Servicing

The Federal Trade Commission will issue a "very significant consent decree" before year-end that establishes a "best-practices" standard for servicers of subprime loans, according to one industry attorney.Skadden Arps attorney Andrew Sandler told a fair-lending conference that an FTC official who spoke about subprime servicing at an American Bar Association meeting in August outlined 10 areas of concern, including timely posting of payments, forced-place insurance, and aggressive foreclosures. Mr. Sandler told the Consumer Bankers Association conference that most servicers have problems with forced-place insurance because subprime loans generally don't have escrow accounts for property insurance and taxes. He recommended that subprime lenders get the escrow whenever they can, "because that prevents equity stripping, asset-based lending," and other kinds of predatory practices. Mr. Sandler did not indicate the target of the FTC's consent decree, but it is well known that Fairbanks Capital Corp., Salt Lake City, is the subject of an FTC investigation into servicing abuses. A spokeswoman for the subprime servicing company declined to comment on settlement talks.

Four classes in two CWMBS (IndyMac) Inc. mortgage pass-through deals have been downgraded by Fitch Ratings.The downgrades were as follows: series 2000-C (RAST 2000-A3), class B4, from B to CCC, and class B5, from C to D; and series 2000-H (RAST 2000-A8), class B-3, from BB to B, and class B4, from CC to D. In addition, Fitch affirmed its ratings on seven other classes in the two deals. The rating agency said the downgrades stemmed from loss levels and high delinquencies relative to the applicable credit support. Fitch can be found online at http://www.fitchratings.com.

The ratings on two classes of Soundview Home Equity Loan Trust, series 2001-1, have been lowered by Standard & Poor's Ratings Services.The downgrades were as follows: class M-2, from A to BBB-plus; and class B, from BBB to D. In addition, the ratings on 13 other classes issued by Financial Asset Securities Corp. (Soundview) and Soundview Home Equity Loan Trust were affirmed, S&P said. The downgrades were based on declining credit support percentages for the subordinate classes due to net losses that are "consistently and significantly" greater than excess interest, eroding overcollateralization over the past 10 months, the rating agency said. "Based on the current performance, it is not likely that the principal loss will be recoverable," S&P said.

Seven classes from six ContiMortgage Home Equity Loan Trust transactions have been downgraded by Standard & Poor's Ratings Services.The downgrades were as follows: class B, series 1997-5, from B to CC; class B, series 1998-1, from CCC to CC; class B-I, series 1998-3, from BBB-minus to BB-plus; class B-II, series 1998-3, from BBB-minus to BB; class B, series 1999-1, from B to CCC; class B, series 1999-2, from BB to CCC; and class B, series 1999-3, from BBB-minus to BB. In addition, the ratings on 73 other classes from 19 ContiMortgage deals were affirmed. The downgrades reflect a decline in credit support for the subordinate classes due to an erosion of overcollateralization stemming from the fact that net losses have been consistently greater than excess interest, S&P said. The "dramatic" increase in losses for these and "most other" ContiMortgage pools results from the servicer's having charged off loans that were previously in loss mitigation where advances have now been deemed nonrecoverable, the rating agency said. S&P can be found on the Web at http://www.standardandpoors.com.

Standard & Poor's Ratings Services has announced that it will rate structured finance transactions that include Maine loans governed by the state's recently amended predatory lending law.The amended statute defines what constitutes a high-cost home loan, so lenders who wish to avoid making them should be able to do so, S&P said. Violations of the law could result in liability for the originators, purchasers, or assignees of high-cost loans. "Although the liability of purchasers and assignees for a loan that violates the amended law may exceed the unpaid principal of the loan, this liability is capped," S&P said. For deals that do not include high-cost loans, S&P will require the issuer to provide a representation and warranty to that effect. For other deals, the issuer must warrant that the high-cost loans comply with the law and that its compliance procedures can effectively identify high-cost loans and determine that they don't violate the law, the rating agency said. S&P can be found online at http://www.standardandpoors.com.

The Pittsburgh Federal Home Loan Bank experienced a sharp drop in earnings in the second quarter, mainly due to heavy refinancings and ineffective hedging of its $9.8 billion mortgage portfolio.The FHLBank posted a $2.4 million profit in the second quarter, down 82% from $15.3 million in the first quarter. The Pittsburgh bank dipped into retained earnings for $10 million to pay its quarterly dividend. "Earnings currently reflect historically low interest rates, the residual effects of higher cost debt, and sharply accelerated premium amortization in the mortgage portfolio resulting from unprecedented refinancings," according to a letter to shareholders. FHLBank spokeswoman Lynn Robb said the bank is "disappointed, but our main business measures [advances and mortgage purchases] are still strong and growing." The bank is committed to the Mortgage Partnership Finance program, and it increased its investments in one- to four-family mortgages fourfold in one year. In the Aug. 12 letter to shareholders, FHLBank president Roy Green warned that the "wave of prepayments" could "constrain" earnings in the third quarter.

Standard & Poor's Ratings Services has raised its residential alternative mortgage servicer ranking for Litton Loan Servicing LP from Above Average to Strong and affirmed its Strong rankings for Litton as a residential mortgage servicer, subprime servicer, and special servicer.The rankings reflect the company's "seasoned management and staff, superior technology platform, comprehensive policies and procedures, and established track record of resolving distressed assets for a wide variety of investors," S&P said. The rating agency also cited Litton's "substantial" investment in its infrastructure to improve all areas of the operation. "Enhancements to the automation environment, especially in regard to default analytic tools and reporting, have reduced manually repetitive tasks, improved employee productivity, and enhanced performance," S&P said. Litton is a subsidiary of C-BASS LLC. The rating agency can be found online at http://www.standardandpoors.com.

Classes A and AX of Morgan Stanley Capital I Inc. mortgage pass-through certificates, series 1997-FF1, have been downgraded from Aa2 to A3 by Moody's Investors Service.The downgrades were based on the support of a long-term lease to the Fireman's Fund Insurance Co., whose insurance financial strength rating was downgraded to A2 on July 25, Moody's said. The rating agency said it considers a lease obligation to be "the equivalent of an unsecured debt" and therefore inferior to an insurance company's policyholders' claims. "This results in an unsecured debt rating one notch below the insurance financial strength rating," Moody's said. The certificates are secured by two mortgage loans collateralized by a 711,000-square-foot office complex in Marin County, Calif., that serves as the headquarters of Fireman's Fund. Fireman's Fund is a wholly owned subsidiary of Allianz Insurance Co., whose ultimate parent company is Allianz AG, one of the largest insurance groups in the world, Moody's said. The rating agency can be found online at http://www.moodys.com.

Three classes of BCF LLC mortgage pass-through certificates have been downgraded by Fitch Ratings, and two others have been placed on Rating Watch Negative.The downgrades were as follows: series 1997-R1, class B2, from BBB-plus to BB-plus; series 1997-R2 group 3, class 3-B5, from CCC to C; and series 1997-R3, class B2, from BBB to BB. Class 2-B4 of series 1997-R2 group 2 and class 3-B4 of series 1997-R2 group 3 were placed on Rating Watch Negative. In addition, the ratings on 18 other classes in five BCF deals were affirmed. Fitch attributed the downgrades to loss levels and high delinquencies in relation to the applicable credit support. The rating agency can be found online at http://www.fitchratings.com.

Three classes of Pass Through Asset Class Execution 1997-I, series CWMBS 1997-4, have been downgraded by Moody's Investors Service.The downgrades were as follows: class B-2, from Baa2 to B2; class B-3, from Ba2 to Ca; and class B-4, from B2 to C. In addition, class M was upgraded from Aa2 to Aaa. Moody's said the downgrades were prompted by the fact that the three classes' credit support, classes B-4 and B-5, were completely written down due to higher-than-expected losses. Class B-3 has also begun to take writedowns, the rating agency said. The pool consists of 30-year fixed-rate conforming balance loans originated and serviced by Countrywide Home Loans. Moody's can be found online at http://www.moodys.com.