Servicing

National City Corp., Cleveland, took a $115 million hit in the second quarter due to hedging losses on its residential servicing portfolio.The company -- which is contemplating exiting the subprime business -- has taken $243 million in servicing-related hedging losses so far this year. The entire bank, overall, earned $473 million in the quarter, but its A-paper mortgage unit lost $52 million. Its residential subprime business, though, had a strong second quarter, posting a $148 million profit. (Its net mortgage profit for the quarter totaled $96 million.) NatCity has adopted a policy of selling into the secondary market all subprime loans funded by its First Franklin Financial affiliate. During a conference call on July 18, company officials blamed the hedging losses on the implementation of a new model to estimate mortgage loan prepayments. In a statement, it notes that prepayments "are a significant factor" in determining the asset value of mortgage servicing rights. Even though the bank may sell First Franklin, it called the company a "fabulous" business.

One class of MASTR Second Lien Trust 2005-1 mortgage pass-through certificates has been downgraded by Fitch Ratings, and two classes have been placed on Rating Watch Negative.Class M-10 was downgraded from BB-minus to B, and classes M-8 and M-9 were placed on watch. The downgrade and Rating Watch placements were attributed to the failure of overcollateralization to reach the target amount, Fitch said. "The slow OC growth is a result of deterioration in the dollar amount of excess spread due to much faster-than-expected prepayments and rising interest rates," the rating agency said.

One class of SACO I Trust second-lien mortgage-backed securities has been downgraded by Fitch Ratings, and four classes have been placed on Rating Watch Negative.Class B-4 of series 2005-2 was downgraded from BB to B, and the following classes were placed on watch: class B-3 of series 2005-1, class B-3 of series 2005-2, class B-4 of series 2005-3, and class B-4 of series 2005-4. The downgrade and Rating Watch placements reflect a decline in overcollateralization and a belief that the OC will not reach the target amounts for the five classes, Fitch said. "The OC deterioration is a result of reduction in the dollar amount of excess spread due to much faster-than-expected prepayments and rising interest rates," the rating agency said. Fitch can be found online at http://www.fitchratings.com.

Meanwhile, manufacturing-dependent Midwestern states are continuing to record foreclosure rates that are well above the national average, according to ForeclosureS.com, Fair Oaks, Calif.The investment advisory firm said the level of foreclosure activity in Chicago is more than double the national average. "The Chicago metro area as a whole posted a miniscule increase in May after a 57% jump in April, but in Cook County, the increase was about 4%," said Alexis McGee, president of ForeclosureS.com. Ms. McGee said a healthy housing market in Chicago has been enabling many financially distressed homeowners to sell their way out of foreclosure, but that this has not been the case in Michigan. "Over 10,000 homes have actually been lost in foreclosure in Michigan this year," she said. "Massive layoffs and plant closings by the major automakers have dealt a heavy blow to that state."

Foreclosure activity is accelerating in Georgia and Florida, according to ForeclosureS.com, a Fair Oaks, Calif.-based investment advisory firm.The publisher of foreclosure information said nearly 30,000 properties were in some stage of foreclosure in Florida as of mid-July, about a third of them in South Florida. Rising interest rates and a cooling housing market are causing the rise in foreclosures, according to Alexis McGee, president of ForeclosureS.com. "In Atlanta, for example, the inventory of unsold homes had grown by 28.2%, to 43,862, over the last six months," Ms. McGee said. "The foreclosure pace in Georgia is almost double what it was in May of 2005." The company can be found online at http://www.foreclosures.com.

Class M-7 of Bear Stearns Asset-Backed Securities series 2005-2 has been placed on Rating Watch Negative by Fitch Ratings.In addition, Fitch affirmed the ratings on seven other classes in the deal. The Rating Watch placement reflects a deterioration in the relationship between excess spread and monthly losses, Fitch said. "Due to faster-than-expected prepayments, the dollar amount of excess spread has been less than expected and has not been sufficient to build the overcollateralization to its target amount," the rating agency said. Fitch can be found online at http://www.fitchratings.com.

Classes M-5 and M-6 of First Franklin Mortgage Loan Trust 2003-FFH1 have been placed under review for possible downgrade by Moody's Investors Service.The actions were attributed to low credit enhancement levels relative to current loss projections for the deal, which consists of first-lien subprime residential mortgage loans. Due to credit defaults, excess spread is being used to cover losses and the overcollateralization is "eroding far below its target," the rating agency said.

Five classes of Asset Backed Securities Corp. mortgage pass-through certificates have been downgraded by Fitch Ratings, and two classes have been removed from Rating Watch Negative.The downgrades were as follows: series 2001-HE1, class M-2, from A to BBB-plus, and class B, from BBB-minus to BB; series 2002-HE2, class B, from BBB-minus to BB-minus; and series 2003-HE1, class M-3, from BBB to BB, and class M-4, from BBB-minus to BB-minus. The two classes from series 2003-HE1 were also removed from Rating Watch Negative. In addition, Fitch affirmed the ratings on four classes in the three ABSC deals. The rating agency attributed the downgrades to a deterioration in the relationship between loss expectations and credit enhancement. The transactions consist of fixed- and adjustable-rate subprime residential mortgage loans. Fitch can be found online at http://www.fitchratings.com.

Seven certificates from two CIT Home Equity Loan Trust subprime mortgage deals have been downgraded by Moody's Investors Service.The downgrades in series 2002-1 were as follows: class MF-1, from Aa2 to Aa3; class MF-2, from A2 to Baa3; class BF, from Baa2 to B2; and class BV, from Baa2 to Ba1. The downgrades in series 2002-2 were: class MF-2, from A2 to A3; class BF, from Baa2 to Ba1; and class BV, from Baa2 to Ba2. Moody's also confirmed the ratings on three classes from CIT transactions. The downgrades were attributed to a weaker-than-expected performance by the mortgage collateral and the resulting erosion of credit support. The overcollateralization in the fixed-rate pools of both deals and the adjustable-rate pool of the 2002-1 deal are below their targets, and pipeline losses for both deals could deplete the overcollateralization and result in losses on the most subordinate tranches, Moody's said.

Class B-1 of Terwin Mortgage Trust 2004-EQR1 has been downgraded from Baa2 to B3 by Moody's Investors Service.The transaction is collateralized by nonperforming mortgage loans, which are typically defined as loans that are delinquent by 90 days or more, are subject to bankruptcy or foreclosure proceedings, or are held as real estate owned. The downgrade was attributed to the rapid deterioration of overcollateralization, which declined from $1.5 million to just under $600,000 from November 2005 to June 2006.