Servicing

The Federal Housing Finance Board does not have the legal authority to repeal the Federal Home Loan Banks' long-recognized exemption from Securities and Exchange Commission registration, according to a legal opinion obtained by America's Community Bankers. The opinion by the law firm, based in Washington, casts doubt on the legality of the Finance Board's proposal that would mandate the registration of FHLBank stock with the SEC. It also challenges a legal opinion by FHFB's general counsel, claiming it is "demonstrably erroneous." The Finance Board's opinion "ignores a long line of decisions by the Supreme Court and lower federal courts, which establish that the Finance Board cannot, without an explicit grant of authority, overturn Congress' decision that securities issued by the FHLBanks are exempt from SEC registration," the opinion noted. ACB sent copies of the opinion to the five members of the Finance Board.

A report from the Woodstock Institute, Chicago, identifies a "strong relationship between skyrocketing foreclosures and and increased levels of high-cost, subprime mortgage lending."According to the report, for every 100 additional subprime loans on owner-occupied properties made in a typical neighborhood from 1996 to 2001, there were an additional nine foreclosure starts in the community in the year 2002. Subprime home-improvement loans had the largest impact on foreclosures on a per-loan basis, according to the Institute. The Woodstock Institute can be found on the Internet at www.woodstockinst.org.

BillMatrix Corporation, Dallas, has launched a program to utilize the ATM electronic funds networks for mortgage payments taken over the telephone and Internet without a personal identification number.BillMatrix said it recently implemented the service with a major mortgage servicer, but did not name the lender. The client was looking to accelerate cash flow and provide customers with a convenient, secure means to make payments, the company said. Leveraging the rapidly increasing use of debit cards for utility, insurance and other bills was a natural extension of the mortgage servicer's automatic recurring ACH service, BillMatrix said. The servicer benefits because the ATM system virtually eliminates returned checks, according to the company.

The rating on $14.5 million of Will County (Ill.) student housing revenue bonds (Joliet Junior College Project) has been lowered from CC to B-minus by Fitch Ratings and removed from Rating Watch Negative.The bonds financed the construction of a privately managed, 296-bed student residence on the JJC campus, and Foundation Housing LLC owns the project in "a structure typical of off-balance-sheet student housing transactions," Fitch said. The downgrade was based on the financial deterioration of the project. "Without prompt, substantial improvement, Fitch believes that the project is likely to default, perhaps resulting in a bankruptcy filing, no later than the end of 2005, based on the limited amount of information available," the rating agency said. Fitch can be found online at http://www.fitchratings.com.

The National Community Reinvestment Coalition is working with a Chicago law firm to bring a class action lawsuit against Ocwen Federal Bank FSB for allegedly engaging in abusive servicing and foreclosure practices.The community development group is preparing the lawsuit with attorneys at Edelman Combs & Latturner, said NCRC senior vice president David Berenbaum at the group's annual conference. He noted that the NCRC has fielded complaints from hundreds of people who allege that they have been harmed by the West Palm Beach, Fla., servicing company, but the attorneys are still trying to find the "perfect" class representatives to represent the plaintiffs. "The attacks against Ocwen and its mortgage servicing practices are misdirected and irresponsible," Ocwen general counsel Paul Koches said. He stressed that Ocwen will put up a vigorous defense against such lawsuits. The NCRC executive also complained about the Office of Thrift Supervision, which is Ocwen's primary regulator. "OTS has done nothing, absolutely nothing, to address the shortcomings of that company," Mr. Berenbaum said. OTS spokesman Kevin Petrasic said the agency cannot comment on specific companies. "We investigate any information we obtain -- whether from examinations, consumer complaints, or any other source -- and take appropriate supervisory action if necessary," Mr. Petrasic said.

CMS BondEdge, a Los Angeles-based provider of fixed-income portfolio analytics, has announced an agreement to provide RiskMetrics Group with key rate duration calculations for mortgage- and asset-backed securities with prepayment risk.The companies said the data will be incorporated into RiskManager, a product of the New York-based RiskMetrics. The addition of the rate duration calculations will allow for "a more detailed analysis of the prepayment risk" associated with some MBS and ABS, the companies said. CMS BondEdge, an operating division of Interactive Data Corp., can be found on the Web at http://www.cmsbondedge.com.

Three classes of Merit Securities Corp. manufactured housing contract series 12-1 have been downgraded by Fitch Ratings.The downgrades were as follows: class M-1, from AA to A; class M-2, from A to BBB-minus; and class B-1, from BBB to BB-minus. (The rating on class A3 of the deal was affirmed at AAA.) Fitch said the downgrades reflect the poor performance of the collateral pool as well as expected loss levels. "The manufactured housing industry is experiencing its worst downturn ever," the rating agency 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. Fitch believes the industry will continue to struggle for some time." Fitch can be found online at http://www.fitchratings.com.

Cohane Rafferty Securities Inc., White Plains, N.Y., is offering a $600 million to $1.2 billion "flow" package of mortgage servicing rights, MortgageWire has learned.The bid deadline on the package is March 16. The product includes receivables on Fannie Mae and Freddie Mac loans. Meanwhile, servicing brokers are saying bid prices have fallen since March 5, when the yield on the 10-year Treasury took a dive. "Buyers are being skittish," said one investment banker. (For complete details, see the March 15 issue of National Mortgage News.)

While the overall delinquency rate on home loans fell in the fourth quarter, the number of loans in foreclosure increased 5 basis points to 1.29% of outstanding loans, according to the quarterly delinquency survey compiled by the Mortgage Bankers Association.The number of loans entering the foreclosure process also rose slightly, by 1 bp, to 0.45% in the fourth quarter. The MBA reported that 4.49% of loans were 30 days or more past due in the fourth quarter, down 16 bps from the level recorded in the third quarter. The MBA, which has revised its database to reflect the growing number of subprime loans, said the overall delinquency rate is now at its lowest level since the second quarter of 2000, when the delinquency rate was 5.51%. MBA chief economist Doug Duncan said delinquency rates are "declining from their post-recession peaks" and that the housing market remains "fundamentally sound." The MBA can be found online at http://www.mortgagebankers.org.

The primary, master, and special servicer ratings of Orix Capital Markets, Dallas, have been downgraded by Fitch Ratings.The primary servicer rating was lowered from CPS1 to CPS2, the master servicer rating was lowered from CMS1 to CMS2, and the special servicer rating has been lowered from CSS1 to CSS3 and removed from Rating Watch Negative. Fitch said the primary and master servicer rating downgrades were based on "a decline in overall servicing performance," citing concerns that its performance regarding the processing and approval of borrower requests for assumptions, lease approvals and terminations, and other lender consents "is not as timely as it needs to be and is inconsistent with the performance expected of Fitch's highest-rated servicers." The special servicer rating downgrade was based partly on a high annual employee turnover rate in the special servicing group over the past two years (29% in 2003 and 41% in 2002) and partly on the company's heavy use of litigation as a loan resolution strategy, the rating agency said. Fitch can be found online at http://www.fitchratings.com.