Servicing

FICO scores are the best indicator of mortgage default risk, and underwriting standards used to distinguish between prime, alternative-A, and subprime borrowers have a "substantial influence" on default and loss, according to Fitch Ratings.In a new report setting out the rating agency's new loan default model, Fitch has identified three major predictors of mortgage loan defaults -- FICO scores, credit sector, and combined loan-to-value ratios. The new model identifies 13 mortgage credit factors for projecting loan-level defaults, and incorporates regional economic stress factors to reflect the varying regional levels of risk. "Fitch’s new model is based on actual historical loss severity data, rather than projections of home price movements and expenses," the rating agency said. "The model provides insight into which loan attributes are predictive of higher loss severity, and fully captures the difference in severity among the various credit sectors." Fitch said ResiLogic, the public version of the new default model, will be available for beta testing beginning Nov. 6. The rating agency can be found online at http://www.fitchratings.com.

The American Mortgage Law Group, a national law firm focused exclusively on the mortgage banking industry, has been formed in Novato, Calif., according to Arthur Prieston, founder of The Prieston Group, a mortgage fraud insurance provider that will work closely with the new firm.American MLG will be headed by partners James Brody and Ryan Thomas, who have moved to the new firm from the mortgage banking group of Lanahan & Reilley, Santa Rosa, Calif., which has worked with TPG on loss mitigation. "There is clearly a need for an experienced national law firm dedicated solely to serving the unique needs of all within the mortgage banking industry, from lenders to investors to servicers to other entities," Mr. Prieston said. "The marketplace has changed, not only leaving lenders more vulnerable to fraud, but also squeezing profits for all. It is vital that the industry have access to a law firm that can effectively address all their concerns, regardless of location." TPG can be found online at http://www.priestongroup.com.

Investment banker Friedman, Billings, Ramsey has closed its mortgage-related asset-backed securities group.A spokeswoman for the Arlington, Va.-based company said mortgage ABS "is a small part of our overall business. It represents less than 2% of our total revenue." As of MortgageWire's deadline, she could not provide a number for its ABS issuance volume for the year. FBR also owns subprime lender First NLC Financial Services, Deerfield Beach, Fla., which ranks 21st among subprime lenders, according to the Quarterly Data Report.

NetBank Inc., Columbia, S.C., a top-40-ranked mortgage lender, says its chairman and chief executive officer, Douglas Freeman, has resigned effective Oct. 5.The resignation comes as the company finalizes a deal to sell a majority of its $15 billion servicing portfolio, using Countrywide Servicing Exchange, Pasadena, Calif., as its broker. Initially, Phoenix Capital, Denver, had represented NetBank in the sale, but then the company changed advisers. A spokesman for NetBank told MortgageWire that "We wanted a bigger firm to represent us." The depository named Stephen Herbert as its new CEO. In a statement, Mr. Herbert said, "We believe our bank and conforming mortgage businesses have upside potential." Through the first six months of the year NetBank has lost about $42 million. Blaming its woes on the flat yield curve, "competitive operating pressures within our mortgage channels, and other market factors," it anticipates that it may lose money in the third quarter just ended.

Freddie Mac has reported that its estimated net income for the first half of 2006 totaled $2.7 billion, with increases in the "fair value" of the guarantee fee and derivative instruments boosting results.Higher interest rates helped generate mark-to-market gains, and Freddie Mac acknowledged that with rates dipping in the third quarter, some of those mark-to-market gains could be lost. On a fair-value basis, a measure Freddie Mac prefers to GAAP (generally accepted accounting principles) results, Freddie said its return was $2.3 billion in the first half, for an annualized rate of return of 17%. Freddie Mac executives said on a conference call with investors that the average fair-value return exceeded management's goal of percentage earnings growth in the low to mid-teens. The company said it still hopes to return to regular financial reporting by the end of next year, though executives were hesitant to give a firm timetable.

Richard Syron, chairman and chief executive of Freddie Mac, has advised investors that the housing markets may be poised for "a relatively bumpy landing."Speaking on a conference call to update investors on Freddie Mac's first-half performance, Mr. Syron said weaker housing conditions will affect more than just credit performance, putting negative pressure on consumer spending and the economy as a whole. "In our minds it will have a substantial negative effect on GDP," he said. He also noted that there has been a shift away from "traditional mortgage products" into more esoteric loans, but he said Freddie Mac is "very comfortable with what we have in those markets." Through July of this year, interest-only loans constituted 14% of year-to-date loan purchases, but they only accounted for 3% of the total credit guarantee portfolio, the company said. Freddie Mac can be found online at http://www.freddiemac.com.

Citigroup has acquired a majority of Irwin Mortgage's $19 billion residential servicing portfolio, investment banking sources have told MortgageWire.Citigroup bought about 60% of the receivables, with three other buyers acquiring pieces of the rest. Two of the smaller buyers have been identified as ABN Amro Mortgage, Ann Arbor, Mich., and MidFirst Bank, Oklahoma City. None of the buyers had responded to telephone calls as of MortgageWire's deadline. In a filing with the Securities and Exchange Commission, Irwin Financial Corp. of Indiana said the sale price on the receivables is $261 million, but that ultimately it will book an $11 million loss on the deal. IFC is the parent of Irwin Mortgage.

Two certificates from two transactions issued by SACO I Trust have been placed under review for possible downgrade by Moody's Investors Service.The affected classes are class B-3 of SACO I Trust 2004-3 and class B-4 of SACO I Trust 2005-2. "These transactions are backed by closed-end seconds, and have seen recent losses that have exceeded the excess spread available, thereby depleting the overcollateralization," Moody's said.

Classes M3 and B of Structured Asset Securities Corp. series 2002-BC1 have been placed under review for possible downgrade by Moody's Investors Service.The rating actions were attributed to credit enhancement levels that are deemed low given the projected losses on the underlying pools. The transaction is backed primarily by first-lien subprime mortgage loans.

Class B-1 of GE Capital 1998-HE1 has been downgraded from B2 to Caa2 by Moody's Investors Service.The downgraded was based on low credit enhancement levels compared with current loss projections, Moody's said. "The realized losses have caused the subordination and credit enhancement levels to significantly decline," the rating agency said. The collateral consists of closed-end, fixed-rate, first-lien residential mortgage loans. Moody's can be found on the Web at http://www.moodys.com.