Servicing

Class M-3 of Soundview Home Equity Loan Trust 2001-2 has been downgraded from Baa2 to Ba2 by Moody's Investors Service.The downgrade was attributed to low credit enhancement levels relative to expected losses. "The collateral has taken losses, and the pipeline loss could cause continual erosion of the overcollateralization," Fitch said. The transaction is backed by first- and second-lien, fixed- and adjustable-rate subprime mortgage loans. The rating agency can be found online at http://www.fitchratings.com.

The servicer ratings of Mortgage Lenders Network USA Inc. have been placed on watch for possible downgrade by Moody's Investors Service.Moody's said the action was due in part to "MLN's recent announcement that it has ceased funding wholesale loans, has laid off a portion of its staff, and has placed on temporary furlough a substantial portion of its remaining staff." MLN is currently rated SQ3 as a primary servicer of prime, subprime, and second-lien mortgage loans. The rating scale ranges from SQ1 (strong) to SQ5 (weak). The rating agency can be found online at http://www.moodys.com.

Foreclosures climbed sharply in 2006 as a result of several factors, including the growth of subprime mortgages, rising energy costs, and slowing home sales, according to Default Research Inc., a foreclosure research company based in Mt. Pleasant, Pa.The largest increase was recorded in Nevada, where foreclosures skyrocketed 166%, the company reported. Serdar Bankaci, president and chief executive officer of Default Research, said the company processed more than 250,000 pre-foreclosures last year. "You can expect to see the foreclosure rate continue to increase in 2007 -- not as much as [in] 2006 -- but there will be excellent opportunities to help homeowners in distress and turn a profit, too," he said. Default Research can be found online at http://www.defaultresearch.com.

New Century Mortgage Corp., a subsidiary of Irvine, Calif.-based New Century Financial Corp., has completed the purchase of certain assets (and the assumption of certain lease obligations) of Irwin Mortgage Corp.'s servicing operations, according to New Century Financial.The terms of the transaction were not disclosed. The operation will be managed by Carla Wise, and the servicing employees of Irwin Mortgage, based in Fishers, Ind., will join New Century Mortgage, New Century said. "This acquisition will allow us to increase scalability, reduce servicing costs, and improve time zone management, while also expanding our expertise in servicing alt-A and prime mortgage loans," said Kevin M. Cloyd, executive vice president of New Century Financial. The companies can be found on the Web at http://www.ncen.com and http://www.irwinfinancial.com.

Subprime lender Mortgage Lenders Network, Middletown, Conn., says it is involved in "strategic negotiations" with several Wall Street firms concerning the sale of its wholesale operation.Wholesale production accounts for 75% of the company's originations, according to National Mortgage News. The announcement concerning its wholesale network came on Tuesday, after the firm failed to return telephone calls placed to it by several media outlets, including MortgageWire. The tight-lipped MLN would only say -- via a news release -- that it has "temporarily" discontinued funding loans through the wholesale channel. For now, it remains a retail lender only. It also has a $17.8 billion nonconforming servicing portfolio, ranking 18th nationwide. Sources said the company has been hit hard by buyback requests. Its warehouse providers, sources said, include Merrill Lynch and GMAC-RFC.

Two classes of Homestar Mortgage Acceptance Corp. asset-backed pass-through certificates, series 2004-2, have been downgraded by Moody's Investors Service, and one class from series 2004-3 has been placed on watch for possible downgrade.Class M-4 of series 2004-2 was downgraded from Baa1 to Baa3, and class M-5 was downgraded from Baa2 to B1. Class M-5 of series 2004-3 was placed on watch for possible downgrade. The rating actions were based on deteriorating credit enhancement, Moody's said. "While the collateral is performing better than expected, the overcollateralization has been falling significantly below its target as a result of lower-than-expected excess spread levels," the rating agency said. The deals are backed by Homestar-originated collateral consisting primarily of alternative-A loans, with a small percentage of subprime loans. Moody's can be found online at http://www.moodys.com.

The performance of adjustable-rate subprime mortgages originated in 2006 is rapidly deteriorating and "higher default and loss rates may ensue," according to researchers at Friedman, Billings, Ramsey & Co.The default rate on 2006 subprime ARMs jumped 27% in November to 3.21% while the default rate on loans originated in 2005 hit 6.49%. The FBR researchers noted that the 2006 vintage has a higher interest rate (8.20%) than 2005 loans (7.36%), which implies that 2006 borrowers have higher debt service burdens. "It appears that subprime lenders may have mended their tattered profitability in 2006 by originating loans with higher mortgage rates, perhaps to riskier borrowers," the FBR report says. Based on preliminary volume data, the Arlington, Va.-based investment banking firm is reporting that issuance of non-agency subprime MBS fell 12.3% in 2006 to $521.3 billion, down from $594.4 billion in the previous year. However, alternative-A MBS issuance jumped 12.5% to $299.9 billion.

A New York law firm has filed a shareholder lawsuit against the largest mortgage lending company, Countrywide Financial Corp., for allegedly backdating stock options.The complaint alleges that certain Countrywide executives and directors "manipulated the prices of stock option grants," according to the law firm Stull, Stull & Brody. Countrywide had not commented on the suit by MortgageWire's deadline. Backdating stock options allows companies to report lower compensation costs and allows recipients to reap larger benefits. Stull, Stull & Brody has filed similar lawsuits against other companies. It is also investigating other companies that have received a letter of inquiry from the Securities and Exchange Commission or been contacted by a U.S. attorney's office or other federal agency relating to backdating.

Doral Financial Corp., the troubled mortgage lender based in San Juan, Puerto Rico, has reported a net loss of $28.7 million ($0.34 per share) for the third quarter, bringing itself current on its reporting obligations to the Securities and Exchange Commission.Doral said its net loss for the first three quarters of 2006 total $62.5 million ($0.81 per share). The company said its "greatest liquidity challenge" is refinancing $625 million of floating-rate senior notes. "Doral Financial will need significant outside financing during 2007, principally for the refinancing of these notes that mature in July 2007 and to meet certain other working capital and contractual needs of the holding company," the company said. In September, Doral announced an agreement with the SEC to pay a $25 million civil penalty in connection with a probe of Doral's restatement of financial results for 2000-2004. The restatement slashed $694.4 million from its retained earnings through the end of 2004 to correct the accounting for certain mortgage loan sales and the valuation of its interest-only strips. Doral can be found online at http://www.doralfinancial.com.

Fannie Mae has announced that, effective Jan. 30, borrowers must be qualified at "a fully-indexed rate that assumes a fully-amortizing repayment schedule" in order to qualify a loan for purchase by the government-sponsored enterprise.The GSE is also eliminating its "InterestFirst" interest-only loan product category and reclassifying it as a loan "feature" to be used with other mortgage products. In addition, Fannie will be permitting temporary buydowns for fixed-rate mortgage loans with an IO feature and making other changes to its IO underwriting. Fannie Mae can be found on the Web at http://www.fanniemae.com.