Servicing

Mortgage lenders Fifth Third Bancorp, Cincinnati, and R&G Financial Corp., San Juan, Puerto Rico, have signed an agreement under which Fifth Third will acquire the Puerto Rican company's R-G Crown Bank, which operates 30 branches in Florida and three in Augusta, Georgia.The combination strengthens Fifth Third's presence in the Florida markets of greater Orlando and Tampa Bay and expands its footprint into the Jacksonville, Fla., and Augusta, Ga., markets. Under the agreement, Fifth Third would pay $288 million to R-G Financial for Crown and assume $50 million of trust preferred securities. Rolando Rodriguez, CEO of R&G Financial, said the transaction "reflects the company's determination to concentrate its operations and core competencies in Puerto Rico. Second, and just as significant, the completion of the transaction will improve the RGF's overall liquidity and capital position."

Two classes of GE Capital home equity loan pass-through certificates have been downgraded by Fitch Ratings.Class M of series 1997-HE1 was downgraded from BBB to BB-minus, and class B2 of series 1999-HE3 was downgraded from BBB to BB. Fitch also affirmed the ratings on six other classes in three deals, and downgraded the Distressed Recovering rate of class B3 of series 1999-HE3 from DR3 to DR4. Fitch attributed the downgrades to the deterioration of credit support relative to steady or rising monthly losses.

Four classes from two subprime New Century Mortgage Corp. securitizations have been downgraded by Fitch Ratings.The downgrades were as follows: series 2003-2 total groups 1 & 2, class M-3, from BBB to BBB-minus, and class M-4, from BBB-minus to BB-minus; and series 2006-S1, class M-7, from BBB to BB, and class M-8, from BBB-minus to BB-minus. Fitch also placed class M-6 of series 2006-S1 on Rating Watch Negative and affirmed the ratings on 80 classes in 11 New Century deals. The negative rating actions stemmed from the deterioration of credit enhancement relative to expected losses, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

The default rate on subprime adjustable-rate mortgages originated in 2006 "rose briskly" to 7.4% in April, according to a Friedman Billings Ramsey report.Researchers at the investment banking firm based in Alexandria, Va., said the default rate on subprime ARMs had jumped 16.4% since March. Meanwhile, the default rate on subprime ARMs originated in 2005 increased by 5%, to 9.8%, in April. "In comparison to previous origination years, the default rates of the 2005 and 2006 origination years deteriorated considerably faster than the 2002-2004 origination years," the FBR researchers said. (Default rates include loans that are 90 days or more past due, in foreclosure, or real estate owned.) The report also shows that the default rate on fixed-rate subprime product originated in 2006 edged up to 3.5% in April. But the default rate of 2005 fixed-rate product actually declined slightly to 6.8%. Looking at all securitized subprime mortgages, the default rate hit 11.4% in February, according to a previous FBR report.

EverBank, Jacksonville, Fla., has announced an agreement to acquire the mortgage servicing portfolio of NetBank, as well as its direct banking and small business financing divisions.The terms of the agreement were not disclosed. The acquisition will increase EverBank's assets to approximately $7 billion and its customer base to over 550,000, the privately held company said. EverBank recently expanded its reverse-mortgage operations by purchasing BNY Mortgage Co. "The NetBank acquisition is another important milestone in our strategic transformation into a high-performing, fully integrated financial services company," said Blake Wilson, EverBank president and chief financial officer.

Williams & Williams Assets, a newly formed division of Tulsa, Okla.-based real estate auction firm Williams & Williams, has announced that it will directly acquire mortgage investors' collateral risk.The new division said it is "actively pursuing" bulk portfolios of foreclosed real estate assets from Wall Street investors and other financial institutions, as well as contractual flow purchase agreements relating to such assets. "There is not a single financial institution I am aware of that likes having real-estate-owned properties on their books," said Dean Williams, chief executive officer and president of Williams & Williams. ".... We're able to structure direct and/or ongoing purchases of these assets in the hundreds of thousands of properties per month, increasing the net realized returns compared to traditional REO disposition and effectively eliminating, or at least stemming, the related collateral risk incurred by mortgage investors." The company can be found online at http://www.williamsauction.com.

Mortgage lenders support the efforts of federal regulators to strengthen underwriting standards on subprime loans and will help troubled borrowers avoid foreclosure, according to a joint statement issued by five industry groups.The trade groups have been very wary of proposed subprime guidance the banking regulators are expected to finalize soon, and they are very concerned about proposed legislation aimed at providing relief for subprime borrowers facing foreclosure. "We believe the efforts of our members, together with the actions of the regulators, will be effective in dealing with current problems in subprime mortgage lending," the joint statement on responsible subprime lending says. "We urge the federal regulators to ensure that the proposed statement on subprime lending strikes a careful balance that provides enhanced consumer protections without unintentionally limiting the availability of home ownership to creditworthy borrowers." The Financial Services Roundtable, the American Bankers Association, the Mortgage Bankers Association, the Consumer Bankers Association, and America's Community Bankers signed the statement.

Class M-I-3 of Residential Asset Securities Corp.'s home equity mortgage asset-backed pass-through certificates, series 2001-KS2, has been downgraded from B3 to Caa2 by Moody's Investors Service.The downgrade was based on "the analysis of the credit enhancement provided by subordination, overcollateralization, and excess spread relative to the expected loss," Moody's said. The transaction is backed by first- and second-lien fixed-rate, and first-lien adjustable-rate, subprime mortgage loans. Moody's can be found on the Web at http://www.moodys.com.

Class M-3 of Ameriquest Mortgage Securities Inc. Quest 2003-X4 has been downgraded from BB-minus to CC/DR3 by Fitch Ratings.In addition, Fitch affirmed the ratings on 16 classes from three Quest transactions. The downgrade was attributed to deterioration in the relationship between credit enhancement and expected losses. Fitch can be found online at http://www.fitchratings.com.

Doral Financial Corp., a San Juan, Puerto Rico-based mortgage lender, has announced a recapitalization plan under which it will sell $610 million of its common stock to a newly formed bank holding company backed by Bear Stearns Merchant Banking and eight other companies.After the recapitalization, the new entity, Doral Holdings, will own approximately 90% of Doral's common stock outstanding, and Doral's existing common shareholders will own the remainder. The investment by Doral Holdings, together with certain other transactions, are expected to enable Doral to repay at maturity its $625 million floating-rate senior notes due July 20, to fund a previously announced settlement of a securities class action and shareholder derivative litigation, and to pay transaction expenses, the company said. The recapitalization "will permit Doral to continue as a well-capitalized major financial institution in Puerto Rico," said Doral chairman Dennis G. Buchert. "Although highly dilutive to existing common shareholders, the board believes it is the best, and probably the only, means to retain some value for existing shareholders and enable them to participate in the future of the company." After the announcement of the recapitalization plan, Fitch Ratings downgraded Doral Financial's long-term issuer default rating from B-plus to B and lowered several of the company's other ratings.