Servicing

Sell-side debt market participants expect mortgage-backed securities issuance to decline 48%, to $1.6 trillion, in 2004, according to a new survey by The Bond Market Association.The median survey response indicates that members of the association are anticipating a 47.8% dropoff in agency MBS issuance and a 51.3% reduction in private-label MBS activity. This would bring total agency MBS issuance to $1.06 trillion this year and reduce private-label MBS issuance to $256 billion. TBMA can be found on the Web at http://www.bondmarkets.com.

Fitch Ratings has downgraded 164 classes in 57 Conseco Finance/Green Tree Finance manufactured housing transactions.Fitch also affirmed its ratings on 117 classes in the 57 deals. The rating agency said the downgrades reflect the poor performance of the MH pools. Since CFC's Chapter 11 bankruptcy filing in December 2002, the company has continued to service its multibillion-dollar MH portfolio. Fitch said CFC's financial stress before and during the bankruptcy has affected the servicing operation by limiting capital and spurring high employee turnover. "As CFC has struggled to achieve the most appropriate method of servicing in a difficult environment, servicing practices have changed numerous times," Fitch said. ".... These changes have led to considerable volatility in performance." In June 2003, CFC's MH platform was sold to CFN Investment Holdings. "Although the sale has provided new capital, the degree of servicing stabilization remains to be seen," Fitch said, adding that some changes in servicing practices have only recently been implemented. Liquidation rates had slowed before the bankruptcy filing, causing CFC's repossession inventory to increase. "After the bankruptcy filing, the combination of the backlog of repossessed inventory and the exclusive reliance on the wholesale channel to rapidly liquidate the inventory resulted in a significant increase in liquidation rates and loss severities," Fitch said.

Fitch Ratings has revised its random-sample criteria for deciding whether to rate mortgage-backed securities supported in part by home loans from jurisdictions with unlimited assignee liability.Fitch previously indicated that it would not rate any residential MBS containing high-cost home loans from jurisdictions with effective legislation that imposes unlimited assignee liability (such as Kentucky and New Jersey). In order for it to rate an RMBS deal with any loans from such a jurisdiction, Fitch said a third party unaffiliated with the originators must certify that it had conducted due diligence on a random sample of 10%-25% of the loans from the jurisdiction and discovered no high-cost home loans. Under the revised criteria, the number of loans to be reviewed in the random sample should be five loans from each jurisdiction with unlimited liability, or 10% of the loans in the pool from each such jurisdiction, whichever is greater. As before, if the review of the sample uncovers any high-cost home loans, a review of every loan in the pool originated in that jurisdiction will be required in order to comply with the criteria. Fitch can be found online at http://www.fitchratings.com.

J.P. Morgan Chase's purchase of Bank One, Chicago, would create the nation's largest second-lien lender, according to figures compiled by National Mortgage News and Home Equity Wire.Based on third-quarter production of seconds, Chase Home Finance ranked third nationwide, with $7.4 billion, and Bank One sixth, with $4.7 billion. The market leader, Washington Mutual, Seattle, funded $9.6 billion in seconds during the quarter. If the second-lien production volumes of Chase and Bank One are combined, the firms would rank first, with $12.13 billion, based on third-quarter figures. The second-lien volumes come from a survey of conforming lenders and represents mostly 'A' credit quality loans. But JPM's purchase of Bank One is not expected to alter the first-lien residential market much because Chase is already a large player and Bank One is not.

Fitch Ratings will not rate residential mortgage-backed securities containing high-cost loans from New Mexico, the rating agency has announced.Fitch cited potentially unlimited lender and assignee liability on high-cost loans as the reason for its decision. New Mexico's predatory-lending law took effect Jan. 1. New Mexico's law has a safe-harbor provision, but Fitch said the provision is unclear on what constitutes reasonable due diligence. "Fitch will not rate any transactions containing loans originated in New Mexico after the effective date of the act where the seller or purchaser cannot provide adequate evidence that the particular transaction will have the benefits of the aforementioned safe harbor because of its concern that a lender may originate a high-cost loan in error, thereby subjecting the transaction to unlimited liability," Fitch said. Rival rating agency Standard & Poor's announced in November that it would continue rating RMBS transactions with high-cost loans from New Mexico. Fitch can be found online at http://www.fitchratings.com.

J.P. Morgan Chase's $60 billion purchase of Bank One Corp., Chicago, will have little immediate impact on the residential mortgage market.According to figures compiled by National Mortgage News, JPM's Chase Home Finance unit is ranked fourth in both servicing and production, and the addition of Bank One's residential finance unit will change its market share slightly but leave it at number four. Over the past year Bank One has been de-emphasizing mortgages. In June it exited the wholesale channel entirely, agreeing to sell the unit to RBC Mortgage, a Canadian-owned company. Bank One ranked 27th among residential funders in the third quarter, and 19th among servicers. Meanwhile, JPM said in a statement that Stephen Rotella, the head of Chase Home Finance, will serve on the "executive committee" of the combined banks. (See the Jan. 19 issue of NMN for full details.)

The insurer financial strength rating of Cal-Mortgage Loan Insurance Division has been lowered from A to BBB by Fitch Ratings based on its recent downgrade of the state of California's general obligation bonds from A to BBB.The rating remains on Rating Watch Negative, Fitch said. Cal-Mortgage, a division of the California Office of Statewide Health Planning and Development, guarantees chiefly nonrated and below-investment-grade health care credits that demonstrate community need. Fitch said the agency's rating is dependent on the state's because, if defaults deplete the state's Health Facility Construction Loan Insurance Fund, the state treasurer is required to issue debentures on parity with the state's general obligation bonds. The debentures would be in the amount of principal and interest due but not paid, and at a payment schedule and coupon rate identical to those of the defaulted bonds, the rating agency said. Fitch can be found online at http://www.fitchratings.com.

New York Mortgage Trust Inc., a new company formed to acquire The New York Mortgage Co., has announced the filing of a registration statement for an initial public offering of common stock.NYMT said it expects to raise net proceeds of $140 million to $160 million, which it plans to use to fund new residential mortgage loan originations, repay certain debt of New York Mortgage, and invest in mortgage-backed securities. Steven B. Schnall, president of New York Mortgage, is the chairman and co-chief executive of NYMT.

Ratings on the B-1 classes of Oakwood Mortgage Investors Inc. pass-through certificates series 1998-A and four series of OMI Trust, as well as the rating on class M-2 of OMI Trust 2000-D, have been lowered by Standard & Poor's Ratings Services.The B-1 classes of OMI Trust 2000-C, OMI Trust 2001-D, and OMI Trust 2001-E were downgraded from CC to D, and class B-1 of OMI Trust 2000-A was downgraded from CCC-minus to CC, S&P said. Class M-2 of OMI Trust 2000-D was downgraded from CC to D. "The lowered ratings reflect the unlikelihood that investors will receive timely interest and the ultimate repayment of their original principal investments," the rating agency said. All the downgraded classes except class B-1 of OMI Trust 2000-A recently reported liquidation-loss interest shortfalls, S&P said. The rating agency said high losses in the past year have reduced the overcollateralization ratios for all six transactions to zero, resulting in principal writedowns.

The ratings on 68 classes from 18 Oakwood Mortgage Investors Inc. and OMI Trust manufactured housing transactions have been placed on CreditWatch with negative implications by Standard & Poor's.The rating agency attributed the CreditWatch placements to adverse performance by the underlying collateral pools of manufactured housing loans, and the resulting deterioration in credit enhancement, since S&P's last rating actions in mid-2003. "In addition, the unfavorable market conditions that continue to plague the manufactured housing market have contributed to the adverse performance of these transactions," S&P said. Oakwood announced in November 2002 that it was filing for Chapter 11 bankruptcy protection. S&P can be found online at http://www.standardandpoors.com.