Servicing

Fannie Mae and Freddie Mac have "sophisticated" risk management operations that are supported by sound structures and technical expertise, according to a report by Moody's Investors Service.The Risk Management Assessment report on the government-sponsored enterprises is the first of a series to be published by the rating agency to increase the "transparency of its rating process," Moody's said. Brian Harris, the lead analyst for the GSEs at Moody's, said the rating agency believes they "maintain well-run risk management operations, with sound support systems and technical capabilities. While there are areas for improvement at both GSEs, on the whole Moody's holds a positive view of these GSEs' risk management approaches." Moody's said it will publish more risk management assessments of companies in various financial sectors beginning in 2005. Moody's can be found on the Web at http://www.moodys.com.

Residential mortgage delinquency and foreclosure rates declined in the third quarter, according to the Mortgage Bankers Association's quarterly delinquency survey.The overall percentage of home loans that were 30 or more days past due declined to 4.41%, down from 4.43% in the second quarter. The third-quarter rate was down 24 basis points from the same period in 2003. While the rate of foreclosure starts remained unchanged from that of the second quarter, the inventory of home loans in the foreclosure process declined 2 bps to 1.14%, the lowest rate since the third quarter of 2000, according to the MBA. MBA chief economist Doug Duncan said the improvement in delinquencies and foreclosures was expected. "The continued modest declines in both delinquencies and foreclosures reflect the strong pace of economic growth and its steady, modest job creation," Mr. Duncan said. "These improvements override the effects of the increased subprime and ARM shares and the aging of the young mortgage portfolio."

Fidelity National Financial, Jacksonville, Fla., has agreed to sell a 25% stake in its mortgage and banking technology business, Fidelity National Information Services, to Thomas H. Lee Partners LP and Texas Pacific Group for $500 million.Fidelity National Information Services (known internally as FIS), a subsidiary of the title insurance giant, owns the former Alltel Information Services, the largest residential servicing bureau in the nation. The sale to THLP/TPG was announced in tandem with a $2.8 billion recapitalization plan for FIS. Under that plan, FIS will obtain $2.8 billion in senior secured credit facilities from a consortium of lenders. FIS will repay all its outstanding debt using the credit line and distribute $2.7 billion to Fidelity National. Once the deal is closed, Fidelity will pay a $10-per-share dividend to its shareholders. Of the $500 million that THLP and TPG are paying, Fidelity will book a gain of $375 million. The company said the dividend payment is not contingent on the FIS sale to THLP/TPG. In early September, Fidelity announced that it was delaying a spinoff of FIS. Fidelity can be found online at http://www.fnf.com.

Fannie Mae has agreed to forfeit $7.5 million to the government after investigators accused the company of not blowing the whistle on a fraudulent North Carolina mortgage lender that took Ginnie Mae for at least $23 million.Fannie Mae was also defrauded by the lender, First Beneficial Mortgage, but forced the company to repurchase loans it had sold to the government-sponsored enterprise. The government said Fannie knew the money it received from First Beneficial was fraudulently obtained from Ginnie Mae. The Department of Justice said that in settling the matter, Fannie waived its right to a hearing that would have determined whether the GSE received $6.5 million from First Beneficial "without knowledge of their fraudulent origin." The $7.5 million that Fannie forfeited includes $6.5 million in principal and another almost $1 million in interest. In a statement, Fannie senior vice president of communications Chuck Greener said, "Fannie does not wish to retain the funds or benefit from First Beneficial's illegal activities." Mr. Greener said the GSE now considers the matter closed, adding that the congressionally chartered company "will continue to work to defeat fraud in the mortgage industry."

Ten classes of Saxon Asset Securities Trust issues have been downgraded by Fitch Ratings.The downgrades were as follows: series 2000-1 group 1, class BF-1, from BB to C; series 2000-2 group 1, class BF-1, from BB to CCC, and class BF-2, from CCC to C; series 2000-3 group 1, class MF-2, from A to BBB, and class BF-1, from CCC to C; series 2000-4 group 1, class MF-2, from A to BBB, and class BF-1, from BB to C; series 20001-1 group 1, class MF-2, from A to BBB, and class BF-1, from CCC to C; and series 2001-1 group 2, class BV-1, from BBB to BBB-minus. In addition, Fitch upgraded 16 classes from seven Saxon transactions and affirmed the ratings on 47 classes from nine deals. The downgrades were attributed to worse-than-expected performance of the underlying collateral and diminishing credit enhancement. Fitch can be found online at http://www.fitchratings.com.

Overall prepayment rates on 30-year Fannie Mae and Freddie Mac mortgage-backed securities increased "modestly" in November, apparently as a result of an uptick in refinancing, according to Bear Stearns.The aggregate constant prepayment rate for Fannie Mae 30-year MBS was 21.6 CPR for November, up from 20.5 CPR in October, according to Bear Stearns analyst Dale Westhoff. "The increase was uniformly distributed across the meat of the coupon stack (5s through 6.5s) with no one coupon driving the movement in aggregate prepayments," Mr. Westhoff reported. He noted that there had been a 6-basis-point decline in mortgage rates from October to November, and a 4.5% increase in application activity as measured by the Mortgage Bankers Association. Freddie Mac 30-year MBS continued to prepay slower than Fannie Maes in November "across virtually all coupons and vintages," Mr. Westhoff said. Meanwhile, the overall speed gap between Ginnie Maes and conventional MBS was little changed in November, holding at just above 7 CPR for 30-year collateral versus Fannie Maes, according to Mr. Westhoff. Bear Stearns can be found online at http://www.bearstearns.com.

Vanderbilt Mortgage and Finance Inc., Knoxville, Tenn., and JPMorgan Chase & Co., Chicago, have announced an agreement whereby Vanderbilt will purchase Chase Home Finance's $4 billion manufactured housing loan portfolio.The terms of the agreement were not disclosed. The companies said the portfolio will be serviced by Vanderbilt and 21st Mortgage Corp. in Knoxville. Vanderbilt Mortgage is a subsidiary of Clayton Homes Inc., a manufactured housing company that is wholly owned by Berkshire Hathaway.

Four classes of notes issued by Varick Structured Asset Fund Ltd. have been downgraded by Fitch Ratings.The downgrades were as follows: classes A-1 and A-2, from BBB-minus to BB; and classes B-1 and B-2, from CCC-minus to CC. The transaction, a collateralized debt obligation managed by Clinton Group Inc., is supported by a diversified portfolio of asset-backed securities, residential mortgage-backed securities, and commercial MBS. Fitch attributed the downgrades to continued deterioration of the collateral and the adverse effects of its interest rate hedge. As of Oct. 28, defaulted assets represented 5.3% of the collateral and eligible investments, the rating agency said. Fitch can be found online at http://www.fitchratings.com.

Four classes of Impac Secured Assets Corp. mortgage pass-through certificates, issued by Impac Funding Corp., have been downgraded by Fitch Ratings.The downgrades were as follows: series 2000-1, class B-1, from B to CCC, and class B-2, from CC to C; series 2000-3, class M-3, from CCC to C; and series 2001-6 pool 1, class B, from BBB to BB. In addition, Fitch upgraded 28 classes from 15 Impac securitizations and affirmed the ratings on 66 classes from 24 Impac deals. The rating agency attributed the downgrades to poor collateral performance and the deterioration of asset quality beyond original expectations. Fitch can be found online at http://www.fitchratings.com.

Employment in the mortgage industry reached all-time highs in October as lenders added 6,200 full-time employees to their payrolls, according to the U.S. Bureau of Labor Statistics.The BLS November employment report indicates that jobs in the mortgage banking/broker sector rose from 459,300 in September to 465,500 in October. (There is a one-month lag in BLS reporting of mortgage-sector employment data. The November data will not be released until Jan. 7.) The additional hiring comes at a time when originations are falling. Loan volume dropped 19% from the second quarter to $663.0 billion in the third quarter, according to the Quarterly Data Report, which is published by National Mortgage News. Meanwhile, BLS economists said job growth "continued in the mortgage-related industries" in November.