Servicing

Freddie Mac is raising its delivery fee on certain Home Possible mortgages, which are low-downpayment loans geared toward helping teachers, police, and firefighter become homeowners.Effective Nov. 1, the delivery fee on Home Possible mortgages with an 80-10-10 secondary financing structure will be increased by 100 basis points. This fee increase does not apply to Home Possible borrowers with incomes of 80% (or less) of the area median income. Noting that home price appreciation has slowed or declined and delinquency rates are rising, Freddie Mac said in a bulletin addressed to its seller/servicers that it has to ensure that its pricing reflects current market risks. "We believe this approach meets the dual needs of managing market risks while preserving vital opportunities for first-time homebuyers, low- and moderate-income borrowers, and borrowers purchasing homes in eligible disaster areas," the bulletin says.

Branch Banking and Trust ranks highest in customer satisfaction among mortgage servicers, according to a survey by J.D. Power and Associates, Westlake Village, Calif.The 2007 Primary Mortgage Servicer Study measured customer service based on four factors: the administration of the customer's account, the billing process, the payment process, and the process of contacting the servicer when necessary. BB&T ranked highest in overall customer satisfaction with a score of 860 on a 1,000-point scale. M&T Mortgage followed with 828, and Citizens Bank ranked third with a score of 825. The study also found that borrowers say their primary mortgage lenders are more flexible about late payments, but that they are still less accommodating than they could be. According to the study, homeowners who reported making at least one late payment in the past 12 months say "lenders are showing some flexibility in scheduling late payments, but tend to be less understanding and accommodating of their circumstances when compared to 2006." J.D. Power can be found online at http://www.jdpower.com.

Two subprime mortgage-related Bear Stearns funds that had seen their market value reduced to virtually nothing have filed for bankruptcy protection, according to AP/Yahoo Finance.A Bear Stearns spokesman had not confirmed this at deadline time, but did confirm a New York Post report that Bear has reportedly not been immune to the credit crunch that growing subprime concerns have spurred in the overall market, and has suspended withdrawals on one mortgage-related fund with a relatively small exposure to the subprime sector as a result. A Bear Stearns representative confirmed that the company suspended the withdrawals because it did not believe it was "prudent to sell assets in this current market environment."

Thirty-three tranches from 10 transactions of U.S. cash-flow and hybrid collateralized debt obligations of asset-backed securities have been placed on CreditWatch with negative implications by Standard & Poor's Ratings Services.The actions followed the downgrade on July 12 of 682 classes of U.S. residential mortgage-backed securities collateralized by U.S. first-lien subprime mortgages, and on July 19 of 418 classes of U.S. RMBS backed by U.S. closed-end second-lien mortgages. "In light of these actions, we have reviewed the exposure of our globally rated CDO transactions to the downgraded securities and are assessing the impact on our CDO ratings," S&P said.

The residential servicer ratings of Litton Loan Servicing LP have been placed on Rating Watch Negative by Fitch Ratings.The affected ratings are as follows: residential primary servicer for subprime and high loan-to-value products, RPS1; residential primary servicer for manufactured housing product, RPS2; and residential special servicer, RSS1. The rating action reflects the announcement by Radian Group Inc. and MGIC Investment Corp. regarding liquidity problems at Litton's parent, Credit-Based Asset Servicing and Securitization LLC. Fitch does not publicly rate C-BASS, but it said the company's financial condition "is an important component of Fitch's servicer rating analysis, and therefore of Litton's servicer rating."

The CAM1 structured finance rating of C-BASS Investment Management LLC, an asset manager of collateralized debt obligations, has been placed on Rating Watch Negative by Derivative Fitch.Fitch said the rating action stemmed from the recent announcement by Radian Group Inc. and MGIC Investment Corp. regarding "liquidity challenges" faced by CIM's parent company, Credit-Based Asset Servicing and Securitization LLC. Fitch rates CDO asset managers by asset class on a scale of 1 to 5, with 1 being the highest rating. Derivative Fitch Inc., a subsidiary of Fitch Ratings Ltd., can be found on the Web at http://www.derivativefitch.com.

Citing the poor performance of Option One Mortgage Corp., Fitch Ratings has downgraded the long-term issuer default ratings of Block Financial Corp. and H&R Block Inc. from A to A-minus and placed them on Rating Watch Negative.In addition, Block Financial's short-term IDR was downgraded from F1 to F2, and its senior unsecured debt and commercial paper ratings were also downgraded. Fitch said the rating actions stemmed not only from the performance of Block's Option One subsidiary, but also from a shift in the rating agency's analytical focus from risk-adjusted capitalization to debt service and cash flow coverage. Option One's deteriorating performance led to a "significant increase" in debt and a decline in equity, Fitch said. It estimated that leverage had increased from about 1.3 times in fiscal 2006 to 2.6 times in fiscal 2007 and that debt-to-total-capitalization rose from 30% to 60% over the same period. Fitch can be found online at http://www.fitchratings.com.

The combined earnings of the 12 Federal Home Loan Banks fell 2.8% to $628 million in the second quarter from the level recorded a year earlier, according to a preliminary report by the FHLBanks' Office of Finance.The second-quarter report also shows that assets grew by only 2.0%, to $1.02 trillion, and advances were flat, at $640 billion, over the previous four quarters. The FHLBanks are major investors in Fannie Mae and Freddie Mac mortgage-backed securities, and they are allowed to invest in subprime MBS. "Each FHLBank believes it has limited exposure to subprime loans due to its business model, conservative policies pertaining to advances collateral and investments, and low credit risk due to the design of its mortgage loan programs," the Office of Finance said. In the first quarter, the FHLBanks held $75.5 billion in private-label securities, which are generally rated triple-A. A second-quarter update of their private-label MBS holdings is not yet available. The Office of Finance can be found online at http://www.fhlb-of.com.

Moody's has also refined its approach to analyzing securitizations of payment-option adjustable-rate mortgages.The methodology revisions, stemming from the weaker housing and mortgage markets, also refine the rating agency's credit risk analysis of different option ARM products, Moody's said. "The updated option ARM methodology is expected to increase our loss estimates by up to 20% and Aaa loss estimates by 10% to 40%," Moody's said. The agency said the updated methodology refines its analysis of a loan's negative amortization potential by varying loss estimates based on the difference between a loan's fully indexed interest payment and its minimum payment. In addition, Moody's is enhancing its analysis of how a borrower was qualified by varying loss projections based on the difference between a loan's fully indexed payment and the payment at which the borrower was qualified. Moody's has also increased loss projections for option ARMs in cases where a borrower's income was not verified.

Moody's Investors Service has announced refinements to its methodology for rating residential mortgage securitizations backed by alternative-A mortgage loans.The rating agency said the revisions address the poor performance of subprime-like loans, low- and no-equity loans, and low- and no-documentation loans present in certain alt-A transactions securitized in 2006. Moody's said its increases in loss estimates are projected to range from 10% for stronger alt-A pools to more than 100% for weaker ones. Higher loss estimates for the weakest 5% to 10% of alt-A loans are projected to account for 25% to 50% of the increase in loss estimates. "Actual performance of weaker alt-A loans has in many cases been comparable to stronger subprime performance, signaling that underwriting standards were likely closer to subprime guidelines," said Moody's senior credit officer Marjan Riggi. "Absent strong compensating factors, we will model these loans as subprime loans." Moody's can be found online at http://www.moodys.com.