Servicing

Reducing capital requirements under Basel II may spur more securitization of mortgage and credit card loans among banks, according to a new report from Fitch Ratings.The report, "Basel II: The 'Bottom-line' Impact on Securitization Markets," explores the quantitative effect of Basel II capital charges on various structured transactions. Fitch concluded that banks could face lower capital charges by investing in rated securitization deals rather than by directly holding a comparable pool of unsecuritized assets, especially for credit card asset-backed securities, commercial mortgage-backed securities, and residential MBS. The rating agency also said Basel II could influence the structure of securitizations. "Banks will face strong pressures under Basel II to minimize their exposure to sub-investment-grade tranches, given the significant amount of regulatory capital they will have to hold against these positions," said Krishnan Ramadurai, a Fitch senior director for financial institutions.

Despite the widespread destruction caused by Hurricane Katrina in several Gulf Coast states, the impact on U.S. residential mortgage-backed securities rated by Standard & Poor's is expected to be minimal, according to the rating agency.In addition, S&P said deals backed by manufactured housing loans are likely to see some decline in collateral performance, but that most servicers say the majority of damage will likely be covered by hazard and flood insurance. S&P said it expects effective RMBS loan servicing policies to assist with issues such as delinquency advances, property inspections, forbearance plans, and the filing and settling of insurance claims. "We also expect these measures to eliminate, or at least reduce, potential losses for a majority of the existing transactions," the agency said. Sellers of transactions rated by S&P are required to honor representations and warranties, including those that the home is in good repair, that flood insurance is in effect for properties in a flood zone, and that hazard insurance is in place. If any of the reps and warranties is breached, the issuer is required to repurchase the mortgage loan. If a loan becomes delinquent, the servicer must advance for it as long as the advance is deemed recoverable. S&P can be found online at http://www.standardandpoors.com.

Meanwhile, delinquencies for U.S. commercial mortgage-backed securities are likely to rise from their record low as a result of Hurricane Katrina, according to Fitch Ratings.CMBS delinquencies declined from 1.07% in July to a new low of 1.0% in August, Fitch reported. "Although there is not a large concentration of properties in the Gulf Coast relative to other markets in CMBS, the ongoing crisis will make it difficult for borrowers to make their payments," said Adam Fox, a Fitch director. "While we expect master servicers to advance on assets in the near term while determining the extent of damage and insurance coverage, delinquencies will rise and more loans will be transferred to the special servicer as details emerge." The rating agency said servicers are still unable to contact borrowers in the New Orleans area. Fitch can be found online at http://www.fitchratings.com.

Hurricane-related losses for mortgage banks and the housing government-sponsored enterprises are likely to be manageable and unlikely to result in any rating changes, according to Moody's Investors Service.In addition, the rating agency said losses for rated real estate investment trusts will probably be minor. In a report on Hurricane Katrina's probable rating impact on firms in the real estate sector, Moody's said losses for the Federal Home Loan Banks and the Farm Credit Banks are likely to be "modest." Losses for Fannie Mae and Freddie Mac are likely to be higher "but not severe," and spread out over several reporting periods. "The two firms' earnings and capital bases should be more than adequate to absorb likely losses," the rating agency said. Regarding rated REITs, Moody's said none have material exposure, if any, to southern Louisiana, Mississippi, or Alabama. Few REITs own "more than a handful" of properties in these states, it said. Moody's can be found online at http://www.moodys.com.

The financial impact of Hurricane Katrina on Countrywide Financial Corp., Calabasas, Calif., is likely to exceed its hurricane losses for 2004, which totaled approximately $70 million, according to the company.Countrywide said reliable loss estimates cannot be made yet, but it said the company is "well-positioned" to manage the consequences of the disaster. "Countrywide's principal sources of exposure are expected to relate to our insurance operations, residuals, and loans held for investment," said Stanford L. Kurland, Countrywide's president and chief operating officer. "The company has already established a sophisticated protocol for assessing the damage, but the availability and integrity of data regarding the condition of the affected properties remains problematic at this time." The announcement was made in conjunction with the release of the company's operational results for August, during which Countrywide's mortgage loan servicing portfolio surpassed $1 trillion, an industry milestone. Countrywide can be fund online at http://www.countrywide.com.

The National Association of Mortgage Brokers has committed $325,000 to the NAMB Hurricane Relief Fund created to assist NAMB mortgage brokers and other members affected by Hurricane Katrina.The board of directors approved the action to help members who lost homes and businesses in Alabama, Louisiana, Mississippi, and parts of Florida. "Because the vast majority of mortgage brokers are small-business people serving their local communities, Hurricane Katrina was catastrophic to them in many ways," said NAMB president Jim Nabors. "Many lost their homes, their offices, and their markets. The board saw immediately the impact this would have on our members, and we are determined to offer as much help as possible." Contributions are also pouring in from individual states. The California Association of Mortgage Brokers has contributed $25,000 to the fund and other NAMB state affiliates and industry partners are embracing the relief campaign, the organization said. The NAMB can be found online at http://www.namb.org.

Class M of GMAC Commercial Mortgage Securities Inc.'s mortgage pass-through certificates, series 2000-C1, has been downgraded from CC to C by Fitch Ratings.Fitch also upgraded five classes from the transaction and affirmed the ratings on eight other classes. The downgrade was attributed to expected losses on several specially serviced loans that would hurt credit enhancement levels. Three assets representing 3.2% of the pool are in special servicing and real estate owned, and losses are expected on two of them, the rating agency reported. Additionally, one loan has been transferred into special servicing since the August distribution date. Fitch can be found online at http://www.fitchratings.com.

LandAmerica Financial Group Inc., Richmond, Va., has reported an agreement with the Arizona Department of Insurance under which it will resolve disagreements over captive reinsurance transactions by voluntarily contributing $1 million to relief efforts related to Hurricane Katrina.LandAmerica said the "discussions over the propriety and legality" of such arrangements had been resolved "cooperatively and creatively" because the department agreed that no Arizona consumer had paid more for title insurance under captive reinsurance transactions. "We especially appreciate the willingness of the Arizona DOI to seek a creative resolution to our discussions and are grateful for this novel approach in a time of crisis for so many," said Theodore L. Chandler Jr., LandMark's president and chief executive officer. The $1 million will be given to Arizona chapters of the American Red Cross to benefit Arizona citizens and the hurricane victims recently evacuated to Arizona.

The nationwide inventory of foreclosed residential properties rose 3% in August, according to Foreclosure.com, an online foreclosure listing service based in Boca Raton, Fla.There were 24,328 new foreclosed residential properties listed in the United States in August, and such properties totaled 93,440 overall, the company reported. "Foreclosure inventory has been steadily increasing since May, representing a slowdown in the purchase of foreclosed homes," said Brad Geisen, president and chief executive officer of Foreclosure.com. "This trend of sustained high inventory presents a strong investment opportunity for buyers, as lenders are challenged with greater holding and disposition costs the longer that they have to hold on to a property." The company can be found online at http://www.foreclosure.com.

Prepayment rates for agency mortgage-backed securities were generally flat for 5.0% and 5.5% coupons but increased as much as 12% for higher coupons in the August reporting period, according to Bear Stearns.Bear Stearns analyst Dale Westhoff attributed the strength of the numbers to the three additional business days in August, which he said "clearly offset" the rise in mortgage rates that took place during the period. Discount prepayment rates maintained a record pace in August, he reported, noting that the speed of the huge 2003 vintage 5.0% coupon rose from a constant prepayment rate of 18.4 CPR in July to 19.1 CPR. "This pace continues to be over 50% faster than historical averages and reflects rising home prices and vigorous cash-out refinancing activity," Mr. Westhoff said. "It is important to note that so far the massive flattening in the yield curve has had little impact on discount/current coupon MBS prepayments." The Bear Stearns analyst said speeds are likely to slow significantly in September. Bear Stearns can be found online at http://www.bearstearns.com.