Servicing

Countrywide Financial Corp., Calabasas, Calif., has announced the sale of $4 billion of convertible bonds through a private placement and said it will use some of the proceeds to buy back up to 23 million shares of its common stock.On Thursday Countrywide's stock was the most actively traded on the New York Stock Exchange, rising 2% to $41.16, with 41 million shares changing hands by noon. (Its average daily volume is 11 million shares.) The bonds (debentures) were issued in two separate series, A and B, and are due in 30 years. The series A bonds have a conversion rate representing a 30% premium over Countrywide's close-of-day stock price on Wednesday ($40.33) while the B bonds carry a 45% premium. In unrelated news, Countrywide chairman Angelo Mozilo recently told analysts that he could not see the company being absorbed by a large bank, "as that could destroy the franchise value that had been created." The company can be found online at http://www.countrywide.com.

A new subprime product totally different from anything seen before will be created within six months, according to a panelist at the SourceMedia Nonprime Lending Symposium in Las Vegas.Tom Zimmerman, managing director and head of asset-backed securities research at UBS, said the industry needs to create a subprime product "that makes sense," noting that some think a product like the 2/28 adjustable-rate mortgage is not appropriate for people who already have problems making payments. Mr. Zimmerman also noted that we have gone from an era when early payment defaults were "unusual and unexpected" and less than 1% to a point where 6%-10% of all loans in packages are being put back for EPDs.

Fitch Ratings has announced the introduction of presale reports for U.S. subprime/home equity loan residential mortgage-backed securities.The reports, to be published before the sale of a new subprime RMBS transaction, will contain deal summary information and extensive collateral analysis. "Fitch's RMBS presale reports will provide investors with unprecedented detail on the drivers of each deal's default and loss risk," said Glenn Costello, managing director and co-head of Fitch's RMBS group. The presale reports will also contain comparisons to past transactions by the issuer and base-case expected-loss comparisons from Fitch's ResiLogic model. "By providing detailed comparisons of collateral attributes and ResiLogic model analytics, Fitch is providing investors with a powerful tool to analyze rapidly changing subprime risk," Mr. Costello said. The first RMBS presale report featured HSBC Home Equity Loan Trust (USA) 2007-2, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

Ten classes from seven Credit Suisse First Boston home equity securitizations have been downgraded by Fitch Ratings, and four have been placed on Rating Watch Negative.Fitch also affirmed the ratings on 87 classes in nine CSFB deals. The negative rating actions were attributed to a deterioration in the relationship between credit enhancement and loss expectations. "The 2005 vintage collateral pools have generally experienced faster-than-expected prepayments and earlier-than-expected losses," Fitch said. Fitch can be found on the Web at http://www.fitchratings.com.

The performance of prime jumbo mortgages weakened in February, as Moody's Investors Service's index of 60-plus-day delinquency rates rose from 0.349% to 0.383%.Delinquencies of 60-89 days and foreclosures saw the fastest absolute increases over the past several months, although their overall rates remain well below 1%, Moody's said. "Nevertheless, serious delinquencies over the first year of seasoning for the 2006 [adjustable-rate mortgage] vintage are tracking a level last seen in the 2001 vintage, which saw a 60+ day delinquency rate of 0.52% at 12 months of seasoning and represents the poorest-performing ARM vintage over the six years measured by the index thus far," the rating agency reported. "Fixed-rate pools, about 58% of total 2006 issuance by original balance, are faring better." The findings are presented in a new report on the rating agency's U.S. Jumbo Mortgage Credit Indexes for the March reporting period. Moody's can be found online at http://www.moodys.com.

More than 147,700 foreclosure filings were reported nationwide in April, down about 1% from the level recorded in March but up 62% 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 783 households, the company said in its April 2007 U.S. Foreclosure Market Report. (Foreclosure filings include default notices, auction sale notices, and bank repossessions.) "After hitting a two-year high in March, U.S. foreclosures activity slipped slightly lower in April," said James J. Saccacio, chief executive officer of RealtyTrac. "Last year foreclosure activity subsided somewhat during the spring and summer months, thanks in part to increased interest from buyers. Whether the decrease in April is the beginning of a similar trend this year remains to be seen, but we expect foreclosure activity to at least stay above last year's levels for the remainder of 2007, fueled by a combustible mix of risky loans taken out in the last few years -- many in the subprime market -- and slowing home price appreciation." The company can be found online at http://www.realtytrac.com.

Over 100 community and consumer groups led by the California Reinvestment Coalition have called upon six top mortgage lenders to declare a temporary moratorium on home foreclosures in the state.The San Francisco-based coalition said it sent letters to the chief executive officers of Bank of America, Citibank, Countrywide Home Loans, Merrill Lynch, Washington Mutual, and Wells Fargo. "Many California homeowners are facing foreclosure because they were misled by unscrupulous mortgage brokers and lenders," said Kevin Stein, associate director of the CRC. "We are asking the largest lenders in the state to take leadership so that families can keep their homes and California's economy won't suffer." The coalition pointed to record-high foreclosure figures indicating that California recorded over 31,000 foreclosures in March, nearly triple the number of a year earlier. The CRC can be found online at http://www.calreinvest.org.

Rating agency DBRS is warning that the bankruptcy of prominent subprime mortgage lenders could lead to a change in the servicing fee on loans serviced by those companies.DBRS senior vice president Kathleen Tillwitz, who authored a new report on subprime lending, noted that there is historical precedent for bankruptcy courts to impose a mandatory increase in the servicing fee, citing a case involving bankrupt manufactured housing lender Conseco several years ago. In that case, a bankruptcy court increased the servicing fee from 50 basis points to 125 bps to facilitate the sale and transfer of the servicing asset. While the increased fee is designed to entice servicers to take over a portfolio when there are "few interested parties or a large number of delinquent loans" in a portfolio, it has the effect of leaving less money for the investors who own bonds securitized by the loans.

Class M-3 of ACE Securities Corp. Home Equity Loan Trust series 2002-HE3 has been downgraded from Baa1 to B3 by Moody's Investors Service.Moody's said losses over the past year have eroded the overcollateralization and caused credit enhancement to fall to a level that seems "too low to support the existing rating." The collateral for the deal consists of fixed- and adjustable-rate subprime mortgage loans.

Three subordinate certificates from the GSMPS Mortgage Loan Trust 2005-LT1 have been downgraded by Moody's Investors Service.The downgrades were as follows: class B1, from Baa2 to Baa3; class B2, from B1 to Caa1; and class B3, from Caa3 to Ca. The transaction consists of nonperforming loans insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs, virtually all of which were repurchased from Ginnie Mae pools. Moody's said the insurance covers a large percentage of any losses stemming from borrower defaults, but that "recent losses have significantly eroded credit protection."