Servicing

The class C notes issued by Visage CDO I Ltd., a managed hybrid collateralized debt obligation composed of asset-backed security CDO and commercial real estate CDO tranches, have been placed on Rating Watch Negative by Fitch Ratings.The negative rating action resulted from collateral deterioration, as 14.2% of the portfolio has been placed under review for possible downgrade by at least one rating agency, Fitch reported. The CDO is based on a portfolio of mezzanine and high-grade ABS and commercial real estate CDOs.

Seven classes of notes issued by Visage CDO II Ltd., a hybrid collateralized debt obligation composed partly of residential mortgage-backed securities, have been placed on Rating Watch Negative by Fitch Ratings.The affected securities were classes A2, B, C, D, E, F, and G. The negative rating actions resulted from collateral deterioration, as 31.2% of the portfolio has been placed under review for possible downgrade by at least one rating agency, Fitch reported. The CDO is based on a static portfolio of RMBS and mezzanine and high-grade commercial real estate asset-backed security CDOs.

Seven classes of notes issued by Dutch Hill Funding II Ltd., a cash-flow mezzanine structured finance collateralized debt obligation based partly on subprime residential mortgage-backed securities, have been placed on Rating Watch Negative by Fitch Ratings.The affected securities were the class A2, B, C, D-1, D-2, and D-3 notes and the class C loan. The negative rating actions resulted from collateral deterioration, as 30.8% of the long portfolio has been downgraded or placed under review for possible downgrade by at least one rating agency, Fitch reported. The CDO is based on a cash and synthetic portfolio and short contracts on $253.9 million of RMBS.

Fitch Ratings has completed the "re-rating" of its rated universe of 2006 vintage U.S. subprime residential mortgage-backed security transactions, consisting of 228 deals with an outstanding balance of $173 billion.Fitch's most severe rating actions affected a subsector of the subprime market, RMBS exclusively backed by closed-end second-lien loans, consisting of 274 rated classes with a par balance of $6.6 billion. Fitch downgraded 32 of 51 triple-A rated closed-end second-lien classes from this cohort. For first- and second-lien transactions combined, Fitch said it downgraded 1,003 classes with a par balance of $18.4 billion and affirmed 2,228 classes with a par balance of $155.1 billion. Fitch is now reviewing subprime RMBS ratings from the first quarter of 2007. Fitch said it initiated the review of subprime RMBS ratings in July due to the "unprecedented reversal in home prices and the resulting impact on high-risk mortgage products." The rating agency can be found online at http://www.fitchratings.com.

A pilot program aimed at the nation's estimated 6.8 million non-owners with "thin" credit files is being tested in the nation's capital, where an alliance of public and private entities have pledged $200 million to get the initiative started.Under the R-Home program, consumers who are often unable to qualify for financing under traditional underwriting guidelines or are steered toward high-price loans will be qualified using an innovative automated program powered by Anthem, First American Corp.'s alternative credit-evaluation model. CitiMortgage will buy loans generated by nonprofit and private-sector participants and sell them on the secondary market, but retain the servicing rights. Borrowers will be counseled before the purchase, and counseling will be made available afterwards if they have trouble making payments. If problems persist longer than 60 days, the Neighborhood Housing Services of America says it will repurchase the loans and work "personally and patiently" with borrowers to get them back on track. "We see this as a model of how all borrowers should be supported, not just low-income borrowers," said Mary Lee Widener, president of NHSA.

The credit performance of subprime mortgage-backed securities issued in 2007 is no better than that of the subprime MBS issued in 2006, according to a Friedman Billings Ramsey report that challenges the assumption that lenders became more conservative in their underwriting earlier this year."We find scant evidence that the risk characteristics of subprime loans originated in 2007 differ significantly from those of subprime loans originated in 2006 and 2005. Therefore, we cannot conclude that lenders have reversed" their liberal underwriting criteria, FBR managing director Michael Youngblood said. The default rate on adjustable-rate subprime MBS issued in 2007 jumped 44% in August, rising from 2.80% in July to 4.04%. This is higher than the average 3.05% default rate for subprime MBS issued in previous years at the same age. "We note that the leading mortgage banking company in the United States, Countrywide Financial Corp., did not fully revise its underwriting criteria for subprime mortgage loans until August 15, 2007," the FBR report says.

Former Hanover Capital managing director George Ostendorf has launched a new firm to invest in distressed and illiquid mortgages.Mr. Ostendorf began working on the formation of American Mortgage Capital Group LLC earlier this year, right after he resigned from the Chicago-based Hanover. For now, AMCG will focus on buying first liens secured by residential properties. The distressed loan market could swell to more than $100 billion as the subprime crisis results in record foreclosures over the next year. AMCG is headquartered in Bannockburn, Ill.

By a 5-4 vote, a House Judiciary subcommittee has approved a controversial bankruptcy bill that would allow distressed homeowners to file for bankruptcy and get their mortgages restructured.During the mark-up of the bill, Rep. Chris Cannon, R-Utah, agreed to withdraw a key amendment that would cap the amount of principal that could be reduced in bankruptcy at 10% of the fair value of the property after Rep. Mel Watt, D-N.C., pledged to work with the congressman to perfect the language. Rep. Watt signaled that he is "sympathetic" to the intent of the amendment but is concerned that it might create a long, drawn-out process for determining the value of the property. Democrats are planning to mark up the bankruptcy bill (H.R. 3609) soon in the full Judiciary Committee and move it quickly through the House, despite opposition from the financial services industry. Sen. Richard Durbin, D-Ill., has introduced a similar bankruptcy bill in the Senate.

Deutsche Bank tallied the charges it expects to take on mortgages and related products in the third quarter and an analyst cut estimates for Merrill Lynch as the market continued to buzz about the credit crunch's potential effect on forthcoming Wall Street earnings.Deutsche Bank says it anticipates taking charges of approximately 1.5 billion euros (about $2.1 billion) on structured credit products, residential mortgage-backed securities, and relative value trading in both credit and equities in the third quarter. Meanwhile, CIBC World Markets analyst Meredith Whitney has cut its estimate of Merrill Lynch's third-quarter earnings from $2.00 to $0.97 per share "to reflect the challenging capital markets conditions and lingering effects of subprime [mortgages]." A number of news reports also said some fixed-income executives have recently left Merrill Lynch. Merrill had not responded to a call for comment at deadline time.

Goldman Sachs & Co. is exploring the possibility of buying Litton Loan Servicing, Houston, the nation's 12th-largest servicer of subprime mortgages, according to industry sources.As of MortgageWire's deadline, a spokesman for Goldman declined to comment. Litton is a unit of Credit-Based Asset Servicing & Securitization LLC, New York, a specialty servicer. C-BASS, in turn, is owned by mortgage insurers MGIC Investment Corp. and Radian Group, which in August wrote down their investments in C-BASS by more than $1 billion after the company was the subject of margin calls. Observers note that a sale of Litton would not necessarily include C-BASS or what's left of Fieldstone Mortgage, Columbia, Md., a nonprime lender that C-BASS purchased earlier this year.