Servicing

Fannie Mae executives said during a conference call Feb. 27 that the company's purchases of subprime credit quality loans and mortgage-backed securities may continue to grow.Fannie chief executive Daniel Mudd stressed that at year-end 2006, only about 0.2% of Fannie Mae's single-family mortgage credit book of business consisted of subprime mortgage loans or Fannie Mae MBS backed by subprime home loans. However, an additional 2% of the book of business consisted of private-label MBS backed by subprime home loans. Mr. Mudd said Fannie Mae will make prudent and incremental decisions about continuing to expand its subprime credit business. "I like where we are," he said. "We have enough engagement so far to be knowledgeable about the market, but we don't have so much that this is a major exposure on our books." He reported that cumulatively, the loan-to-value ratio on Fannie Mae's book of business is 55% and the average credit score is 721. Fannie can be found online at http://www.fanniemae.com.

Starting Sept. 1, Freddie Mac will stop purchasing subprime 2/28 ARM securitizations unless the loans are underwritten to the fully indexed rate and consideration is given to the borrowers' ability to pay taxes and insurance on their homes.The government-sponsored enterprise has been a major investor in subprime mortgage-backed securities, and it is changing its policies in response to regulatory and congressional pressures on the industry and the GSEs to clean up the underwriting of these subprime adjustable-rate mortgages, which are exhibiting extremely high default and foreclosure rates. Freddie also said it is developing subprime fixed-rate and hybrid ARM products that it will purchase for its mortgage portfolio. These subprime products will limit payment shock by offering reduced adjustable-rate margins, longer fixed-rate terms, and longer reset periods. In addition, the company will not purchase no-documentation loans. "The steps we are taking today will provide more protection for consumers and enhance the level of underwriting standards in the market," said Richard Syron, Freddie's chairman and chief executive officer. Freddie Mac current holds $185 billion in triple-A-rated subprime MBS in its $700 billion mortgage portfolio. The GSE can be found online at http://www.freddiemac.com.

Moody's Investors Service has downgraded one class of certificates and has placed under review for possible downgrade seven other classes from CDC Mortgage Capital Trust deals.The affected multiple originator transactions were issued in 2001, 2002, and 2003 and consist primarily of first-lien, adjustable- and fixed-rate subprime mortgages, according to Moody's. "The subordinate certificates are being downgraded or reviewed for possible downgrade based on the fact that existing credit enhancement levels are low given the current projected losses on the underlying pools," Moody's said. The downgrade affects series 2001-HE1, class B, which has seen its rating slip from B3 to Caa2. The review for possible downgrade affects the following classes: series 2002-HE1, class B; series 2002-HE3, class B-1; series 2003-HE1, class B-1; series 2003-HE1, class B-2; series 2003-HE1, class B-2; series 2004-HE1, class B-2; and series 2004-HE1, class B-3.

Two classes from Credit Based Asset Servicing and Securitization LLC series 2002-CB6 have been downgraded by Fitch Ratings, and two classes from C-BASS series 2002-CB5 have been placed on Rating Watch Negative.Class B-2 of series 2002-CB6 was downgraded from BBB-minus to BB-minus, and class B-3 was downgraded from BB to B-plus. Classes B-2 and B-3 of series 2002-CB5 were placed on Rating Watch Negative. In addition, Fitch upgraded 16 classes and affirmed the ratings on 236 classes from 31 C-BASS deals. The negative rating actions reflect a deterioration in the relationship between credit enhancement and loss expectations, the rating agency said.

The HedgeStreet exchange has announced the expansion of its housing price contracts to 10 major metropolitan areas.The binary option contracts, in $100 denominations, are benchmarked against the median sales prices of existing single-family homes reported by the National Association of Realtors, the San Mateo, Calif.-based exchange said. The expansion adds the Las Vegas, Denver, and Washington markets to those of Chicago, Los Angeles, Miami, New York, San Diego, San Francisco, and Boston. "The markets, which HedgeStreet pioneered two years ago and have since been copied by other exchanges, now have a track record of accurately forecasting the median value of residential housing, which is useful to home buyers, sellers, and real estate industry participants," the company said. HedgeStreet can be found online at http://www.hedgestreet.com.

The settlement of shareholder litigation by Fieldstone Investment Corp., Columbia, Md., will ease the way for its acquisition by C-BASS.The former shareholders had filed suit over the price paid by Fieldstone to redeem their shares following the close of its Rule 144A equity offering in 2003. It will pay the former shareholders $10.6 million in total. The settlement removed a potential $0.20 reduction in the per-share price C-BASS could have demanded relating to this litigation. Thus C-BASS, which is currently majority-owned by MGIC and Radian (whose own merger will force them to reduce their equity stake in the company), will pay the agreed-to price of $5.53 per share for Fieldstone.

Servicers are focusing more on valuations in this challenging market, according to speakers at the MBA's National Mortgage Servicing Conference & Expo.Employees in loss mitigation are contacting those in the real-estate owned department to see if they can predict how much a property will sell for if it goes into REO. The end list price at REO is typically very different from early valuation, depending on what happens in local markets, the speakers said. Some companies have their own appraisers or another third-party appraiser who can reconcile values. Panel members said the industry can expect to see the deployment of artificial intelligence to report values, create offers and automated counter offers. "The rules of the game have changed," said Scott Freeze, loss mitigation manager, strategic initiatives, Option One Mortgage. "A lot of times, the [property value is] wrong, which is why loss mitigation teams are working together with foreclosure teams to keep borrowers in their home."

Fidelity National Information Services launched FIS Desktop -- an enterprise workflow, document and expense management offering -- at the Mortgage Bankers Association's National Mortgage Servicing Conference & Expo.FIS Desktop provides mortgage lenders, servicers and investors with technology to manage the post-origination loan cycle from loan acquisition and boarding through loss mitigation and real estate-owned property disposition. "Like many industries, mortgage servicing operations struggle to integrate multiple, function-specific technology solutions across the enterprise," said Greg Whitworth, president of the FIS recently formed Loan Portfolio Solutions division. "A lack of integration among workflow, imaging and expense management applications typically created silos in an organization, making it virtually impossible to respond to market trends," he said. Mortgage Corp., one of the first mortgage servicers to use the integrated components of FIS Desktop, indicated it is experiencing increased efficiency and significantly reduced operating costs as a result of the platform's document and electronic invoice management capabilities.

Freddie Mac executives said at the MBA National Mortgage Servicing Conference in San Diego that they are revising servicing incentives to encourage lenders to implement repayment plans earlier in the default process."Early intervention is key to foreclosure prevention," Freddie Mac vice president for servicing and asset management Ingrid Beckles told MortgageWire. "We find that repayment plans that start at the 30- to 60-day mark have a much better chance of success than if they start at 90 days." As a result, Freddie Mac plans to increase its incentives for servicers that start successful repayment plans after 60 days of delinquency rather than waiting until a later stage of default. Freddie Mac also plans to increase the weighting assigned to successful repayment plans used to cure affordable housing loan products that have gone into default. Freddie Mac also plans to increase the incentive payment to servicers for successful repayment plans from $200 to $250.

One class of SACO I Trust second-lien mortgage-backed securities has been downgraded by Fitch Ratings and one class has been placed on Rating Watch Negative.Class B-4 of series 2005-7 was downgraded from BB to B and class B-4 of series 2005-8 was placed on Rating Watch Negative. The downgrade and watchlist placement reflect a decline in overcollateralization stemming from losses and reduced excess spread, which resulted from rising interest rates and prepayments that have been much faster than expected, Fitch said. The rating agency can be found online at http://www.fitchratings.com.