Servicing

Six classes from three Aegis Asset-Backed Securities Trust deals have been downgraded by Fitch Ratings.The downgrades were as follows: series 2003-1, class M2, from BBB-plus to BB (and placed on Rating Watch Negative), and class B1, from CC/DR3 to C/DR4; series 2003-3, class M3, from A-minus to BBB, and class B, from BBB-minus to B; and series 2004-3, class B2, from BBB to BB-plus (and removed from Rating Watch Negative), and class B3, from BBB-minus to BB-minus (and removed from Rating Watch Negative). Fitch also affirmed the ratings on nine other classes in the three transactions. The downgrades were attributed to deterioration in the relationship between credit enhancement and loss expectations. The collateral pools for both deals consist of subprime residential mortgage loans. Fitch can be found online at http://www.fitchratings.com.

Freddie Mac resumed quarterly reporting for the first time since 2002, citing a net loss of $211 million ($0.46 per share) that it attributed primarily to mark-to-market losses on its derivatives portfolio and credit spread widening.Freddie Mac also reported that it recorded net income of $2 billion ($2.80 per share) in the first quarter of 2006. Richard Syron, Freddie Mac's chairman and chief executive officer, noted that "[h]ousing prices declined, mortgage credit tightened, and credit spreads and OAS spreads widened" in the first quarter, which he termed a "very challenging period" for the housing and mortgage markets. "As you can see in our GAAP and fair-value results, we were affected by these changes," he said. "Despite these headwinds, Freddie Mac gained ground last quarter." Guaranteed portfolio volumes rose 16% on an annualized basis, resulting from a shift in mortgage originations back to long-term fixed-rate products, which Mr. Syron characterized as Freddie Mac's "sweet spot." The increase "has enabled us to regain some share from the private-label market and to grow at twice the rate of the market as a whole," he said. "Importantly, we have achieved this growth while maintaining a more cautious view than most towards credit risk. This has helped our aggregate credit statistics, such as delinquencies, to stay lower than the market as a whole."

Four tranches from two Countrywide securitizations have been placed under review for possible downgrade by Moody's Investors Service.The affected classes are as follows: Reperforming Loan REMIC Trust 2003-R2, classes B-3 and B-4, and CWMBS Series 2003-R3, classes B-3 and B-4. The review is based on the fact that the collateral has experienced higher-than-expected losses. "The effect of such losses has been that unrated subordinate tranches have experienced writedowns which have reduced the credit enhancement available to rated tranches which rely on subordination for protection," Moody's said. The underlying collateral consists of reperforming loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs.

Two certificates from the C-BASS 2002-CB6 Trust subprime mortgage securitization have been downgraded by Moody's Investors Service.Class B-2 was downgraded from Baa3 to Ba2, and class B-3 was downgraded from Ba1 to Caa2. The downgrades were based on a decrease in available credit enhancement, Moody's said. The rating agency attributed the decline to an increase in losses and a reduction in subordination resulting from the passing of performance triggers and a stepdown in overcollateralization. The underlying assets in the transaction consist of subprime residential mortgage loans.

More than 176,100 foreclosure filings were reported nationwide in May, up 19% from the level recorded in April and up nearly 90% from that of a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif.The nation's foreclosure rate stood at one foreclosure filing for every 656 households, the company said in its May 2007 U.S. Foreclosure Market Report. (Foreclosure filings include default notices, auction sale notices, and bank repossessions.) "After a barely perceptible dip in April, foreclosure activity roared back with a vengeance in May," said James J. Saccacio, chief executive officer of RealtyTrac. "Such strong activity in the midst of the typical spring buying season could foreshadow even higher foreclosure levels later in the year." The company said Nevada, Colorado, and California recorded the highest foreclosure rates in May. The company can be found online at http://www.realtytrac.com.

Consumers want "frictionless" loan servicing by a lender that resolves problems quickly and bridges the gap between origination and servicing, according to a panelist at the SourceMedia Mortgage Servicing Conference in Dallas.Lori Gray, senior vice president for business development at SunTrust Mortgage, told conferees that a 2006 J.D. Power and Associates survey in which SunTrust ranked No. 1 among servicers in consumer satisfaction also contained perplexing information. "We were a little surprised and hurt to learn that the less our borrowers heard from us, the happier they were," Ms. Gray said. What consumers want, she said, is frictionless loan servicing, and toward that end SunTrust allows retail origination officers to maintain a kind of ownership over their customers. If consumers have a question about the way their loan is being managed, they can call the person they probably know best at SunTrust, Ms. Gray said. Timothy Ryan, senior director for the mortgage practice at J.D. Power, said consumers view mortgage servicing less as a relationship and more as a utility. The lower the level of interaction they have with their servicer, the more likely they are to give their loan servicer high marks for customer satisfaction.

Working with community activist groups such as ACORN to make contact with delinquent borrowers is a growing trend, according to speakers on a loss mitigation panel at the SourceMedia Mortgage Servicing Conference.Michael Gross, managing director at the loss mitigation operations of Countrywide Home Loans, said this partnership has been successful in cities throughout Ohio where foreclosures are high. "Our interests are aligned," he said. "We both want to stop foreclosures and keep families in their homes. ACORN brings us credibility and a presence in the community." Teji Singh, chief servicing offer at Option One Mortgage Corp., said Option One has six satellite offices in high-foreclosure states and plans to open 10 more. "Community leaders are the voice of these local offices," she said.

Servicers are creating offshore call centers and conducting heavy outsourcing in places like India and Mexico, according to panelists at the SourceMedia Mortgage Servicing Conference in Dallas.Option One Mortgage Corp., which has a call center in Guadalajara, Mexico, has employees who spend at least 60 minutes per call helping Spanish-speaking borrowers. Teji Singh, Option One's chief servicing officer, said domestic calls in the United States have an 86% success rate compared with 83%-84% for offshore calls. "There is no difference if you train them well," she said. "Seventy-eight percent of mortgage lenders will outsource. It takes tremendous effort and tenacity to put up a call center on the other side of the country." A very small percentage of calls are sent back to the United States because borrowers did not want to talk with non-U.S. agents, she added. Countrywide Home Loans, Calabasas, Calif., has also seen very positive results with offshore call centers, a panelist said. In India, their agents handle front-end collections, dealing with borrowers who are one or two payments late.

Three of American International Group Inc.'s subsidiaries plan to take steps to provide payment assistance to certain nonprime borrowers as part of an agreement with the Office of Thrift Supervision. Among the types of assistance that is slated to be provided by the three subsidiaries - AIG Federal Savings Bank, American General Finance Inc. and Wilmington Finance Inc. - is the provision of more affordable loans to certain borrowers with a high risk of foreclosure. Certain borrowers may receive a partial refund of loan fees instead. The agreement pertains to mortgages originated in the name of AIG FSB by Wilmington between July 2003 and May 2006. Separately, AIG plans to donate $15 million over a three-year period to certain nonprofits to support financial literacy and credit counseling. The company previously set aside a reserve of $128 million pre-tax for the expected cost of implementing such programs and has since estimated that it will need an additional reserve of up to $50 million, inclusive of the $15 million donation.

As the hurricane season begins in Florida, the pre-foreclosure storm is continuing to swirl, according to Default Research, Inc. in Mt. Pleasant, Pa."Even though foreclosures rates in Orange County had remained relatively stable, May showed an increase of approximately 27 percent," said Serdar Bankaci, president and CEO. "With an active hurricane season predicted, many homeowners are already at the brink of foreclosure and may not be able to weather the financial storm." Combine the rising energy costs with the subprime lending crisis and adjusting ARM loans and Mr. Bankaci said he is certain foreclosures are going to continue in the Sunshine State.