Merrill Lynch First Franklin Mortgage Loan Trust/Series 2007-1 ·


 

Merrill Lynch First Franklin Mortgage Loan Trust/Series 2007-1 · 424B5 · On 3/27/07

Filed On 3/27/07 11:02am ET · SEC File 333-140436-04 · Accession Number 950123-7-4558

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THE SPONSOR                                                                    

 

The Sponsor is MLML, a Delaware corporation.

MLML is an affiliate, through common parent ownership, of the Underwriter.

MLML is also an affiliate of the Depositor, the Servicer and

First Franklin Financial and a direct, wholly-owned subsidiary of

Merrill Lynch Mortgage Capital Inc.

The executive offices of MLML

Are located at 4 World Financial Center,

New York, New York 10080,

Telephone  number (212) 449-0336.

 

MLML purchases first and second lien residential mortgageloans for securitization or resale, or for its own investment. MLML also     originates commercial mortgage loans. MLML does not currently service mortgage  loans. Instead, MLML contracts with other entities to service the loans on its behalf.                                                                         

 

FIRST FRANKLIN FINANCIAL                                                       

 

The information below has been provided by First Franklin Financial in response to the Sponsor’s request for information regarding First Franklin  Financial and its underwriting guidelines.                                     

 

Founded in 1981, First Franklin Financial is a Delaware corporation   headquartered in San Jose, California. From 1981 to 2004, First Franklin  Financial grew from a small mortgage broker to a full service mortgage lender   with a wide variety of products. First Franklin Financial acquires first and   

second lien mortgage loans from third party originators and sells them in the   ordinary course of business to affiliated and unaffiliated mortgage loan       purchasers. For 2006, First Franklin Financial’s acquisition portfolio from all third party originators totaled approximately $27,967,758,067.                 

 

     Merrill Lynch Bank & Trust Co., FSB acquired First Franklin Financial, Home Loan Services, Inc., and the affiliated business unit NationPoint from National  City Bank on December 30, 2006. Simultaneously with the closing of such          acquisition, the non-conforming mortgage loan origination business formerly      maintained by National City Bank in its First Franklin division was transferred

to First Franklin Financial. Therefore, as of such date, the non-conforming    mortgage loan origination business of National City Bank and First Franklin     Financial was acquired by Merrill Lynch Bank & Trust Co., FSB. A copy of the    Purchase Agreement between National City Bank and Merrill Lynch Bank & Trust    Co., FSB is publicly available on the SEC website.                             

 

FIRST FRANKLIN FINANCIAL’S PORTFOLIO AND UNDERWRITING GUIDELINES                

 

All of the Mortgage Loans were required to meet underwriting criteria

substantially similar to that described in this prospectus supplement.         

 

PAYMENTS DUE UNDER THE TERMS OF THE INTEREST RATE CAP CONTRACT MAY BE DELAYED, 

REDUCED OR ELIMINATED IF THE CAP CONTRACT COUNTERPARTY, BEAR STEARNS FINANCIAL 

PRODUCTS INC., BECOMES INSOLVENT                                               

 

     The supplemental interest trust will include an interest rate cap contract,

to be for the benefit of the offered certificates, under which the cap contract

counterparty, Bear Stearns Financial Products Inc., is obligated on any        

distribution date prior to the termination of the cap contract to make certain 

payments to the supplemental interest trust in the event that one-month LIBOR  

(as determined under the interest rate cap contract) exceeds 5.322% with respect

to that distribution date on or after the distribution date in October 2007 and

on or prior to the distribution date in March 2012. However, in the event of the

insolvency or bankruptcy of the cap contract counterparty, payments due under  

the cap contract may be delayed, reduced or eliminated. Moreover, the cap      

contract may be subject to early termination if either party thereto fails to  

perform or the cap contract becomes illegal or subject to certain kinds of     

taxation. In the event of early termination of the cap contract, there may not 

be a replacement cap contract.     COLLECTIONS ON THE MORTGAGE LOANS MAY BE DELAYED OR REDUCED IF THE SPONSOR OR  

THE SERVICER BECOMES INSOLVENT                                                 

 

     The sale of the mortgage loans from First Franklin Financial Corporation to

Merrill Lynch Mortgage Lending, Inc. and from Merrill Lynch Mortgage Lending,  

Inc. to Merrill Lynch Mortgage Investors, Inc. will each be treated as a sale of

the mortgage loans. However, in the event of an insolvency of First Franklin   

Financial Corporation or Merrill Lynch Mortgage Lending, Inc., the conservator,

receiver or trustee in bankruptcy of such entity may attempt to recharacterize 

the mortgage loan sale as a borrowing by the applicable entity, secured by a   

pledge of the applicable mortgage loans. If this transfer was to be challenged,

delays in payments of the certificates and reductions in the amounts of these  

payments could occur.   

  FAILURE OF THE SWAP COUNTERPARTY TO PROVIDE INFORMATION REQUIRED OF PROVIDERS OF

DERIVATIVE INSTRUMENTS PURSUANT TO REGULATION AB AND SUBSEQUENT FAILURE TO     

REPLACE ITSELF WITH A SWAP COUNTERPARTY THAT CAN PROVIDE SUCH REQUIRED         

INFORMATION MAY RESULT IN A SWAP TERMINATION EVENT                             

 

The swap agreement imposes a contractual obligation on the swap      

counterparty to provide all information that may be required pursuant to       

Regulation AB for providers of derivative instruments. To the extent that the  

swap counterparty cannot provide the required information in accordance with the

swap agreement, the swap counterparty is required to replace itself with a swap

provider, or obtain a guarantor, that can provide the necessary information. If

the swap counterparty cannot secure a replacement provider or guarantor, the   

failure to comply with the swap agreement will result in an “additional        

termination event” under the swap agreement in respect of which the swap       

provider will be the sole affected party. In certain circumstances, a swap     

termination payment may be owed to the swap counterparty in connection with the

additional termination event described above or in connection with any other   

additional termination event or event of default provided for under the swap   

agreement. Such swap termination payments will reduce the amounts available to 

make payments on the certificates.                                             

 

FIRST FRANKLIN FINANCIAL CORPORATION MAY NOT BE ABLE TO REPURCHASE DEFECTIVE   

MORTGAGE LOANS                                                                 

 

   First Franklin Financial Corporation has made various representations and

warranties relating to the mortgage loans to Merrill Lynch Mortgage Lending,   

Inc. Merrill Lynch Mortgage Lending, Inc. will assign those representations and

warranties to Merrill Lynch Mortgage Investors, Inc. These representations are 

summarized in Description of the AgreementsRepresentations and Warranties;  

Repurchases in the prospectus.                                                

 

    If First Franklin Financial Corporation fails to cure in a timely manner a

material breach of its representations and warranties with respect to any      

mortgage loan sold by it, then First Franklin Financial Corporation would be   

required to repurchase or substitute for the defective mortgage loan. It is    

possible that First Franklin Financial Corporation may not be capable of       

repurchasing or substituting for any defective mortgage loans, for financial or

other reasons. The inability of First Franklin Financial Corporation to        

repurchase or substitute for defective mortgage loans would likely cause the   

mortgage loans to experience higher rates of delinquencies, defaults and losses.

As a result, shortfalls in the distributions due on the certificates could     

occur.                                                                         

 

VIOLATIONS OF FEDERAL, STATE AND LOCAL LAWS                                    

 

Federal, state and local laws regulate the underwriting, origination,

servicing and collection of the mortgage loans. These laws have changed over   

time and have become more restrictive or stringent with respect to specific    

activities of the servicer and the originator. Actual or alleged violations of 

these federal, state and local laws may, among other things:                   

 

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   -    limit the ability of the servicer to collect principal, interest and

servicing advances on the mortgage loans,                  

 

-    provide the borrowers with a right to rescind the mortgage loans,

 

-    entitle the borrowers to refunds of amounts previously paid or to

set-off those amounts against their loan obligations,      

 

    -    result in a litigation proceeding (including class action litigation)

being brought against the issuing entity, and              

 

-    subject the issuing entity to actual or alleged liability for   

  expenses, penalties and damages resulting from the violations.

 

As a result, these violations or alleged violations could result in  

shortfalls in the distributions due on your certificates. See Certain Legal   

Aspects of Mortgage Loans in the prospectus.                                  

 

 

     First Franklin Financial’s acquisition underwriting standards are primarily

intended to assess the ability and willingness of the borrower to repay the debt

and to evaluate the adequacy of the mortgaged property as collateral for the   

mortgage loan. The standards established by First Franklin Financial require   

that the mortgage loans of a type similar to the Mortgage Loans were           

underwritten by the third party originators with a view toward the resale of the

mortgage loans in the secondary mortgage market. In accordance with First      

Franklin Financial’s guidelines for acquisition, the third party originators   

must consider, among other things, a mortgagor’s credit history, repayment     

ability and debt service to income ratio (“Debt Ratio”), as well as the value, 

type and use of the mortgaged property. The Mortgage Loans generally bear higher

rates of interest than mortgage loans that are originated in accordance with   

Fannie Mae and Freddie Mac standards, and may experience rates of delinquencies

and foreclosures that are higher, and that may be substantially higher, than   

those experienced by portfolios of mortgage loans underwritten in a more       

traditional manner. Unless prohibited by applicable law or otherwise waived by 

the third party originator upon the payment by the related mortgagor of higher 

origination fees and a higher mortgage rate, a majority of the Mortgage Loans  

provide for the payment by the mortgagor of a prepayment charge on certain full

Principal Prepayments made within one to three years from the date of          

origination of the related Mortgage Loan.                                       

 

S-35

 

   Substantially all of the mortgage loans of a similar type as the Mortgage

Loans were acquired by First Franklin Financial based on loan application      

packages submitted to the third party originators by third party mortgage      

brokers, which do not fund the mortgage loans. These mortgage brokers must meet

minimum standards set by the third party originators and, once approved by the 

third party originators, the mortgage brokers are eligible to submit loan      

application packages in compliance with the terms of the mortgage broker       

agreement with the third party originator.                                     

 

The third party originators must meet minimum standards set by First 

Franklin Financial, based on acquisition guidelines that require an analysis of

the following information submitted with an application for approval: any      

applicable state lending license (in good standing), satisfactory credit report

only if no federal income tax identification number, signed broker agreement,  

signed W-9 and signed broker authorization. Once approved as a third party     

originator, these companies are eligible to submit loan packages for purchase by

First Franklin Financial in compliance with the terms of a signed mortgage loan

purchase agreement.                                                            

 

     The third party originators may originate mortgage loans for acquisition by

First Franklin Financial under an underwriting program called the Direct Access

Program. Within the Direct Access Program, there are four documentation        

programs, the Full Documentation Program, the Limited Income Verification      

Program (the “LIV”), the Stated Plus Program and the Stated Income Verification

Program. In addition, under the responsible party’s Blended Access Program, in 

the case of loans with two or more borrowers, if one of those borrowers with   

more than 50% of the total qualifying income is underwritten under a full      

documentation program, then the other borrower or borrowers may be underwritten

under a stated documentation program. All of the Mortgage Loans were acquired by

First Franklin Financial under the Direct Access Program. While each            

underwriting program is intended to assess the risk of default, the Direct     

Access Program makes use of credit bureau risk scores (the “Credit Bureau Risk 

Score”). The Credit Bureau Risk Score is a statistical ranking of likely future

credit performance developed by Fair, Isaac & Company (“Fair, Isaac”) and the  

three national credit repositories Equifax, Trans Union and First American     

(formerly Experian which was formerly TRW). The Credit Bureau Risk Scores      

available from the three national credit repositories are calculated by the    

assignment of weightings to the most predictive data collected by the credit   

repositories and range from 300 to 850. Although the Credit Bureau Risk Scores 

are based solely on the information at the particular credit repository, such  

Credit Bureau Risk Scores have been calibrated to indicate the same level of   

credit risk regardless of which credit repository is used. The Credit Bureau   

Risk Score is used as an aid to, not a substitute for, the underwriter’s       

judgment.                                                                      

 

     The Direct Access Program was developed to simplify the origination process

for third party originators. In contrast to assignment of credit grades        

according to traditional non-agency credit assessment methods, i.e., mortgage  

and other credit delinquencies, Direct Access relies upon a borrower’s Credit  

Bureau Risk Score initially to determine a borrower’s likely future credit     

performance. Third party originators are able to access Credit Bureau Risk     

Scores at the initial phases of the loan application process and use the score 

to determine a borrower’s interest rate. First Franklin Financial’s acquisition

guidelines require that the third party originator approve the Mortgage Loan   

using the Direct Access Program risk-based pricing matrix.                     

 

   In accordance with First Franklin Financial’s guidelines for acquisition,

under the Direct Access Program, the third party originators must require that 

the Credit Bureau Risk Score of the primary wage earner (the borrower that     

contributes the greatest percentage of overall income) be used to determine    

program eligibility. Credit Bureau Risk Scores must be obtained from at least  

two national credit repositories, with the lower of the two scores being       

utilized in program eligibility determination. If Credit Bureau Risk Scores are

obtained from three credit repositories, the middle of the three scores can be 

utilized. In all cases, a borrower’s complete credit history must be detailed in

the credit report that                                                         

 

S-36

 

produces a given Credit Bureau Risk Score or the borrower is not eligible for  

the Direct Access Program. Generally, the minimum Credit Bureau Risk Score     

allowed under the Direct Access Program is 540.                                

 

 The Credit Bureau Risk Score, along with the loan-to-value ratio, is an

important tool in assessing the creditworthiness of a Direct Access borrower.  

However, these two factors are not the only considerations in underwriting a   

Direct Access loan. The third party originators are required to review each    

Direct Access loan to determine whether First Franklin Financial’s guidelines  

for income, assets, employment and collateral are met.                         

 

   In accordance with First Franklin Financial’s guidelines for acquisition,

all of the mortgage loans of a type similar to the Mortgage Loans were required

to be underwritten by the third party originator’s underwriters having the     

appropriate signature authority. Each underwriter is granted a level of        

authority commensurate with their proven judgment, maturity and credit skills. 

On a case by case basis, a third party originator may determine that, based upon

compensating factors, a prospective mortgagor not strictly qualifying under the

underwriting risk category guidelines described below warrants an underwriting 

exception. Compensating factors may include, but are not limited to, low       

loan-to-value ratio, low Debt Ratio, substantial liquid assets, good credit    

history, stable employment and time in residence at the applicant’s current    

address. It is expected that a substantial portion of the Mortgage Loans may   

represent such underwriting exceptions.                                        

 

   In accordance with First Franklin Financial’s guidelines for acquisition,

the third party originators’ underwriters are required to verify the income of 

each applicant under various documentation programs as follows: under the Full 

Documentation Program, applicants are generally required to submit verification

of stable income for the periods of six months to two years preceding the      

application dependent on credit score range; under the LIV Program, the borrower

is qualified based on six months of bank statement and applicants are generally

required to submit verification of adequate cash flow to meet credit obligations

for the six month period preceding the application; the Stated Plus Program    

allows income to be stated, but requires borrowers to provide verification of  

liquid assets equaling three months of income stated on the mortgage           

application; under the Stated Income Program, applicants are qualified based on

monthly income as stated on the mortgage application and the underwriter will  

determine that the stated income is reasonable and realistic when compared to  

borrower’s employment type, assets and credit history. For Direct Access first 

lien mortgage loans from self-employed or 1099 borrowers with a credit score   

greater than or equal to 540 and not originated in conjunction with a second   

lien mortgage, bank statements (for 12 months) are acceptable as full          

documentation. For Direct Access first lien mortgage loans from self-employed or

1099 borrowers with credit scores greater than or equal to 620, regardless of  

being originated with a corresponding second lien mortgage, twelve months of   

bank statements are acceptable as full documentation. In all cases, the income 

stated must be reasonable and customary for the applicant’s line of work.      

Although the income is not verified under the LIV and Stated Income Programs, a

preclosing audit should be conducted to confirm that the business exists.      

Verification may be made through phone contact to the place of business,       

obtaining a valid business license, CPA/Enrolled Agent letter or through Dun and

Bradstreet Information Services.                                               

 

     The applicant generally must have a sufficiently established credit history

to qualify for the appropriate Credit Bureau Risk Score range under the Direct 

Access Program. This credit history is substantiated by a minimum of two       

repository merged report prepared by an independent credit report agency. The  

report typically summarizes the applicant’s entire credit history, and generally

includes a seven year public record search for each address where the applicant

has lived during the two years prior to the issuance of the credit report and  

contains information relating to such matters as credit history with local and 

national merchants and lenders, installment debt payments and any record of    

defaults, bankruptcy, repossession, suits or judgments. In some instances,     

borrowers with a minimal credit history are eligible for financing under the   

Direct Access Program.                                                         

 

S-37

 

 The third party originators originate loans secured by one-to-four-unit

residential properties made to eligible borrowers with a vested fee simple (or 

in some cases a leasehold) interest in the property. In accordance with First  

Franklin Financial’s guidelines for acquisition, the third party originators are

required to comply with applicable federal and state laws and regulations and  

generally require an appraisal of the mortgaged property which conforms to     

Freddie Mac and/or Fannie Mae standards; and if appropriate, a review appraisal.

Generally, appraisals are provided by appraisers approved by First Franklin    

Financial. Review appraisals may only be provided by appraisers approved by    

First Franklin Financial. In some cases, the third party originator may rely on

a statistical appraisal methodology provided by a third party.                 

 

   Qualified independent appraisers must meet minimum standards of licensing

and provide errors and omissions insurance in states where it is required to   

become approved to do business with the third party originators. Each Uniform  

Residential Appraisal Report includes a market data analysis based on recent   

sales of comparable homes in the area and, where deemed appropriate, replacement

cost analysis based on the current cost of constructing a similar home. The    

review appraisal may be an enhanced desk, field review or an automated valuation

report that confirms or supports the original appraiser’s value of the mortgaged

premises. The review appraisal may be waived by a duly delegated Underwriter.  

 

   In accordance with First Franklin Financial’s guidelines for acquisition,

the third party originators must require title insurance on all mortgage loans 

secured by liens on real property. The third party originators must also require

that fire and extended coverage casualty insurance be maintained on the secured

property in an amount at least equal to the principal balance of the related   

residential loan or the replacement cost of the property, whichever is less.   

 

 The third party originators are required to conduct a number of quality

control procedures, including a post funding compliance audit as well as a full

re-underwriting of a random selection of loans to assure asset quality. Under  

the asset quality audit, all loans are required to be reviewed to verify credit

grading, documentation compliance and data accuracy. Under the asset quality   

procedure, a random selection of each month’s originations must be reviewed by  

each third party originator.                                                   

 

     The loan review is required to confirm the existence and accuracy of credit

documentation, appraisal analysis and underwriting decision. A report detailing

audit findings and level of error is sent monthly to each branch for response. 

The audit findings and branch responses must then be reviewed by the third party

originator’s senior management. Adverse findings are to be tracked monthly and 

over a rolling six month period. This review procedure allows the third party  

originator to assess programs for potential guideline changes, program         

enhancements, appraisal policies, areas of risk to be reduced or eliminated and

the need for additional staff training.                                        

 

     Under the mortgage loan programs, various risk categories are used to grade

the likelihood that the applicant will satisfy the repayment conditions of the 

loan. These risk categories establish the maximum permitted loan-to-value ratio

and loan amount, given the occupancy status of the mortgaged property and the  

applicant’s credit history and Debt Ratio. In general, higher credit risk      

mortgage loans are graded in categories which permit higher Debt Ratios and more

(or more recent) major derogatory credit items such as outstanding judgments or

prior bankruptcies; however these loan programs establish lower maximum        

loan-to-value ratios and lower maximum loan amounts for loans graded in such   

categories.                                                                    

 

  “Equity Refinance” transactions are defined as those instances where the

borrower receives the lesser of 2% of the new loan amount or $2,000 cash in    

hand. Funds used for debt consolidation are not included in this amount.       

 

S-38

 

  “RapidRefi” is designed to streamline the loan process for borrowers who

have demonstrated that their current mortgage has been paid as agreed for at   

least the prior 18 months. It requires the property to be an owner-occupied    

primary residence.                                                             

 

     The third party originators’ origination guidelines under the Direct Access

Program generally have the following criteria for borrower eligibility for the 

specified Credit Bureau Risk Score range.                                      

 

 The Debt Ratio generally may not exceed 50.49% for all credit scores on

full documentation and LIV loans. Loans meeting the residual income requirements

may have a maximum Debt Ratio of 55.49%. The Debt Ratio for Stated Income loans

may not exceed 50.49%.                                                         

 

   Generally, First Franklin Financial’s acquisition guidelines require that

all liens affecting title must be paid at closing. Collections, charge-offs,   

judgments and liens not affecting title may remain open.                       

 

PENDING PROCEEDINGS                                                             

 

   There are no material legal or governmental proceedings currently pending

or known to be contemplated against First Franklin Financial. To the best of   

First Franklin Financial’s knowledge, there are no material legal or           

governmental proceedings currently pending or known to be contemplated against 

First Franklin Financial, which if ultimately decided adversely to First       

Franklin Financial, would have a material adverse effect on the validity of the

Mortgage Loans.                                                                

 

 TRANSACTION PARTIES

 

 

   Prior to acquiring any residential mortgage loans, MLML conducts a review

of the related mortgage loan seller that is based upon the credit quality of the

selling institution. MLML’s review process may include reviewing select        

financial information for credit and risk assessment and conducting an         

underwriting guideline review, senior level management discussion and/or       

background checks. The scope of the mortgage loan due diligence varies based on

the credit quality of the mortgage loans.                                      

 

 The underwriting guideline review entails a review of the mortgage loan

origination processes and systems. In addition, such review may involve a      

consideration of corporate policy and procedures relating to state and federal 

predatory lending, origination practices by jurisdiction, historical loan level

loss experience, quality control practices, significant litigation and/or      

material investors.                                                            

 

    MLML contracts with third party servicers for servicing the mortgage loans

that it acquires. Third party servicers are also assessed based upon the       

servicing rating and the credit quality of the servicing institution. The      

servicers may be reviewed for their systems and reporting capabilities, review 

of collection procedures and confirmation of servicers’ ability to provide     

detailed reporting on the performance of the securitization pool. In addition, 

MLML may conduct background checks, meet with senior management to

determine whether the servicers comply with industry      

standards or otherwise monitor the servicer on an ongoing basis.               

 

     MLML has been the sponsor of securitizations backed by residential mortgage

loans, including subprime mortgage loans, since 2003. The following table sets 

forth the approximate aggregate initial principal amount of securities issued in

subprime mortgage loan securitizations sponsored by MLML since 2003.           

 

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