Servicing

Fannie Mae has priced $4 billion of three-year Benchmark Notes with a 2.125% coupon at 99.707.The joint lead managers for the issue (CUSIP 31359MQZ9) were HSBC Securities Inc., J.P. Morgan Securities Inc., and Morgan Stanley & Co. There were nine co-managers and a designated selling group comprised of 11 additional dealers. The issue is due April 15, 2006 and yields 2.223% at a spread of 65.5 basis points over the 5.625% U.S. Treasury due February 15, 2006. Settlement is scheduled for Feb. 28, and coupon payments will be made each April 15 and Oct. 15, beginning in April of 2003. Fannie Mae can be found on the Web at http://www.fanniemae.com.

The portfolio churning associated with refinancing appears to be reducing the productivity of loan servicing shops, according to research from the Mortgage Bankers Association of America.The research was presented by Tony Ebers, executive vice president of IndyMac at the MBA's national servicing conference in New Orleans. The number of loans serviced per employee fell 11% in 2001 as the refinancing share of lending activity picked up steam. Lenders serviced 1,034 loans per employee in 2001, down from 1,162 in 2000. The MBA's website address is http://www.mbaa.org.

MCAP Financial Corp., Toronto has been added to the Standard & Poor's Select Servicer List as an "above average" primary servicer and as an "average" special servicer.S&P said MCAP's ranking is based on "the stability and experience of its management team and the high quality of the training and support provided to staff; its solid systems that provide for very good management of all key facets of mortgage application, administration and investor reporting; and stringent internal controls that ensure continuous review and audit of all procedures." MCAP is part of the MCAP group of companies, which operates in Canada and originates, funds and manages residential, commercial, and construction mortgage loans. The company also purchases and resells mortgages to third-party investors through its mortgage warehouse facility; and packages and securitizes mortgages for capital markets.

Callable securities have become a "cornerstone" in Fannie Mae's strategies, chief financial officer Timothy Howard said in a Webcast conference the morning of Feb. 27 that, among other things, highlighted efforts the company has undertaken to manage its risk and provide assurance to global debt investors.Mr. Howard said over 50% of Fannie's debt is "effectively" callable, allowing the company to get the optionality it needs. He also detailed the ways Fannie Mae has tested its ability to manage risk in various interest rate scenarios, during the Salomon Smith Barney conference. Mr. Howard said Fannie Mae focuses on such efforts due to its size, involvement in the international market and prominence in the U.S. financial system, all of which necessitate "the highest level of confidence" from its investor base. "We need to raise billions (of dollars) across the world in short period of time without questions about whether our debt is money good," he said.

Refinancing is likely to account for 23 -25% of loan origination activity even after interest rates start rising, according to Doug Duncan, the Mortgage Bankers Association of America's chief economist.Mr. Duncan told attendees at the association's servicing conference in New Orleans that this will likely come as a surprise to many lenders as in the past refis have only reached level around 17%-18% in a rising rate scenario. He attributed to this to changing mortgage market dynamics that include an increase in cash-out refinance loans. The MBA can be found online at http://www.mbaa.org.

Countrywide chairman, chief executive and president Angelo Mozilo told investors on Feb. 25 that the company has met with regulators and is confident that it is using a conservative approach in valuing its mortgage servicing rights.Referencing a report issued earlier that day that indicated regulators would be stepping up their examinations of large servicing shops due to runoff concerns, Mr. Mozilo reassured investors during a Webcast forum that the company's valuations are in line with regulatory goals. He added that the company's MSR valuations have been more cautious than those of its peers. Countrywide can be found online at http://www.countrywide.com.

A record number of defaults and downgrades on asset-backed securities demonstrated the sector's vulnerability to economic cycles in 2002, according to Standard & Poor's.Last year's downgrade activity was particularly high for manufactured housing loans, one of the few mortgage-related asset categories covered in the S&P rating transition study. Last year, S&P reported 356 ABS downgrades, with 171 investment grade transactions being downgraded and 185 non-investment grade transactions being downgraded.

Radian Group Inc., Philadelphia, a major player in mortgage insurance, is said to be one of a handful of bidders that is interested in Financial Guaranty Insurance Co., a bond insurer owned by General Electric.Radian's interest in FGIC was first reported in the New York Post. FGIC is also an insurer of asset-backed deals, which includes subprime residential mortgages. GE declined to comment on the matter, as did Radian. Radian currently has two affiliates involved in bond insurance, Radian Asset Assurance, and Radian Reinsurance. Radian is rated double-A, FGIC Triple-A. According to National Mortgage News, Radian is the fifth largest mortgage insurer in the United States. A former GE official told MortgageWire that FGIC has dabbled in the mortgage business somewhat by "buying some mortgage bonds, and subordinated pieces (of securities)." He said FGIC, "never made a lot of money." Still, according to combined press reports, the unit could fetch between $2 billion and $2.5 billion.

Concerns about the incredible runoff of mortgage servicing rights have prompted the Federal banking agencies to step up their examinations of large servicing shops.The bank examiners want to make sure banks are properly valuing mortgage servicing assets (MSAs), recognizing impairment and adequately hedging their servicing portfolios. "MSAs can become impaired when interest rates fall and borrowers refinance and repay their mortgage loans. This impairment can lead to earnings volatility and erosion of capital, if the risk inherent in the MSAs have not been adequately hedged," the interagency advisory says. The advisory tells examiners to be on the watch for: unsupported prepayment speeds, discount rates and other assumptions in MSA valuation models; frequent changes in assumptions used to value MSAs; and servicers who fail to properly stratify MSAs for impairment testing. "The banking agencies may require additional capital for institutions that fail to exercise the sound practices set forth in this advisory," the Feb. 25 interagency advisory on mortgage banking says.

NovaStar Mortgage Inc., Kansas City, Mo., has been assigned a residential primary servicer rating of RPS3 for subprime loans by Fitch Ratings.Fitch said the rating reflects NovaStar's "seasoned" executive and servicing management teams, "established" training programs, "effective" loan administration procedures and controls, and "capable" default management strategies. Fitch rates residential servicers on a scale of 1 to 5, with 1 being the highest rating. The rating agency can be found online at http://www.fitchratings.com.