Servicing

Wachovia Securities has retained its position at the top of the Mortgage Bankers Association's annual ranking of commercial and multifamily mortgage loan servicers in total primary and master servicing volume, at $306.6 billion.Following Wachovia are Capmark Finance, with $229.3 billion; Midland Loan Services, with $213.4 billion; Wells Fargo, with $132.9 billion; and KeyBank Real Estate Capital, with $105.5 billion. (These companies are also the top primary and master servicers, in the same rank order, for commercial mortgage-backed securities, except that Bank of America NA ranks fifth instead of KeyBank.) Rankings of servicing for life company loans place GEMSA Loan Services at the head of the list, the trade group reported, followed by Prudential Asset Resources, Midland, NorthMarq Capital, and Capmark. Midland is ranked No. 1 for servicing of Fannie Mae and Freddie Mac loans, followed by Deutsche Bank Commercial Real Estate, Wachovia, Capmark, and ARCS Commercial Mortgage. Wachovia is No. 1 for servicing of commercial bank and savings institution loans. The MBA can be found online at http://www.mortgagebankers.org.

Accelerating subprime foreclosures reached 4.13% in November, up 72% over the previous 12 months, according to a report by Friedman, Billings, Ramsey & Co.The foreclosure rate has jumped 174 basis points since November 2005, when it stood at 2.39%. Following the last recession, the subprime foreclosure rate almost reached 10% in 2002, according to the Mortgage Bankers Association. "We don't think that we will get to that level again, because we have a good job market," said MBA senior economist Mike Fratantoni. He said he does not expect another recession for several years and believes that the strong job market will keep foreclosures at a manageable level. The FBR report, based on data from subprime securitizations, also shows that the default rate on subprime loans hit 10.1% in November, up 347 bps since November 2005. (The default rate includes loans 90 days or more past due, foreclosures, and real estate owned.)

The class A notes issued by HarbourView CDO III Ltd., a collateralized debt obligation that includes mortgage-backed securities, has been downgraded from B to A-minus by Fitch Ratings.Fitch also lowered the Distressed Recovery rating on the class B notes from DR5 to DR6, and assigned a DR2 rating to the class A notes. The rating agency said the deal has been in default since March 2005, when the principal balance of the collateral debt securities fell below the aggregate balance of the rated notes. HarbourView III has exited its reinvestment period with a portfolio consisting chiefly of "diversified structured finance assets" as well as corporate debt and the debt of real estate investment trusts, the rating agency said. Fitch can be found online at http://www.fitchratings.com.

The ratings of WCI Communities Inc., a Bonita Springs, Fla.-based homebuilder and the parent company of WCI Mortgage, have been lowered from B1 to B2 by Moody's Investors Service, and its senior subordinated notes have been downgraded from B3 to Caa1.The ratings outlook remains negative. The downgrades were triggered by WCI's "persistently unfavorable performance vs. expectations in 2006 and Moody's concern that this underperformance may last for much of 2007." The rating agency said WCI's cash collections were hurt in the fourth quarter by delays in construction, in receipt of certificates of occupancy, and in getting buyers to closings, as well as by higher cancellation rates. Moody's said WCI's ability to reduce debt leverage from its "unacceptably high" rate of nearly 67% to its target rate of 50%, and its ability to comply with financial covenants in its credit facilities, will be "greatly challenged." WCI can be found online at http://www.wcicommunities.com.

Officials from Citigroup have been inspecting the offices of Ameriquest Mortgage in California, and may be preparing to make a bid on the subprime giant, industry sources have told MortgageWire.One source said Citigroup sent a group of executives to Ameriquest's corporate offices in Orange, Calif., and to another location in Rancho Cucamonga. The source -- and another official -- said Citigroup may be eyeing Ameriquest's servicing unit, which has about $60 billion in receivables. Meanwhile, a hedge fund called Ellington Management out of Old Greenwich, Conn., has also expressed interested in Ameriquest, sources said, though it is unclear how serious it is about the company. A Citigroup spokesman said the bank does not comment on market rumors, and an Ameriquest spokesman said the same. Ellington could not be reached for comment. (For more details, see the Feb. 5 issue of National Mortgage News.)

Mortgage lenders dropped 6,500 full-time employees from their payrolls in December, and the correction in the subprime sector is starting to show up in the government's job figures.The U.S. Bureau of Labor Statistics reported that employment in the mortgage banking/broker sector declined from 501,200 in November to 494,700 in December. The BLS also revised downward the November and October job numbers, and the statistics now indicate that the industry cut 10,000 employees during the last two months of 2006. Industry economists have been expecting a retrenchment for some time, even though mortgage originations declined by only 7% in 2006 from the level of the previous year. A preliminary estimate by NMN's Quarterly Data Report shows that one- to four-family originations totaled $3.1 trillion last year, down from $3.3 trillion in 2005. However, home sales were down 10% last year, and the purchase mortgage business is more labor-intensive than refinancings. Housing economists are forecasting another 5% to 7% drop in originations in 2007. The Bureau of Labor Statistics can be found online at http://stats.bls.gov.

Two classes of certificates from Meritage Mortgage Loan Trust 2004-1 have been placed on review for possible downgrade by Moody's Investors Service.The class M-8 and B-1 notes are backed by average subprime collateral, consisting primarily of adjustable-rate mortgages, the rating agency said. Moody's said it will assess "whether rate resets and resulting prepayments may have contributed to the deterioration in credit quality of the pool in the past year, resulting in higher-than-expected projected tail-end losses."

Class M-2 of Terwin Mortgage Trust 2004-EQR1 has been downgraded from A2 to Ba1 by Moody's Investors Service.The downgrade was attributed to low credit enhancement levels vis-a-vis current loss projections. "This transaction is not performing as anticipated due to the rising loss severities, delinquency rates, and realized losses," Moody's said. The underlying collateral consists of nonperforming, fixed- and adjustable-rate, first-lien residential mortgage loans.

Two classes from Morgan Stanley ABS Capital I Inc., series 2002-HE3, have been downgraded by Moody's Investors Service.Class B-1 was downgraded from Baa2 to B1, and class B-2 was downgraded from Baa3 to B3. The downgrades were based on credit enhancement levels that are low in view of loss projections, Moody's said. "The overcollateralization amount is declining far below its required level due to the rising loss severities and realized losses," the rating agency said. The collateral consists of fixed- and adjustable-rate first-lien residential mortgage loans.

Five classes of GSAMP Trust series 2006-S3 mortgage-backed securities have been placed under review for possible downgrade by Moody's Investors Service.The affected certificates are classes M-5, M-6, M-7, B-1, and B-2. Moody's said the actions were taken because credit enhancement is low given the projected losses on the underlying pool. "The pool of mortgages has seen a spike in losses in recent months with high loss severity," the rating agency said. The transaction consists of subprime second-lien fixed-rate loans.