Servicing

Based on a study of over 40 federal, state, and municipal anti-predatory-lending laws, Standard & Poor's has decided to require additional credit enhancement for loans governed by such laws in 12 states and the District of Columbia and that are included in mortgage-backed securities it rates.For some of the "covered loans" and "high cost home loans," S&P said the risk for potential assignee liability may exceed the original principal balance of the loan. S&P said the state laws contain subjective or unclear standards for determining whether a loan is "predatory," including poorly defined or undefined net-tangible-benefit and repayment ability tests. The credit enhancement is based on the assessment of potential losses to the securitization and the number of lawsuits likely to be filed against the issuer, the rating agency said. "Our new criteria and study will further clarify the credit risk posed by some of these loans and help investors become more familiar with the issue of assignee liability," said Joanne Rose, executive managing director of S&P's structured finance group. The affected states are Arkansas, Ohio, Colorado, Florida, Georgia, Illinois, Maine, Massachusetts, New Jersey, New Mexico, New York, and Oklahoma. S&P can be found online at http://www.standardandpoors.com.

Freddie Mac became too complacent and resistant to change under its previous leadership, according to its new top executive, who says he wants to make a clean break and "elevate" the enterprise's commitment to its housing mission and expanding homeownership.Freddie's chairman and chief executive Richard Syron said the mortgage giant has viewed its affordable housing goals as a regulatory requirement, instead of a core part of its mission as a government-sponsored enterprise. "We must rectify this by focusing on housing and on our special obligation as a GSE, and by taking a long-term view that achieving these obligations is integral to our financial success," he said in a speech at the LBJ School of Public Affairs in Austin, Texas. A former Federal Reserve Bank president, Mr. Syron took over the top job at Freddie Mac in January, replacing former chairman and chief executive Leland Brendsel, who was ousted last summer as a result of a $5 billion accounting scandal. Freddie is still restating its earnings, which Mr. Syron called an "embarrassment." But he said the company is making real progress to correct the situation and "rebuild our credibility."

There is about a one-in-seven chance of a general decline in home prices over the next two years, according to the PMI Risk Index, which has improved in recent months.The average value of the index for the 50 largest metropolitan statistical areas stood at 140 in May, down from 174 in February, said PMI Mortgage Insurance Co., the Walnut Creek, Calif.-based mortgage insurer that created the index. The index value means that these cities have on average a 14.0% probability of experiencing a home price decline in the next two years. San Jose, Calif., topped the index with a 442 (and therefore a 44.2% chance of a decline), followed by Denver, with 307, and the Charlotte-Gastonia-Rock Hill N.C.-S.C. MSA, with 303. PMI can be found online at http://www.pmigroup.com.

The Prestwick Mortgage Group, Alexandria, Va., is brokering the sale of servicing rights on a $37 million portfolio of Ginnie Mae loans.The portfolio has a 6.749% weighted average note rate and a 44-basis-point average servicing fee. The average loan balance is $105,437 and the weighted average seasoning is 29 months. The delinquency rate is 12.39%. States with the highest concentration of loans are Georgia, Michigan, Texas, and Tennessee. Bids are due May 25.

Freddie Mac and the National Association of Professional Mortgage Women have announced an educational alliance to strengthen the association members' origination and secondary-market knowledge and further their professional development.The offerings will include on-site and Web-based courses as well as customized classes provided by Freddie Mac. The NAPMW will award scholarships to members to attend alliance training courses. Training topics (for both novices and experienced professionals) include loan underwriting, loan pricing and delivery, and servicing. Freddie Mac offers more than 15 courses nationwide and over 30 online. The NAPMW can be found on the Web at http://www.napmw.org.

The rapid growth of Freddie Mac's mortgage portfolio over the past 10 years is no longer "feasible," according to the company's top executive."You should expect a slowing in the rate of growth," a Freddie Mac spokeswoman said, confirming statements made by Freddie's chairman and chief executive, Richard Syron, in interviews with two newspapers. Over the past 10 years, Freddie Mac's portfolio has grown to $637 billion, fueling the government-sponsored enterprise's profitability. But its growth has also raised concerns about its financial risks. However, Freddie's portfolio has shrunk during the past five months and is down 5.5% since the beginning of the year. Fannie Mae's portfolio has also shrunk, but the company says it believes rising short-term interest rates will create a buying opportunity soon and restart the growth of its $881 billion mortgage portfolio.

Three classes of notes issued by Independence I CDO Ltd., a collateralized debt obligation partly composed of residential and commercial mortgage-backed securities, have been downgraded by Fitch Ratings.The downgrades were as follows: class A, from AAA to AA-plus; class B, from AA-minus to A-minus; and class C, from BBB to BB. Fitch attributed the downgrades to declining overcollateralization ratios. The CDO consists of approximately 24.1% RMBS, 21.9% CMBS, 47.5% asset-backed securities, and 6.5% CDOs, the rating agency said. Fitch can be found online at http://www.fitchratings.com.

GMAC Mortgage Corp., Horsham, Pa., has announced the introduction of a no-annual-fee credit card that helps cardholders pay down their mortgage via rewards for retail purchases.Holders of the GMAC Mortgage Equity Rewards MasterCard, issued by MBNA America Bank, earn one point for every dollar in net retail purchases charged to the platinum card, the company said. When a cardholder accumulates 2,500 points, $25 is credited automatically to the cardholder's mortgage principal with GMAC Mortgage. There is no annual limit on points or how many Equity Rewards can be used to reduce mortgage principal, the company said. "Paying even a few hundred dollars extra each year toward mortgage principal can save thousands over the life of a 30-year mortgage," said Rick Gillespie, chief marketing officer at GMAC Mortgage. For example, quarterly Equity Rewards payments of $50 on a 30-year, $150,000 mortgage with a 6.5% fixed annual percentage rate would save $16,975 and reduce the term of the mortgage by 17 months, the company said. GMAC Mortgage can be found online at http://www.gmacmortgage.com, and MBNA can be found at http://www.mbna.com.

Investment banker Sandler O'Neill, a long-time bull on Fannie Mae, has reduced its earnings estimates on the mortgage giant, citing the company's troubles with its $8 billion manufactured housing portfolio.Sandler O'Neill analyst Mike McMahon reduced his 2004 earnings estimate by $0.17 a share to $7.83. Mr. McMahon notes in an analyst report that Fannie will take an after-tax hit of between $156 million and $169 million on the MH portfolio. Sandler, though, is maintaining a "buy" rating on the company. "The primary risk to our target price continues to be headline/political risk," it says.

Fannie Mae chairman and chief executive Franklin Raines is predicting that commercial banks will soon loose their appetite for investing in mortgages as short-term interest rates rise."The one thing we know is that the carry trade that banks conduct in mortgages doesn't last forever," he told a UBS Warburg financial services conference. In response to critics such as Federal Reserve Board Chairman Alan Greenspan, Mr. Raines argued that Fannie's ability to purchase and portfolio mortgage loans and securities plays an important role in providing liquidity to the market when other investors no longer find it lucrative to invest in mortgages. "Without our mortgage portfolio, both investors and consumers would feel the pain," he said. Investors would not be able to find a ready buyer when they want to sell their mortgage holdings and mortgage rates would skyrocket -- hurting consumers, according to Fannie's CEO. "But we will be ready to stabilize the mortgage market," Mr. Raines said.