Servicing

The Federal Housing Administration is reaching out to nearly "1.2 million at-risk American homebuyers" to inform them about the new FHA Secure refinancing program.FHA commissioner Brian Montgomery told a congressional panel that his agency is using a direct-mail database to contact subprime borrowers with 2/28 and 3/27 ARMs that are due to reset by 0ctober 2008. Over 1,500 delinquent borrowers have already filed applications to refinance into a FHA Secure mortgage since the agency launched the new program Sept. 5. "Though still a very new program, 575 FHA-approved lenders are already using FHA Secure to rescue delinquent borrowers from the potential loss of their homes," Mr. Montgomery testified. Meanwhile, FHA has received 74,000 applications by current conventional borrowers who want to refinance into a FHA loan since Sept. 5. FHA received 37,500 of these applications in September and another 36,500 in October.

The largest subprime servicers should be able to move ahead with loan modifications now that they have worked through most of the problems associated with the requirements of the mortgage-backed securities contracts, according to Iowa Attorney General Tom Miller."They feel they have the discretion and authority needed to make loan modifications where those modifications benefit the investor and homeowner," Mr. Miller told the House Financial Services Committee. "Upwards of 95% of the pooling and servicing agreements do not pose significant constraints, according to the servicers we have met with." Mr. Miller heads up a working group of state AGs and banking regulators that met with the 10 largest subprime servicers in September and plans to meet the 10 next-biggest servicers during the week of Nov. 5. He noted, however, that piggyback 80/20 loans are a problem because the first and second loans are in separate securitizations with different investors and servicers.

Reeling from a multi-billion dollar decline in U.S. subprime mortgage-related exposures that forced its chief executive to step down, the New York-based Citigroup Inc. has made plans to start a new unit to focus on the problem and repositioned its leadership. The new unit will be solely focused on Citi's approximately $55 billion in subprime mortgage-backed securities and related exposures and be run separately from the other mortgage-related capital markets and banking units, according to a statement issued by Sir Win Bischoff, chairman of Citi Europe and Citi's new acting CEO. Mr. Bischoff and executive committee chairman Robert Rubin, Citi's new chairman of the board, are replacing departing chairman and chief executive officer Charles Prince. Mr. Prince resigned Sunday, citing the large scope of MBS-related losses that are expected to cut Citi's revenue roughly $8 billion-$11 billion and reduce net income approximately $5 billion-$7 billion on an after-tax basis. Citigroup can be found on the Web at http://www.citigroup.com.

Class 1-B-2 of Morgan Stanley Mortgage Loan Trust 2004-6AR has been placed on review for possible downgrade by Moody's Investors Service.The negative rating action was based on an analysis of the credit enhancement provided by subordination, overcollateralization, and excess spread relative to the expected loss, Moody's said. The transaction is backed by alternative-A adjustable-rate mortgage loans.

Class M-3 of FNBA Mortgage Loan Trust 2004-AR1 has been downgraded from Baa2 to B1 by Moody's Investors Service.The downgrade was attributed to credit enhancement levels that were deemed to be low given the projected losses on the underlying pool. "The pool of mortgages has seen a spike in losses in recent months, and future losses could cause a more significant erosion of the overcollateralization," Moody's said. The transaction consists of alternative-A, first-lien, hybrid adjustable-rate loans originated by First National Bank of Nevada.

Two classes of mortgage pass-through certificates from Structured Asset Securitization Corp. 2002-22H have been downgraded by Fitch Ratings.Class B3-I was downgraded from BB to BB and placed on Rating Watch Negative, and class B4-I was downgraded from B to C/DR5. Fitch also affirmed the ratings on eight classes from the transaction. The negative rating actions reflect deterioration in the relationship between credit enhancement and expected losses, Fitch said.

The M-7 classes from People's Choice Home Loan Trust series 2004-1 and 2004-2 have been downgraded from Baa3 to B3 by Moody's Investors Service, and seven certificates from the deals have been placed on review for possible downgrade.The certificates placed on review are as follows: classes M-4, M-5, and M-6 of series 2004-1 and classes M-3, M-4, M-5, and M-6 of series 2004-2. The negative rating actions were taken because credit enhancement levels may be low given the projected losses on the underlying pools, Moody's said. The transactions are backed primarily by first-lien adjustable- and fixed-rate subprime mortgage loans. Moody's can be found online at http://www.moodys.com.

Four classes of mortgage pass-through certificates from American Home Mortgage Investment Trust 2006-1 group 2 have been downgraded by Fitch Ratings.The downgrades were as follows: class II-M-2, from A to A-minus; class II-M-3, from BBB to BBB-minus; class II-M-4, from BB to B (and placed on Rating Watch Negative); and class II-M-5, from B to B-minus/DR2. Fitch also affirmed the ratings on two classes in the transaction. The negative rating actions were attributed to deterioration in the relationship between credit enhancement and loss expectations. The collateral for the deal consists of 5/1 adjustable-rate mortgage loans made to prime and alternative-A borrowers.

Five classes of mortgage pass-through certificates from Lehman Mortgage Trust 2006-5 have been downgraded by Fitch Ratings.The downgrades were as follows: class B1, from AA to AA-minus; class B2, from A to A-minus; class B3, from BBB to BB-plus (and placed on Rating Watch Negative); class B4, from BB to B (and placed on Rating Watch Negative); and class B5, from B to C/DR5. Fitch also affirmed the ratings on two other classes in the deal. The downgrades were attributed to deterioration in the relationship between credit enhancement and loss expectations. The collateral generally consists of fixed-rate, first-lien conventional mortgages.

Sixteen classes of Structured Adjustable Rate Mortgage Loan Trust mortgage pass-through certificates have been downgraded by Fitch Ratings.Fitch also affirmed the ratings on 20 other classes in four SARM transactions. The downgrades were attributed to larger-than-expected losses stemming from "a rapidly increasing delinquency pipeline." The transactions consist of conventional first-lien mortgage loans.