Servicing

The class A notes issued by Blue Heron Funding IX Ltd., a collateralized debt obligation consisting partly of residential and commercial mortgage-backed securities, has been downgraded from F1-plus to F1 by Derivative Fitch.In addition, the ratings on two other classes were affirmed. Fitch said the downgrade resulted from a previous downgrade of the short-term rating of Westdeutsche Landesbank Girozentrale, the manager of the CDO. In addition to RMBS and CMBS, the transaction includes asset-backed securities and other CDOs, the rating agency said.

The class A-1 and A-2 notes issued by Blue Heron Funding V Ltd., a collateralized debt obligation partly composed of residential and commercial mortgage-backed securities, have been downgraded from F1-plus to F1 by Derivative Fitch.In addition, the ratings on two other classes were affirmed. Fitch said the downgrade resulted from a previous downgrade of the short-term rating of Westdeutsche Landesbank Girozentrale, which is the manager of the CDO. In addition to RMBS and CMBS, the transaction includes asset-backed securities and other CDOs, the rating agency said. Fitch can be found on the Web at http://www.fitchratings.com.

Washington Mutual Inc.'s home loan segment incurred a net loss of $113 million in the first quarter as a result of weakness in the subprime mortgage market, the Seattle-based thrift has reported.The segment recorded net income of $52 million in the first quarter of 2006, WaMu said. The company said its first-quarter gain on sale included net losses of $164 million on sales of subprime mortgage loans and adjustments to reflect declines in market values of loans held for sale. WaMu decreased the value of its subprime mortgage residual portfolio by $88 million, ending the quarter with a balance of $105 million. Overall, WaMu reported net income of $784 million ($0.86 per share) for the first quarter, down from $985 million ($0.98 per share) a year earlier.

Washington Mutual Inc., Seattle, has announced a $2 billion assistance program designed to help homeowners with subprime mortgage loans avoid foreclosure.Under the program, WaMu subprime borrowers who remain current on their loans and expect payment increases may apply for new discounted fixed-rate loans or other mortgage products. Specialists will provide assistance to subprime customers who want to learn more about their options, which may include prime mortgage products, WaMu said. "We're reaching out to our subprime borrowers to help ensure they are in the best possible position to manage challenges posed by payment adjustments," said Kerry Killinger, WaMu's chairman and chief executive officer. "We want our customers to know what's ahead, to avoid surprises, and to understand the choices available to them." WaMu can be found online at http://www.wamu.com.

Key congressional supporters of raising the conforming-loan limit are reconsidering a provision in a GSE reform bill that would require Fannie Mae and Freddie Mac to securitize and sell all jumbo mortgages.Reps. Barney Frank, D-Mass., and Gary Miller, R-Calif., commented at a hearing on rising foreclosures that securitization makes it very difficult to restructure the loans when borrowers get into trouble. Rep. Frank, chairman of the House Financial Services Committee, said it might be better for the government-sponsored enterprises to keep those loans in portfolio. On March 28, the committee approved a GSE regulatory reform bill that raises the conforming-loan limit in high-cost areas.

A Federal Deposit Insurance Corp. summit may have found a way to restructure adjustable-rate 2/28s mortgages in subprime securitizations and prevent foreclosures, according to FDIC Chairman Sheila Bair.She told a congressional panel that one way to restructure or modify these loans is to continue with the starter rate on the ARM. This approach was discussed at the April 16 summit with lenders, securitizers, and servicers, where it was learned that MBS investors really don't have a realistic expectation of getting the higher reset rate. Investors will have to approve this approach, even though they will incur losses. But Ms. Bair pointed out that foreclosures would cause bigger losses. "I think they are willing to do that," she told reporters. One hurdle is an accounting interpretation that requires a securitized mortgage to be delinquent 30 days before it can be restructured. "I think that is a problem," the FDIC chairman said. She said she plans to discuss it with the Financial Accounting Standards Board.

The chairman of the Senate Banking Committee and the ranking Republican member on Wednesday ruled out any type of government bailout for delinquent subprime borrowers.At a news conference, Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., said, "This problem can be solved without using" taxpayer money. Sen. Richard Shelby, R-Ala., said "I'd be unalterably opposed" to a government bailout. At the news conference, Freddie Mac chairman Richard Syron unveiled that government-sponsored enterprise's plans to provide $20 billion worth of assistance to delinquent subprime borrowers.

The Mortgage Bankers Association has announced a partnership with NeighborWorks America to support a national campaign to help borrowers stay in their homes.The campaign will link homeowners in danger of foreclosure to a free counseling hotline (888-995-HOPE) provided by the Homeownership Preservation Foundation and establish intervention programs in cities with high rates of foreclosure, the MBA said. Other elements include conducting a public education campaign with the National Ad Council to improve contact rates for homeowners in financial distress, and providing certified training programs to foreclosure counselors through the NeighborWorks Center for Homeownership Education and Counseling. NeighborWorks America is a Washington-based nonprofit organization created by Congress to provide financial support, technical assistance, and training for community-based revitalization efforts. The organization can be found online at http://nw.org, and the MBA can be found at http://www.mortgagebankers.org.

FICO scores are less significant as an early default indicator when other high-risk loan attributes, such as no income verification, are present, according to a Fitch Ratings report on defaults of subprime mortgages underlying residential mortgage-backed securities.The report says the normal lag between slowing home price appreciation and a rise in mortgage defaults has been shortened in the case of 2006 subprime mortgages by high borrower leverage and the widespread use of stated-income loan programs. "While FICO scores continue to be highly predictive measures of relative risk for loans with similar characteristics, FICO scores play a lesser role when additional risk layers are added," said Glenn Costello, managing director of RMBS at Fitch. "In the case of the 2006 vintage delinquencies, additional risk layers that are factoring into the sharply higher delinquencies include high combined loan-to-value ratios and stated-income loan programs, as borrowers with higher FICO scores tend to be highly levered." The rating agency can be found online at http://www.fitchratings.com.

Wells Fargo & Co., San Francisco, saw its 90-days-or-more residential delinquencies spike in the first quarter, with its government-insured loan repurchases also shooting up significantly.According to the bank's earnings statement, $159 million of its one- to four-family holdings were 90 days or more past due "and still accruing," an increase of 72% from the level of the same period a year ago. (No explanation was given on what "still accruing" means.) It had $381 million in Ginnie Mae loan buybacks, a 68% jump from a year ago. (The Ginnie Mae buybacks -- which the government is on the hook for -- exclude the one- to four-family number.) Wells is the nation's largest residential servicer, according to the Quarterly Data Report. At the end of March, Wells held $1.05 billion in 90-days-late consumer loans, with a majority being in the category called "other revolving credit and installment." The company can be found online at http://www.wellsfargo.com.