Servicing

Citing a need to improve accountability in the mortgage industry and keep families from losing their homes, Pennsylvania Acting Banking Secretary Victoria A. Reider has urged swift action on legislation to stop abusive lending practices blamed for many foreclosures.Legislation was introduced in the state House and the state Senate earlier this year. The six bills are the result of a 2005 Pennsylvania Department of Banking report on foreclosures, which cited abusive lending practices as a significant contributing factor to the state's above-average foreclosure rate. The bills would amend state laws to require individual licenses for mortgage professionals. Currently, the department has the authority to license mortgage companies, but not their employees. "In Pennsylvania, the people who cut your hair are licensed," Ms. Reider said. "The people who sell insurance and stocks are licensed. But the people who guide, for most of us, the largest financial transaction of our lives are not licensed. This legislation would create a new licensing category for individual mortgage loan originators."

New York Attorney General Andrew Cuomo has issued generic subpoenas to about 30 mortgage lenders and servicers asking about industry practices, and he may focus on mortgage broker compensation, according to a mortgage banking attorney."Given his recent foray into the student lending world, it wouldn't surprise me if he looks at payments by lenders to mortgage brokers," said Larry Platt, a partner in the Washington office of K&L Gates. But he stressed that he has no inside knowledge. "I am just speculating." The subpoenas were issued in the past few days, and they generally relate to appraisal practices, mortgage broker practices, and the way lenders slot borrowers into different loan products. "There is no accusation of any wrongdoing," and it appears that the AG's office is trying to get a handle on how the industry operates, Mr. Platt said. "Any subpoenas that were received are part of an ongoing investigation -- that's all I can say," said Arthur Harris, a spokesman for Mr. Cuomo's office. Mr. Platt said he suspects that the New York AG will focus on payments by lenders to brokers, which are called yield-spread premiums, based on his tenure at the Department of Housing and Urban Development. In 1997, then-Secretary Cuomo tried unsuccessfully to impose strong disclosure requirements on broker compensation, which industry groups considered anti-YSP.

The General Electric-owned WMC Mortgage, Burbank, Calif., a top-ranked subprime lender, on Thursday laid off 50% of its work force -- roughly 771 full-time positions.A company spokeswoman confirmed the job cuts to MortgageWire. WMC has just two wholesale offices remaining -- its Burbank location and one in Orangeburg, N.Y. A year ago it had nine. The spokeswoman declined to give a breakdown on what positions were cut. She said WMC -- which GE bought a few years back -- is "committed" to the subprime business. In March WMC laid off 20% of its staff, or about 460 workers. Industry sources say the company has had huge buyback requests from secondary-market investors. The spokeswoman said she could not address the issue. WMC Mortgage can be found online at http://www.wmcdirect.com.

Three classes of First Horizon Home Loan Mortgage Trust mortgage-backed securities have been placed on Rating Watch Negative by Fitch Ratings.The affected securities are the B5 classes of series 2005-AA7, series 2005-AA8, and series 2006-FA1. The negative rating actions were attributed to "signs of increasing credit risk, posing a potential threat to subordinate bonds." The collateral for the transactions consists of conventional 15- and 30-year fixed-rate residential mortgages extended to prime borrowers.

Class E of Merrill Lynch Mortgage Investors Inc. mortgage pass-through certificates, series 1998-C1-CTL, has been downgraded from Ba3 to B1 by Moody's Investors Service.One other class was upgraded, and the ratings on six other classes in the deal were affirmed. The downgrade reflects "concerns about the credit of Rite Aid Corp.," Moody's said. The certificates are collateralized by 99 credit tenant lease loans backed by 16 corporate credits, the rating agency said. Moody's can be found online at http://www.moodys.com.

Bank of America Corp., Charlotte, N.C., has reported net income of $5.26 billion ($1.16 per share) for the first quarter, an increase of 5% from $4.99 billion ($1.07 per share) a year earlier that it attributed partly to a rise in mortgage banking income.BoA said the net income from its Consumer Real Estate segment, including its home equity and mortgage businesses, rose 33% to $227 million. Revenues for the segment totaled $840 million, a 21% increase derived "partly from increased home equity balances," the company said. BoA can be found online at http://www.bankofamerica.com.

RealtyTrac, an online foreclosure marketplace based in Irvine, Calif., has reported that new foreclosure filings rose 7% in March and were 47% higher than the level recorded a year earlier.The company's U.S. Foreclosure Market Report indicates that 149,150 new foreclosure properties were added to the rolls in March. "Foreclosure activity shifted into a higher gear in the first two months of 2007, and March's numbers continued that trend," said James J. Saccacio, RealtyTrac's chief executive officer. "While foreclosures are causing a major disruption in the subprime sector of the lending industry and saturating pockets of some local markets, it's important to note that U.S. foreclosure activity overall is not far above historical norms." The company said Nevada, Colorado, and California recorded the highest foreclosure rates in March. RealtyTrac can be found online at http://www.realtytrac.com.

A partisan dispute over an affordable housing trust fund could slow passage of a Federal Housing Administration reform bill that many in Congress view as a way to help subprime borrowers get into safer and more affordable home loans.Rep. Judy Biggert, R-Ill., warned Democrats that she has "grave concerns" about the solvency of the FHA single-family program if excess FHA revenues are earmarked for a yet-to-be-created AH trust fund. "Removing the housing trust fund provision will allow us to work together on a bipartisan bill that can move expeditiously to the House floor," Rep. Biggert said. But Rep. Maxine Waters, D-Calif., warned that the FHA reform bill will not get out of the House Financial Services Committee without the affordable housing fund provision. The FHA bill, co-sponsored by Rep. Waters and the committee chairman, Rep. Barney Frank, D-Mass., does not create an AH trust fund -- that requires separate legislation that Rep. Frank plans to introduce later this year. It simply allows the future affordable housing trust fund to tap the FHA as a funding source.

Freddie Mac has announced that it will purchase $20 billion in fixed-rate and hybrid adjustable-rate mortgage products that will provide more options for lenders to offer subprime borrowers.The products, which are under development and slated to be introduced by midsummer, will limit payment shock by offering reduced adjustable-rate margins, longer fixed-rate terms, and longer reset periods, the government-sponsored enterprise said. The $20 billion commitment was made by Freddie Mac chairman and chief executive Richard F. Syron at the Homeownership Preservation Summit convened by Sen. Christopher J. Dodd, D-Conn., and attended by Sen. Richard Shelby, R-Ala. Mr. Syron said the pledge is intended "to assist families caught up in the subprime crisis and to make the market more stable and transparent for all borrowers." The commitment followed a recent announcement that Freddie Mac will stop buying subprime mortgages that have "a high likelihood of excessive payment shock" and of risking foreclosure. The GSE can be found online at http://www.freddiemac.com.

Class B-1 of Diversified Asset Securitization Holdings II LP has been downgraded from B/DR4 to CCC/DR4 by Fitch Ratings.The ratings on three other classes in the deal were affirmed. Fitch said DASH II is a collateralized debt obligation that was originated and managed by Asset Allocation & Management LLC, but that Western Asset Management Co. became the substitute asset manager for AAMCO in October 2002. The portfolio backing the CDO consists of residential and commercial mortgage-backed securities, asset-backed securities, and other CDOs.