Servicing

There is better than a one-in-six chance of a general decline in home prices over the next two years, according to the PMI Risk Index.The average value of the index for the 50 largest metropolitan statistical areas stood at 186 in November, up from 171 in August, said PMI Mortgage Insurance Co., the Walnut Creek, Calif.-based mortgage insurer that created the index. The index value means that these MSAs have on average an 18.6% probability of experiencing a home price decline in the next two years. San Jose, Calif., topped the index with a 509 (and therefore a 50.9% chance of a decline), followed by Boston, with 483, and Oakland, Calif., with 473. San Francisco and San Diego ranked fifth and sixth, with 419 and 405, respectively, and New York ranked seventh, at 383. PMI can be found online at http://www.pmigroup.com.

Thornburg Mortgage Inc., Santa Fe, N.M., has completed a $50 million add-on offering of senior notes.The issuance is an add-on to $255 million of 8% senior notes issued in May and November of last year. The notes have identical terms to those of the previously issued notes, but will be issued at 107.2 of their principal amount to yield 6.88%, Thornburg said. Net proceeds from the transaction will be used mainly to fund loans originated by the company and to buy additional adjustable-rate mortgage securities, the company said. Thornburg can be found online at http://www.thornburg.com.

Two classes of notes issued by Sunrise CDO I have been downgraded by Fitch Ratings.Class B was downgraded from BBB to BBB-minus, and class C was downgraded from B-minus to CCC-plus. The transaction is a collateralized debt obligation supported by asset-backed securities, residential and commercial mortgage-backed securities, CDOs, and corporate debt securities. Fitch said the downgrades stemmed from the fact that the portfolio has performed poorly as a result of impaired and defaulted assets and a negative change to the weighted average rating factor. The rating agency can be found on the Web at http://www.fitchratings.com.

Mortgage-related security issuance fell in the first three quarters of this year relative to issuance in the same period of last year, according to The Bond Market Association.The bond group said mortgage-related securities issuance from Jan. 1 to Sept. 30 "decreased 46.4% to $1.35 trillion, compared to $2.52 trillion issued in the same period last year." Home equity issuance, meanwhile, has seen a "sharp rise," the organization said. The association can be found on the Web at http://www.bondmarkets.com.

The net cost of originating a mortgage loan totaled $739 in 2003, 26% less than in 2002, according to the Mortgage Bankers Association.The MBA's 2004 Cost Study surveyed 190 mortgage companies to determine the income and costs associated with originating and servicing one- to four-unit residential loans. It found that mortgage banks with the highest average percentage of purchased production incurred the lowest net cost to originate, $480 per loan. The study also found that net income from warehousing declined to $516 per loan in 2003 from $522 in 2002. In addition, the study found that net secondary marketing income, including capitalized servicing, once again provided the largest contribution to the bottom line in 2003, at $1,528 per loan. Meanwhile, amortization of mortgage servicing rights accounted for $166 per loan in losses, according to the MBA study. The MBA can be found online at http://www.mortgagebankers.org.

Two classes of Asset Backed Securities Corp. home equity securitizations have been downgraded by Fitch Ratings.Class B-1F of ABSC series 1999-LB1 group 1 was downgraded from BBB to BB-plus, and class B-1A of series 1999-LB1 group 2 was downgraded from BBB to BB. In addition, Fitch upgraded six classes in three ABSC deals and affirmed the ratings on 80 classes in 15 transactions. The rating agency attributed the downgrades to "increasing concern due to high levels of nonperforming assets, as well as diminishing credit enhancement." Fitch can be found online at http://www.fitchratings.com.

NovaStar Financial Inc., a real estate investment trust based in Kansas City, Mo., has priced a public offering of 1.5 million shares of newly issued common stock at $42.50 per share.The underwriters have been granted an option to buy up to 225,000 additional shares to cover any overallotments, NovaStar said. JMP Securities LLC is the lead manager of the offering, and Flagstone Securities LLC is the co-manager. NovaStar, a lender and investor in residential mortgages, can be found online at http://www.novastarmortgage.com.

Community Reinvestment Fund USA, a Minneapolis-based nonprofit organization, has announced the closing of the first note offering rated by Standard & Poor's Ratings Services to be backed by community development loans.CRF said the offering, the 17th in a series, is backed by $51.1 million of loans to small businesses in 19 states, including loans for small, affordable rental housing properties. Frank Altman, CRF's president and chief executive officer, said the offering "has enabled us to attract new investors that previously were unable or unwilling to invest in our prior, nonrated offerings." The rated notes were offered through Piper Jaffray & Co.

The Washtenaw Group Inc., Ann Arbor, Mich., has reported a loss of $2.26 million ($0.50 per share) for the third quarter, compared with record net income from continuing operations of $3.83 million ($0.86 per share) a year earlier.Washtenaw Group, the parent of Washtenaw Mortgage Co., was spun off from Pelican Financial Inc., also of Ann Arbor, on Dec. 31, 2003. For the first nine months of the year, Washtenaw has lost $5.25 million ($1.17 per share), compared with net income from continuing operations of $9.9 million ($2.22 per share) for the same period in 2003. The results for the third quarter of 2004 were lowered by a mortgage servicing rights impairment of $101,000. In the third quarter of 2003, the company had a valuation credit of $2.2 million. Losses on loan repurchases for the third quarter totaled $1.6 million. Meanwhile, mortgage origination volume was one-fifth of what it was one year ago, going from $1.0 billion in the third quarter 2003 to just $212.2 million for the most recent period.

Prepayment rates for 30-year Fannie Mae and Freddie Mac mortgage-backed securities rose "modestly" in October in the wake of a decline in mortgage rates of 17 basis points, according to Bear Stearns analyst Dale Westhoff."The results show the classic symptoms of burnout: new issues increased more than seasoned issues while lower cuspy coupons were more responsive than higher coupons," Mr. Westhoff said. He noted that the speeds of 2004 MBS rose by over 20%, while in earlier vintages "the response was much more muted." Freddie Mac speeds are still slower than Fannie Mae's nearly across the board for 30-year MBS, while Ginnie Mae speeds continue to exceed those of conventionals across the board, Mr. Westhoff said. "Without a catalyst to unleash a significant refinancing event, the higher coupons are clearly exhibiting more burnout than they have over the last two years," Mr. Westhoff said. "Nevertheless, we feel that if mortgage rates were to enter the 5.60% to 5.40% corridor, exposing the 5.5% coupon, the observed burnout in recent months would be greatly diminished." Bear Stearns can be found online at http://www.bearstearns.com.