Servicing

Limiting advances of principal and interest to 12 months for delinquent loans should remedy the growing problem of interest shortfalls in investment-grade commercial mortgage-backed securities, according to Fitch Ratings.Such interest shortfalls often result in downgrades to CMBS certificates or their placement on Rating Watch Negative, the rating agency said. Fitch advised that advancing be made contingent on recoverability and said a 12-month time limit "would not preclude servicers from making property protection advances" and funding necessary, limited expenses. The rating agency explained that when a servicer determines an advance to be nonrecoverable based on inadequate property value, the servicer is entitled to reimbursement. "A time limit on servicer advances would reduce the likelihood that recovery of servicer advances results in interest shortfalls up to investment-grade," Fitch said. The rating agency can be found online at http://www.fitchratings.com.

Three Federal Home Loan Banks have purchased the senior tranches of a $475 million mortgage-backed securities deal as part of a new program called Shared Funding that is designed to meet the secondary market needs of the FHLBanks' largest members.It is the first MBS transaction under the Mortgage Partnership Finance program, and it is backed by conventional fixed-rate residential mortgages originated by National City Mortgage and Wells Fargo Home Mortgage. A subsidiary of Bank One issued the highly rated mortgage certificates to the Chicago, Des Moines, and Pittsburgh FHLBanks, and the subsidiary, One Mortgage Partners Corp., will retain the subordinated tranches. "Shared Funding will help the MPF program develop to its full potential as a strategic alternative for our members," Chicago FHLBank president Alex Pollock said. Steve Bartlett, president of the Financial Services Roundtable, said the Shared Funding initiative "will attract additional capital to the mortgage market, lower mortgage rates for consumers, and diversify credit risk throughout the financial system."

Thornburg Mortgage is ramping up efforts to market adjustable-rate, jumbo mortgage loans through financial advisers who counsel the wealthy.Joseph Badal, chief executive officer of Thornburg Mortgage, told reporters in New York March 20 that marketing jumbo loans through financial advisers is a means to increase retail lending to 70% of Thornburg's volume by 2005. Today, about three-quarters of the company's loans come through correspondent lending channels. "We literally want to reverse that," Mr. Badal said.

Fairbanks Capital Corp. says it is cooperating with an inquiry by the Department of Housing and Urban Development into the company's servicing practices."We have contacted HUD and will be providing that agency with accurate information to address the unfounded allegations reported in the media that have prompted the HUD inquiry," FCC president Bill Garland said. Maryland Sens. Barbara Mikulski and Paul Sarbanes, both Democrats, have been pushing for a HUD investigation as a result of a series of news stories by WBAL-TV in Baltimore that focused on consumer complaints about Fairbanks, which is based in Salt Lake City. Mr. Garland said his company, the nation's largest subprime servicer, is reviewing all the cases that have been subject to media attention. A spokesman for the HUD inspector general said, "This matter is under continuing review, and we have no comment at this time."

Zacks.com, a unit of Zacks Investment Research, Chicago, has reported that Wells Fargo & Co. is one of the publicly traded firms on its Brokerage Firm Buy List.Zacks said the list consists of the core stocks recommended by at least three of the top 15 brokerage firms. In its note about Wells Fargo, Zacks termed the company "a very consistent performer" and cited the recent preliminary injunction by a federal court against the California Department of Corporations, which had threatened to pull Wells Fargo Home Mortgage's license to offer home loans in the state. "The ruling was tantamount to a sigh of relief for the company, especially since California is the most populous state," Zacks said. Another company on the list is American International Group, the insurance holding company that is the parent of United Guaranty Corp. Zacks can be found online at http://www.zacks.com.

Martin F. Baumann, a 30-year veteran of PricewaterhouseCoopers, has been named executive vice president for finance at Freddie Mac.Mr. Baumann will be responsible for accounting, corporate planning, taxation, shareholder relations, and the oversight of market and operating risk at the government-sponsored enterprise, Freddie Mac said. He will report to David W. Glenn, Freddie Mac's vice chairman and president. During his career at PwC, Mr. Baumann was a partner, deputy chairman of its World Financial Services practice, and its global banking leader.

Standard & Poor's Ratings Services has announced that it will not rate structured finance transactions that include Georgia loans originated between Oct. 1, 2002 and March 7, 2003.S&P said its decision followed a review of the repeal provision of the recently enacted amendment to the Georgia Fair Lending Act. The review was aimed at determining whether the amended act applies retroactively to loans originated between Oct. 1, 2002 and March 7, 2003. "There is a presumption in Georgia law, as with federal law, that a law is not retroactive unless it clearly states otherwise," the rating agency said. "The amended act does not explicitly provide for retroactivity. In addition, Georgia case law has interpreted that a repealing act will not be given retroactive operation with respect to rights and obligations under the repealed act." S&P had already announced that it would resume rating transactions that include Georgia loans originated on or after March 7, 2003, the date the amendment to GFLA was signed into law.

Household International Inc. has announced a consent decree with the Securities and Exchange Commission under which the company agreed to end violations of certain federal securities laws but will not be required to pay fines or restate earnings."The SEC's findings in the order, which Household does not admit or deny, include findings that certain prior descriptions of Household's restructuring and other account management policies were incomplete or inaccurate in violation of provisions of the federal securities laws," the Prospect Heights, Ill.-based company said. "Under the order, Household has agreed to cease and desist from any further violations of these provisions." The company said it expects to complete its planned merger with HSBC Holdings plc after receiving shareholder approvals at meetings scheduled for March 28. "We have agreed to the entry of the consent order to resolve the SEC's disclosure concerns relating to Household," said William F. Aldinger, the company's chairman and chief executive officer. Household can be found online at http://www.household.com.

Citing "increased regulatory scrutiny" of Fairbanks Capital Corp.'s servicing practices, Standard and Poor's Ratings Services has placed the company's residential subprime servicer and residential special servicer rankings on CreditWatch with negative implications.S&P cited a recent meeting between the company's management and Maryland regulators to address borrowers' concerns, as well as a request by U.S. Sen. Barbara Mikulski, D-Md., that the Department of Housing and Urban Development consider initiating a wider investigation. The Salt Lake City-based Fairbanks said S&P's action "underscores the challenging atmosphere in which the non-prime servicing industry, and Fairbanks as one of the largest non-prime servicers, operates." Fairbanks pointed to the fact that its Strong servicer rankings are the highest given by S&P, and it said Moody's and Fitch Ratings "have made similar assessments of Fairbanks’ performance." The company pledged "continued cooperation with regulators" and said it remains "committed to industry best practices." S&P can be found online at http://www.standardandpoors.com.

Four classes from various Conseco Finance Corp.-related securitizations have been downgraded from CCC-minus to D (default) by Standard & Poor's Ratings Services.The downgrades were as follows: Home Improvement & Home Equity Loan Trust, series 1996-D, class HE:B-2, and series 1997-A, class HE:B-2; Home Improvement Loan Trust, series 1996-E, single class; and Home Equity Loan Trust, series 1997-B, class B-2. Conseco Finance did not make any payments under a limited guarantee on the March 17 distribution date, resulting in principal distribution shortfalls on series 1996-E and interest shortfalls on the remaining three classes, the rating agency said. S&P can be found online at http://www.standardandpoors.com.