Servicing

The Securities and Exchange Commission has issued long-awaited guidance that should make it easier for servicers to comply with the SEC's new testing and reporting requirements on asset-backed securities, which went into effect Jan. 1."We think this new guidance really will go a long way to addressing a lot of nagging questions that people have been struggling with over the past year," said Alison Utermohlen, senior director at the Mortgage Bankers Association. Under the SEC's regulation AB (Item 1122), servicers are required to assess their compliance with a list of servicing activities and hire accountants to test the accuracy of their assessment. The written guidance, which the SEC calls "Telephone Interpretations," addresses a range of issues, including testing platforms. The SEC clarified that servicers can divide ABS by asset type (residential or commercial) for testing and reporting purposes. They can also define their testing platforms by the servicing systems they use. However, platforms have to be consistent from year to year. "If there is a change, there has to be a reasonable basis for that change," Ms. Utermohlen said.

Fannie Mae and Freddie Mac are not likely to regain their former dominance over the secondary mortgage market, according to a blueprint for the future prepared by a blue-ribbon panel of lending industry leaders.The Council to Shape Change also believes that elimination of the mortgage interest tax deduction would have a major impact on people who already own homes but would not substantially alter the playing field for future homebuyers. "There would not be a fundamental change in the manner in which borrowers finance the purchase of a home," the committee says in a wide-ranging report entitled "Outlook for the Real Estate Industry." The 182-page tome is the product of six months of meetings, deliberations, and freewheeling debate among the council's 19 members, who were appointed last October by MBA chair Regina Lowrie to help prepare the industry for expected changes over the next 10 years. The panel focused on what's likely to happen rather than what "should" happen, the report says. "This is not a policy document -- it has nothing to do with policy," said council leader Andrew Woodward, the retired chairman of Bank of America Mortgage and a former MBA chairman. "We are simply forecasting how things might shake out." The council predicts that the private-label market for residential and commercial mortgages will continue to grow significantly, regardless of what lies ahead for the government-sponsored enterprises. Fannie and Freddie will continue to focus on long-term fixed-rate products, and will rise to the occasion when there is a shock to the economy. But whenever the market drifts away from the GSEs' "sweet spot," the private-label sector's share of issuances will increase, the report says.

Indianapolis, Atlanta, and Dallas posted the three highest U.S. metropolitan foreclosure rates in the second quarter, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif.The company's Q2 2006 U.S. Metropolitan Foreclosure Market Report ranks the foreclosure rates of the nation's 100 largest metro areas. The foreclosure rates for the three cities were 0.987%, 0.904%, and 0.891%, respectively, the company reported. "Four Texas cities now have foreclosure rates ranking among the top 10, thanks to increasing foreclosures in Austin and Houston during the second quarter," said James J. Saccacio, RealtyTrac's chief executive officer. The rest of the top 10 cities were as follows: Denver; Memphis; Stockton, Calif.; Salt Lake City; and San Antonio. RealtyTrac can be found online at http://www.realtytrac.com.

Morgan Stanley has announced an agreement to acquire Saxon Capital Inc., a servicer and originator of residential mortgages based in Glen Allen, Va., for $706 million.The price tag is based on a cash consideration of $14.10 per share of Saxon stock. Morgan Stanley said the acquisition is in line with its strategy of building a global, vertically integrated residential mortgage business. "Saxon builds on our existing origination and securitization capabilities by providing us with an extremely strong servicing platform," said Anthony Tufariello, global head of Morgan Stanley's Securitized Products Group. The acquisition "will further enhance our risk management of mortgage portfolios" and provide "new origination capabilities in the nonprime market," Mr. Tufariello said. Morgan Stanley was the lead adviser on the transaction and was also advised by Milestone Merchant Partners, the company said. Saxon, a real estate investment trust, was advised by Credit Suisse Securities (USA) LLC. Morgan Stanley can be found online at http://www.morganstanley.com, and Saxon can be found at http://www.saxonmortgage.com.

Fannie Mae has reported that the price tag for its accounting scandal may be lower than its original $10.8 billion estimate when it releases a restatement of its 2001 through 2004 financial results later this year.The mortgage giant said in a securities filing that an estimated $2.4 billion loss due to its misapplication of hedge accounting on mortgage commitments will be "significantly reduced." However, Fannie admitted that it is "unable to quantify the amount at this time." The government-sponsored enterprise also disclosed that a $400 million settlement it paid to securities regulators for alleged "fraudulent" financial reporting is not tax deductible. The expense will be recorded in its 2004 financial statement. Regarding its mortgage business, Fannie said the issuance of single-family mortgage-backed securities increased to $112.1 billion in the second quarter, up 5% from that of the previous quarter. However, Fannie's issuance of multifamily mortgage-backed securities fell by 51%, to $1.2 billion. The GSE cited a "lower number of seasoned pool issuance" for the steep decline in its multifamily business. "We expect multifamily lending to decrease during the second half of 2006 due to declining apartment building sales," Fannie said in the second-quarter update of its business activities and financial developments.

Prepayment rates on 30-year fixed-rate mortgages in agency mortgage-backed securities fell 14% in July, according to Bear, Stearns & Co.The decline reflected a two-day reduction in the business calendar and a 6-basis-point selloff in mortgage rates, said Bear Stearns senior managing directors Dale Westhoff and V.S. Srinivasan. Fannie Mae 30-year collateral recorded a constant prepayment rate of 10.7 CPR overall for the month, down 1.7 CPR from that of June, the analysts reported. "The decline in speeds was uniformly distributed across the coupon stack, with almost every coupon showing a 14% to 15% decline," they said. Speeds on 15-year Fannie Mae and Freddie Mac collateral fell by 13%, comparable to the decline in 30-year speeds. Overall speeds on Ginnie Mae collateral fell from 16.2 CPR in June to 14.4 CPR in May. Despite the recent rise in mortgage rates, the analysts said they expect speeds to increase 10% in August, mainly because of a three-day increase in the business calendar. But in the longer term, "we expect a steady decline in speeds," they said. Bear Stearns can be found online at http://www.bearstearns.com.

New foreclosed residential properties rose nearly 5% in July to their highest level of the year, according to Foreclosure.com, an online foreclosure listing service based in Boca Raton, Fla.Such foreclosures totaled 28,130 in the United States in July, but the nationwide inventory of foreclosed residential properties actually fell to 86,562, a decrease of 3.1% from that of June, the company reported. Brad Geisen, president and chief executive officer of Foreclosure.com, said the new foreclosures are "driven in large part" by rate increases in adjustable-rate mortgages, producing "great bargains" for investors and homebuyers. "Put simply, foreclosures are hot and getting hotter," Mr. Geisen said. "And this is just the beginning." Foreclosure.com said the largest monthly increases in new foreclosures were recorded in Missouri, where they were up 48.2%; Michigan, up 38.0%; and Minnesota, up 31.1%. The company can be found online at http://www.foreclosure.com.

More than 10 months after a new bankruptcy law took effect, debtors' attorneys are finding new ways to create headaches for mortgage servicers, according to creditors' lawyers who spoke at the Western States Loan Servicing Conference in Las Vegas.Michael Ackerman, an attorney with Zucker, Goldberg & Ackerman in New Jersey, said that debtors' lawyers are urging debtors in bankruptcy court to sue servicers for "proof of claim" issues involving fees such as broker price opinions and inspections that are routinely required during default servicing. Because the law is new, he said servicers should consider litigation in order to have a greater say in the development of case law involving the bankruptcy statute. Being a plaintiff gives lenders more control over the facts of the case coming to court and what bankruptcy judge decides it, he noted. "Whoever hits the issue first in each district will have an overwhelming influence on the cases that come after," Mr. Ackerman said.

Eight classes from five Ameriquest Mortgage Securities Inc. home equity issues have been downgraded by Fitch Ratings.The downgrades were as follows: series 2002-3, class M-4, from B to C; series 2002-4, class M-4, from BBB-minus to BB-minus; series 2003-1, class M-3, from BBB to BBB-minus, and class M-4, from BBB-minus to BB; series 2003-2, class M-3, from BBB to BBB-minus, and class M-4, from BBB-minus to BB; and series 2003-AR2, class M-3, from BBB to BB, and class M-4, from BBB-minus to BB-minus. Fitch also assigned a DR4 Distressed Recovery rating to class M-4 of series 2002-3. In addition, Fitch upgraded two Ameriquest classes and affirmed the ratings on eight classes from the five Ameriquest deals. The downgrades were attributed to a deterioration in the relationship between credit enhancement and expected losses.

Morgans Hotel Group Co., a New York-based hospitality company that operates boutique hotels in gateway cities, has announced the issuance of $50 million in trust preferred securities in a private placement.The securities, issued through a newly established trust subsidiary, MHG Capital Trust I, have a 30-year maturity and are redeemable after five years at par. They bear interest at a fixed rate of 8.68% until October 2016, and thereafter at a floating rate of 3.25% over the London interbank offered rate. Net proceeds from the issuance will be used to pay down the company's credit line and provide financing for development and other corporate activities. The company can be found online at http://www.morganshotelgroup.com.