2004 have been downgraded by Moody's Investors Services.The downgrades were as follows: SASCO Trust 2004-S2, class M7, from Baa3 to B3 (and placed on review for possible further downgrade); and SASCO Trust 2004-S4, class B1, from Ba1 to Caa3, and class B2, from Ba2 to Ca. In addition, Moody's placed classes M5 and M6 of series 2004-S2, classes M6 and M7 of series 2004-S3, and class M7 of series 2004-S4 under review for possible downgrade. "The downgrades are driven by back-ended losses that have eroded credit support to a point where the subordinate tranches no longer have sufficient enhancement levels to maintain their current ratings in light of the anticipated losses," Moody's said.

Eleven classes of certificates from four deals issued by GSAMP Trust in 2002 and 2004 have been downgraded by Moody's Investors Service.The affected transactions are GSAMP Trust series 2002-HE, 2004-HE1, 2004-HE2, and 2004-SEA2. The downgrades were attributed to an analysis of the credit enhancement provided by subordination, overcollateralization, and excess spread relative to expected losses. GSAMP Trust 2002-HE, 2004-HE1, and 2004-HE2 are backed by subprime fixed- and adjustable-rate mortgage loans, while GSAMP Trust 2004-SEA2 is backed by seasoned subprime fixed-rate mortgage loans.

Sixteen tranches from four issues of Ameriquest Mortgage Securities Inc. Quest Trust scratch-and-dent transactions have been downgraded by Moody's Investors Service.The downgrades resulted from "a significant slowdown of prepayment speeds and the rapid pace of losses resulting from a higher-than-anticipated delinquency pipeline build-up and higher severities of losses upon liquidation of small-balance mortgage collateral," Moody's said. The collateral consists primarily of first-lien scratch-and-dent mortgage loans. The rating agency can be found online at http://www.moodys.com.

When it comes to hanging onto his palatial estate, the pixie dust appears to be running dangerously low for the King of Pop, singer Michael Jackson.According to a foreclosure detail report filed by Alliance Default Services, Mr. Jackson has defaulted on the mortgage payments for his Neverland Ranch in Los Olivos, Calif. The notice said the report was filed on Oct. 22 in Santa Barbara County. However, Mr. Jackson's loan with Fortress Music Trust (doing business as DBGC LLC, a Delaware corporation) expired on Oct. 12. The singer is delinquent $23.2 million on a $23 million loan and is at risk of losing his ranch if he fails to pay the full amount plus the accrued interest of $231,354 within 90 days. A representative at Alliance Default Services refused to comment on the matter. Mr. Jackson's record label referred the matter to his spokesman, who had not returned telephone calls at deadline time.

The Federal Agricultural Mortgage Corp., Washington, has reported a net loss to common stockholders of $8.6 million ($0.82 per share) for the third quarter, compared with a loss of $6.3 million ($0.58 per share) for the third quarter of 2006.Farmer Mac attributed the losses in both periods to market value changes on financial derivatives used to hedge interest rate risk on Farmer Mac's assets and liabilities. The government-sponsored enterprise also reported "core earnings," a performance measure based on net income available to common stockholders less the after-tax effects of unrealized gains and losses on financial derivatives. Core earnings totaled $7.6 million in the third quarter, versus $6.5 million a year earlier. "Focusing on core earnings, in light of the volatility of the capital markets during the last quarter, we are extremely pleased with Farmer Mac's strong financial results in third-quarter 2007 -- up 18% in comparison to the third quarter of 2006," said Henry D. Edelman, Farmer Mac's president and chief executive officer. The company can be found online at http://www.farmermac.com.

PHH Corp., Mt. Laurel, N.J., lost $38 million in the third quarter as trouble in the mortgage sector hurt the company's business.The company's "segment loss" from mortgage production in the third quarter totaled $113 million, more than double the loss posted in the third quarter of 2006. A $79 million loss on the sale of loans was primarily responsible for the weak performance, the company said. PHH also suffered a $2 million segment loss related to loan servicing in the third quarter. The company serviced $166.9 billion of loans, including subservicing, in the third quarter. The portfolio had a 2.6% delinquency rate. During the third quarter, PHH sold servicing rights on $9.6 billion of loans. The company can be found online at http://www.phh.com.

Federal Reserve Chairman Ben S. Bernanke said Thursday that Fannie Mae and Freddie Mac should be allowed to securitize loans of up to $1 million as a way to alleviate the mortgage credit crunch.Currently, Fannie and Freddie cannot purchase or securitize loans larger than $417,000 -- their loan limit "cap." The Fed chairman said the government could act as a guarantor to aid Fannie and Freddie in securitizing jumbos. "Suppose that the GSEs were to pay their usual mortgage insurance credit fee to the government, which then acted as guarantor so it would be taking away the credit risk from the GSEs," he told the Joint Economic Committee of Congress. "They could process these jumbo loans and sell them in the secondary market." Approval for the government-sponsored enterprises to securitize jumbos would need congressional approval.