Servicing

The concept of a housing bubble is "fundamentally misguided," but an interest-rate-driven rise in mortgage payments may be somewhat of a concern, the chief economist at Standard & Poor's said May 6 at S&P's annual Structured Finance Seminar in Orlando, Fla.The economist, David Wyss, told attendees at the S&P seminar that market observers should be looking at the size of monthly mortgage payments rather than home prices when sizing up risks to the health of the residential market and the economy. He said these payments have been "at record lows relative to household income" and, among existing mortgage holders, are only at risk of rising for the one out of eight borrowers who have variable-rate loans. Mr. Wyss said he believes the residential real estate market "is not going to see a home price collapse" but may see "very slow gains" if interest rates rise. He said he expects to see interest rates rise early next year.

Jumbo and alternative-A residential mortgage-backed securities appear more vulnerable to a rise in unemployment than do subprime RMBS, Wall Street researchers told attendees at a Standard & Poor's conference in Orlando.Higher unemployment is seen as more of an issue for jumbo and alt-A RMBS in part because the level of credit enhancement for these securities is relatively thin, leaving not a lot of room for losses in the event that they "blow up," said Peter DiMartino, a managing director at RBS Greenwich Capital. Low loan-to-value ratios and high credit scores in the jumbo/alt-A sector generally look attractive compared with those in the subprime sector, but some bond buyers might be "better off" investing in B&C-credit RMBS if there is more unemployment, said Thomas Zimmerman, an executive director at UBS Warburg, in a roundtable discussion at the S&P structured finance seminar.

Fitch Ratings has assigned primary, master, and special servicer ratings to Washington Mutual Bank FA for its servicing of commercial mortgage-backed securities.The ratings were as follows: primary servicer, CPS3-plus; master servicer, CMS3; and special servicer, CSS3. Fitch said the ratings reflect "the experienced servicing staff and the solid experience of the management team." Master and primary servicer functions are handled by the bank Specialty Finance Group's recently formed National Commercial Operations Center in Coppell, Texas. Fitch rates commercial mortgage servicers on a scale of 1 to 4, with 1 being the highest rating. The rating agency can be found online at http://www.fitchratings.com.

Ginnie Mae real estate mortgage investment conduit securities with relatively high percentages of health care loans appear to have less call risk for investors than REMICs with lower percentages of such loans, according to a researcher at Nomura Securities International Inc."For the investors purchasing long average life sequentials and last cash flow Z-bonds, as well as interest-only tranches backed by [Ginnie Mae] project loans, there is clearly extra value in choosing REMIC tranches backed by collateral with a high percentage of health care loans," said Art Frank, director of mortgage-backed securities research, in a recently released Ginnie Mae multifamily research report. Mr. Frank wrote the report with contributions from James Frohnhofer and Nathaniel Jacob.

The outlook for The PMI Group Inc., which owns 57% of Fairbanks Capital Corp., has been revised from stable to negative by Standard & Poor's following S&P's lowering of Fairbanks' residential subprime and residential special servicer rankings.The rating agency also affirmed the A-plus counterparty credit rating on PMI and its operating units. "The serious difficulties Fairbanks has encountered in servicing one of the largest portfolios of subprime mortgage loans and the possibility, though remote, that there might be material legal actions arising from these difficulties could affect [PMI]," said S&P credit analyst Donovan Fraser. S&P said Fairbanks operates independently of PMI, but that PMI's majority ownership, minority board representation, and size "could still expose it and its operating carriers to litigation."

Meanwhile, Standard & Poor's has decided to exclude from its rated structured finance deals those New Jersey loans for which the new law allows assignee liability.S&P said loans falling in that category are those defined as Covered Home Loans, those defined as High-Cost Home Loans, home improvement loans, and manufactured housing loans, as well as loans that are cash-out refinancings or junior-lien mortgage loans. Damages for some of the loan categories are capped, the rating agency said. S&P pointed to a provision of the law that allows a borrower to elect to recover damages either under the act or under New Jersey's Consumer Fraud Act, which provides for treble damages plus costs. "Because Standard & Poor's believes the act is unclear as to whether a borrower may recover under the CFA in a suit against assignees for a violation under the act, Standard & Poor's believes it must adopt the more conservative approach and factor into its credit analysis the possibility that treble actual damages might be recoverable against an assignee," S&P said. The rating agency can be found online at http://www.standardandpoors.com.

Wilshire Financial Services Group Inc., Beaverton, Ore., has announced the resignation of Bruce A. Weinstein as executive vice president and chief financial officer.Wilshire said Mr. Weinstein resigned "to pursue other interests." Stephen P. Glennon, the company's chief executive officer, has assumed the post of CFO on an interim basis, the company said. Wilshire Financial, the parent company of mortgage servicer Wilshire Credit Corp., can be found on the Web at http://www.wfsg.com.

Fairbanks Capital Corp., Salt Lake City, has responded to the lowering of its servicer ratings by Standard & Poor's, disagreeing with the extent of the rating change and calling attention to S&P's statement that the company has made "significant progress" in handling customer complaints.S&P lowered the company's residential subprime and residential special servicer ratings from Strong to Below Average, citing "insufficient management oversight and controls, inadequate technology and training, and ineffective vendor oversight." S&P also assigned an outlook of Stable, saying Fairbanks had significantly improved its handling of customer complaints over the last three quarters. "We recognize that S&P has raised a number of important issues, including a number of issues related to customer service, and the company is focused on addressing them," Fairbanks said. It went on to say that it is being "fully responsive" to increased regulatory scrutiny and expects to take further steps to improve its management, training, oversight, and technology. "Despite these issues, it is important to note that Fairbanks continues to meet or exceed industry performance standards traditionally used to evaluate mortgage servicers by the mortgage security market," Fairbanks said.

Mortgage companies added 3,000 new employees to their payrolls in the month of April as the mortgage boom shows few signs of slowing anytime soon.The U.S. Bureau of Labor Statistics reported that jobs in the mortgage banker/broker sector increased from 421,800 in March to 424,800 in April. In the past 12 months, employment in the mortgage sector grew by 18%. "From January 2001 to February 2003, this [mortgage] industry added 123,000 workers, accounting for all the net growth in the finance industry," BLS said in its April employment report. Meanwhile, the unemployment rate rose from 5.8% in March to 6.0% in April. BLS reported that 48,000 workers lost their jobs in April. "This followed two months of job losses totaling 477,000," the BLS said. The agency can be found online at http://stats.bls.gov.

H&R Block Mortgage Corp., Kansas City, Mo., has announced the appointment of David J. Vida Jr. as vice president of prime secondary marketing and finance and Wilbur A. McKesson Jr. as vice president of affordable housing.Mr. Vida will be responsible for the company’s prime and government loan product development and delivery strategies, and for financial planning and coordination, H&R Block Mortgage said. Before joining the company, Mr. Vida was executive vice president and chief financial officer at Delphi Global Solutions, a technology company, and he was a co-founder and president of City Mortgage Services. Mr. McKesson will be responsible for developing and implementing an affordable housing business plan that focuses on the mortgage needs of H&R Block tax clients. He was most recently senior vice president and director of emerging markets at CitiMortgage.