Reuters reports on the shuffling of mortgage backed securities. "Newcastle Investment Corp. today announced the acquisition of a portfolio of approximately 11,300 subprime residential mortgage loans for approximately $1.5 billion, or a purchase price of 99.60% of unpaid principal balance. The loans are secured by residential homes located throughout the U.S."

"Kenneth M. Riis, Newcastle's President, commented, 'The subprime market has come under pressure as rising interest rates and a re-pricing of credit risk have lowered loan prices. Operating margins for companies that originate these loans are declining and as a result, investment capital for their business is constrained.'"

"'These market dynamics create opportunities for buyers with long-term capital to selectively take credit risk, and price that risk conservatively. While we expect continued disruption in the sector, this portfolio represented a good opportunity to deploy capital at a high-teens risk adjusted return utilizing conservative underwriting assumptions.'"

From Originator Times. "Mortgage fraud is likely to increase as the mortgage market continues to shrink, according to The Prieston Group, which provides lender quality certification to hundreds of lenders for fraud insurance coverage approval."

"Based on the group's most current statistics, housing values are dropping by about 9 percent in some areas while defaults are rising by as much as 22 percent. TPG has also observed that lenders are increasingly dealing with harder loans and less qualified borrowers."

"Requests for exceptions to loan guidelines have increased, as have the cases of suspected misrepresentation and the resulting referrals to lenders' pre-funding quality control departments."

"Additionally, some lenders have reported a 10 percent drop in volume during January over the previous six months. FICO scores have also dropped, averaging 610 in January compared with 649 for the six months ending January 31. Lenders seeking to qualify for coverage have reported significant increases in early payment defaults containing fraud."

"All these factors are signs of a contracting market. As the market contracts and margins thin, lenders are under more pressure to accept loans of dubious quality. In response to the desire to keep loan volumes up, lenders may be more tempted to not look too closely at loans. Fraudsters understand this, and may try to take advantage of the situation by pushing through loans containing material misrepresentation."

"'The mortgage industry must remain vigilant in the fight against fraud, even as loan volumes decrease,' said Arthur Prieston. 'It is absolutely essential that lenders..continue to maintain loan quality through all cycles of the mortgage market.'"