Servicing

The market for residential mortgage-backed securities is "well protected" from the potential economic impact of the war in Iraq, according to Fitch Ratings.The rating agency said the economy will probably suffer "slightly" from the war in the form of reduced travel and tourism, but that this would affect certain areas -- such as Orlando, Fla. -- more than others. "The geographic diversity and credit enhancement structured into RMBS deals should adequately address the economic impacts of the war and the possibility of terrorism," Fitch said. "However, the war will push some borrowers, already teetering on the edge of default as a result of the prewar economic malaise, over the edge." The rating agency said the effect of any terrorism on RMBS pools would likely be "very limited" as long as the pool is "reasonably" diverse geographically and borrowers do not depend on a few localized industries or military bases. Fitch can be found online at http://www.fitchratings.com.

The percentage of homeowners who were delinquent on their mortgage payments dropped late last year despite a modest increase in the share of loans that were in foreclosure, according to the Mortgage Bankers Association of America.Doug Duncan, chief economist of the MBA, said delinquencies likely peaked in the second quarter of last year, while foreclosures are still working their way through the system. Overall, 4.53% of home loans were delinquent at the end of 2002, down 13 basis points from the level of three months earlier. The percentage of loans in the foreclosure process was 1.18% in the fourth quarter, up 3 bps from that of the third quarter. However, the number of loans entering the foreclosure process fell in the fourth quarter, providing further evidence that late-payment problems may have peaked, though Mr. Duncan said he remains cautious about the employment situation. The MBA can be found online at http://www.mbaa.org.

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.