Servicing

Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., is calling on lenders, investors, and other stakeholders to work together to provide relief for subprime borrowers facing foreclosure."The solution to this problem may not be legislative," Sen. Dodd said at a hearing on the turmoil in the subprime market. "Instead, I intend to ask leaders from all the stakeholders -- regulators, investors, lenders, GSEs, FHA, and consumer advocates -- to come together and try to work out an efficient process for providing relief to homeowners." The subcommittee chairman accused the regulators of being "spectators" as lenders pushed unaffordable subprime loans. He said he plans to introduce a bill that "attacks" predatory lending. "We need to put a stop to abusive and unsustainable lending," he said. Sen. Dodd acknowledged that it will be "tough" to pass a predatory lending bill, but added that "we must try."

Bank of America has extended the terms of its warehouse line to Option One Mortgage Corp., but reduced the facility by about half -- to just over $2 billion, according to a new public filing.H&R Block, the parent of Option One of Irvine, Calif., said in a filing with the Securities and Exchange Commission that it also amended a servicing and sale agreement with Wells Fargo Bank, but offered no details on what those changes entail. The BoA warehouse line has been extended to March 14, 2008, but is subject to several "performance triggers" tied to capital, net income, defaults, and related matters. H&R Block is trying to sell Option One and is supposed to make a public announcement regarding the sale process by the end of the week of March 25. According to the Quarterly Data Report, Option One ranks seventh among all subprime originators in the United States.

Fitch Ratings has lowered the residential primary servicer rating of Accredited Home Lenders Inc. from RPS3-plus to RPS3-minus for subprime loans.The rating agency said the downgrade was based on "the challenging operating environment in the subprime mortgage market and uncertainties over [Accredited's] ability to maintain adequate funding and remain viable over the intermediate term." Fitch noted that Accredited announced March 16 that it had reached an agreement to sell $2.7 billion of loans at a discount in order to alleviate pressure from margin calls. The rating agency also noted the company's March 20 announcement of a commitment for a $200 million term loan from entities managed by Farallon Capital Management LLC. Fitch rates residential servicers on a scale of 1 to 5, with 1 being the highest rating.

Bids are being accepted on two portfolios of mortgage servicing rights involving some $290 million of home loans.Interactive Mortgage Advisors, Denver, is brokering the sale of MSRs on a $202 million home loan portfolio of Fannie Mae, Freddie Mac, and Federal Home Loan Bank loans. The loans have a weighted average loan balance of $89,493 and are backed predominantly by homes in Utah. Bids are due March 29. A second portfolio totaling $88 million in Fannie Mae and Freddie Mac loans from New York State is being brokered by Mortgage Industry Advisory Corp., New York. The average unpaid balance on that portfolio is $163,014, and bids are due on March 30.

Rating agencies Standard & Poor's and Moody's Investors Service expect the 2006 book of subprime mortgages to perform well below the norm, but spokesmen for the firms say they don't believe problems on the lowest rung of the credit ladder will reach up to take a bite out of the prime and alternative-A sectors."The turmoil so far has been limited to the subprime space," S&P's Scott Mason said at the Mortgage Bankers Association's National Nonprime and Networking Conference in Carlsbad, Calif. "There will probably be some tightening in alt-A as well, but that's about it." David Teicher of Moody's agreed. Although early payment defaults have increased dramatically in the two sectors, he said, they are rising from general delinquency levels that are low by historical standards. Mr. Mason told the conference "there's a good probability" that vintage 2006 nonprime loans "will be one of the worst-performing in recent history." Mr. Teicher said that while it's still "too early to tell" how last year's subprime book will perform, it is more likely to play worse than better.

Fremont General Corp., Santa Monica, Calif., has agreed to sell $4 billion in subprime loans to an unnamed buyer (or buyers) -- but will book a $140 million loss on the deal.It is unclear whether servicing rights tied to these loans are also being sold. The lender could not be reached for comment. Fremont is trying to sell its subprime division, which services $27 billion in loans but has stopped funding new originations. Fremont, a depository, said it has received "approximately $950 million in cash from the first sale installment under the agreements, with the remaining sales under the agreements expected to be completed over the next several weeks." The company, in a filing with the Securities and Exchange Commission, said the mortgages are being sold at a discount, "reflecting current conditions in the sub-prime mortgage market."

Fannie Mae has cut ties with ailing subprime lender New Century Financial Corp., informing the company that it can no longer sell loans to the government-sponsored enterprise or service its mortgages.New Century, which is expected to file for bankruptcy protection, disclosed the news March 20 in a filing with the Securities and Exchange Commission. The Irvine, Calif.-based wholesaler also said it has been hit with cease-and-desist orders from several states, including California, Florida, and New York. The C&Ds accuse the company of not funding loans after closing. (New Century has not funded a mortgage in at least two weeks.) All of its warehouse providers cut off credit to the company. It services about $40 billion in loans, according to the Quarterly Data Report. One investment adviser told MortgageWire that New Century has enough cash to last 60 days. Its stock was delisted by the New York Stock Exchange and now trades on the "pink sheets." The companies can be found online at http://www.fanniemae.com and http://www.ncen.com.

Origen Financial Inc., a real estate investment trust based in Southfield, Mich., has announced the renewal of a financing facility with Citigroup Global Markets Realty Corp. for an additional year, with an increase in its capacity from $235 million to $250 million.The company said the other terms of the facility have also improved, offering lower borrowing costs and a higher advance rate. Origen, which originates and services manufactured home loans, can be found on the Web at http://www.origenfinancial.com.

Two subordinated certificates from Merrill Lynch Mortgage Investors Trust series 2004-SL1 and 2004-SL2 have been placed on review for possible downgrade by Moody's Investors Service.The affected securities are class B-3 of series 2004-SL1 and class B-4 of series 2004-SL2. In addition, Moody's placed four classes on review for possible upgrade. The rating agency said the transactions are backed by subprime second-lien mortgages whose recent losses have exceeded the available excess spread, thereby depleting the overcollateralization.

Classes M-7, B-1, and B-2 from Long Beach Mortgage Loan Trust series 2006-A have been placed on review for possible downgrade by Moody's Investors Service.The negative rating actions were attributed to credit enhancement levels that may be too low to sustain the current ratings when compared with rising projected losses. The transaction is backed by second-lien loans.