Servicing

An analysis by Fitch Ratings concludes that the flattening of home price appreciation last year contributed to the rising number of defaults on subprime home loans.Using local metropolitan area data, Fitch found that subprime loans originated in the first quarter of 2006 experienced home price appreciation of just 0.5% last year, but that the default rate jumped to 8.3% of outstanding mortgage balances. By contrast, for the full year of 2005, subprime originations experienced average home price appreciation of 17% after 12 months and the default rate was only 1.7%. Fitch says the data show that home price deflation "is driving higher defaults of recently originated subprime mortgages." Fitch can be found on the Web at http://www.fitchratings.com.

Sixteen classes of Residential Accredit Loan Inc. mortgage pass-through certificates have been downgraded by Fitch Ratings, and 15 classes have been placed on Rating Watch Negative.In addition, Fitch upgraded two classes and affirmed the ratings on 76 classes from 16 RALI securitizations. The negative rating actions on 2005 and 2006 vintage deals were due to current trends in the relationship between serious delinquencies and credit enhancement, Fitch said. Downgrades in 2001 and 2003 vintage deals were attributed to high delinquencies and losses. The collateral for the deals consists primarily of 15- and 30-year fixed-rate mortgage loans extended to alternative-A borrowers, the rating agency said.

Analysts included in Zacks.com's All Star Analyst Survey have once again recommended the stock of Starwood Hotels & Resorts Worldwide Inc.The All Star Analyst portfolio represents all stocks with a Strong Buy rating from at least four analysts with a 5-Star All Star ranking, Zacks said. Starwood "has long been one of the All Stars' favorite names in the hotel industry," Zacks reported. The company said Starwood's earnings topped the analysts' consensus by about 26% in the first quarter and that its revenue per available room for same-store hotels rose 10.2% worldwide. Zacks can be found online at http://www.zacks.com.

Foreclosure filings in Massachusetts totaled 2,002 in April, the seventh consecutive month in which they have exceeded 2,000, according to ForeclosuresMass.com, a provider of foreclosure data based in Framingham, Mass.The company said lenders initiated foreclosure proceedings against 23,116 homeowners over the past 12 months, an 81% increase from the 12-month level recorded a year earlier. "Virtually every community in Massachusetts is being impacted by the foreclosure crisis," said Jeremy Shapiro, president and co-founder of ForeclosuresMass.com. "Wealthy and poor, urban and rural, and all communities in between are being ravaged. Our forecasts indicate that foreclosures will continue to have a negative impact on the Massachusetts real estate market throughout 2007." The company can be found online at http://www.foreclosuresmass.com.

Senior Republicans on the House Financial Services Committee are supporting efforts by Comptroller of the Currency John Dugan to curb "stated-income" loans, for which subprime lenders don't verify the borrower's income."We were interested to see Comptroller Dugan's recent remarks on stated-income loans, or 'liar loans,' and are deeply concerned about the explosion in originations of these mortgages in the subprime market," Reps. Spencer Bachus (Ala.), Paul Gillmor (Ohio), and Judy Biggert (Ill.) say in a letter to federal banking regulators. As previously reported, Comptroller Dugan wants to place curbs on stated-income loans in the subprime guidance that regulators are finalizing. The representatives acknowledge there should be a "small niche" for stated-income loans. But they also contend that "these low-doc or no-doc loans with a high LTV and [prepayment] penalties" increase the risks of default. "Current circumstances in the housing market have exposed these poorly underwritten loans, and we would ask the regulators to closely examine the role the use of liar loans may have played in the subprime market defaults we are experiencing," the committee members said.

Classes G and H of Merrill Lynch Mortgage Investors Inc. mortgage pass-through certificates, series 1999-C1, have been downgraded by Fitch Ratings, and class F has been placed on Rating Watch Negative.Class G was downgraded from B to B-minus/DR1, and class H was downgraded from CC/DR3 to C/DR5. The rating agency also affirmed its ratings on six other classes in the deal. The negative rating actions "are due to expected losses on the assets in special servicing (11.4%), in addition to the uncertainty surrounding the timing of the disposition of assets that have been in special servicing for over 24 months," Fitch said.

Thirty-one classes of Structured Asset Securities Corp. mortgage pass-through certificates have been downgraded by Fitch Ratings, and 12 classes have been placed on Rating Watch Negative.The affected classes are part of seven SASCO transactions issued in 2003 and 2006. In addition, Fitch upgraded three classes and affirmed the ratings on 73 classes from 17 SASCO deals. The negative rating actions were attributed to a deterioration in the relationship between credit enhancement and expected losses. The transactions consist of fixed- and adjustable-rate, conventional mortgage loans, virtually all of which have original terms to stated maturity of 30 years. Fitch can be found online at http://www.fitchratings.com.

IndyMac Bancorp Inc., Pasadena, Calif., has announced the pricing of $500 million of noncumulative perpetual preferred stock by its wholly owned subsidiary, IndyMac Bank FSB.The preferred stock pays a dividend of 8.5%. Scott Keys, IndyMac's chief financial officer, said the offering would increase IndyMac Bank's Tier I capital from $2.1 billion to $2.6 billion, based on the company's balance sheet as of March 31. Morgan Stanley & Co. and Goldman Sachs & Co. were the joint book-running managers of the offering. The company can be found online at http://www.indymacbank.com.

Mortgage Bankers Association chairman John Robbins has urged Congress and federal regulators to refrain from mandating underwriting standards that could precipitate a credit crunch.Mr. Robbins told the National Press Club that the mortgage industry has the tools and the capacity to help distressed subprime borrowers avoid foreclosure. The subprime market is already correcting itself, the most aggressive lenders have been punished, and the most aggressive lending programs have been eliminated, Mr. Robbins maintained. Mandating tougher underwriting would force lenders to shut the door on homeowners who need to refinance out of adjustable-rate 2/28 mortgages and exacerbate delinquencies and foreclosures, he warned. "We hope the regulators take a realistic view and allow the industry to deal with the issue and not try to regulate or legislate," Mr. Robbins said. The MBA chairman did call for the licensing and regulation of mortgage brokers.

Federal banking regulators could issue subprime mortgage guidance in the next few weeks, and it will look a lot like the original proposal, according to John Reich, director of the Office of Thrift Supervision.In speaking to reporters, Mr. Reich indicated that the final guidance will require lenders to underwrite adjustable-rate 2/28 mortgages at the fully indexed rate and that it should satisfy the demands of Senate Banking Committee Democrats. However, he wants to be sure that lenders have the flexibility to modify or refinance existing subprime ARMs that are due to reset over the next 12 months so the monthly payments remain affordable and the borrowers are not forced into foreclosure. "That is an issue that the regulators need to address," Mr. Reich said, and he indicated that the issue is still being worked on. Separately, Comptroller of the Currency John Dugan said he wants the guidance to curb the practice of making "stated-income" subprime loans and emphasize the importance of verifying a borrower's income.