Servicing

The PMI Group Inc., Walnut Creek, Calif., says its 2003 net income will not meet the consensus First Call estimate of $3.96 per share, blaming its woes on higher-than-expected claims payments and problems at subservicer Fairbanks Capital Corp.In a conference call Thursday, PMI officials said the company's second-quarter earnings will be reduced by at least $400,000 because of Fairbanks, and that they no longer expect the subservicer -- the subject of a federal criminal probe into its servicing practices -- to contribute $32 million in earnings to PMI this year. (PMI, the nation's second-largest mortgage insurer, owns a 57% stake in Fairbanks.) Discussing the higher claim payments, company president Stephen Smith cautioned that "this is not a credit blow-up," adding that a "jobless recovery and lingering unemployment" have hurt mortgage borrowers, in particular first-time homebuyers. The company is forecasting second-quarter earnings in a range of $0.71 to $0.78 per share. Losses incurred in its U.S. mortgage insurance operation for 2003 are projected to be between $210 million and $230 million, exceeding previous guidance of $195 million to $205 million. In early afternoon trading, its stock was down almost 7% to $27.03. Other publicly traded MI firms, including MGIC and Radian, were trading down as well.

The rating on class IB-1 of Manufactured Housing Contract Trust series 2000-3 has been lowered from CC to D by Standard & Poor's Ratings Services.S&P attributed the downgrade to a shortfall on the loss liquidation interest amount due to the class IB-1 certificates on June 20. On the May 20 remittance date, the class had been written down to cover part of a class I-A principal shortfall. "The priority of distributions is such that on the June 20, 2003 remittance date, the class IB-1 certificates received interest on the class IB-1 adjusted balance; however, the class IB-1 certificates did not receive interest on the loss liquidation amount," the rating agency said. S&P can be found online at http://www.standardandpoors.com.

Three classes from three DLJ Mortgage Acceptance Corp. mortgage-backed security deals have been downgraded by Fitch Ratings.The downgrades were as follows: series 1996-Q5, class B-1, from A to BB; series 1996-QB, class B-1, from BB to C; and series 1996-QJ, class B-3, from CCC to D. The ratings on seven other classes in three DLJ deals were affirmed. The rating agency attributed the downgrades to loss levels and high delinquencies relative to applicable credit support. Fitch can be found online at http://www.fitchratings.com.

Freddie Mac said Wednesday morning that earnings from previous years will be restated upward by as much as $4.5 billion.The stunning announcement came at 7 a.m. Wednesday, a few hours before Rep. Richard Baker, R-La., chairman of a House Financial Services subcommittee, was set to hold hearings on restructuring the regulatory apparatus for both Freddie Mac and Fannie Mae. Freddie Mac offered a range of $1.5 billion to $4.5 billion on the restatement, noting that the change will cover net earnings in 2000, 2001, and 2002. The company also said the restatement would affect periods prior to 2000. In announcing the restatement range, company chief executive Greg Parseghian said: "The information we are disclosing today reflects poorly on Freddie Mac's past accounting, control, and disclosure practices." Freddie Mac can be found online at http://www.freddiemac.com.

Standard & Poor's Ratings Services has announced a revision of the criteria it applies to manufactured housing mortgage loans in residential mortgage-backed securities.Effective for transactions closing on or after July 1, S&P is expanding the data requirements and devising loan-level loss coverage assumptions for manufactured housing loans. The following manufactured housing loans will no longer be allowed in S&P-rated RMBS collateral pools: repossessed units; loans with simultaneous seconds; second-lien loans; modified loans (including extensions, loan assumptions, and transfers of equity); land-in-lieu (no cash downpayment); low-side overrides (underwriting exceptions: loans that had been originally rejected); 60-plus-day delinquencies; and chattel paper. Manufactured housing loans should not constitute more than 15% of the total principal balance (plus any prefunding amounts) as of the cutoff date, the rating agency said. Issuers who want to include manufactured housing loans in RMBS transactions must provide various loan-level details for the MH collateral, including new versus used units; current delinquency status; and debt-to-income ratio. S&P can be found online at http://www.standardandpoors.com.

In response to greater availability of mortgage data and changing underwriting practices, Fitch Ratings has introduced a new foreclosure and loss model designed to give investors a more accurate picture of risk within a pool of residential mortgage-backed securities.Fitch said the new loan-level model, version 5.0, evaluates frequency of foreclosure and loss severities based on individual loan characteristics and regional economic forecasts. The new model replaces 11 loan documentation categories with four for easy comparison of credit risk, Fitch said. "Analysis showed that the incremental difference in credit risk for individual loans was not significant enough to merit additional categories," said Susan Kulakowski, a Fitch senior director. Under the new model, loans will be classified in these four documentation categories: full, alternative, reduced, and none. The rating agency can be found online at http://www.fitchratings.com.

Jonathan Kempner has been named president and chief executive officer of the Mortgage Bankers Association of America by the MBA board of directors.The promotion of Mr. Kempner, who formerly held the titles of president and chief operating officer, came at a board meeting during the association's annual Presidents Conference. MBA Chairman John A. Courson credited Mr. Kempner with presiding over "a complete fiscal turnaround" of the organization and the resolution of staffing issues since his arrival in 2001. Mr. Kempner was also credited with balancing the association's budget and strengthening its government affairs, research, education, and communication efforts. The MBA can be found online at http://www.mbaa.org.

A recently enacted Arkansas predatory lending measure will not keep Fitch Ratings from rating structured finance transactions containing loans from the state, Fitch has announced.According to the rating agency, the Arkansas Home Loan Protection Act does not contain a provision creating unlimited assignee liability. As a result, Fitch will continue to rate residential mortgage-backed securities transactions that include home loans, including high-cost home loans, from that state. The statute, which was signed into law April 14, goes into effect July 16. Fitch can be found online at http://www.fitchratings.com.

The overall delinquency rate on home loans stood at 4.52% in the first quarter, a 1-basis-point decline from that of the previous quarter, but the share of loans in foreclosure rose to 1.20%, an all-time survey high, according to the Mortgage Bankers Association of America.The foreclosure percentage represented a 2-bps increase from that of the previous quarter. Douglas Duncan, the MBA's chief economist, told reporters that the trade group is "watchful" of the situation, but he said he would not describe it as troubling. He said a gradual increase in the number of subprime-credit-quality loans that are included in the survey's loan sample may be contributing to the increase in the foreclosure total. The MBA also reported that 11.65% of Federal Housing Administration loans were at least 30 days late in the first quarter, an increase of 20 bps from the rate in the previous quarter. The MBA can be found online at http://www.mbaa.org.

Regulatory changes limiting issuers' flexibility in supporting structured finance deals such as home equity/mortgage securitizations have contributed to narrowing the gap between the default rate of such bonds and that of unsecured corporate debt issues, an analyst told reporters at a June 18 news conference in New York.However, mortgage-related transactions may see less of a narrowing in the default rate gap vis-a-vis corporates than other types of structured finance because they are backed by relatively less volatile and more established asset types, Kevin P. Duignan, a managing director at Fitch Ratings, told MortgageWire. He added that, although the default rate gap between structured finance and corporates is narrowing, he believes the default rate of the former will continue to be somewhat more favorable than that of the latter.