Servicing

Only 32% of the homeowners who refinanced their homes in the second quarter got a mortgage at least 5% larger than the original loan, the lowest percentage since Freddie Mac began tracking the statistic.The figure was down from 41% in the first quarter and down dramatically from 63% in the second quarter of 2002, the government-sponsored enterprise said in its quarterly refinance review. "It comes as no surprise that this figure of 32% represents the smallest [percentage] of refinancing homeowners to take cash out of their homes that we have seen since we began doing this report in 1985," said Amy Crews Cutts, Freddie Mac's deputy chief economist. "Mortgage rates have fallen to such incredibly low levels that homeowners are refinancing now primarily for the low rates, rather than to take out equity." Freddie Mac can be found online at http://www.freddiemac.com.

Fitch Ratings has announced that it will continue to rate residential mortgage-backed securities containing loans covered by the predatory lending laws in Washington, D.C. and Florida.The effective dates for those laws were May 6, 2002, and Oct. 1, 2002, respectively, and Fitch's decision will allow loans made after those dates to be included in RMBS transactions that it rates. This includes so-called high-cost home loans.

Moody's Investors Service has identified unanticipated interest shortfalls as an emerging problem for the commercial mortgage-backed securities industry.Such shortfalls have led to some downgrades and watchlist placements, and more are expected, according to the rating agency. In CMBS transactions, servicer advances for principal and interest, property protection, and trust expenses help provide liquidity to the securities. Servicers that facilitate this liquidity are reimbursed for the amounts advanced plus interest on a priority basis "at the top of the distribution waterfall." Nicholas Levidy, a Moody's analyst, pointed to a problem posed by this arrangement. "Unfortunately, in some cases where the servicer seeks reimbursement for large advance amounts, the senior certificates have been adversely affected by the advancing mechanism currently found in most CMBS documents," Mr. Levidy said. "By taking the money owed from advances in one payment rather than spreading the payments over a period of time, the shortfall problem is created." A tentative solution proposed by Moody's is to spread the servicer recoveries out, perhaps in combination with "reimbursement of nonrecoverable advances out of general collections of principal." Moody's can be found online at http://www.moodys.com.

The Bond Market Association and the American Securitization Forum are recommending changes to an accounting proposal they say would, among other things, "unnecessarily harm mortgage securitization programs."The concerns of the two related trade groups center on their belief that proposed amendments to Financial Accounting Standards Board Statement 140 would prevent transferors or decision-makers from meeting the qualifying standards for special-purpose entities that allow them to "derecognize" securitized assets for accounting purposes "no matter how immaterial" their continuing connection is to a financial asset transferred to an SPE. FASB proposed the changes to provide more "specific guidance" on the requirements an entity must meet to be considered a QSPE. It is accepting comments on the proposal through July 31. The organizations can be found online at http://www.bondmarkets.com, http://www.americansecuritization.com., and http://www.fasb.org.

Rising rates may signal better footing in the market for mortgage servicing rights, if a recent proposed sale involving $5.4 billion of mortgages is any indication.Phoenix Capital, Denver, is representing Ohio Savings Bank in the sale of servicing rights on $5.4 billion of fixed-rate Fannie Mae loans. The bulk portfolio consists of newly originated loans with 30-year and 15-year weighted average note rates of 5.90% and 5.14%, respectively. The average loan balance is $167,655. Phoenix said it has traded servicing rights on about $40 billion of loans since January.

The rating on class B of Delta Funding Home Equity Loan Trust 2000-4 has been lowered from B to D by Standard & Poor's.The ratings on four other classes from the deal were affirmed. S&P attributed the downgrade to a depletion of overcollateralization that resulted in a writedown of more than $92,000 to class B, as well as the levels of losses and serious delinquencies.

The ratings on three classes of Conseco MH Senior/Subordinate Pass-Through Trust 2000-3 have been lowered and removed from CreditWatch with negative implications by Standard & Poor's Ratings Services.The downgrades were as follows: class M-1, from A to B-minus; class M-2, from BBB to CCC; and class B-1, from BB to CCC-minus. "The performance trend associated with the pool of manufactured housing contracts (which supports the rated certificates) has deteriorated during the past two years, with more pronounced deterioration experienced during the past several months," the rating agency said. S&P can be found on the Web at http://www.standardandpoors.com.

Citigroup Global Transaction Services has been appointed custodian for $300 billion in assets serviced by seven of the 12 Federal Home Loan Banks, according to the company.Citigroup said the deal represents "one of the largest such appointments in the history of the transaction services industry." Citigroup has been appointed custodian for the FHLBanks of Chicago, Des Moines (Iowa), Indianapolis, New York, Pittsburgh, San Francisco, and Topeka (Kan.). Prior to the appointment, Citigroup already served as custodian for an additional $130 billion of assets serviced by the FHLBanks of Atlanta and Boston.

Class B-3 of GE Home Equity series 1999-HE1 has been downgraded from CC to C by Fitch Ratings.The bond took a principal writedown on June 25, and credit support for the class has been reduced to zero due to the level of losses, Fitch said. "Although the transaction's structure allows for the writedown amount to be repaid in subsequent months, if there are recoveries in the future, the structure does not allow for interest on the written-down amount to be repaid," the rating agency said.

The rating on class B-1 of OMI Trust 2000-D has been lowered from CC to D by Standard & Poor's Ratings Services.The downgrade "reflects the unlikelihood that investors will receive timely interest and the ultimate repayment of their original principal investment," S&P said. The trust reported an outstanding liquidation loss interest shortfall of $11,595.27 for the B-1 class on the July payment date. S&P said it believes that B-1 interest shortfalls "will continue to be prevalent in the future, given the adverse performance trends displayed by the underlying pool of manufactured housing retail installment contracts originated by Oakwood Homes Corp., and the location of B-1 writedown interest at the bottom of the transaction payment priorities (after distributions of senior principal)." 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.