Servicing

The Bond Market Association has indicated that it supports some aspects of the Securities and Exchange Commission's offering reform proposal but has concerns about its application to asset-backed securities.The bond group has filed two comment letters about the proposal, one regarding broad fixed-income markets and the other specific to ABS. The association said it "finds the proposal in general to be a positive step toward modernizing the offering process, especially the guidance allowing established bond issuers greater flexibility in the offering process via automatic shelf registration and new communications guidelines." However, the bond group added that it "does not believe the proposal goes far enough in extending some of the same provisions to ABS." The association said it is "especially concerned that the proposal holds an ABS underwriter liable for investment decisions based on preliminary information." The bond group can be found online at http://www.bondmarkets.com.

In the fourth quarter, 56% of the homeowners who refinanced their homes got a mortgage at least 5% larger than the original loan, down from 59% in the previous quarter, according to Freddie Mac.However, the percentage was higher than the 45% level recorded a year earlier, the government-sponsored enterprise said in its quarterly refinance review. "The dip in 30-year fixed mortgage rates that happened in the fourth quarter brought down the cash-out share of new refinancings even though the total share of refis went up," said Frank Nothaft, Freddie Mac's chief economist. "When homeowners decide to refinance because of falling interest rates, they might take cash out of home equity because it is convenient, but it is not the main reason they are seeking a new loan. As interest rates rise over this year we should see higher cash-out shares among refi loans, but total dollars cashed out should be lower than in 2004."

Countrywide Financial Corp., Calabasas, Calif., has reported that fourth-quarter earnings declined to $343 million ($0.56 per share) from $564 million ($0.94) in the fourth quarter of 2003 as a hedging loss took a bite out of the company's results.Overall, Countrywide said loan production volume totaled $95 billion in the fourth quarter, up 25% from the fourth quarter of last year. For the full year, loan production totaled 363 billion, down 17% from the record-breaking volume of 2003. The servicing portfolio grew to $838 billion, maintaining Countrywide's status as the largest originator and servicer of home loans. Fourth-quarter results were hurt by the loan servicing sector, where earnings declined by $255 million from those of the third quarter as a result of a flattening of the yield curve, a tightening of mortgage swap spreads, and a reduction in interest rate volatility. These factors diminished the value of hedging instruments. At the same time, flat mortgage rates meant that the value of the MSR asset did not increase as much as expected to offset the hedge losses. Countrywide was the most actively traded stock on the New York Stock Exchange Wednesday morning. It was down 4.2% ($1.61) at noon. The company can be found online at http://www.countrywide.com.

Standard & Poor's Ratings Services says it has evaluated the impact of anti-predatory-lending statutes on the funding of high-cost loans through the capital markets and found that only 0.01% of the U.S. residential mortgage loans it rated last year were high-cost loans.Given that only $87 million of the approximately $758 billion rated in 2004 were high-cost loans, S&P said it is clear that the capital markets are not financing the origination of such loans. Since the anti-predatory-lending legislation that has become effective over the past couple of years generally targets high-cost loans, it would appear that such legislation has limited the origination of these loans. However, S&P said it is unable to determine whether such loans are being originated but not included in securitizations.

Class B of Aames Mortgage Trust 2001-2 has been downgraded from B2 to Caa3 by Moody's Investors Service, and class B of Aames Mortgage Trust 2001-1 has been placed on review for possible downgrade.The transactions are backed mostly by first-lien fixed-rate mortgage loans originated by Aames Financial Corp. and serviced by Countywide Home Loans Inc., Moody's said. "The transactions have taken significant losses causing gradual erosion of the overcollateralization," the rating agency said. The credit enhancement levels no longer provide adequate protection to support the ratings on the most subordinate certificate classes, Moody's said. The rating agency can be found online at http://www.moodys.com.

Class B of Residential Asset Mortgage Products Inc. series 2001-RZ2, groups 1 and 2, has been downgraded from CCC to C by Fitch Ratings.In addition, the ratings on 20 classes in five RAMP deals were affirmed and four classes were upgraded. The downgrade was attributed to depleted overcollateralization and writedowns stemming from losses that exceeded monthly excess interest.

Fitch Ratings has published a report on its standardization of originators' borrower grades, the first in a series of articles explaining its rating criteria for residential mortgage-backed securities."Whereas RMBS originators use underwriting guidelines to segregate borrowers into various risk categories, Fitch's approach involves standardizing the underwriting guidelines that help determine borrower risk by identifying five major components and correlating them into four discernible borrower grade groups," said Sarbashis Ghosh, a Fitch senior director. "These components highlight the clearest distinction of borrower risk and eliminates the noise generated from the vast multitude of differing originator-assigned grade labels." The five categories designated by Fitch are: prior mortgage pay history, pay history of nonmortgage debt, foreclosure and bankruptcy experience, chargeoffs, and debt-to-income ratios. Its borrower grades are A, A-minus, B, and C. The report is titled "Good Grades Supplement LTVs and Credit Scores." Fitch can be found online at http://www.fitchratings.com.

Retail lender Ameriquest Mortgage Co. and wholesaler Argent Mortgage Co. have announced the expansion of their affiliated servicing operation in Illinois with the grand opening of a loan servicing center in Schaumburg.The new servicing facility has hired 90 associates to date, and the expansion will ultimately create 2,100 new jobs over the next three years, the companies said. (Argent already employs more than 1,000 associates in Schaumburg.) Ameriquest and Argent are part of Ameriquest Capital Corp., a national financial services company based in Orange, Calif. The companies can be found online at http://www.ameriquest.com and http://www.argentmortgage.com.

The Seattle Federal Home Loan Bank has disclosed that it remains under "earnings pressure," and it has skipped paying a fourth-quarter dividend as part of an effort to build retained earnings."The Seattle Bank expects earnings will remain under pressure," the bank said in declaring a first-quarter dividend of 1.63% on its Class B (1) stock payable on March 31. It paid a 3.5% dividend in the third quarter before signing a supervisory agreement with its regulator. Under a new policy, dividends are based on actual earnings from the previous quarter and payouts are limited to 50% of earnings. In the third quarter, the Seattle bank reported a 53% drop in earnings, to $16.8 million, from the same period in 2003. As of Sept. 30, the bank had nearly $53.2 billion in assets and $58 million in retained earnings.

Class B of ABFC mortgage loan asset-backed certificates, series 2001-AQ1, has been placed on review for possible downgrade by Moody's Investors Service.Moody's also placed on review for possible upgrade five certificates from Ameriquest Mortgage Co. asset-backed securitization deals. The transactions consist of fixed-rate and adjustable-rate first-lien subprime mortgage loans. The negative rating action was based on the fact that credit enhancement levels are low given projected losses on the underlying pools, Moody's said. "The transaction has taken losses, and pipeline loss could cause eventual erosion of the overcollateralization," the rating agency said. Moody's can be found online at http://www.moodys.com.