Servicing

The home loan delinquency rate increased modestly in the second quarter but remained lower than it had been a year earlier, according to the Mortgage Bankers Association's National Delinquency Survey.Nationally, 4.43% of home loans were at least 30 days past due at the end of the second quarter, up 10 basis points from the first quarter, according to the MBA. But the seasonally adjusted delinquency rate was down 54 bps from that of the second quarter of 2003. The inventory of loans in foreclosure fell in the second quarter to 1.16%, down 11 bps from the inventory in the first quarter and down 19 bps from that of a year earlier. MBA chief economist Douglas Duncan said the second-quarter increase in the overall delinquency rate is probably an aberration. "Based on the continued expansion of the economy and strong home-price growth in many regions, it is unlikely this small upward blip represents a reversal of the downward trend in delinquencies we have seen since the middle of 2001," he said.

Five classes from two securitizations of Merit Securities Corp. manufactured housing contracts have been downgraded by Fitch Ratings.The downgrades were as follows: series 13, class M-1, from BBB-plus to BBB-minus, class M-2, from BB-plus to B, and class B-1, from B-plus to C; and series 12-1, class M-2, from BBB-minus to BB-minus, and class B-1, from BB-minus to CCC. In addition, the ratings on four other classes in the two deals were affirmed. The downgrades were attributed to the poor performance of the collateral pools. About $10.1 million in overcollateralization remains for the series 12-1 classes, and "there is very little monthly excess spread to help cover losses," the rating agency said. For series 13, overcollateralization was exhausted in November 2003, and there is no monthly excess spread. "The manufactured housing industry is experiencing its worst downturn ever," Fitch said. "Relaxed credit standards, overbuilding by manufacturers, and the difficulties relating to servicing this unique asset have all contributed to poor performance of MH securities."

Nine classes from two Deutsche Financial Capital manufactured housing transactions have been downgraded by Fitch Ratings.The downgrades were as follows: series 1997-I, class M, from A-minus to BBB, and class B-1, from CC to C; and series 1998-I, classes A-2 to A-7, from AA-minus to A, and class M, from BB-minus to B-minus. In addition, the ratings on four classes were affirmed. DFC was a joint venture of Deutsche Financial Services Corp. and Oakwood Acceptance Corp., a subsidiary of Oakwood Homes Corp. Collateral consists of fixed-rate manufactured housing contracts secured by new and used manufactured homes serviced by OAC. Fitch attributed the downgrades to the fact that overcollateralization was fully depleted in both transactions more than two years ago. "As a result, subordinate classes of certificates have been directly absorbing losses generated within the collateral pool and in certain cases have been fully written down," the rating agency said. Oakwood Homes filed for Chapter 11 bankruptcy protection on Nov. 15, 2002, and announced late last year that substantially all of its assets would be acquired by Clayton Homes Inc., a subsidiary of Berkshire Hathaway. Fitch can be found online at http://www.fitchratings.com.

Freddie Mac has announced that families whose homes have been damaged or destroyed by Hurricane Frances can seek mortgage relief aimed at protecting their credit ratings and financial interests in their homes.Freddie Mac said it is encouraging its servicers to provide borrowers with relief through the company's disaster relief guidelines, which allow them to reduce or suspend mortgage payments for up to 12 months. The government-sponsored enterprise said it is also "strongly encouraging" servicers to waive the assessment of penalties or late fees, not report forbearance or delinquencies caused by the hurricane to credit bureaus, and expedite the release of insurance proceeds. The same relief was provided in August for families whose homes were damaged or destroyed by Hurricane Charley.

Fannie Mae has announced that it will not issue Callable Benchmark Notes in September.The company had previously announced that it might not issue Callable Benchmark Notes in a minimum of eight months, as it had originally planned. Fannie Mae said it will notify the market of its issuance intentions on the scheduled monthly announcement date. The government-sponsored enterprise can be found on the Web at http://www.fanniemae.com.

Ten classes of Bombardier Capital Mortgage Securitization Co. manufactured housing transactions have been downgraded by Fitch Ratings.The downgrades were as follows: series 1998-A, class M, from AA to A, and class B-1, from CCC to C; series 1998-B, class A, from AA-minus to A, class M-1, from BB-minus to B, and class M-2, from CCC to C; series 1998-C, class M-2, from BB-minus to B, and class B-1, from CCC to C; series 1999-B, class M-1, from CCC to C; series 2000-A, class M-1, from CCC to C; and series 2001-A, class B-1, from CCC to C. In addition, the ratings on 20 classes in the six transactions were affirmed. Fitch attributed the downgrades to the poor performance of the underlying MH collateral, citing an 11% three-month rolling average default rate and a three-month rolling average loss severity of 77%. In each transaction, overcollateralization and lines of credit "have been completely exhausted, and subordinate classes of certificates are directly being written down as a result of continuing losses," the rating agency said. Fitch can be found online at http://www.fitchratings.com.

Mortgage lenders dropped 3,000 full-time employees from their payrolls in July, according to the August employment report released Friday by the U.S. Bureau of Labor Statistics.Despite the drop, employment in the mortgage sector is still near last year's peak, and the Mortgage Bankers Association's chief economist says he expects the job numbers for August to show little change. (There is a one-month lag in BLS reporting of mortgage-sector employment data, and the August data will not be released until Oct. 8.) The latest BLS report shows that jobs in the mortgage banking/broker sector fell from 457,300 in June to 454,300 in July. "We expect August to be about the same as July," MBA chief economist Doug Duncan said. "We have seen a tick down in interest rates in August. So companies are still getting some benefit at the margin by maintaining employment." Meanwhile, the U.S. economy created 144,000 new jobs in August, and the unemployment rate declined slightly from 5.5% in July to 5.4% in August. The BLS can be found online at http://stats.bls.gov.

MFH Financial Trust I, a subsidiary of Midland Financial Holdings Inc., has announced the completion of the sale of $24 million of 9.5% trust preferred securities in a private placement.The trust will use the proceeds to acquire junior subordinated debentures issued by Midland, an indirect subsidiary of Baltimore-based Municipal Mortgage & Equity LLC, also known as MuniMae. The trust preferred securities have an initial annual dividend rate of 9.5%. The offering, combined with a $60 million offering of trust preferred securities in May, "has allowed us to finance a significant portion of [Midland's] taxable business with attractively priced long-term capital," said Mark K. Joseph, MuniMae's chairman and chief executive officer. MuniMae can be found online at http://www.mmafin.com.

Three classes of notes issued by Pacific Coast CDO Ltd. have been downgraded by Fitch Ratings and removed from Rating Watch Negative.The downgrades were as follows: class B, from A-minus to BBB-minus; class C-1, from BB-plus to B-minus; and class C-2, from BB-plus to B-minus. In addition, the ratings on two other classes of securities were affirmed. Pacific Coast is a collateralized debt obligation that consists of 55.2% residential mortgage-backed securities, 19.1% asset-backed securities, 13% commercial MBS, 6.9% corporate bonds, and 5.8% CDOs. Since May 25, Fitch has downgraded $16.5 million of collateral that the rating agency said it expects to incur "significant impairment of principal and interest." Fitch can be found online at http://www.fitchratings.com.

Freddie Mac implemented a ban on mandatory arbitration clauses on Aug. 1, but so far Fannie Mae has not followed through with its pledge to stop purchasing subprime loans with clauses that require homeowners to settle lender disputes through arbitration.On Feb. 4, Fannie officials pledged to implement new policies that ban mandatory arbitration clauses. Nearly seven months have passed, but a company spokeswoman still would not give any indication when the mortgage giant might impose the ban. Consumer groups associate mandatory arbitration clauses with predatory lending, and they welcomed the decisions by the two government-sponsored enterprises to ban the clauses. But industry groups made a last-minute appeal on July 30 urging Freddie and Fannie to suspend implementation and work with lenders on alternative approaches. The Fannie spokeswoman declined to comment on the July 30 industry letter. Meanwhile, the Consumer Federation of America and other consumer groups are waiting for Fannie to act. "We don't have any indication that they are backing away," said Allen Fishbein, the CFA's director of housing and credit policy. "We expect them to follow through."