None of the big three rating agencies have downgraded any securities issued by Bayview Financial, a privately held mortgage finance company based in Miami, in light of the realization that its securitizations were rated using what was at times erroneous loan information. A senior salesperson and limited partner in charge of Bayview's residential loan acquisition sales force was fired in late March under allegations of altering credit information on loans he acquired for the company in order to earn higher commissions, according to the company. The employee primarily increased borrower credit scores, but also changed property types and occupancy codes, among other items, the firm disclosed.

The mortgage company released the information July 21, in a filing with the Securities and Exchange Commission, and the rating agencies have since been sifting through securitizations issued by the company.

Bayview executives estimated some three percent of its outstanding securitizations contained altered loans - which it has been working to identify since March. The majority of the loans were altered within Bayview's capital markets internal database after the affected loans had already been securitized, said David Quint, president and chief operating officer of Bayview. Some loans were repurchased/substituted as a breach of a loan level representation and warranty.

The SEC on July 14 requested information and documents related to any changes made to the company's capital markets database, according to Bayview. The firm has issued more than $17 billion in ABS since 1998.

Mortgage fraud experts have been predicting for some time a substantial uptick in fraud within the sector because of an expected decline in loan volume, meaning that the infrastructure of mortgage brokers, account executives, appraisers and others could turn to crime in order to sustain the incomes they have come to enjoy. As one example, IndyMac Bancorp last week announced a $9.7 million loss related to fraud in the second quarter. The bank discovered that 45 lot loans related to two developments in Michigan and Florida were "the subject of criminal fraud on the part of the developers, brokers, appraisers and closing agents." IndyMac has also conducted a review of its portfolio and implemented a series of product guideline changes, operational changes and fraud prevention actions in order to help guard against fraud in the future.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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