Servicing

The typical processes of many servicers of residential mortgage-backed securities do not apply to reverse mortgages or must be "dramatically adjusted" to successfully service this growing niche product, according to a new Fitch Ratings report.Servicers need a "distinct ... operational focus" to adequately administer reverse mortgages (which enable senior citizens to convert home equity into tax-free income) because the products may increase risk to their operations, according to Fitch senior director Karen Eissner. "A servicer's ability to track loan balances and disbursements to borrowers, as well as monitor taxes and insurance, are vital for properly servicing reverse mortgages," Ms. Eissner said. Also desirable are specialized training on the complexities of reverse mortgages and the use of "strict timeline management" in managing loss severities, Fitch said. The report, "Servicing U.S. Residential Reverse Mortgages," is available online at http://www.fitchratings.com.

The stock of Wachovia Corp. was been downgraded from Buy to Neutral by Merrill Lynch.Merrill Lynch analyst E. Najarian said the Wall Street firm has "reassessed" its view since the acquisition announcement last year regarding Golden West Financial Corp. and now sees more earnings-per-share risk. "As the mortgage cycle slows, investors are likely to remain concerned about the EPS risk of [Golden West's] two-dimensional business mix (mainly option ARMs and CDs)," the analyst said. The Golden West deal and "the realization that Wachovia may, over time, pursue more large deals" are likely to keep Wachovia at one of the lowest price/earnings ratios among banks, Merrill said. Therefore, Wachovia deserves to trade at "about a 10% discount to our large regional bank group, which implies fair value of $56-$57," the analyst opined.

Meanwhile, ForeclosureS.com says a midsummer drop in foreclosure activity in the Midwest was only "a temporary lull."Company president Alexis McGee said the Midwest "never got caught up in the speculative frenzy" that has occurred on the East and West coasts, but that rising energy costs, higher interest rates, and an estimated 40,000 plant closures in the Midwest have created fertile ground for foreclosures. "In Cook County, for example, as of Sept. 10, almost 7,000 homes have been lost in foreclosure, but 16,111 more are in some stage of the foreclosure process," Ms. McGee reported. "Only about 28% of the city's housing stock is owner occupied. These people in the foreclosure process have a limited buyer population to whom they can sell their way out of foreclosure."

Foreclosure activity in Florida is skyrocketing and "the party's over" for real estate speculators, according to ForeclosureS.com, a Fair Oaks, Calif.-based investment advisory firm.The publisher of foreclosure information said nearly 23,000 properties were in some stage of foreclosure in Florida as of mid-September. "We've known for some time that, especially in South Florida, the market was seriously overbuilt," said Alexis McGee, president of ForeclosureS.com. "For example, there were about 25,000 condo units under construction at the end of the second quarter of 2006. That is more than have been sold in that market in the last nine years." As for speculators who "flip" properties for profit, Ms. McGee said she believes that "they have been selling to each other in Florida, rather than to end-users. Now, like elsewhere in the country, the party's over." The company can be found online at http://www.foreclosures.com.

Natural disasters caused "a stunning $89 billion" in privately insured catastrophic losses in 2004 and 2005, and property insurance premiums have risen "from 100% to over 600%" in some coastal areas that are vulnerable to hurricanes, according to the Mortgage Bankers Association.In a white paper on natural disasters and catastrophic insurance, the MBA said there is an insurance availability and affordability crisis in some states that is also affecting commercial mortgage borrowers, lenders, and servicers. The MBA hopes the white paper will spark discussion about finding solutions to promote access to property insurance at affordable prices, MBA vice chairman Kieran Quinn said. The association can be found online at http://www.mortgagebankers.org.

Two classes of Metropolitan Asset Funding Inc. II, series 1998-B, have been downgraded by Moody's Investors Service.Class B-1 was downgraded from B3 to Caa1, and class B-2 was downgraded from Ca to C. The downgrades were attributed to credit enhancement levels that are deemed low in view of projected losses on the underlying pools. The transaction consists of subprime and seller-financed first-lien fixed-rate loans.

Twenty mezzanine and subordinate certificates from 10 home equity loan transactions issued by Structured Asset Securities Corp.'s Amortizing Residential Collateral Trusts in 2001 and 2002 have been downgraded by Moody's Investors Service.In addition, Moody's confirmed the ratings on four certificates from four SASCO transactions. The downgrades were based on the weaker-than-expected performance of the mortgage pools and the resulting erosion of credit support, the rating agency said. Overcollateralization amounts in most of the deals are below their targets, and pipeline losses could cause further depletion of the overcollateralization and put pressure on the most subordinate tranches, Moody's said. The rating agency can be found online at http://www.moodys.com.

Freddie Mac increased its purchases of private-label mortgage-backed securities by nearly 50% in 2005, while Fannie Mae's purchases fell by 50%, according to a report by the Office of Federal Housing Enterprise Oversight."Private-label MBS purchases by Fannie Mae fell 54% by $41.1 billion, while purchases by Freddie Mac jumped 49% to $180.0 billion," the OFHEO reports says. Freddie Mac is increasing it purchases of highly rated variable-rate securities, chairman and chief executive Richard Syron told a recent investors conference. "These purchases are essential to meeting our housing goals, and they also provide good financial returns," he said. The OFHEO mortgage market report also points out that combined MBS issuance by Fannie and Freddie fell 1%, to $908 billion, in 2005 -- the lowest level in five years.

Countrywide Financial Corp., Calabasas, Calif., the nation's largest residential lender, has confirmed that it will cut up to 10% of its "general and administrative" work force in the coming months.A Countrywide spokesman confirmed the job cuts to MortgageWire but could not offer a head count for the reduction. Layoffs have already begun, he said. Countrywide employs about 56,000 nationwide. He stressed that the layoffs -- which the company hopes to achieve mostly through attrition -- will not affect the lender's sales staff. One source told MW that the company has even canceled its regular practice of providing employees with free doughnuts on the last Friday of every month. (For further details, see the Sept. 25 issue of National Mortgage News.)

Wachovia Securities, which services securitized commercial mortgages and facilitates related defeasance transactions, has announced the receipt of a private letter ruling from the Internal Revenue Service that may help reduce defeasance costs for borrowers.Charlotte, N.C.-based Wachovia said the ruling expands the time period for using securities in the defeasance process, but noted that it has not been published by the IRS and "may only be relied upon by the taxpayer who requested it." In a defeasance, a borrower substitutes government securities as collateral for a loan to obtain a release of the property that originally secured the loan, Wachovia noted. Existing practice required the securities to provide a stream of payments to fund the loan's debt service within four months of receipt. The IRS letter, which Wachovia received on behalf of a client, indicates that tax rules would not be violated by using securities maturing within 12 months rather than four, the company said. T.J. Maher, a managing director in Wachovia's Municipal Products Group, said expanding the period from 120 to 365 days will expand the security combinations available to borrowers.