Servicing

Four certificates from Ace Securities Home Equity Loan Trust series 2004-HE1 have been downgraded by Moody's Investors Service.The downgrades were as follows: class M-4, from Baa1 to Baa3; class M-5, from Baa3 to B1; class M-6, from Ba2 to Caa2; and class B, from Caa2 to C. The certificates were downgraded because "credit enhancement levels are low given the current projected losses on the underlying pools," Moody's said. As of the April 25 reporting date, the transaction had zero overcollateralization and the class B tranche had taken approximately $3.4 million in writedowns, the rating agency said. The transaction consists of subprime first-lien adjustable- and fixed-rate loans.

FTSE Group, a global index provider, has announced the licensing of Barclays Global Investors to create five new iShares Exchange Traded Funds that track the FTSE NAREIT U.S. Real Estate Index Series.FTSE said the new iShares funds will be the first exchange-traded funds to track real estate market subsectors in the United States. FTSE and the National Association of Real Estate Investment Trusts partnered in March 2006 to collaborate on domestic U.S. real estate indexing. The iShares Funds will be linked to the FTSE NAREIT Residential, Industrial/Office, Retail, Mortgage REIT, and Real Estate 50 indices. "REITs provide a transparent window for investors into the real estate asset class, and the use of the FTSE NAREIT index sectors by BGI spotlights key property types of traditional interest to investors," said Steven A. Wechsler, NAREIT's president and chief executive officer.

Nearly all major mortgage companies and many smaller ones will be offshoring some business processes in three to five years, according to a new report from Deloitte Consulting LLP.Approximately half of the 40 largest mortgage lenders in the United States are now offshoring, and the industry is now poised at an "inflection point," Deloitte says. "The large firms already immersed in offshoring are looking past cost savings to other business drivers and benefits -- the challenge on the horizon will be the shift toward longer-term, strategic integration of offshoring into overall operations," the company said. "The many mortgage lenders who have yet to make any offshoring moves at all now have a window of opportunity to get ahead of the competition and begin to achieve cost considerations so they can then move on to enjoy the full range of offshore benefits." The report found that lenders expect savings of 35%-45% when moving processes offshore, and that data security, mortgage experience, and service quality were identified by 10 prominent vendors as the most important criteria on which they are judged by lenders. Deloitte can be found online at http://www.deloitte.com.

Thornburg Mortgage Inc., Santa Fe, N.M., has priced an offering of 4.5 million shares of common stock at $27.05 per share.Thornburg said the gross proceeds of $121.7 million will be used primarily to fund adjustable-rate loans originated by the company and to buy additional ARM securities. Citigroup Global Markets Inc. was the book-running lead manager of the transaction, and A.G. Edwards & Sons Inc. acted as co-lead manager. The underwriters were granted an option to buy up to 675,000 additional shares of common stock to cover any overallotments. Thornburg, a real estate investment trust focused mainly on the jumbo segment of the ARM market, can be found online at http://www.thornburg.com.

Fitch Ratings has announced the launch of SMARTView for U.S. subprime residential mortgage-backed securities.Fitch also announced that 96 subprime RMBS transactions have been placed "under analysis" following a review of the rating agency's $454.1 billion rated subprime portfolio. Under the SMARTView system, introduced for certain structured finance asset classes in 2006, classifying a transaction as Under Analysis means that Fitch will issue a rating action within 30 days. SMART stands for surveillance, metrics, analytics, research, and tools.

The House Financial Services Committee, in a 45-19 vote, has approved a Federal Housing Administration reform bill that would encourage more mortgage brokers to market FHA loans and raise the loan limits on these federally insured mortgages.To achieve wider distribution of FHA single-family loans, the reform bill (H.R. 1852) would allow mortgage brokers to forgo an annual audit and post a $75,000 surety bond. The National Association of Mortgage Brokers maintains that the audit is an unnecessary expense that prevents many brokers from offering FHA loans to their customers. "This is a great day for consumers, as there will be broad access throughout the country for FHA loan products," NAMB president Harry Dinham said. But the Mortgage Bankers Association said it is "foolhardy" to weaken the standards for brokers at a time when mortgage defaults are rising. "Replacing the audited financial statement with a surety bond would not only remove an additional layer of protection for consumers but could also threaten the safety and soundness of FHA," MBA president John Robbins said.

The residential mortgage industry employed 484,100 workers in March, a 3.8% decline from the level of a year earlier and an indication that the subprime crisis is starting to result in permanent job losses.According to the Bureau of Labor Statistics, the industry lost 5,700 jobs from February to March. (The BLS figures represent mortgage bankers, brokers, and related jobs in the industry.) Figures compiled by National Mortgage News show that about 45 mortgage banking firms have either closed their doors or shut part of their production platforms since mid-December. The BLS can be found online at http://stats.bls.gov.

The U.S. Treasury Department has decided to discontinue the three-year note that has been used to some extent as a reference point in the mortgage market.An interpolated three-year Treasury rate will likely be used in its place, and the note has not been a major focal point for the market. "Introduced and withdrawn at the whim of the Treasury, the note never regained the prominence it once had prior to the first cancellation in 1998," said Bear Stearns in a report. Anthony Ryan, Treasury assistant secretary for financial markets, said in a May 2 report that discontinuing the three-year note "will allow Treasury to ensure large liquid benchmark issuances, better balance its portfolio, and manage the improving fiscal outlook." The Treasury plans to discontinue the note after a final scheduled auction on May 7.

Mortgage brokers and other nonbank lenders would have a fiduciary duty to their borrowers under a bill introduced by Sen. Charles E. Schumer, D-N.Y., that also holds lenders accountable for the subprime loans they fund and purchase from brokers.The bill introduced by Sens. Schumer, Robert P. Casey Jr., D-Pa., and Sherrod Brown, D-Ohio, amends the Truth in Lending Act to prohibit all lenders from steering borrowers into loans they cannot afford or repay. It also requires all originators to underwrite loans at the fully indexed rate and mandates the establishment of escrow accounts. The subprime market has been the "Wild West" of the mortgage industry, and this bill "brings the sheriff back in town," Sen. Schumer said. The senators are also calling for a $300 million appropriation to fund foreclosure prevention counseling that could help 300,000 distressed subprime borrowers. The senators are also calling on mortgage companies to voluntarily match these federal funds.

Citigroup, JPMorgan Chase, Litton Loan Servicing, and HSBC have agreed to a set of principles espoused by Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., to take early action to help subprime borrowers through loan modifications to avoid foreclosure."I commend the organizations and companies that have joined me in formulating and agreeing to these principles, and I urge others to participate," Sen. Dodd said. Under the principles, lenders and servicers should contact subprime borrowers with adjustable-rate mortgage loans to make sure they can afford the payments once the loan resets. If not, loan modifications should be explored, including switching the loan to a fixed rate or making the introductory rate permanent. The principles also call for servicers to ramp up so that loan modifications can be done on a scale needed to address the foreclosure crisis. Chase Home Loan chief executive David Lowman said his company supports Sen. Dodd's efforts to help families who are struggling with their mortgage payments. "We believe we can develop the best solutions by working with the Senate committee, our regulators, borrowers, investors, and community representatives," Mr. Lowman said. The Mortgage Bankers Association, Fannie Mae, Freddie Mac, Bear Stearns & Co., and Self-Help Credit Union also support the principles.