Servicing

Two classes of certificates issued by Delta Funding Home Equity Loan Trust have been placed under review for possible downgrade by Moody's Investors Service.The affected classes are: series 1998-2, class B-1A; and series 2000-3, class B. Both transactions are primarily backed by first-lien adjustable- and fixed-rate subprime mortgage loans. The rating actions were attributed to diminishing credit enhancement levels relative to the projected losses on the underlying pools. "The 2000-3 transaction, in particular, has experienced rapid deterioration of overcollateralization in recent months," Moody's said. The rating agency can be found online at http://www.moodys.com.

The Federal Home Loan Banks funded only $2 billion in originations under the Mortgage Partnership Finance program in the second quarter, down from $7.6 billion in the same quarter of 2004, according to the Chicago FHLBank.MPF single-family originations totaled $72.1 billion in 2003, $18.4 billion in 2004, and only $4.8 billion in the first half of this year. Chicago FHLBank officials attribute the decline to a shift in the market to adjustable-rate mortgages and new products such as interest-only loans. The MPF program provides a secondary market solely for standard fixed-rate mortgages. The Chicago FHLBank launched the MPF program in 1997, and it is the biggest investor in MPF loans among nine participating FHLBanks. However, the Chicago bank has been under a Federal Housing Finance Board supervisory agreement for the past year. In addition, the MPF program is being strangled because it does not have a mechanism for selling loans to investors outside the FHLBank System. "Until the Finance Board works with the FHLBanks to develop a way for them to manage and sell the [MPF] assets, it would be imprudent for the FHLBanks to grow their assets," one industry source said.

Issuance of U.S. private-label residential mortgage-backed securities could reach $1 trillion this year, according to Standard & Poor's Ratings Services.The rising issuance is being driven by numerous factors, including low interest rates, rising home prices, innovative lenders, favorable demographic factors, and "insatiable" borrowers, the rating agency said. "The current run of unprecedented issuance began in 2001, with $267 billion, a record at the time, and continued unabated with $414 billion in 2002, $586 billion in 2003, $865 billion in 2004, and already $536 billion in the first half of 2005," S&P reported. Private-label issuance eclipsed that of the agency markets for the first time in the fourth quarter of 2004, and it has continued, according to the rating agency. "Contributing to the decline in agency issuance since 2003 has been a movement from conventional, fixed-rate loans, toward more innovative loan types popular with today's highly leveraged borrowers," S&P said. "The attraction of 'affordability products,' whose main purpose is to reduce the monthly payment owed by the borrower in the first few years of a loan's life, has kept production levels high." S&P can be found online at http://www.standardandpoors.com.

Countrywide Financial Corp., Calabasas, Calif., has reported consolidated net earnings of $566 million ($0.92 per share) for the second quarter, down 28% from $786 million ($1.29 per share) in the second quarter of last year.Pretax earnings by the company's mortgage banking operations totaled $526 million, down from $1.0 billion a year earlier. However, loan production in the mortgage banking segment increased to $101.15 billion, compared with $78.75 billion in the first quarter and $88.49 billion a year earlier, Countrywide reported. "Production sector margins decreased from 93 basis points for loans produced in the first quarter of 2005 to 40 basis points in the second quarter as a result of various factors," said Angelo R. Mozilo, Countrywide's chairman and chief executive officer. "These include lower pricing margins in prime and nonprime loans; a shift in channel mix toward the lower-margin correspondent channel; and ... the decision to increase loan retention during the second quarter." Countrywide's mortgage servicing portfolio stood at a record $964 billion as of June 30, a 33% increase from that of a year earlier. The company can be found online at http://www.countrywide.com.

Keefe, Bruyette & Woods Inc., New York, has announced the launch of the KBW Mortgage Finance Index, consisting of 24 mortgage bankers, mortgage insurers, title insurers, government-sponsored enterprises, and banks and thrifts with considerable mortgage portfolios or operations.The index includes Fannie Mae, Freddie Mac, Countrywide Financial Inc., Golden West Financial Corp., and Washington Mutual Inc. Options on the index were scheduled to begin trading July 26 on the Philadelphia Stock Exchange. "Our growing family of publicly traded index products empower market participants to make and hedge investments in each of the primary subsectors of the financial services sector of the market," said Thomas Michaud, KBW's vice chairman and chief operating officer. KBW can be found on the Web at http://www.kbw.com.

First American Default Technologies has launched an updated version of its VendorScapeCMS default management technology.Version 3.0 of the case management software includes an enhanced screen layout that allows users to access more data at one time, a redesigned navigation system that helps users locate relevant data faster, and more work queues to locate and address the most urgent tasks, the company said. The original version of VendorScapeCMS was launched in 2003. First American Default Technologies, Anaheim, Calif., is a unit of the First American Corp., which can be found on the Web at http://www.firstam.com.

Digital Realty Trust Inc., San Francisco, has priced concurrent public offerings of approximately 5.1 million shares of common stock at $17.80 per share and of 2.2 million shares of preferred stock at $25 per share.The series B cumulative redeemable preferred stock bears an interest rate of 7.875%. Digital, which owns, acquires, and manages technology-related real estate, said it has granted the underwriters an option to buy up to 765,768 additional shares of common stock and up to 330,000 shares of the preferred stock to cover any overallotments. Citigroup and Merrill Lynch & Co. are the joint book-running managers for the common stock offering and, together with UBS Investment Bank, for the preferred stock offering. The company can be found online at http://www.digitalrealtytrust.com.

Downgrades on U.S. residential mortgage-backed securities deals reached a record high of 45 in the second quarter, although rating performance overall remained strong, according to Standard & Poor's.The downgrades were offset by 306 RMBS upgrades during the quarter, for an upgrade/downgrade ratio of 6.8, S&P reported. That ratio was about half the 12.7 ratio recorded in the first quarter and the 13.8 overall ratio for the past 10 quarters, the rating agency said. The previous record high for RMBS downgrades was 31, which occurred in the first quarters of 2000 and 2005. S&P can be found online at http://www.standardandpoors.com.

With fewer loan set-ups and payoffs to manage than in the previous two years, the cost of mortgage servicing decreased and productivity improved in 2004, according to the Mortgage Bankers Association.The weighted average direct servicing cost dropped to $80 per loan in 2004, compared with $91 per loan in 2003. Loan servicing productivity increased to 1,188 loans serviced per employee in 2004 from 1,043 the year before. Indirect costs also improved, with mortgage servicing right amortization and writedowns (net of hedging) averaging $397 per loan, compared with a high of $511 per loan in 2003. The cost-of-servicing study, now in its seventh year, included participation from lenders that service 57% of all home loans, the MBA said. The association can be found online at http://www.mortgagebankers.org.

Classes A, B, and C of notes issued by Sunrise CDO I have been placed on Rating Watch Negative by Fitch Ratings.The action was attributed to deteriorating credit quality that has increased credit risk. The transaction is a collateralized debt obligation supported by asset-backed securities, residential and commercial mortgage-backed securities, CDOs, and corporate debt securities. Fitch can be found online at http://www.fitchratings.com.