Origination

Eight classes from three CBA Commercial Assets small-balance commercial mortgage-backed securities deals have been downgraded by Fitch Ratings. Fitch also affirmed the ratings on 22 classes from four CBA small-balance transactions. The downgrades were attributed to an increase in specially serviced loans and loss expectations. The loans collateralizing the deals range from approximately $50,000 to $3 million, and a "high proportion" of the transactions have forthcoming adjustable-rate mortgage resets, Fitch said. The rating agency can be found on the Web at http;//www.fitchratings.com.

Twenty-two tranches from four subprime deals issued by Structured Asset Investment Loan Trust in 2004 and 2005 have been downgraded by Moody's Investors Service. The downgrades were based on an "analysis of the credit enhancement provided by subordination, overcollateralization and excess spread relative to expected losses," Moody's said. The transactions are backed primarily by first-lien, fixed- and adjustable-rate subprime mortgage loans.

Sixty-three tranches from 17 mortgage-backed securities deals issued by Bear Stearns have been downgraded by Moody's Investors Service. One tranche was placed on review for possible further downgrade. The downgrades were attributed to "an increasing proportion" of severely delinquent loans. "The timing of losses coupled with the passing of stepdown triggers for most of the transactions has caused the protection available to the subordinated bonds to be diminished," Moody's said. The collateral consists primarily of first-lien subprime mortgage loans, the rating agency said.

Moody's Investors Service is seeking market comment on five proposed enhancements to the securitization process for U.S. residential mortgage-backed securities. The specific enhancements are stronger representations and warranties, independent third-party pre-securitization review of underlying mortgages, standardized post-securitization forensic review, expanded loan-level data reporting of initial mortgage pool and ongoing loan performance, and more-comprehensive originator assessments. "Based on Moody's assessment of factors that have lead to recent underperformance of subprime and alt-A mortgage securitizations, Moody's believes that implementation of these enhancements will materially improve performance of future mortgage securitizations," the rating agency said. Moody's said the deadline for comments on the move is April 11. The rating agency can be found online at http://www.moodys.com.

A.M. Best Co., Oldwick, N.J., has announced the launch of Best's Title & Mortgage Guaranty Center, a Web portal that provides access to information generated by the company on title insurance and the mortgage guaranty industry. Content available on the site includes Best's ratings of title insurers, links to Best's rating methodology documents and relevant industry research, and news stories related to the title industry from A.M. Best's news publications. Best's Title & Mortgage Guaranty Center can be found on the Web at http://www.ambest.com/title.

Harry R. Kraatz has been appointed to the newly created post of chief restructuring officer at Shearson Financial Network Inc., a Las Vegas-based mortgage broker that has temporarily discontinued all operations. Shearson said Mr. Kraatz has been retained to oversee the management and reorganization of the company's business, including a restructuring of its balance sheet and the implementation of a revised strategic plan. The company said it is considering options that may include modifications to its business plan and the sale or licensing of certain assets. The move was attributed to the "severe restriction" of credit facilities in the mortgage banking industry due to the collapse of the subprime market.

High loan limits for Federal Housing Administration reverse mortgages could help refinance seniors out of subprime loans and enable them to stay in their homes free from monthly mortgage payments, according to the National Reverse Mortgage Lenders Association. "A significant proportion of subprime loans have been made to older homeowners," said NRMLA president Peter Bell. "As they look to refinance out of those onerous loans, a HECM should be an option for them." (The FHA's reverse mortgage is called a home equity conversion mortgage.) The FHA reform bill, currently stalled in conference, raises the HECM loan limit to $417,000 nationwide. But there are discussions about raising the FHA loan limit for single-family loans higher, and NRMLA wants HECMs included. The trade group also has reopened negotiations with AARP, a lobbying group for older Americans, on HECM origination fees. Last year the two parties agreed to reduce the 2% HECM fee to 1.5%, and it was written into the FHA reform bill. But the credit markets have changed since then, and NRMLA says it wants an adjustment because it is no longer profitable to make HECMs if the property value is less than $250,000. "We are in negotiations," Mr. Bell said.

Although the comment period isn't over until April, the Federal Reserve Board is already working with other federal and state regulators to enforce the Fed's proposed new rule to combat abusive lending practices. "It is not too early to emphasize that the effectiveness of the final rule will depend critically on effective enforcement," said Fed Governor Randall Kroszner at the National Association of Hispanic Real Estate Professionals' annual legislative conference in Washington. The Fed's initiative will apply to all mortgage lenders, not just federally supervised banks. And in that regard, the central bank is leading a pilot project with other agencies to conduct compliance reviews of nondepository lenders and "other industry participants." The "expansive scope" of the proposal is essential, and enforcement is key, Mr. Kroszner said. Whatever shape the final rule takes, if it is not enforced, it will not be effective, he said.

Senior management at New Century Financial Corp. "largely rejected or ignored" staff recommendations to tighten credit standards in 2004, which evidentially lead to a "tsunami of impaired and defaulted mortgages" and the subprime lender's bankruptcy, according to a court-appointed investigator. "The increasingly risky nature of New Century's loan originations created a ticking time bomb that detonated in 2007," according to 550-page report filed in a U.S. Bankruptcy Court by investigator Michael Missal. The Irvine, Calif.-based company was the second-largest subprime lender when it filed for bankruptcy in April 2007. The examiner found numerous accounting problems and faulted KPMG, New Century's independent auditor, for allowing the publicly traded company to reduce its repurchase reserve in 2006 when it was being "flooded with repurchase claims" from investors. "New Century understated its repurchase reserve by as much as 1000% in the third quarter of 2006, reported a profit of $63.5 million ...when it should have reported a loss," the Missal report says. A KPMG spokesman said the firm "strongly" disagrees with the report's conclusions. A New Century representative said the submission of the report will allow the bankruptcy process to continue, and "we can take the next steps of confirming the liquidation plan."

Class B-7 of DLJ Commercial Mortgage Corp. mortgage pass-through certificates, series 1999-CG3, has been downgraded from B-minus to CCC/DR2 by Fitch Ratings. In addition, Fitch lowered the distressed recovery rating on class B-8 from DR5 to DR6 and affirmed the ratings on 13 other classes in the deal. The downgrade was due to an increase in losses and expected losses that will affect the class "severely," the rating agency said.