Servicing

The delinquency rate for Federal Housing Administration-insured adjustable-rate mortgages hit an all-time high in the second quarter, according to statistics released Wednesday by the Mortgage Bankers Association.The seasonally adjusted delinquency rate for FHA ARMs was 9.35% at June 30 -- a 204-basis-point increase over the past 12 months and a 63-bp rise from the first quarter. The Department of Housing and Urban Development is already working to reduce delinquencies by placing restrictions on "teaser" rates and buydowns that lenders offer borrowers on FHA-insured ARMs. "But it is going to take awhile before those controls start to take hold," said MBA executive vice president Paul Reid. HUD is expected to endorse up to 237,107 ARMs in fiscal 1998. Government-backed ARMs are popular because they generate higher fees compared to a conventional 'A' paper loan. In addition, FHA ARMs are used to qualify low-income borrowers who otherwise would not be able to obtain a mortgage. However, the vast majority of FHA mortgages are fixed-rate. Data show that the total number of FHA FRMs past due has risen 35 bp year-over-year to 6.80%. The MBA said the overall residential delinquency rate, which includes both conventional and government product, was 4.33% in the second quarter -- an increase of 8 bp over the past year.

Starwood Financial Trust has acquired the commercial mortgage origination and servicing business of Phoenix Home Life Mutual Insurance Co. for an undisclosed amount.The acquired businesses and assets include: Phoenix's commercial mortgage origination, underwriting, and servicing group; the servicing/asset management rights to three commercial mortgage loan portfolios with an outstanding principal balance of $1.3 billion; and the refinancing rights to Phoenix's $950 million mortgage loan portfolio. Jay Sugarman, president and CEO of Starwood Financial, said the acquisition allows the company to expand its proprietary origination and servicing platform and generate a pipeline of financing opportunities. "We hope to replicate this transaction with other owners of real estate-related financial assets and businesses as we seek to further consolidate the sector," Mr. Sugarman said. Philip R. McLoughlin, Phoenix's executive vice president-investments, said the transaction is "also a strategic move for Phoenix, which is shifting the focus of its mortgage investment program to securitized assets." As part of the transaction, Starwood Financial will eventually centralize its loan servicing and related administrative functions in a new office in Hartford, Conn., under the supervision of Barbara Rubin, the former head of Phoenix's mortgage business.

The Department of Housing and Urban Development has expanded its "officer next door" program and will subsidize the purchase of an additional 1,000 FHA foreclosed homes to local police officers.HUD Secretary Andrew Cuomo, accompanied by Vice President Al Gore, announced the expansion of the program at a White House press conference Friday morning. Under the program, foreclosed Federal Housing Administration homes are sold at half price to police officers in an effort to promote safety and to revitalize neighborhoods. "When police officers move into an area, criminals want to move out and families want to move in," Secretary Cuomo said. Mortgage Bankers Association president Marc Smith announced that 50 mortgage lenders will give police officers a half-point discount on closing costs or a one-eighth of a point discount on interest rates as an additional incentive. HUD started the "officer next door" program one year ago with the goal of getting 2,000 police officers to move into problem neighborhoods that have been earmarked for revitalization. "It is good for neighborhoods and for police officers and their families," said Irene Hughes, a patrol officer with the Washington D.C. Metropolitan Police Department who became a first-time homebuyer under the program.

Mortgage employment posted still another record in August as the industry added 4,800 full-time jobs to the previous month's total.According to figures compiled by the Bureau of Labor Statistics, the mortgage banking/brokerage sectors employed 297,000 full-timers in August compared with 292,200 in July. A year ago the industry employed 253,900. The BLS website address is http://stats.bls.gov.

A $235 million Multifamily Gold PC with a defeasance option that increases the borrower's flexibility has been issued by Freddie Mac.The Gold PC is backed by 25 mortgages -- secured by 38 multifamily properties -- originated by Reilly Mortgage Group Inc. for a major real estate developer in the Southeast. The 30-year mortgages were structured with various special features, including the defeasance option. Defeasance is a process whereby mortgages are replaced by non-callable securities issued by the U.S. Treasury or government-sponsored enterprises. Other features of the $235 million Gold PC include the rights to substitute and to sell mortgaged properties. "Without these features, the sale or refinance of a mortgaged property would require the borrower to prepay the mortgage and the associated yield maintenance premium, which could be substantial," said H.L. Van Varick, vice president of Freddie Mac's Multifamily Negotiated Transactions Department. "Also, the investor in the Multifamily Gold PC potentially benefits from these features to the extent that they reduce the prepayment speed of the mortgages by providing an alternative to prepayment." Freddie Mac's rival GSE, Fannie Mae, recently announced a "one-stop" defeasance option for fixed-rate multifamily mortgages with a term of 10 years or less.

The Huntington Mortgage Co., Columbus, Ohio, has promoted Thomas J. Finnegan III to president and chief executive, replacing R. Frederick Taylor, who has left the company.Mr. Finnegan joined the company in 1996 as senior vice president of residential loan production. Prior to that he was executive vice president of Integra Mortgage Co., Pittsburgh, where he was responsible for all retail, wholesale, and correspondent production functions. Huntington Mortgage, a unit of Huntington Bancshares Inc., has a servicing portfolio of over $8 billion and has closed more than $1.65 million in mortgages so far this year. In the second quarter, Huntington Mortgage ranked 49th in the nation in retail mortgage originations with $513 million, according to the Database Products Group, a MortgageWire affiliate.

Prepayment speeds for 30-year Freddie Mac mortgage-backed securities rose for all coupons below 9.0% in the August reporting period, but the percentage gains were highest among post-1993 vintages of the 7.0% coupon, according to the Bear Stearns Prepayment Commentary.Conditional prepayment rates for those coupons were up as much as 30% in some cases. "As important as the percentage gains, however, is the fact that post-1993 7.0s are already paying at or above the spreads they reached last March, at the initial stages of this year's extended Treasury rally," analysts Dale Westhoff and Bruce Kramer said. Furthermore, the analysts noted, the reporting period ended in mid-August and therefore the prepayment numbers do not reflect August's drop of 16 basis points in the monthly average 30-year effective mortgage rate. The effective mortgage rate underlying the reported speeds was about 7.20%, a level they said falls short of making all 7.0s refinanceable. "If the effective mortgage rate stays at 7.00% for two to three weeks, all borrowers backing the 7.0% coupon will be exposed to their best-ever opportunity, pushing speeds higher across the board," Messrs. Westhoff and Kramer said.

Thrift originations of one- to four-family loans hit a record $67.7 billion in the second quarter, according to the Office of Thrift Supervision, as thrifts took advantage of the summer refinancing activity and strong sales of new and existing homes."Thrift institutions fully participated in this vibrant housing market," OTS Director Ellen Seidman said Wednesday morning. The previous record of $57 billion in originations was set in the fourth quarter of the 1993 refinancing boom. In 1993, thrifts originated a total of $189 billion in single-family loans for the entire year. In the first half of this year, 1,181 thrifts have originated $127 billion in product. The OTS also noted that thrifts have essentially turned into mortgage banks because of the high demand for fixed-rate loans. And thrifts sold $66.3 billion of their production into the secondary market during the second quarter. Thrift servicing portfolios increased in the second quarter by $19.7 billion to $517 billion as a result of this mortgage banking activity.

WMF Capital Corp., Vienna, Va., has sold $691 million in commercial mortgage loans to Merrill Lynch Mortgage Capital Inc. and closed related hedges.The sale, which was on a servicing-retained basis, resulted in a pretax loss of approximately $30 million, according to WMF Capital's parent, WMF Group Ltd. WMF Group said it had intended to sell the loans in a September securitization led by Merrill Lynch, "but opted to sell the loans at this time due to continuing adverse securitization market conditions." The sale was made in conjunction with the WMF Group's decision to "adjust its business strategy to limit interest rate and spread risks that have developed as a result of global market instability," the company said. WMF Group also announced that it has received a $20 million subordinated loan commitment from Commercial Mortgage Investment Trust Inc., in which it has a minority interest. WMF Group's website address is http://www.wmfg.com.

The long-term counterparty credit rating and the senior unsecured debt rating of ContiFinancial Corp. have been lowered to BB from BB-plus by Standard & Poor's and removed from CreditWatch.S&P said the action followed Conti's announcement of a writedown in its excess-spread receivable. "The downgrade reflects an increasingly difficult operating environment in which a flood of mortgage refinancings have negatively impacted the value of ContiFinancial's and most other subprime mortgage securitizers' excess-spread assets," S&P said. The rating agency said ContiFinancial "remains a benchmark for the industry. Management's skill in maximizing cash out of its securitizations while minimizing associated cash expenses have contributed to a near neutral operating cashflow -- an achievement in an industry characterized by an inability to cover cash expenses out of operations." Noting the "substantial risk" involved in the industry's reliance on securitization and gain-on-sale accounting, S&P said "no management is capable of effectively controlling these risks without compromising the basic economics of the business model." The risk is now large enough that subprime mortgage lenders that follow the model "represent, on a stand-alone basis, a credit risk that is no longer consistent" with a BB-plus rating, S&P said. S&P's website address is http://www.ratings.standardpoor.com.