Servicing

Lenders are already using a number of tools to help financially stretched borrowers avoid foreclosure, but these cases need to be addressed individually rather than with a blanket moratorium, according to the Mortgage Bankers Association.Lenders and servicers have developed loss mitigation tools to help borrowers who are at risk of losing their homes, MBA chairman John Robbins said in response to calls for an immediate six-month moratorium on foreclosures. Mr. Robbins acknowledged that a credit crunch in the subprime market has left some borrowers "trapped" and unable to refinance into a more affordable loan. "They are trapped, and we are doing everything we can to help them, including looking at new products designed to help troubled borrowers," Mr. Robbins said. Four civil rights groups have called for a moratorium. Allen Fishbein, director for housing policy at the Consumer Federation, said "unprecedented action" is needed. "We certainly think the situation is serious enough that it warrants consideration of all possible solutions, including a moratorium," he said.

Civil rights group are calling for an immediate six-month moratorium on foreclosures so that borrowers with subprime hybrid mortgages can transition to a more affordable loan product."If lenders, servicers, Wall Street, and policymakers allow the flood of subprime foreclosures to continue rising unchecked, years of economic progress in communities of color will be wiped out," NAACP Washington bureau director Hilary Shelton said. The Leadership Conference on Civil Rights, the National Fair Housing Alliance, the National Council of La Raza, and the Center for Responsible Lending joined the NAACP in calling for a moratorium. These groups contend that subprime lenders targeted minority communities with reckless and unaffordable adjustable-rate 2/28 mortgages, and now the borrowers are losing their homes on a massive scale. "Those responsible for these mortgages have a duty to fix the broken product they sold just like everyone else," CRL president Mike Calhoun said. "The industry must work quickly."

Fannie Mae says it will reduce its work force by several hundred full-time employees as part of an effort to cut operating expenses by $200 million in 2007."While determinations are still being made as we undertake this restructuring, we anticipate that the company will have several hundred fewer full-time employees at the end of this year," Fannie spokesman Brian Faith said. The publicly traded company has 6,500 full-time employees, and its operating expenses have ballooned in the aftermath of an accounting scandal that has forced it to restate earnings. Now the government-sponsored enterprise is trying to catch up and file timely financial reports with the Securities and Exchange Commission. Fannie's administrative expenses totaled $3.1 billion in 2006, including $850 million in costs associated with the restatement process and related regulatory examinations, investigations, and litigation defense, according to a Feb. 27 SEC filing. The GSE also wants to cut back on contractors who are working on the restatement process. Fannie Mae can be found online at http://www.fanniemae.com.

Collateralized debt obligations issued in 2005 and 2006 will come under greater ratings pressure as stresses continue in the subprime market because they have substantially larger concentrations of subprime residential mortgage-backed securities, according to Fitch Ratings.Ratings volatility stemming from later-vintage subprime RMBS will likely occur in 12-18 months as the actual loss experience becomes clearer, according to Fitch senior director Derek Miller. "Though 2006 performance will be very poor, Fitch's more immediate concerns focus on near-term ratings volatility that will arise from earlier vintage subprime RMBS," Mr. Miller said. "Negative selection among borrowers due to prepayments is occurring simultaneously with the release of credit enhancement due to RMBS performance triggers passing, against the backdrop of a slowdown in the U.S. housing market." The rating agency can be found online at http://www.fitchratings.com.

The senior unsecured debt and preferred stock ratings of New Century Financial Corp. have been downgraded to D by Standard & Poor's Ratings Services.The debt had previously been rated CC, and the stock had been rated C. New Century's counterparty credit rating was lowered from CC to D on March 12, S&P said. "The latest rating action follows New Century's announcement that it has filed for Chapter 11 bankruptcy protection in light of continuing financial difficulties," the rating agency said. "Upon a bankruptcy filing, the 'D' category is used when we believe that payments on an obligation are jeopardized even though no payment default has yet occurred." S&P can be found online at http://www.standardandpoors.com.

Eleven tranches from five deals issued by Option One Mortgage Loan Trust have been downgraded by Fitch Ratings, and five classes have been placed on Rating Watch Negative.In addition, Fitch has affirmed the ratings on 156 classes from 18 Option One deals. The negative rating actions were attributed to a deterioration in the relationship between credit enhancement and loss expectations. The transactions consist of fixed- and adjustable-rate, conforming and nonconforming mortgage loans secured by first or second liens.

The Federal Home Loan Bank of Chicago has reported a 23% drop in profits for 2006, and the bank says it expects "significantly lower net income" this year as it continues to operate under a supervisory agreement.The $86.7 billion-asset FHLBank reported annual earnings of $188 million in 2006, down from $244 million in 2005 and $365 million in 2004. "The current interest rate environment and planned declines in capital stock and Mortgage Partnership Finance program asset balances will continue to present significant earnings challenges," said Mike Thomas, Chicago FHLBank president and chief executive officer. The Chicago bank redeemed $1.2 billion in capital stock last year, and its MPF holdings of single-family loans declined by 9.8%, to $37.9 billion as of Dec. 31. In a filing with the Securities and Exchange Committee, the bank says it has implemented most of the requirements of a June 2004 supervisory agreement. "We still need to implement certain recommendations related to our market risk modeling," the 10-K filing says.

The 12 Federal Home Loan Banks reported combined 2006 earnings of $2.6 billion, up 3% from the previous year, due to a slowdown in member borrowings, declines in their mortgage investments, and a large increase in retained earnings.Member borrowings or advances grew by only 3% last year, to $641 billion, while the FHLBank holdings of residential mortgage loans fell 7% to $98.0 billion, reducing interest income. Under pressure from their regulator, the FHLBanks raised retained earnings by $543 million last year to $3.1 billion as of Dec. 31. Meanwhile, the Federal Home Loans Banks made $295 million in annual contributions to their affordable housing programs as required by law.

The subprime default rate rose to 10.52% in January, up 40 basis points from that of December, and the foreclosure rate on securitized subprime loans hit 4.33%, according to researchers at the investment banking firm Friedman Billings Ramsey.The default rate increased from 6.83% in January 2006 to 10.12% in December, with a monthly surge of 101 bps in November. FBR managing director Michael Youngblood said he does not expect to see another similar urge. "We expect rather a slow upward drift of default rates to 10.97% by December 2007," he said. FBR defines defaults as loans 90 days or more past due, foreclosures, and real estate owned. The investment banking firm is based in Arlington, Va.

New Century has unveiled its long-expected bankruptcy reorganization, saying it has agreed to sell its servicing assets and platform to Carrington Capital Management for $139 million, subject to court approval.The company also said that CIT Group and Greenwich Capital have agreed to provide up to $150 million of "debtor-in-possession" financing to keep the company in business during the reorganization. New Century said it will cut 3,200 jobs (more than half its work force) immediately. "The agreement to sell our servicing assets to Carrington is a significant and positive development, as it provides stability for holders of certain securities issued by New Century and Carrington's securitization trusts," said Brad A. Morrice, president and chief executive officer, in the company's announcement. The company said the Carrington deal will be subject to higher and better offers pursuant to Bankruptcy Court procedures. New Century can be found on the Web at http://www.ncen.com.