Servicing

Transnational Financial Network Inc., a wholesale and retail mortgage bank based in San Francisco, has announced the closing of a private placement of approximately $2.69 million of 8.5% convertible subordinated debt.Transnational said the 10-year debt is redeemable in whole or in part by the company at 120% of the principal amount for 18 months from the date of issue, at 115% during months 19 to 24, and at 110% thereafter. The proceeds will be used as collateral to expand Transnational's warehouse facilities to finance the closing of bulk home equity lines and "position the company to achieve as much as 300 basis points gain on sale on production through the use of bulk sale contracts for a portion of the mortgages it originates," the company said. Transactional can be found on the Internet at http://www.transnational.com.

Congress has eliminated refunds of upfront mortgage insurance premiums on Federal Housing Administration loans endorsed on or after Dec. 8, except for FHA streamline refinancings.The omnibus appropriations bill the president signed Dec. 8 eliminated FHA refunds except when the borrower refinances into an FHA loan within three years. Previously, FHA borrowers could get a refund for up to five years. FHA borrowers who refinance into a conventional loan are not entitled to any refund of the 1.5% upfront MI premium. The Department of Housing and Urban Development has issued a mortgagee letter notifying lenders about the changes, along with an updated disclosure and refund schedule for homebuyers. Without a refund, borrowers are going to have to consider the upfront premium a permanent expense and make FHA loans less competitive with low-downpayment conventional loans, particularly alternative-A loans, according to Washington consultant Brian Chappelle. "This is not the news that the FHA program needs," Mr. Chappelle said.

One class of notes issued by Orchard Park CDO Ltd., a collateralized debt obligation partly composed of residential and commercial mortgage-backed securities, has been downgraded by Fitch Ratings.The downgrade was as follows: class A-2, from AAA to AA-plus. In addition, the ratings on two other classes were affirmed. Fitch said the deal is failing its interest coverage test: its IC ratio of 98.1% falls short of the trigger of 101.5%. The transaction has also been hurt by a "misalignment in the interest rate hedge" that has left it overhedged by approximately $7.7 million, according to Fitch. In addition to RMBS and CMBS, the transaction consists of asset-backed securities and other CDOs, the rating agency said.

LoanPerformance, San Francisco, and Intelligent Results, Bellevue, Wash., have announced the introduction of ScoreText, a predictive modeling system the companies say has wide application for mortgage servicers.ScoreText integrates structured data with unstructured text data, enabling servicers to better understand and predict customer behavior in servicing and collection efforts, they said. "Today's best predictive models only incorporate about 20% of the available data," said Richard Harmon, senior vice president for scoring and analytics at LoanPerformance. "By exploiting the available unstructured data that makes up the other 80%, mortgage servicers can not only improve their ability to predict customer behavior, but can have a much better understanding of the key factors differentiating behavior." The companies can be found on the Web at http://www.loanperformance.com and http://www.intelligentresults.com.

The hot interest-only residential loan market could be headed for a fall.According to Freddie Mac's chief economist Frank Nothaft, interest-only loans -- which are widely popular in expensive housing markets -- carry potential credit problems because "no equity is being built up." Speaking at a Freddie Mac forecast conference, Mr. Nothaft said the mortgages carry "potential credit problems." However, he noted that Freddie Mac, as well as other organizations, have no hard data on IO loan volumes. (National Mortgage News is surveying lenders on this data point.) Freddie Mac places IO loans in the adjustable-rate category. In the fourth quarter, ARMs accounted for 33% of all loan production, according to the government-sponsored enterprise. Freddie estimates that all lenders funded $545 billion in residential loans in the fourth quarter, the worst quarterly performance of the year. (See the Jan. 17 issue of NMN for the full story.)

Two classes of Residential Asset Securities Corp. home equity transactions have been downgraded by Fitch Ratings and removed from Rating Watch Negative.Class M-I-3 of RASC series 2001-KS2 group 1 was downgraded from BBB to BB, and class M-I-3 of RASC series 2001-KS3 group 1 was downgraded from BBB to BBB-minus. The rating actions were attributed to a decline in overcollateralization caused by monthly losses that exceeded monthly excess interest.

Nine classes from three IndyMac Home Equity Mortgage Loan Asset Backed Trust securitizations have been downgraded by Moody's Investors Service.The downgrades were as follows: series SPMD 2000-C, class MF-2, from B2 to Ca, and class BV, from B2 to Caa2; series SPMD 2001-A, class AF-5, from Aa2 to A1, class AF-6, from Aa2 to A1, class MF-1, from Baa3 to Ba3, class MF-2, from Caa3 to Ca, class MV-2, from Baa2 to Ba3, and class BV, from Ba2 to B1; and series SPMD 2001-B, class BF, from Baa2 to B2. Class BF of series 2001-B will remain on review for downgrade pending the liquidation of loans classified as real estate owned, Moody's said. The securitizations are backed by subprime mortgage and manufactured housing loans that were originated by IndyMac Bank FSB. The downgrades are due to higher-than-anticipated rates of default on the underlying loans and low rates of recovery on the sale of repossessed manufactured homes, the rating agency said. "The erosion of credit support and continued pipeline of seriously delinquent loans will likely contribute to ongoing weak pool performance," Moody's said.

Eleven mezzanine and subordinated tranches from five fixed-rate mortgage securitizations issued by Credit Suisse First Boston Mortgage Securities Corp. in 2002 have been by Moody's Investors Service.The downgrades were as follows: series 2002-9 group 1, class I-B-3, from Baa2 to Baa3, class I-B-4, from Ba2 to B1, and class I-B-5, from B3 to Caa2; series 2002-10 group 2, class II-B-4, from Ba3 to B2, and class II-B-5, from B3 to Ca; series 2002-18 group 1, class I-M-1, from Aa2 to A1, and class I-M-2, from Baa2 to Caa2; series 2002-19 group 2, class II-M-1, from Aa2 to A2, and class II-M-2, from A2 to Caa1; and series 2002-26 group 3, class III-M-3, from A2 to Baa2, and class III-B, from A3 to Ba1. In addition, Moody's upgraded 29 classes from seven CSFB securitizations and confirmed the ratings on 12 classes from four deals. The downgrades were attributed primarily to cumulative losses that have exceeded original expectations. "Existing credit enhancement levels may be low given the current projected losses on the underlying pools," Moody's said. The rating agency can be found online at http://www.moodys.com.

Prepayment rates for 30-year Fannie Mae mortgage-backed securities were little changed in December, while 30-year Freddie Mac MBS speeds rose modestly, according to Bear Stearns.For Fannie 30-year MBS issues, the aggregate prepayment rate increased by a constant prepayment rate of 0.1 CPR in December, compared with 0.7 CPR for Freddie Mac issues, Bear Stearns analyst Dale Westhoff reported. "These small changes in prepayments reflect the stable mortgage rate environment over the last few months," he said. Speed differentials between Fannies and Freddies decreased in the December report. Freddie Mac MBS speeds were still slower than Fannie Mae's on most new cohorts, but "speeds on seasoned cohorts converged," Mr. Westhoff said. Meanwhile, Ginnie Mae speeds held steady or fell modestly in December. Ginnie Mae "continues to pay faster than conventionals across the entire coupon spectrum, with the biggest gap observed in the lowest coupons," the Bear Stearns analyst reported. Bear Stearns can be found online at http://www.bearstearns.com.

Growth in first-lien home equity loans and in borrowing by senior citizens were among the findings of the annual Consumer Bankers Association Home Equity Lending Study, according to BenchMark Consulting International.Among the study's 23 participants, 37% of originations were first-lien positions rather than the historically dominant second liens. "The growth of these first-lien positions in home equity portfolios indicates this is a good time to ensure specific risks have not been overlooked," said Jim Leath, manager of BenchMark's consumer lending and mortgage banking practice. The finding that seniors represent a growing segment of home equity borrowers, and at higher amounts, was "a bit of a surprise," Mr. Leath said. "Most people think of seniors as nonborrowers," he noted. "The pattern we found here was that rather than drawing on invested, fixed income for non-need spending, seniors are looking more to home equity for vacations, luxury items and other purchases." The survey also found an increase in 90-day-plus delinquencies, which "implies that we may be taking on some hard-core risk," Mr. Leath said. BenchMark, a division of Fidelity Information Services Inc., has dual headquarters in Atlanta and Munich, Germany. It can be found online at http://www.benchmarkinternational.com.