Servicing

A number of investors, including builder KB Home's founder Eli Broad, have put a total $3 billion cash infusion into a closely watched Goldman Sachs "quantitative strategy fund" that has been pressured by the credit crunch sparked by subprime mortgage woes."Many funds employing quantitative strategies are currently under pressure," Goldman said, noting that -- in addition to the Global Equity Opportunities Fund that received the multibillion-dollar investment -- it has a couple of other funds in this category that have suffered. In addition to Mr. Broad, others who have invested in GEO include C.V. Starr & Co. Inc., a global investment firm with ties to AIG, and Perry Capital LLC, a private investment management firm founded by former Goldman equity trading executive Richard C. Perry.

The current mortgage market crisis is likely to far exceed that of the early 1990s because of surging defaults and foreclosures related to interest rate resets on adjustable-rate mortgages, according to Robert Dunn, president of Oxford Funding Corp., a Houston-based asset resolution company."During the mortgage crisis of the early 1990s, I personally managed the acquisition, restructure, and resale of over $750 million in secondary mortgage assets," Mr. Dunn said in a statement. "I expect that our current mortgage market crisis will dwarf what we saw back then for a number of reasons. We see defaults and foreclosures rising dramatically in the near future, as over $650 billion of loans to subprime borrowers are scheduled to reset at higher interest rates by 2009." Mr. Dunn also said the Federal Reserve "seems intent on raising interest rates to fight inflation, and we've seen before what a rising interest rate environment does to all debt markets, especially mortgages. As underwriting standards have also been tossed to the wind over the past few years, we feel a significant spillover of defaults to the alt-A market and even into the prime credit market is highly likely." Oxford Funding can be found online at http://www.oxfordfunding.com.

Freddie Mac said Tuesday that it will add liquidity to the alternative-A market by providing 90-day forward commitments on a negotiated basis to what it calls "experienced" lenders.A spokesman for the company said the loans will not be held on its balance sheet. "We'll facilitate their securitization with our guarantee," he said. In a statement, company senior vice president Paul Mullings said, "Freddie Mac continues to be an active force in the alt-A market," adding that it will accept reduced documentation loans "underwritten with appropriate credit risk offsets." Freddie's announcement comes a few days after its regulator denied Fannie Mae's request to increase its balance sheet in an effort to provide some liquidity to the nonprime market. Freddie Mac can be found on the Web at http://www.freddiemac.com.

Standard & Poor's Ratings Services has placed its underlying rating on the Ohio Housing Finance Agency's series 2007A capital fund revenue bonds on CreditWatch with negative implications.The action was attributed to a debt service reserve fund that is invested in a repurchase agreement with Depfa Bank PLC. (S&P lowered its rating on Depfa from AA-/A-1-plus to A+/A-1 on July 23, the rating agency said.) OHFA is examining options under the terms of its repurchase agreement for maintaining the current rating. S&P said the options include assigning the repo agreement to an eligible provider or terminating the repurchase agreement. The rating agency can be found online at http://www.standardandpoors.com.

Class B-2 of GS Mortgage Securities Corp. residential mortgage pass-through certificates, series 2003-NC1, has been placed on Rating Watch Negative by Fitch Ratings.Fitch also affirmed the ratings on four other classes in the GSAMP transaction. The negative ration action was attributed to a deterioration in the relationship between credit enhancement and expected loss. Losses have exceeded excess spread in the past six months and eroded the overcollateralization to a point below its target level, Fitch reported. The collateral backing the deal consists of closed-end subprime mortgage loans secured by first and second liens on residential properties.

Two classes of Securitized Asset Backed Receivables 2004-OP1 mortgage pass-through certificates have been downgraded by Fitch Ratings.Class B-2 was downgraded from BBB to BB-plus, and class B-3 was downgraded from BBB-minus to CCC/DR1. Fitch also affirmed the ratings on four other classes in the deal. The downgrades were attributed to a deterioration in the relationship between credit enhancement and expected losses. The collateral consists of closed-end, first- and second-lien subprime mortgage loans.

Three classes of Finance America Mortgage Loan Trust series 2003-1 have been downgraded by Fitch Ratings.The downgrades were as follows: M-4, from BBB-plus to BB; class M-5, from BBB to B; and class M-6, from BBB-minus to B-minus/DR1. Fitch also affirmed the ratings on three classes in the transaction. The downgrades were attributed to a deterioration in the relationship between credit enhancement and expected losses.

Class B-5 of GE-WMC mortgage pass-through certificates, series 2005-2, has been downgraded from BB-plus to BB by Fitch Ratings.Fitch also affirmed the ratings on 23 classes from two GE-WMC transactions. The subprime transactions were among those placed Under Analysis on July 12. Fitch reported that at the end of the day on Aug. 10, it had downgraded 672 classes (with an outstanding balance of $13 billion) from those subprime RMBS deals and affirmed the ratings on 1,219 classes with an outstanding balance of $105 billion. Fitch can be found on the Web at http://www.fitchratings.com.

Pennant Capital Management LLC, a Chatham, N.J.-based hedge fund with a stake in PHH Corp., has reiterated its opposition to PHH's agreement to sell out to GE Capital and The Blackstone Group.Citing information provided by PHH in an Aug. 6 preliminary proxy, Pennant again called on management to separate the company's two main businesses with a spinoff of its fleet management operations. "The new disclosures underscore the value-destroying nature of the proposed sale and strongly support our rationale for continued public ownership and a business separation through a tax-free spin-off," Pennant said in its letter, signed by managing member Alan Fournier. Mr. Fournier said the amended proxy "shows that the board likely agreed to sell the mortgage business for after-tax proceeds of less than 0.8x tangible book, implying that even a liquidation of the mortgage business would be preferable to the proposed sale and result in an immediate combined valuation of $35 per share." Pennant estimated that this would allow shareholders to realize a combined valuation of approximately $60 per share in two years. PHH is one of the largest independent mortgage banks in the country.

The Office of Federal Housing Enterprise Oversight said Friday that it will not increase the portfolio caps on Fannie Mae and Freddie Mae, referring to the two companies -- in a letter to a key senator -- as "significant supervisory concerns."As previously reported, Fannie Mae had asked OFHEO to increase its portfolio capacity by 10% (roughly $72 billion) as a way to add some liquidity to the nonprime secondary market. In a statement, OFHEO said it is "exploring with each enterprise ways for them to enhance their support for affordable housing, both multi-family and single." The regulator said there is nothing wrong with the conventional secondary market, noting that the two government-sponsored enterprises securitized $500 billion in the first half alone. The agency recently received an inquiry from Sen. Charles E. Schumer, D-N.Y., about the nonprime liquidity crisis and the GSEs' possible role in easing conditions. OFHEO Director James Lockhart told Sen. Schumer that the GSEs have been meeting the needs of their seller/servicers, but he said they remain supervisory concerns "after more than three years of remediation efforts."