Servicing

Fitch Ratings also issued a flurry of additional downgrades Oct. 19, involving 55 classes of subprime mortgage-backed securities and seven classes of other MBS.Fitch also placed 10 classes of subprime MBS on Rating Watch Negative and affirmed the ratings on 91 such classes, as well as nine other classes of MBS. Among the securities affected by the downgrades were: 20 classes from six issues of Ameriquest Mortgage Securities Inc. mortgage pass-through certificates; eight classes from two issues of Asset Backed Funding Corp. mortgage pass-throughs; five classes from two issues by Credit-Based Asset Servicing and Securitization LLC; five classes from two issues of CDC Mortgage Capital Trust mortgage pass-throughs; four classes of Residential Asset Securities Corp. mortgage pass-throughs; and four classes of Countrywide Asset-Backed Securitization mortgage pass-throughs. The rating actions were attributed to a deterioration in the relationship between credit enhancement and loss expectations.

Seventy-eight more classes of mortgage- and asset-backed securities have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions.Fitch also placed two classes on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of more than $8 billion. Among the securities affected by the latest downgrades were: 26 classes from four issues of IndyMac INABS certificates; 18 classes from three issues of IXIS Real Estate Capital mortgage pass-through certificates; 14 classes from four issues of Asset Backed Funding Corp. mortgage pass-throughs; eight classes from one issue of Ameriquest mortgage pass-throughs; and seven classes from one issue of ACE mortgage pass-throughs. 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 can be found online at http://www.fitchratings.com.

Standard & Poor's Ratings Services has announced downgrades of 1,413 classes of U.S. residential mortgage-backed securities (with an original par value of $22.0 billion) backed by first-lien subprime mortgage loans issued from the fourth quarter of 2005 through the fourth quarter of 2006.S&P also affirmed its ratings on securities representing $531.6 billion of original par value of such RMBS from the same period. S&P said the rating actions were based on expected further delinquencies and losses on the underlying loans, resulting reductions in credit support, and continued declines in home values. "While cumulative losses to date remain low, they have increased since our July 2007 review and we expect them to increase further," the rating agency said. For the downgraded transactions, overall delinquencies averaged 15.7% and serious delinquencies (loans that are delinquent by more than 90 days, in foreclosure, or real estate owned) averaged 23.3%, according to S&P. The rating agency said it expects the downgraded securities to be especially vulnerable to greater losses because 60%-70% of the loans backing them are subject to some type of payment adjustment in the near future. S&P can be found online at http://www.standardandpoors.com.

The Federal Home Loan Bank of New York is boosting its dividend to 8.05% after experiencing a 23% surge in borrowings in the third quarter.Members of the New York FHLBank increased their borrowings by $6.5 billion in August, when the subprime meltdown finally hit Wall Street and sparked a credit crunch. Members borrowed another $8 billion in advances in September. As of Sept. 30, the New York bank had $75.1 billion in outstanding advances, up 27% from the level at the start of the year. Over 70% of member banks and thrifts turned to the FHLBank's advance window this year. "This significant increase in advances demonstrates the important role we play as we help members serve their communities regardless of the economic environment. Critics, who have forgotten the importance of the assured liquidity mission of the Home Loan Banks, now have a mnemonic," NY FHLBank president Alfred DelliBovi said. The bank paid a 7.5% dividend in the second quarter.

Accredited Home Lenders Holding Co., a San Diego-based nonprime mortgage company, and its Accredited Mortgage Loan REIT Trust subsidiary have announced plans to delist and deregister the subsidiary's preferred shares from the New York Stock Exchange.The real estate investment trust subsidiary has provided written notice to the NYSE of its intent to voluntarily delist its 9.75% series A perpetual cumulative preferred shares. "Current market conditions do not warrant the significant annual costs associated with our being a reporting company," said James A. Konrath, chairman and chief executive officer of the parent and subsidiary companies. "Our board of directors and board of trustees believe it is prudent to use these funds to enhance Accredited's and REIT's financial performance." Accredited can be found on the Web at http://www.accredhome.com.

The Independent Community Bankers of America has renewed and enhanced its five-year-old partnership with Fannie Mae, as the mortgage giant agreed to provide enhanced delivery services for bulk sales and reduce its Desktop Underwriter licensing and transaction fees."The ICBA-Fannie Mae partnership offers expanded services to ICBA member banks, increases the value of their membership, and helps them maintain relationships with their customers," said Dave Petro, president of the ICBA's mortgage program. Most ICBA members retain the servicing when they sell to Fannie. ICBA also has an "alliance" with Freddie Mac. Separately, Taylor Bean & Whitaker, Ocala, Fla., has purchased $3.76 billion in mortgages (servicing released) from ICBA members since February, when the Ocala wholesaler entered into a partnership with the banking trade group. The ICBA can be found online at http://www.icba.org.

Prepayments on subprime mortgage-backed securities slowed in September, and it could be a sign that house price declines are preventing borrowers from taking advantage of low interest rates and refinancing into fixed-rate mortgages, according to a report by Friedman, Billings, Ramsey & Co.Nearly 75% of subprime borrowers current in July had a "compelling financial incentive" to refinance, but prepayment rates declined and defaults rose. This situation "strongly suggests that subprime borrowers are progressively less able to refinance," FBR managing director Michael Youngblood says in the report. House prices fell 1.3% from the first quarter to the second quarter in 140 metropolitan statistical areas, representing 44.3% of the U.S. housing stock. "House prices may have fallen in these areas in the third quarter sufficiently to deter subprime borrowers, especially those with second or higher liens, from refinancing," the FBR report says. The FBR report also indicates that subprime MBS issuance declined to $13.1 billion in September from $48.7 billion in September 2006. FBR can be found online at http://www.fbr.com.

Lack of income documentation on securitized subprime mortgages would allow borrowers to rescind the loan and recover transaction costs under a predatory-lending bill introduced by House Democrats that comes down hard on stated-income loans.The bill, co-sponsored by North Carolina Congressmen Brad Miller and Mel Watt, creates a minimum national standard for mortgage originations that applies to all lenders and mortgage brokers. Securitizers would be required to conduct due diligence and sampling to detect possible lending violations. The bill also creates a safe-harbor provision and allows securitizers 90 days to cure a mortgage to avoid penalties. To qualify for the safe harbor, the loans must meet four basic standards -- ability to repay, income documentation, a debt-to-income ratio not exceeding 50%, and disclosure of costs for insurance and taxes. House Financial Services Committee Chairman Barney Frank, D-Mass, stressed that the assignee liability provision only applies to securitizers, not investors. Democrats plan to mark up the bill in the next few weeks. "The securitizers don't have to guess what kinds of loans" would get them into trouble, Rep. Frank told reporters. "It is well spelled out in the bill."

Seven certificates issued by Nomura Asset Acceptance Corp. Alternative Loan Trust in 2004 have been placed under review for possible downgrade by Moody's Investors Service.The affected securities are as follows: series 2004-AP2, class M-3; series 2004-AR1, class V-M-2; series 2004-AR2, classes M-2, M-3, and M-4; series 2004-AR3, class M-4; and series 2004-AR4, class M-5. Moody's also placed two Nomura classes under review for possible upgrade. The negative rating actions were attributed to levels of credit enhancement (provided by subordination, overcollateralization, and excess spread) that are low in view of the projected pipeline losses of the underlying pool. The transactions are backed by first-lien fixed- and adjustable-rate alternative-A mortgage loans.

Two certificates from GSR Mortgage Loan Trust 2005-HEL1 have been downgraded by Moody's Investors Service and four have been placed on review for possible downgrade.Class B-1 was downgraded from Ba1 to C, and class B-2 was downgraded from Ba2 to C. Classes M-3, M-4, M-5, and M-6 were placed on review for possible downgrade. The transaction, backed by home equity line-of-credit loans, has seen recent losses that have "far exceeded" the excess spread available, the rating agency said. "In the last two months, writeoffs have exceeded $15 million, thereby completely depleting the overcollateralization," Moody's reported. "This is due to a recent change in servicing practice by Greenpoint Mortgage Funding Inc."