Servicing

Mortgage companies cut their payrolls by 800 full-time positions in July, and it could be the beginning of further declines in industry employment.The U.S. Bureau of Labor Statistics reported Sept. 1 that employment in the mortgage banker/broker sector fell from 502,900 in June to 502,100 in July. The original estimate for June was revised downward from 503,100. Mortgage originations were unexpectedly strong in the second quarter. But loan applications declined dramatically in July, according to the Mortgage Bankers Association's weekly applications survey. Despite declining loan volume (particularly refinancings), employment has been surprisingly steady all year, according to the MBA's director of forecasting, Orawin Velz. Ms. Velz said she suspects that companies are laying off loan officers and hiring for their servicing shops. And these "substitutions" have keep employment at a high level so far. "We haven't seen the decline in industry employment yet, but that could be forthcoming," she said. The MBA economist sees a continuing decline in originations into next year as the housing market adjusts and normalizes, which would usually force mortgage companies to shed employees. The BLS can be found online at http://stats.bls.gov, and the MBA can be found at http://www.mortgagebankers.org.

Classes M-I-1, M-I-2, and M-I-3 of Residential Asset Securities Corp. series 2002-KS2 have been placed under review for possible downgrade by Moody's Investors Service.Moody's said the reason for the rating actions was that credit enhancement levels may be low given the projected losses on the underlying pools. The pool has seen losses in recent months, and future losses "could cause a more significant erosion of the overcollateralization," the rating agency said. The transaction is backed by fixed- and adjustable-rate subprime mortgage loans originated by Residential Funding Corp., which is also the master servicer on the deal.

Six tranches from GSAMP Trust 2004-SEA2 have been downgraded by Moody's Investors Service.The downgrades were as follows: class M-2, from A2 to Baa2; class M-3, from A3 to Baa3; class M-4, from Baa1 to Ba2; class M-5, from Baa2 to B1; class B-1, from Ba3 to B3; and class B-2, from Caa3 to C. The downgrades were based on "rapid deterioration" of overcollateralization and subordination caused by "an accelerating pace of losses," the rating agency said. The losses were attributed to a high frequency of defaulted loans and "substantial severity" of loss on liquidated collateral. The transaction was issued with seasoned subprime mortgage loans, some of which had experienced delinquency prior to securitization.

Despite real efforts by servicers of U.S. residential mortgage-backed securities, complying with the minimum servicing requirements of Regulation AB will "remain a challenge" in the first year of the law, according to a report by Fitch Ratings.Each party in the servicing function is required to provide, by March 31, 2007, both an assessment report on its compliance with Reg AB and an attestation report from a public accounting firm to concur with the servicer's assessment. More parties are now subject to reporting on "previously untested" Reg AB servicing criteria, which could cause delays and restatement of noncompliant servicer reports, according to Thomas Crowe, a Fitch director. "Many servicers are still developing the attestation programs for themselves and other relevant parties, and determining additional reporting requirements," Mr. Crowe said, adding that many are still consulting with accounting and law firms on the requirements. Fitch can be found online at website at http://www.fitchratings.com.

CIT Group Inc., a global commercial and consumer finance company, has announced the launch of the CIT Payment Protection Plan, an optional debt protection program for its first-mortgage and consumer loan customers.Under the plan, customers faced with involuntary unemployment, family leave of absence, disability, or death of a co-borrower, would not have to pay the principal and interest portion of their monthly loan payment, up to a specific dollar amount, for up to six months. "The CIT Payment Protection Plan allows borrowers the ability to protect their credit during uncertain periods of their lives," said Paul Petrylak, president of CIT Insurance Services. "As one of a few financial institutions to offer debt protection to first-mortgage customers, the plan will offer temporary relief to our customers as they work to get back on their feet after a significant life event." The company can be found online at http://www.cit.com.

Tighter underwriting standards on subprime loans could have a greater impact on reducing foreclosures than banning prepayment penalties and balloon loans and other so-called predatory lending practices, according to a study by the Office of the Comptroller of the Currency.OCC researchers discovered a strong correlation between high foreclosures and refinanced loans with no- and low-document features, which they equated with "loose" lending practices. The study of foreclosures in Chicago did not find the same correlation on subprime loans with balloons or prepayment penalties (36 months or longer) or on no- or low-doc purchase loans. The OCC researchers maintain that underwriting practices that ensure borrowers can repay their loan represent a more effective approach to preventing foreclosures than "blanket" prohibitions on certain lending practices. This approach is also consistent with the proposed guidance on interest-only and payment-option mortgages, according to the study. Federal banking regulators are expected to finalize the guidance this fall.

The class B certificates from three Renaissance Home Equity Loan Trust subprime deals issued in 2002 have been placed under review for possible downgrade by Moody's Investors Service.The affected transactions are: series 2002-1, series 2002-2, and series 2002-3. The deals were originated by Delta Funding Corp. The rating actions were taken because credit enhancement levels are low given the projected losses on the underlying pools, Moody's said. Overcollateralization in all the underlying pools is below its target or 50-basis-point floor as of the Aug. 25 reporting date, the rating agency reported. Moody's can be found online at http://www.moodys.com.

Affordability products dominated the alternative-A mortgage sector in the second quarter, pushing the issuance of alt-A securities to a record high after a brief downturn early in the year, according to Standard & Poor's Ratings Services.Issuance rose about 33%, from $76 billion in the first quarter to $101 billion in the second quarter, and 50% when compared with the $66 billion volume a year earlier, S&P reported. Affordability products such as payment-option adjustable-rate mortgages and interest-only ARMs represented 77% of the total volume in the second quarter, up from 61% a year earlier, S&P said. "This growth is a result of the dramatic increase in the popularity of affordability products during the first half of 2006," said credit analyst Jeff Watson. "Standard & Poor's expects total volume in second-half 2006 to stabilize, rather than to continue to grow above current levels." The data were published in a report titled "Trends in U.S. Residential Mortgage Products: Alt-A Sector Second-Quarter 2006." S&P can be found online at http://www.standardandpoors.com.

Fitch Ratings has assigned Financial Freedom Senior Funding Corp. an RPS3-plus residential primary servicer rating for reverse-mortgage loans.Fitch said the rating is based on Financial Freedom's expertise in servicing reverse mortgages, integrated payment processing and reverse-mortgage systems, and established quality-monitoring procedures. Fitch said the rating also reflects the financial strength of parent company IndyMac Bank, which has a long-term debt rating of BBB-minus from Fitch. Financial Freedom is based in Irvine, Calif., and has a specialized reverse-mortgage servicing platform in San Francisco. Financial Freedom serviced approximately 93,000 loans totaling more than $9.8 billion as of May 31.

Fannie Mae chief executive Daniel Mudd says he believes the company's retained portfolio could fall dramatically, to just $10 billion, if limits imposed by a Senate GSE bill prevail.In a 39-page letter to members of the Senate Banking Committee, Mr. Mudd writes that "in our analysis a literal reading of the bill would lead to a reduction in the size of our portfolio to a range of $10 billion to $100 billion." At the end of July, Fannie's retained portfolio totaled $731.4 billion. The letter -- penned by Mr. Mudd and company chairman Stephen Ashley -- is dated July 31 and addresses questions raised by senators before and after a June hearing on the company's accounting scandal. Mr. Mudd's estimate on the company's retained portfolio addresses loan limits imposed by S. 190, a government-sponsored enterprise reform bill introduced by Senate Banking Committee Chairman Richard Shelby, R-Ala. Mr. Mudd also said that if S. 190 became law, it would bar Fannie (and Freddie Mac) from investing in mortgage-backed securities "in almost all instances." Fannie Mae can be found online at http://www.fanniemae.com.