Servicing

Friedman, Billings, Ramsey & Co., Arlington, Va., believes that the number of cities facing home price bubbles increased 55% in the first quarter compared to research it conducted last year.In a just released, updated report on housing bubbles, FBR says 42 cities (urban areas or "UAs") are at risk compared to 27 identified in an earlier report. FBR economist Michael D. Youngblood says the UAs are overpriced based on per capita personal income compared to the median home price. Nine of the top 10 UAs most likely to burst are in California and 27 of California's 28 UAs have home prices that are bubbles waiting to burst. However, Mr. Youngblood cautions that he does not expect the bubbles to burst in any UA until economic activity contracts for a minimum of four quarters. Mortgage lenders have been criticized for fueling high prices by offering interest-only and payment option loans that allow consumers to make low monthly payments at the expense of building equity.

If home price appreciation slows -- as many economists believe it will -- subprime credit borrowers could be hurt the most.According to John Silvia, chief economist for Wachovia Corp., $550 billion worth of B&C credit debt (about half the market) is expected to "reset" by the end of next year. "The challenge in housing will come in 2006," he predicted during an economic panel on housing prices Tuesday. "The lower income borrower[s] -- will they be able to reset?" he questioned. (Reset is in reference to adjustable-rate loans that are set to reprice over the next 18 months.) Economists speaking on the panel cautioned that consumers who, over the past few years, barely qualified for mortgage credit will be hurt the most because they have been using their homes like piggy banks. The concern is that if appreciation slows, the marginal borrower will have no equity to tap. Dean Baker, an economist for the Center for Economic Policy and Research, predicted that the housing bubble would only end once conventional rates reach 7%. He said once that happens, home prices on average could fall by 20%.

A total of 90,590 foreclosed residential properties were available for sale in the U.S. during July, according to online listing service Foreclosure.com.The total represents a 4.6% increase from June, according to the online service. Foreclosure.com added 12,009 properties to its database in July. These additional properties were not included in the June comparison percentage, the company said.

Next year, Ginnie Mae plans to expand the electronic reporting of data from servicers and issuers of its securities."In 2006, Ginnie Mae will be significantly changing the way we collect data from you," said Mike Garcia, director of single-family housing at Ginnie Mae. Speaking at the Western States Loan Servicing Conference sponsored by the California Mortgage Bankers Association, Mr. Garcia said the electronic reporting initiative would require issuers to report data earlier than they do today and would make it easier to correct inconsistencies in loan data.

Irwin Financial Corp., Columbus, Ind., has reported the completion of a private placement of $51.75 million of 30-year trust preferred securities issued by IFC Capital Trust VIII.The securities bear interest at a fixed rate of 5.963% for the first five years and then convert to a variable interest rate of the three-month London interbank offered rate plus 153 basis points, Irwin said. The company said it plans to use the proceeds to redeem the entire $51.75 million par value of 10.50% securities due Sept. 30, 2030, that underlie the trust preferred securities issued by IFC Capital Trust II in 2000. Irwin can be found online at http://www.irwinfinancial.com.

The PMI Group Inc. has amended terms relating to the proposed acquisition of Select Portfolio Servicing and SPS's corporate parent, SPS Holding Co., by Credit Suisse First Boston and its affiliate, DLJ Mortgage Inc. The amendment extends CSFB's option to buy SPS until Aug. 12 from the previous expiration date of Aug 5. "The proposed transaction is subject to negotiation and the execution of mutually acceptable definitive documentation. There can be no assurance that the proposed transaction will be consummated or that CSFB will exercise its option to purchase SPS," PMI said.

Fannie Mae has announced that it will reduce the minimum weekly three-month and six-month auction amounts of Benchmark Bills to $1 billion each as of Aug. 10.The minimum size for the monthly one-year auction will remain at $1 billion. Fannie Mae said it is committed to a schedule of weekly issues in three- and six-month maturities and monthly issues in one-year maturities for Benchmark Bills, which are unsecured general obligations issued in book-entry form through the Federal Reserve Banks. Fannie Mae can be found online at http://www.fanniemae.com.

Prepayment rates on 30-year fixed-rate mortgages in agency mortgage-backed securities increased 3% in July, according to Bear, Stearns & Co.Overall speeds on 30-year Fannie Mae collateral stood at a constant prepayment rate of 23 CPR, up only 1 CPR from those recorded in June, while 30-year Freddie Mac collateral prepaid at 21 CPR, said Bear Stearns analyst Steven Bergantino. Meanwhile, Ginnie Mae speeds actually fell by 1 CPR in July, to 27 CPR. "The primary cause for the weak July numbers was a two-day drop in the number of business days," Mr. Bergantino said. "The 20-day business calendar in July, compared with 22 days in June and 23 in August, has probably pushed a number of mortgage closings that could have taken place in July into the adjacent months." Despite the "generally muted response of July prepayments to refinancing opportunities," discount speeds remained at historically high levels, he said. For example, fully seasoned 5.0% coupons registered an 18 CPR in July, "more than 75% above historical current coupon prepayment rates even after adjusting for seasonal effects on turnover," Mr. Bergantino reported. Bear Stearns can be found online at http://www.bearstearns.com.

Mortgage lenders and brokers added 10,500 full-time employees to their payrolls in June, according to a U.S. Bureau of Labor Statistics report released Aug. 5.The surge in hiring came as single-family originations spiked in the second quarter and the rate on the 30-year fixed-rate mortgage dipped below 5.5% in late June. The hiring activity also may reflect an improving commercial real estate sector. The July employment report shows that jobs in the mortgage banking/broker sector rose from 505,200 in May to 510,700 in June. (There is a one-month lag in BLS reporting of mortgage-sector employment data. The July data will be released Sept. 2.) Friday's employment report shows that the U.S. economy generated 207,000 jobs in July and the unemployment rate remained unchanged at 5.0%. The stronger-than-expected jobs report also included an upward revision of new hires in May from 146,000 to 166,000.

Fitch Ratings has revised its rating outlook on the Puerto Rican financial institution Popular Inc. from stable to negative in the wake of Popular's announcement that it will acquire E-Loan Inc.The rating outlook applies to the long-term A ratings of Popular and its subsidiaries. Fitch also affirmed all its ratings on the companies. Noting that Popular "intends to capitalize on E-Loan's well-developed Internet platform for mortgage lending to complement its nonprime mortgage product line," the rating agency said the negative rating outlook reflects its concern that Popular's core capital will decline as a result of the acquisition "to the low end of its rating peer group, a concern given the heightened risk profile of the organization." Fitch can be found online at http://www.fitchratings.com.