Servicing

Prepayment rates for agency mortgage-backed securities shot up for new 30-year coupons at and below 6.5% in April, with Freddie Mac MBS speeds outpacing those of Fannie Mae, according to the Bear Stearns Prepayment Commentary.Among Fannie Maes, speeds for the 2002 vintage 5.5s, 6.0s, and 6.5s increased by constant prepayment rates of 9-12 CPR, reaching 20, 50, and 63 CPR, respectively, analysts Dale Westhoff and Bruce Kramer reported. For comparable Freddie Macs, speeds were 3-6 CPR faster. "We trace this difference to two sources: 1) the heavy concentration of Wells Fargo loans (they tend to prepay faster because of large loan sizes); 2) the shorter refinancing aging ramp associated with ABN Amro pools," the analysts said. Noting the recent return of mortgage rates to near their 40-year lows, the Bear Stearns analysts said they expect about $2.3 trillion of agency fixed-rate pools -- which they estimated to be about 80% of the market -- to be exposed to a refinancing incentive of at least 40 basis points. Bear Stearns can be found online at http://www.bearstearns.com.

The rapid growth in the issuance of residential mortgage-backed securities cannot be sustained much longer, according to speakers at S&P's annual structured finance seminar in Orlando.The issuance of nonconforming mortgage products surged in the first quarter, reaching a level 42% higher than that of a year earlier, S&P reported. It was the fifth consecutive quarter of rising issuance. "It is unusual to have such a significant drop in interest rates and appreciation of real estate prices simultaneously," said Rod Dubitsky, a director in Mortgage ABS Research at Credit Suisse First Boston. Mr. Dubitsky expressed doubt that the conditions will continue for long. "Volume will still be strong, but not as strong as we have seen," he said. Thomas Zimmerman, executive director of UBS Warburg, told the seminar that low interest rates and the refinancing boom are not the only factors involved in the RMBS volume growth. "It is difficult to sort out exactly whether the explosion in volume over the past few years is because of the decline in rates or from a broadening of the product in the subprime market," Mr. Zimmerman said. "It may also be ... the general credit decline by consumers in the U.S. that has pushed them back into the subprime area."

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.