Servicing

Ginnie Mae has introduced the first government-guaranteed stripped mortgage-backed securities with a $2.2 billion deal underwritten by a syndicate of 14 Wall Street securities dealers led by Goldman Sachs Group Inc.Stripped MBS are pass-through securities created by separating (stripping apart) the principal and interest payments from mortgages that back standard MBS and other mortgage-related assets, creating principal-only and interest-only classes (or combinations of the two), Ginnie Mae noted. Platinum securities, Ginnie Mae's MBS aggregation product, are the only type of asset currently allowed to be used as collateral for the new Strip transactions, the agency said. The new program "provides us greater access to the important institutional investor segment," said Ginnie Mae President Ronald A. Rosenfeld. "These new securities help satisfy investor demand for additional risk management and yield enhancement securities, and should increase the demand for Ginnie Mae mortgage-backed securities. This should ultimately lead to lower borrowing rates for FHA and VA homebuyers." Ginnie Mae can be found online at http://www.ginniemae.gov.

Fannie Mae has announced that it will begin disclosing additional information in August about its pools of mortgage-backed securities.The company said it will now disclose data for Mega pools and for MBS pools with initial interest-only periods. (The data will be available on Pool Data Direct and on PoolTalk.) Mega pools are single-class MBS consisting of pass-through certificates backed by previously pooled Fannie Mae MBS with similar characteristics, or by other pooled Megas with similar characteristics. For Mega pools issued on or after May 1, 1996, Fannie Mae said it will begin disclosing (in quartiles) the loan-to-value ratios and credit scores. Tabular information will be provided for loan purpose, occupancy type, and property type, and servicer names will be disclosed. For pools with initial IO periods, Fannie Mae said it will provide the weighted average months to scheduled principal amortization, the distribution of loans, and the percentage of pool unpaid principal balance. Fannie Mae can be found online at http://www.fanniemae.com.

Four classes of securities issued by Independence II CDO Ltd., a collateralized debt obligation, have been downgraded by Fitch Ratings.The downgrades were as follows: class A notes, from AAA to AA-plus; class B notes, from AA-minus to BBB-plus; class C notes, from BBB to BB; and $16.7 million of preference shares, from BB-minus to CCC. The class A notes were removed from Rating Watch Negative, while classes B and C remain there. Independence II is composed of approximately 48.4% residential mortgage-backed securities, 14.3% asset-backed securities, 32.1% commercial MBS, 0.4% real estate investment trusts, and 4.8% CDOs. Fitch attributed the downgrades to a deterioration of collateral quality. "Collateral in the manufactured housing sector that has been downgraded to or below CCC-plus since August 2003 equals $26.3 million (6.6%)," the rating agency said. "Assets rated BB-plus or lower represented approximately 17.72% as of June 30, 2003, and increased to 30.26% as of June 30, 2004."

Fives classes of Residential Accredit Loan Inc. mortgage asset-backed pass-through certificates from four RALI deals have been downgraded by Fitch Ratings.The downgrades were as follows: series 1997-QS5, class B-2, from CCC to C; series 1997-QS7, class B-2, from B to C and removed from Rating Watch Negative; series 1999-QS5, class B-1, from BB to BB-minus, and class B-2, from B-minus to CC; and series 1999-QS10, class B-1, from BB to B. In addition, Fitch upgraded eight classes and affirmed the ratings on 84 classes in 13 RALI securitizations. The rating agency attributed the downgrades to poor performance by the underlying collateral. Fitch can be found online at http://www.fitchratings.com.

The fire is about to go out in overheated housing markets on both coasts, according to a woman who helps investors locate property owners that can no longer afford their homes.Alexis McGee of Foreclosure.com, Sacramento, Calif., said borrowers who have dipped too deeply into their home equity or are unable to afford higher payments on adjustable-rate mortgages will have trouble keeping their properties if values falter. Speaking at the annual Real Estate Connect technology conference in San Francisco, Ms. McGee said foreclosure activity is already on the upswing. It "will increase further" as rates move upward and prices level out or decline, with the possible exception of the Chicago area, she said. "Inland's okay," Ms. McGee told MortgageWire. "It's the coasts that we're concerned about." Foreclosure.com has been keeping tabs on lender take-backs for a dozen years and publishes proprietary foreclosure lists for 18 California counties, the entire state of New Jersey, and the Phoenix, Las Vegas, Chicago, and New York metropolitan areas. Whether prices will drift to a soft landing or fall off the cliff remains to be seen, Ms. McGee said.

A severe shock to one of the housing government-sponsored enterprises could bring the mortgage market to a standstill, according to economists at the St. Louis Federal Reserve Bank.Risk-taking by Fannie Mae, Freddie Mac, and the Federal Home Loan Bank could "undermine the financial system because so many banks depend on them for liquidity," according to an article in the FRB's monthly publication, The Regional Economist. Commercial banks have one-half of their securities portfolios invested in GSE mortgage-backed securities and debt, the authors point out. And commercial banks are comfortable holding real estate loans because they can serve as collateral for FHLBank advances or be sold to Fannie or Freddie. "A severe shock to one or more of the housing GSEs could lead to a market lockup, in which investors become reluctant to hold GSEs' direct or indirect obligations," the article says. "This could, in turn, lead to a temporary suspension of mortgage purchasing, mortgage securitizing or mortgage 'advancing,' thereby forcing the Federal Reserve to intervene to re-liquefy the mortgage markets." The article, "The Housing Giants in Plain View," discusses ways to increase GSE competition and limit their borrowing and growth. The authors also warn that privatization would not eliminate the systemic risk posed by the GSEs. "That is, a fully privatized Fannie Mae still might be considered too big to fail by the Federal Reserve and by the Treasury," the authors say.

Rising interest rates and weak real estate fundamentals are unlikely to substantially affect the performance of longer-term hybrid adjustable-rate mortgage loans, according to Fitch Ratings.Noting that the product is "still fairly new" and has not been tested during an extended period of rising rates, Fitch said it "anticipates that longer-term hybrid ARM loans will continue performing on par with their prime jumbo fixed-rate mortgage counterparts." Prime jumbo ARMs with a five-year fixed-rate period or longer have performed comparably to prime jumbo FRMs "due largely to comparable underwriting guidelines and borrower credit characteristics," the rating agency said. Additionally, long-term hybrid ARMs are less similar to standard ARMs because the latter have shorter or no initial fixed-rate periods and are more likely to appeal to borrowers solely for reasons of affordability, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

Saxon Capital Inc., Glen Allen, Va., has announced a $1.2 billion securitization of conforming and nonconforming mortgage loans by a subsidiary.The $1.2 billion of notes were issued by Saxon Asset Securities Trust 2004-2. The assets of the trust include three groups of mortgage loans secured by one- to four-family residential properties, Saxon said. The lead manager of the deal is Credit Suisse First Boston, and the co-managers are Merrill Lynch & Co., J.P. Morgan, and RBS Greenwich Capital. Saxon Capital can be found on the Web at http://www.saxoncapitalinc.com.

Nine classes from eight Delta Funding Corp. mortgage-backed securities issues have been downgraded by Fitch Ratings and two classes have been placed on Rating Watch Negative.The downgrades were as follows: series 1997-2, class B-3, from B to CCC; series 1997-3 group A, class B-1A, from B-minus to CCC; series 1999-2, class B, from BBB-minus to B; series 1999-3, class B, from BBB-minus to B; series 2000-1, class B, from BBB-minus to BB-minus; series 2000-2, class B, from B-minus to C; series 2000-3, class B, from BBB to BB-minus; and series 2000-4, class M-2, from A to BB, and class B, from CC to C. Class M-2 of series 1997-2 and class B-1A of series 1998-1 group A were placed on Rating Watch Negative. In addition, Fitch affirmed the ratings on 61 classes from 13 Delta Funding transactions. The rating agency attributed the negative rating actions to high delinquencies and a deterioration of credit enhancement. Fitch can be found online at http://www.fitchratings.com.

Fog Cutter Capital Group Inc., Portland, Ore., has announced the resignation of Ernst & Young LLP as the company's independent auditor, but it stressed that there were no serious accounting disagreements between the two entities.Fog Cutter gave no reason for the auditor's resignation, but it said E&Y's reports on the company's financial statements in the past two years contained no adverse opinions, disclaimers, or qualifications based on uncertainty, the scope of the audits, or accounting principles. The company added that there were no disagreements with E&Y on any accounting principles or practices, or disclosures, that would have caused the auditor to cite the disagreements had they not been resolved. The Audit Committee of Fog Cutter's board of directors has begun a search for a new auditing firm.