Servicing

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.

The Financial Accounting Standard Board has scheduled a closed-door meeting for June 22 to discuss restructurings of troubled subprime mortgages that are in mortgage-backed securities.Mortgage industry groups and federal banking regulators are urging FASB to give servicers the latitude under its accounting rules to conduct restructurings and loan workouts when a loan is in default or default is reasonably foreseeable. The Mortgage Bankers Association has asked FASB to review its position that a servicer can be pro-active and initiate contact with a borrower who is expected to get into trouble when their loan resets. "A decision to restructure would not be made until the borrower confirms they will be unable to make mortgage payments and they provide evidence to their assertion," according to the MBA position paper. Representatives from the federal banking agencies, Securities and Exchange Commission, Internal Revenue Service, big four accounting firms and mortgage industry are invited to the June 22 FASB meeting.

Lehman Brothers has contributed $1.25 million to the National Reinvestment Coalition to support the coalition's foreclosure prevention funds and homeownership initiatives.Lehman Brothers, which owns two nonprime mortgage companies, also agreed to abide by NCRC's best lending and servicing practices. "We are delighted to join forces with Lehman Brothers to expand and sustain homeownership for all Americans," NCRC president and chief executive Paul Taylor said. The investment banking firm owns subprime wholesaler BNC Mortgage Inc., Irvine, Calif., and alt-A wholesaler and correspondent lender Aurora (Colo.) Loan Services Inc. "Lehman is committed to making home financing available to consumers by originating and purchasing sound residential mortgage loans to creditworthy borrowers and by servicing such loans and engaging in collection activities in a fair and equal manner," a Lehman spokesman said.

Two certificates from a deal issued by Countrywide Home Loans Inc. in 2002 have been placed under review for possible downgrade by Moody's Investors Service.The affected securities are Classes M-1 and M-2 of CWABS Inc. Asset-Backed Certificates Series 2002-BC1. The rating actions were taken because credit enhancement levels may be low given the projected losses on the underlying pool, Moody's said. The transaction is backed by first-lien fixed-rate subprime mortgage loans.

The default rate on subprime mortgage loan rose 19 basis points in the month of March to 11.44%, the highest level in nearly 10 years, according to a Friedman Billings Ramsey report.Defaults on securitized subprime loans have risen from 6.52% in March 2006. In November, defaults surged by 101 bps to 10.1%. Since November, the default rate has risen by 136 bps. Researchers at the investment banking firm based in Arlington, Va., also reported that the default rate on alt-A loans rose to 2.26% in March from 0.90% in March of the previous year. The alt-A default rate is the highest since January 2004. (Default rates include loans that are 90 days or more past due, in foreclosure and real estate owned.)

Under the new Global Mortgage Alliance program, Credit Suisse is the warehouse lender and lead underwriter for securitizing single-family mortgages that Hillenbrand Partners plans to purchase from members of the Federal Home Loan Bank of Atlanta.Eric Hillenbrand, the founder of the Chicago investment management firm, told MortgageWire that he expects to start purchasing conventional conforming mortgages from community banks in the Atlanta district by the end of July. And he is in discussions with other FHLBanks to join the program. The GMA program's goal is to securitize $5 billion to $6 billion in mortgages over the next 12 months. The AAA-rated senior pieces will be sold to investors, and Hillenbrand Partners will hold all the subordinated pieces from AA down, Mr. Hillenbrand said in an interview. LaSalle Bank is GMA's master servicer. The Federal Housing Finance Board recently approved the Atlanta FHLBank's application to participate in the GMA affinity program.

Three classes of HSI Asset Securitization Corp. 2006-WMC1 mortgage pass-through certificates have been placed on Rating Watch Negative by Fitch Ratings.The affected securities are classes M-8, M-9, and M-10. In addition, Fitch affirmed the ratings on eight other classes in the transaction. The negative rating actions were attributed to a deterioration in the relationship between credit enhancement and expected losses, and the fact that the overcollateralization amount is approximately 30% short of its target amount. Fitch can be found on the Web at http://www.fitchratings.com.

Nine tranches from several deals with loans originated by Option One Mortgage Corp. have been downgraded by Moody's Investors Service, and four have been placed under review for possible downgrade. The transactions were issued from 2002 to 2004 by Option One Mortgage Loan Trust, Asset Backed Funding Corp., Merrill Lynch Mortgage Investors Trust, and MASTR Asset Backed Securities Trust. In addition to the negative rating actions, Moody's upgraded four tranches and placed two under review for possible upgrade. "Although the deals' losses are performing within the area of original expectations, the subordinate certificates are being downgraded and placed on review for possible downgrade based on existing credit enhancement levels relative to the current projected losses on the underlying pools," Moody's said. "Overcollateralization amounts in most of the transactions are currently below their targets, and pipeline losses could cause further depletion of the overcollateralization and put pressure on the most subordinate tranches." The transactions consist primarily of first-lien, adjustable- and fixed-rate subprime mortgage loans. Moody's can be found online at http://www.moodys.com.

Luminent Mortgage Capital Inc., a real estate investment trust based in San Francisco, has announced the pricing of $90 million in aggregate principal amount of 8.125% convertible senior notes due 2027 in a private placement.The REIT said it will use approximately $18 million of the net proceeds of the offering to repurchase shares of its common stock at a price of $9.13 per share. Luminent granted the initial purchaser an option to buy up to an additional $20 million in aggregate principal amount of notes. The REIT can be found online at http://www.luminentcapital.com.

Mortgage companies dropped 10,500 full-time employees from their payrolls in April as the contraction in subprime lending is finally showing up in the government's employment reports.The U.S. Bureau of Labor Statistics reported that employment in the mortgage banking/broker sector fell from 481,200 in March to 470,700 in April. Surprisingly, mortgage brokers seem to be staying on the job. The BLS report shows that 140,700 brokers were employed in April, down only 500 from the level of the previous month. So the jobs report appears to be picking up closings and layoffs at subprime companies. According to preliminary survey results compiled by National Mortgage News, subprime production fell 30% in the first quarter compared with that of the same quarter last year. Overall production was down by about 10%. The Bureau of Labor Statistics can be found online at http://stats.bls.gov.