Servicing

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.

Thirteen classes in six CWMBS (IndyMac) Inc. mortgage pass-through deals have been downgraded by Fitch Ratings.The downgrades were as follows: series 1994-S, class B4, from BB to B, and class B5, from CCC to C; series 1994-R, class B3, from CCC to C; series 1995-L, class B4, from B to CC; series 1999-H (RAST 1999-A8), class B3, from BBB to BB and remains on Rating Watch Negative, class B4, from CCC to D, and class B5, from C to D; series 2000-B (RAST 2000-A2), class B3, from BBB to BB and remains on Rating Watch Negative, class B4, from CCC to C, and class B5, from C to D; and series 2000-F (RAST 2000-A6), class B-3, from BBB to BB and placed on Rating Watch Negative, class B4, from CCC to C, and class B5, from CC to D. The rating agency said the actions stemmed from loss levels and high delinquencies relative to the applicable credit support levels.

Fitch Ratings has released a report detailing its new criteria for rating residential mortgage servicers.The report offers an overview of Fitch's approach to the residential servicer rating process and its application to Fitch's analysis of residential mortgage backed securities transactions. The report lists several areas Fitch has enhanced since the rating program was initiated in 1999. Fitch rates residential primary, master and special servicers on a scale of one to five, providing further differentiation with "plus" or "minus" in addition to the flat rating. The report can be obtained from Fitch's website, www.fitchratings.com.

The PMI Group, Walnut Creek, Calif., has been authorized to repurchase up to $100 million of its stock.Under the new program, management is authorized to buy shares from time to time in open market transactions as well as privately negotiated transactions and block purchases. The timing and amount of the repurchases depend upon market conditions and corporate requirements. This is PMI's fourth share repurchase plan since 1996. The initial three plans totaled more than $400 million.

New Century Financial Corp., Irvine, Calif., has repurchased its second million-share allocation under the company's stock repurchase program using corporate liquidity.In December, the company's board of directors approved a third million share allocation under the buy-back program. When the repurchase of all three million shares is complete, the repurchased shares will represent about 13% of the company's approximately 23 million total shares outstanding.

The three Federal Home Loan Banks participating in the Mortgage Purchase Program acquired $17.2 billion on single family loans from their member bank and thrifts in 2002."We believe our first full year of operation has demonstrated that the MPP is a successful part of our financial service offerings to our members," said Martin Heger, president of the FHLBank of Indianapolis. The Seattle, Cincinnati and Indianapolis FHLBanks created MPP independently of the Mortgage Partnership Finance program, which purchased $27.9 billion in single family loans last year. The MPF program was started five years ago. The Atlanta FHLBank offers the MPF program but it is also planning to offer MPP execution to its members later this year. During 2001, the three MPP banks purchased $2.6 billion in loans.

Impac Mortgage Holdings Inc., Newport Beach, Calif., has priced an offering of 3.0 million shares of its common stock at $11.60 per share that produced estimated net proceeds of $33 million.The offering was led by UBS Warburg. The company has granted the underwriters a 30-day option to buy up to 450,000 additional shares to cover any overallotments. Impac, a mortgage real estate investment trust, can be found online at http://www.impaccompanies.com.