Servicing

Delinquencies on commercial mortgage-backed securities were down to 0.59% in July, from 0.65% a month earlier, Fitch Ratings, New York, reported.The credit rating agency said that half of the six-basis-point delinquency rate decline stems from the addition of seven new deals totaling $15.2 billion to Fitch's deal universe. The rest of the decline is due to loans becoming less than 60 days delinquent, being paid off, defeased, or liquidated and therefore dropping out of the delinquent universe. And Fitch's "seasoned delinquency index," which includes transactions with at least a year of seasoning, dropped five basis points in July to 0.77%. The rating agency also reported that multifamily properties in the 2003 to 2005 vintages represent over 75% of delinquent loans by balance in those vintages, and almost 50% of the 2002 vintage's delinquencies. This is "significantly higher" than its overall delinquency share for all vintages (30%).

Prestwick Mortgage Group, Alexandria, Va., is brokering the sale of servicing rights on two bulk mortgage packages totaling $46 million.Bids are due on Thursday, Aug. 24 for servicing rights on a $31 million portfolio of Freddie Mac and Fannie Mae loans in Indiana. The weighted average note rate is 6.089%, the average loan balance is $129,972 and the weighted average servicing fee is 0.2514%. Bids are due Wednesday, Aug. 23 on the servicing rights for a $15 million portfolio of Fannie Mae loans from Ohio. The weighted average note rate is 6.10%, the average loan balance is $73,666 and the weighted average servicing fee is 0.2634%.

A national community group has identified 10 cities, including four cities in Texas, that face the greatest risk of "rate shock" and foreclosures due to high concentrations of adjustable-rate subprime mortgages."With 60% of subprime loans set to have their interest rate change by the end of 2006, ARMs pose a huge threat to the security of individual homeowners and entire neighborhoods," according to the ACORN study. ACORN researchers used Home Mortgage Disclosure Act data to examine subprime lending in 130 metropolitan areas. They concluded that Detroit; Memphis; Jackson, Miss.; McAllen, Texas; El Paso, Texas; Laredo, Texas; Brownsville, Texas; Flint, Mich.; Springfield, Ill.; and Birmingham, Ala., have the highest concentrations of subprime loans. "Too many of our neighbors are being steered into ARMs without being given an option for a fixed rate and without being given an explanation of the risks," ACORN president Maude Hurd said. ACORN is calling for tougher regulation of lenders and mortgage brokers to protect borrowers from being placed in unsuitable loans.

KeyCorp, Cleveland, has put its subprime residential lending division, Champion Mortgage, on the auction block.KeyCorp bought the subprime retail lender back in 1997, paying $289 million in stock for the company. A year later the subprime business began a severe correction that lasted about three years. In a statement, bank CEO Henry Meyer said Champion "no longer fits our longer-term strategic priorities." For years KeyCorp has refused to disclose production and servicing information on the Parsippany, N.J.-based company. In a statement it would only say that Champion has a $2.5 billion "loan portfolio." According to estimates made by the Quarterly Data Report, Champion/Key ranks 22nd among subprime servicers and 34th among funders. A few weeks back, another Cleveland bank, National City, disclosed that it might sell its subprime residential division, First Franklin.

One-third of banks expect the credit quality of their subprime and nontraditional mortgage holdings to deteriorate over the next 12 months, according to a July survey of senior loan officers by the Federal Reserve Board.But so far, the performance of those loans has been fairly steady. Over 85% of senior loan officers reported that the performance of their subprime loans and nontraditional loans is "unchanged" over the past 12 months. "Eight banks reported that the quality of their portfolios of nontraditional products performed better than had been expected, and only one institution indicated that the quality of its portfolio had performed somewhat worse than had been anticipated," the Fed said. The July survey of senior loan officers found that banks generally hold more nontraditional loans -- alt-A, interest-only and option-adjustable mortgages -- on their books than subprime credit quality loans. Only 30 banks said they hold subprime loans, compared to 48 banks taking part in the survey that hold non-traditional loans.

Class M-3 of Residential Accredit Loans Inc. 2004-QA2 has been placed under review for possible downgrade by Moody's Investors Service.The rating action was attributed to relatively low credit enhancement levels in relation to projected losses. The alternative-A deal consists of first-lien adjustable-rate residential mortgage loans. The majority of the hybrid collateral loans are still paying at a fixed rate, while the interest rate of the certificates has been increasing monthly, according to the rating agency. "As a result, the excess spread has significantly declined, causing the overcollateralization and subordinate tranches to be more vulnerable for defaults," Moody's said.

Three tranches of mortgage- and asset-backed securities containing collateral originated by New Century Mortgage Corp. have been placed under review for possible downgrade by Moody's Investors Service.The affected securities are: class B of Asset Backed Securities Corp. Home Equity Loan Trust, series 2001-HE1; and classes B-1 and B-2 of Morgan Stanley Dean Witter Capital I Inc., series 2002-NC4. The rating actions were based on low credit enhancement levels in relation to projected losses, Moody's said. "These deals are not performing as anticipated due to the increasing cumulative loss percentage, rising delinquency rates, and declining overcollateralization," the rating agency said. The underlying collateral for the deals consists of adjustable- and fixed-rate residential mortgage loans.

Standard & Poor's Ratings Services has announced that its AA-minus ratings of Fannie Mae remain on CreditWatch Negative in the wake of the government-sponsored enterprise's recent filing with the Securities and Exchange Commission.The ratings relate to Fannie Mae's risk to the government, its subordinated debt, and its preferred stock. "While the latest update on Fannie Mae's accounting restatement process revealed some positive developments, it also disclosed an additional accounting error that was discovered as part of the restatement process," said S&P credit analyst Victoria Wagner. S&P said the new error, which involves accounting for master servicing arrangements under the Statement of Financial Accounting Standards No. 140, is not expected to have a "significant" effect on the GSE's regulatory capital. The ratings will remain on CreditWatch Negative until "critical uncertainties" are clarified, S&P said. The rating agency can be found online at http://www.standardandpoors.com.

The Federal Agricultural Mortgage Corp., Washington, has reported net income of $7.6 million ($0.67 per share) for the second quarter, compared with $8.2 million ($0.72 per share) for the second quarter of 2005.Though down from last year's second-quarter profits, the results were up from $5.0 million ($0.44 per share) in the first quarter, Farmer Mac reported. The government-sponsored enterprise touted increased business volume, attributing it mainly to diversification of its marketing focus to include large program transactions backed by growing numbers of mortgage loans to farmers, ranchers, and rural homeowners. "The combined result of second-quarter business and a $1.0 billion AgVantage securities transaction in July was to raise Farmer Mac's portfolio of loans, guarantees, and standbys to nearly $7 billion," said Henry D. Edelman, Farmer Mac's president and chief executive officer. "This record volume -- 25% above our March 31, 2006 level -- is an important measure of the increased liquidity and lending capacity Farmer Mac is providing to agricultural mortgage lenders who, in turn, extend credit to agricultural and rural America." The GSE can be found online at http://www.farmermac.com.

Franklin Credit Management Corp., a New York-based company that specializes in the purchase, servicing, and resolution of performing, re-performing, and nonperforming residential mortgage loans, has announced changes to its borrowing agreements.The company said new term loans will no longer be subject to a 50-basis-point success fee upon payoff, and that its 75-bp origination fee has been reduced to 50 bps. It also reported that its lead lending bank has agreed to reduce the interest rate margin on approximately $475 million of term debt at least 25 bps by Oct. 1 and another 25 bps by Jan. 1. Franklin Credit, which also buys, manages, and sells subprime residential mortgage assets, can be found on the Web at http://www.franklincredit.com.