Servicing

More than 430,000 foreclosure filings were reported nationwide in the first quarter, up 27% from those of the previous quarter and 35% from a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif.The nation's quarterly foreclosure rate of one foreclosure filing for every 264 households was the highest since RealtyTrac began issuing its report 27 months ago, the company said in its 2007 U.S. Foreclosure Market Report. (Foreclosure filings include default notices, auction sale notices, and bank repossessions.) "The rise in foreclosure activity was quite dramatic and widespread in the first quarter, with 37 out of the 50 states reporting year-over-year increases," said James J. Saccacio, chief executive officer of RealtyTrac. "Certainly the surge in subprime defaults has contributed to the overall rise in foreclosures -- we estimate that more than 50% of the foreclosure activity we charted in the first quarter was from subprime loans. However, it's not just low-end homes that are going into foreclosure. We're seeing a rising percentage of foreclosures with an estimated market value of more than $750,000." The company can be found online at http://www.realtytrac.com.

A study by Freddie Mac has found that illness and excessive debt are gaining ground on job or income loss as the leading cause of mortgage delinquencies.Freddie Mac said unemployment and income losses caused 36% of delinquencies among Freddie Mac loans in 2006, down from 43% between 2001 and 2005. But delinquencies caused by excessive financial obligations rose to 13.6% last year, up from 11.1% in prior years. Late payments linked to a borrower or family illness rose from 19.2% to 21.1%. Noting that only 0.53% of Freddie Mac loans were 90 or more days overdue at the end of 2006, chief economist Frank Nothaft said the drop in job- or income-based severe delinquencies reflects increases in payroll jobs outside the manufacturing sector. "But the increase in late payments due to excessive debt is potentially troubling because it is independent of economic trends and suggests some borrowers are having a harder time handling their financial obligations than in past years." Freddie Mac can be found online at http://www.freddiemac.com.

While rejecting the idea of a government bailout for delinquent subprime borrowers, a top government housing official said Wednesday that the Federal Housing Administration can come to the aid of "tens of thousands" of consumers through the refinancing process.Roy Bernardi, deputy secretary for the Department of Housing and Urban Development, said, "If a refi is doable, FHA would look at it and work with servicers." Mr. Bernardi noted that the agency could do more to help subprime borrowers if FHA reforms are passed by Congress, including a proposal that would allow the agency to charge risk-based premiums. "We must reach out to help the borrower," he said, speaking before a policy meeting sponsored by the Mortgage Bankers Association. "But we can't simply throw money at the problem."

Banks and thrifts can earn Community Reinvestment Act credit by placing their troubled subprime borrowers into newly refinanced loans, but not for ordinary workouts and loan modifications, according to regulators.When it comes to their own loans, "I don't think there is any question whether banks will do workouts and accommodate those individuals appropriately," said Robert Mooney, acting deputy director of the Federal Deposit Insurance Corp., at a CRA conference sponsored by the Consumer Bankers Association. The main thrust of the April 17 interagency statement is to encourage banks to work with nonprofit groups in helping subprime borrowers with adjustable-rate 2/28 and 3/27 mortgages that have been securitized. Mr. Mooney noted that a lot of the borrowers are trapped and facing foreclosure. And it isn't easy to "shake" those loans out of the securitizations so responsible banks can do the workouts, he said. Meanwhile, the regulators want to ensure that "you get the credit you deserve" in the CRA lending or service tests "for taking that extra step and going the extra mile," Mr. Mooney said. The CBA can be found on the Web at http://www.cbanet.org.

Fifteen classes from six deals issued by SACO I Trust have been placed on review for possible downgrade by Moody's Investors Service.The affected classes are as follows: series 2006-2, classes I-B-4 and II-B-4; series 2006-3, class B-4; series 2006-4, class B-4; series 2006-5, classes I-B-4, II-B-1, II-B-2, II-B-3, and II-B-4; series 2006-6, classes B-2, B-3, and B-4; and series 2006-7, classes B-2, B-3, and B-4. These actions are based on an analysis of the credit enhancement provided by subordination, overcollateralization, and excess spread relative to expected losses, Moody's said. The transactions are backed by closed-end second-lien loans.

Class B of Mesa Trust 2001-2 has been downgraded from B3 to Caa3 by Moody's Investors Service.The action was based on an 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- and adjustable-rate subprime mortgage loans.

Two classes of Finance America Mortgage Loan Trust series 2004-2 have been downgraded by Fitch Ratings, and two classes from series 2004-1 have been placed on Rating Watch Negative.Class M-8 of series 2004-2 was downgraded from BBB to BBB-minus, and class M-9 was downgraded from BBB-minus to BB-minus. Classes M-7 and M-8 of series 2004-1 were placed on Rating Watch Negative. In addition, Fitch upgraded one class and affirmed the ratings on 13 other classes in the two deals. Fitch attributed the downgrades to deterioration in the relationship between credit enhancement and expected losses.

Two classes of Terwin Mortgage Trust mortgage-backed securities have been downgraded by Moody's Investors Service, and five classes have been placed under review for possible downgrade.Class B-6 of Terwin Mortgage Trust series 2006-2HGS was downgraded from B1 to Caa3, and class B-7 was downgraded from Caa3 to C. Classes B-3, B-4, and B-5 of the same transaction were placed under review for possible downgrade, as were classes B-4 and B-5 of Terwin Mortgage Trust series 2006-4SL. The negative rating actions were attributed to losses that have eroded subordination and caused credit enhancement to fall too low to support the existing ratings. Moody's can be found online at http://www.moodys.com.

Three classes of Structured Asset Securities Corp. residential mortgage-backed certificates have been downgraded by Fitch Ratings.The downgrades were as follows: series 1999-SP1 pools 1, 2, and 3, class B, from BBB to BB-plus; series 2002-BC1, class M3, from CCC/DR2 to CC/DR2; and series 2002-HF2, class B2, from B to CC/DR2. In addition, the Distressed Recovery rating of series 2003-BC2 class B2 was changed from DR6 to DR2. Fitch also upgraded two SASCO classes and affirmed the ratings on 49 classes from 15 SASCO deals. Fitch attributed the downgrades to deterioration in the relationship between credit enhancement and expected losses.

Twenty-five classes from nine Structured Asset Securities Corp. Amortizing Residential Collateral Trust transactions have been downgraded by Fitch Ratings.Fitch also affirmed the ratings on 29 classes from 11 SASCO ARC deals. The downgrades were attributed to a deterioration in the relationship between credit enhancement and loss expectations.