Servicing

Two classes of Deutsche Mortgage & Asset Receiving Corp.'s commercial mortgage pass-through certificates, series 1998-C1, have been downgraded by Fitch Ratings.Class L was downgraded from B to B-minus, and class L was downgraded from CCC to CC. The ratings on 11 other classes in the deal were affirmed. Fitch attributed the downgrades to continuing deterioration in the pool's collateral performance and expected losses for many loans. As of the October 2002 distribution date, 22 loans representing 7.8% of the pool were in special servicing, the rating agency said. Of those, three were more than 30 days delinquent, six were more than 90 days delinquent, and nine had reached the status of real estate owned, Fitch said.

Washington Mutual, Seattle, which has been on an intense "buy-and-build" spree the past three years, is now officially taking a respite from any major acquisitions.During a speech this week at the annual convention of America's Community Bankers, WaMu chief executive Kerry Killinger indicated that WaMu will build its base of branches de novo instead of through acquisitions. For the past nine months, WaMu watchers have been saying that the mega-thrift -- the nation's largest residential servicer -- has been on the sidelines when it comes to buying other firms. Then again, the mortgage-related mergers-and-acquisitions market has been slow the past half-year, with few exceptions. (In August, WaMu agreed to buy HomeSide's huge servicing portfolio, but that deal had been anticipated for a year.) In fact, the top 10 residential servicers combined saw their market share slip in the third quarter, the third consecutive decline for the group. (See the Nov. 11 issue of National Mortgage News for full details.)

Though the new chairman of America's Community Bankers, Russell Taylor of Rahway Savings Institution, heads a Fannie Mae seller/servicer that sells the lion's share of its fixed-rate loans to Fannie, he says ACB remains supportive of the Federal Home Loan Bank System's effort to provide an alternative to Fannie and Freddie.In his address to the ACB convention in San Francisco, outgoing chairman Curtis L. Hage stressed that ACB is a strong advocate of the FHLBank system and the possibility of securitizing the FHLBanks' Acquired Member Assets program to expand it beyond its modest $50 billion level. An FHLBank panel following Mr. Hage's address explored the possibility of the FHLBanks' employing securitization as a way to expand the Mortgage Partnership Finance Program and the Mortgage Purchase Program as alternatives to Fannie and Freddie dominance in the secondary market. No FHLBank securitization initiatives have been mounted to date.

Matrix Bancorp, Denver, reported an after-tax net loss for the third quarter of $5.2 million, or 81 cents per share, reflecting the impact of $9.6 million in charges against the value of the firm's mortgage servicing rights.Those charges included an $8.0 million non-cash impairment reserve against Matrix's investment in mortgage servicing rights and an increase of $900,000 in the amortization cost for the company's investment in mortgage servicing rights, reflecting high prepayment rates. Richard Schmitz, co-CEO and chairman of the board, said it was a difficult quarter for Matrix. "Due to the high level of amortization, which is in response to increased prepayments, our investment in mortgage servicing has been very unprofitable this year." The company said that it made a decision in the spring of 2001, in part because of the difficulty of accounting for hedging activities, not to hedge its servicing portfolio. Beginning in August of this year, Matrix decided to sell the majority of its newly servicing rights on newly originated mortgage loans, and the company intends to "significantly" decrease its investment in MSRs, Mr. Schmitz said.

Fitch Ratings has changed its criteria for recognizing prepayment penalty charges from home equity loans pledged to Net Interest Margin Securitizations.The adjustments reflect changes in the regulatory and statutory treatment of prepayment penalty charges and the impact those changes may have on the ability of servicers of subprime and home equity mortgages to enforce those prepayment penalties, Fitch said. The rating agency said its change "is likely to result in a reduction in the size of NIMS notes that are backed by transactions collateralized by mortgage loans with prepayment penalty charges lasting greater than 24 months. NIMS backed by loans with prepayment penalties that do not exceed 24-months will not be affected, Fitch said.

The Prestwick Mortgage Group, Alexandria, Va., is brokering the sale of servicing rights on $1.1 billion portfolio of conventional mortgage loans from the Midwest.The weighted average note rate is 6.996% and the average loan balance is $94,799, Prestwick said. The portfolio has weighted average seasoning of 41 months and includes properties in 34 states. The highest concentration of loans come from Ohio, Indiana, New Jersey, Pennsylvania and Illinois. Bids are due Nov. 13.

Monthly delinquencies have increased 1-3% on a relative basis for almost all vintages of fixed and adjustable-rate mortgage pools backing subprime, home equity asset-backed securities, Credit Suisse First Boston has reported.Delinquencies appeared relatively highest in the '00 vintage year, according to CSFB's October subprime home equity ABS tracker (HEAT) report produced by fixed income researchers Rod Dubitsky, Neil McPherson, Christopher Fenske and Jeff Zhang. The report said that "'96 and '97 vintages each decreased 1% , '98 remained relatively unchanged, while the '99 and '00 vintages increased 2% and 5% respectively."

Four classes of Salomon Brothers Mortgage Securities VII Inc. mortgage pass-through certificateshave been downgraded by Fitch. In Salomon 1997-HUD1, class B4 was downgraded fromBB to B and placed on Rating Watch Negative and class B5 was downgraded from B-minus to D. In Salomon 1997-HUD2,class B4 was downgraded from BB to B and placed on Rating Watch Negative and class B5 was downgraded to D. In additionto the downgrades, class B3 of Salomon 1997-HUD2 was placed on Rating Watch Negative. The rating agency attributedthe actions to loss and delinquency levels relative to applicable credit support.

Fitch has downgraded Delta Financial Corp.'s $150 million of 9.5% senior secured notes due Aug.1, 2004 from CCC-plus to CC, which the rating agency said indicates that "default of some kind appears likely."Fitch said Delta's ability to meet its financial obligations is "solely relianton sustained favorable business and economic developments." The rating agency cited Delta's recently announcedplans to engage Ocwen Financial Corp. to perform certain subservicing functions on Delta's subprime home equityloan portfolio. "As part of the transaction, Delta will pass through the servicing fee to Ocwen, thereby reducingthe company's operating income, although this is offset to some degree by reduced operating expenses," Fitchsaid. The rating agency said Delta's decision to exit loan servicing is based on its desire to "reduce theliquidity strain associated with making servicing and interest advances. Moreover, servicing a shrinking portfoliocoupled with declining asset quality characteristics makes the economics of servicing much less attractive."Fitch's website address is http://www.fitchratings.com.

Tidalwave Holdings Inc., Fort Lauderdale, Fla., has announced an intensified effort to acquire amortgage company that has approvals from Fannie Mae or Freddie Mac. Tidalwavepresident Leon Kline said the company wants to add a division that originates conforming loans, with the aim ofbuilding a long-term servicing portfolio. "Our Investment Mortgage Banking Division, First American MortgageSecurities, has the ability to retain servicing on pools that are currently being bid on a servicing-released basis,"Mr. Kline said. "First American Mortgage Securities management feels that it can immediately provide a conformingdivision with a dramatic increase in per-month originations, where we can retain the servicing." He said theideal acquisition would be a small agency-approved mortgage company that uses a subservicer and whose managementwants to stay on. The company's website address is http://www.tidalwaveholdings.com.