Servicing

The residential primary servicer rating for subprime product and the special servicer rating of AMC Mortgage Services Inc. have been placed on Rating Watch Evolving by Fitch Ratings.The company's primary servicer rating is RPS2-plus, and its special servicer rating is RSS2-plus. (Fitch rates residential servicers on a scale of 1 to 5, with 1 being the highest rating.) Fitch said AMC is "experiencing financial pressure," pointing to the situation of its parent company, ACC Capital Holdings. "Fitch believes that ACH's financial flexibility is constrained by significant settlement and restructuring charges taken in recent quarters as well as the increasingly challenging operating environment in the subprime mortgage market," the rating agency said. "While other originators and servicers face these challenges as well, AMC's sharp decline in origination volume has caused considerable seasoning of the servicing portfolio, which is resulting in increasing delinquency levels and contributing to a cost of servicing that is significantly higher than the industry average." Fitch can be found online at http://www.fitchratings.com.

Mortgage-related bond and derivatives prices have seen notable changes in the past few days that appear to reflect recent housing finance market concerns.Agency mortgage-backed securities were one to three ticks wider vs. the 10-year Treasury for discount and current coupons on Dec. 7 in a move that a report by RBS Greenwich Capital mortgage strategist Alec Crawford attributed to subprime lender Ownit's Chapter 7 bankruptcy. In addition, the ABX tradable synthetic index of U.S. home equity asset-backed securities, which is considered reflective of housing market sentiment, has seen a "freefall" in the past few days, according to Andrew Davidson & Co.

Prepayments on 30-year fixed-rate mortgages in agency mortgage-backed securities fell 5% in November, reflecting a seasonal slowdown in housing turnover as well as the short Thanksgiving week, according to Bear, Stearns & Co.MBS backed by 30-year Fannie Mae collateral recorded an overall constant prepayment rate of 10.9 CPR for the month, down 0.8 CPR from that of October, senior managing directors Dale Westhoff and V.S. Srinivasan reported. Meanwhile, comparable Freddie Mac collateral recorded an overall speed of 10.3 CPR, down 0.3 CPR from that of October. The latest speeds "support our current thesis that today's prepayment environment has important parallels to 1996," the Bear Stearns analysts said. A 200-basis-point rally in mortgage rates in 1996, following the massive 1993 refinancing wave, produced "a notably muted refinancing response that stands out from all other refinancing events," the analysts said. The current situation also involves a significant weakening of the housing market and follows a massive refi wave in 2003. "The recent rally has exposed predominantly newly originated mortgages backing 6.0% and 6.5% coupons," the Bear Stearns analysts said. "These borrowers have seen little or no home price appreciation, reducing the cash-out incentive that has been such a critical component to the prepayment response in recent years." Bear Stearns can be found online at http://www.bearstearns.com.

Employment in the mortgage industry rose to a new high in October as lenders added 2,900 full-time employees to their payrolls, though overall employment in the mortgage industry has been surprisingly steady all year.The U.S. Bureau of Labor Statistics reported that employment in the mortgage banking/broker sector increased from 504,500 in September to 507,400 in October. Since October 2005, employment is up only 0.6%. However, it is surprising to see lenders hiring when sales of existing homes are down 11% and new-home sales are down 25% over the past 12 months. Orawin Velz, director of forecasting at the Mortgage Bankers Association, noted that mortgage rates were falling in September and October and refinancing activity had picked up. Nevertheless, "it is surprising that we haven't seen a year-over-year decline," Ms. Velz said. The MBA forecaster said she expects to see some payroll trimming in the coming months. The BLS can be found online at http://stats.bls.gov.

GMAC-RFC Insurance Claims Services and Fidelity National Information Services Inc.'s Field Services division have announced a strategic alliance to jointly promote their services.GMAC-RFC Insurance Claims helps financial institutions optimize the property insurance claims recovery process to generate higher recoveries for clients. FIS Field Services is a provider of asset inspection and preservation services to financial institutions around the world. "The marketplace needs another competitive solution that will enable financial institutions and other real estate investors to optimize their insurance claims recovery process, repair homes faster, and minimize reputational risk between the financial institution and its borrowers," said Ron Reitz, vice president and director of GMAC-RFC Insurance Claims Services. Fidelity can be found online at http://www.fidelityinfoservices.com.

Fannie Mae's long-awaited revised financial results reduce the company's retained earnings by $6.3 billion through June 30, 2004.For periods prior to the start of 2002, retained earnings fell by $7 billion, Fannie Mae said. For 2002, there was a $705 million net decrease, while net earnings for 2003 increased by $176 million. And for 2004, net income was revised upward by $1.2 billion. The total downward revision is smaller than Fannie Mae's previous estimate that the accounting restatement might reduce cumulative earnings by $10.8 billion through June 30, 2004. Additionally, Fannie Mae said the restatement yielded a $4.1 billion increase in reported stockholders' equity through June 30, 2004, despite the reduction in retained earnings. The equity adjustment reflected a reversal of previously recorded derivative cash flow hedge adjustments and the recognition of fair-value adjustments on available-for-sale securities that were previously classified as held-to-maturity securities and recorded at amortized cost, Fannie Mae said. Fannie is still not current in reporting financial results and has not said when it will release results for 2005 and 2006. The government-sponsored enterprise can be found online at http://www.fanniemae.com.

Two classes of Asset Backed Funding Corp. mortgage-backed securities, series 2002-SB1, have been downgraded by Fitch Ratings.Class M-3 was downgraded from BBB to BB, and class B was downgraded from CC/DR3 to C/DR4. Fitch also affirmed the ratings on several classes in the ABFC issue. The rating agency attributed the downgrades to a deterioration of credit enhancement relative to expected monthly losses.

Five classes from three GE Capital home equity loan pass-through certificate deals have been downgraded by Fitch Ratings.The downgrades were as follows: series 1997-HE3, class M, from AA to A, and class B1, from CC/DR4 to C/DR4; series 1999-HE1, class B1, from A to BBB, and class B2, from CC/DR3 to C/DR3; and series 1999-HE3, class B3 from CC/DR4 to C/DR3. In addition, Fitch affirmed 19 classes from seven GE Capital transactions. The downgrades were attributed to a deterioration in the relationship between credit enhancement and monthly losses. The loans consist of 15- to 30-year closed-end home equity mortgage loans secured by residential properties. Fitch can be found online at http://www.fitchratings.com.

ECC Capital Corp., an Irvine, Calif.-based real estate investment trust that originates and invests in residential mortgage loans, has announced that it expects to take a fourth-quarter loss and that the pending sale of its mortgage banking business will likely close in the first quarter of 2007.The company said arrangements with Bear Stearns Residential Mortgage Corp., which is buying ECC's mortgage banking operations for an estimated total consideration of $26 million, are expected to reduce the cash requirements of funding the operating losses of the mortgage banking operations in the fourth quarter. "However, management cautions that, based on preliminary October and November results, operating losses are still expected for the fourth quarter of 2006," the company said.

Issuance of U.S. prime jumbo mortgages rose again in the third quarter after a "roller coaster-like run" over the past year, according to Standard & Poor's.Issuance hit a peak of $79.3 billion in the fourth quarter of 2005, and then declined in the next two quarters. But issuance increased to $57.3 billion in the third quarter, up $8.6 billion (or 18%) from the second-quarter total, S&P says in a report titled "U.S. Prime Jumbo Issuance Is Back On The Rise." However, issuance is still lower than the levels recorded in 2005 as a result of higher interest rates and slower home price appreciation, the rating agency said. Issuance in the third-quarter of 2006 was off $13.5 billion (or 20%) from that of a year earlier. S&P can be found online at http://www.standardandpoors.com.