Origination

Fitch Ratings has downgraded the individual rating of Sterling Bancshares Inc., Houston, from B/C down to C over concerns regarding its commercial real estate exposure and its potential impact on future financial performance. The bank's loan portfolio includes a high percentage of CRE loans, 62%, at Dec. 31, 2009, which Fitch said is "notably higher than peer averages." Sterling's loan exposure outside Texas (11% of total loans) also increases the company's risk profile, and could lead to higher credit costs. Fitch said it considers CRE an area of future concern for U.S. banks. The company's rating outlook has been revised to "negative" from "stable." The rating agency added, "In considering future rating actions, Fitch will focus on Sterling's ability to manage its CRE exposures, enhance its management reporting structure, and address issues cited in the informal agreement." Sterling disclosed in its 2009 10-K filing that it is operating under an informal agreement and will be submitting an updated capital plan, among other things, to the regulators. Fitch is also concerned that J. Downey Bridgewater, the chairman and chief executive, has also taken on the duties of chief risk officer at Sterling.

The Metropolitan Transportation Commission, which covers the nine-county San Francisco Bay Area, is making a $10 million commitment to affordable housing through its Transportation for Livable Communities program. The money will be used to establish a revolving loan fund to finance land acquisition for affordable housing development near rail and bus lines in the Bay Area. MTC added it hopes to grow the fund to at least $40 million by attracting matching commitments from private foundations and other investors. The Bay Area Affordable Transit-Oriented Development Fund is modeled on similar funds in Denver, Los Angeles, Minneapolis, New Orleans and New York. Based on information provided by Bay Area cities and developers, MTC staff estimates a $40 million TOD fund could be used to help finance the acquisition of at least 20 to 30 acres around the region, which, depending on the density of build-out, would support development of anywhere from 1,100 to 3,800 units of affordable housing. "We think the slow housing market makes this an excellent time to make this investment," commented MTC executive director Steve Heminger. "At a time when lending, especially for affordable housing, is almost nonexistent, this fund can not only triple the impact of each TLC dollar but also play a critical role in preserving sites for affordable transit-oriented development while the credit markets and bond institutions recover to support affordable housing construction again."

Brookdale Senior Living Inc., Nashville, entered into a new $100 million revolving credit facility, with an option to increase the commitment to $120 million. The new facility replaces Brookdale's existing $75 million revolving credit agreement that was scheduled to expire in August 2010. The revolving line of credit may be used to finance acquisitions and fund working capital, capital expenditures and other general corporate purposes. GE Capital, Healthcare Financial Services, acts as administrative agent as well as a lender under the new line. The new facility matures on June 30, 2013 and is secured by a first priority security interest in certain of the company's properties. The commitment will be limited to $80 million pending finalization of documentation for the remaining $20 million, which is expected within the next week. The availability under the line may vary from time to time as it is based on borrowing base calculations related to the value and performance of collateral securing the facility. "The new facility provides us with increased flexibility and capacity which will be instrumental in Brookdale's future growth," said chief executive Bill Sheriff.

Sunstone Hotel Investors Inc., San Clemente, Calif., has terminated its $85 million senior secured credit facility. The company said the decision was made in view of its strong liquidity position and the restrictive terms of that facility. It had been secured by mortgages on five of the Sunstone's hotels, had no outstanding borrowings and backed $2.9 million in outstanding irrevocable letters of credit. The termination of the credit facility will eliminate approximately $600,000 in fees and associated costs, and removes restrictive covenants and encumbrances. The company's business plan does not contemplate the use of revolving credit during 2010. Sunstone added it expects to enter into a new, appropriately sized and structured credit facility in the future when its business plan contemplates the use of revolving credit.

The target date for the spin-off of First American Corp.'s financial services businesses from its information solutions businesses has been pushed back two months because of outstanding approvals. The new target, the company said in its yearend results release, is June 1, 2010. For the fourth quarter and full year 2009, First American had net earnings of $38 million and $200 million compared with net losses of $67 million and $26 million, respectively, one year prior. For the fourth quarter of 2009, First American had net total charges of $25 million, including nearly $9 million of restructuring charges related to the purchase of First Advantage stock, employee separation costs of $7 million, investment losses of nearly $9 million and $3 million of spin-off related costs, offset by a $3 million claim recovery. Revenue in the title insurance segment in the fourth quarter was $948 million, up 15% over the previous year, with pretax income of $45 million, compared with a loss of $97 million one year prior.

Thrift institutions funded just $34.4 billion of single-family loans in the fourth quarter, about one-third of what they originated in the first quarter, according to new figures compiled by the Office of Thrift Supervision. The weak performance stems, in part, from the declining number of S&Ls. In the fourth quarter, the number of institutions fell to 765, a decline of 45 firms. The chief reason for the drop: company failures. The remaining thrifts have $942 billion of assets, including $273 billion in one- to four-family loans and $141 billion of mortgage-backed securities. Nearly 5% of the single-family loans are seriously delinquent, compared to 3.7% a year ago, but down from 5.7% in the third quarter. For all of 2009, S&Ls originated $224 billion of home mortgages — a 35% decline from the year before. (Of course, in 2008 Countrywide Financial Corp., then the nation's largest home funder, was still in business. CFC had a thrift charter.) Thrifts posted a $55 million profit for the fourth quarter and a $29 million profit for the whole year. In 2008, the thrift industry suffered through $15.8 billion of losses. "Although we are encouraged that the industry performance has moved in a positive direction, unemployment is still running high and home prices are still down in many parts of the country," said OTS acting director John Bowman.

Commercial banks originated $146 billion of residential loans through their branches and other retail outlets in the fourth quarter, an 11% sequential decline, according to new figures compiled by the Federal Deposit Insurance Corp. However, compared to same period a year earlier, retail production rose 120%. The latest FDIC numbers show that 869 commercial banks and savings institutions are active in residential finance, up from 667 firms in the fourth quarter of 2008. (Currently, the profit margins on home lending remain strong thanks to a wide yield curve.) Banks are required to report origination data if they have assets of $1 billion or greater or originated $10 million or more of one-to-four family loans in the past two quarters. The FDIC figures also show banks had a strong year in terms of correspondent production: institutions purchased $248 billion of first-lien residential loans in the fourth quarter, compared to $148 billion in the same period a year earlier.

A 13-basis-point increase has pushed the average rate for the 30-year fixed-rate mortgage back above 5%, the latest Freddie Mac Primary Mortgage Market Survey found. For the week ended Feb. 25, the average for the 30-year FRM was 5.05%, compared with 4.93% the week prior. The results were comparable with the most recent Mortgage Bankers Association Weekly Application Survey, where the average rate for the 30-year FRM increased 9 bps to 5.03%. Freddie Mac chief economist Frank Nothaft commented mortgages followed long-term bond yields higher as the January producer price index increased above the market consensus. However, the consumer price index, he said, "remained subdued," and the Conference Board said consumer confidence is at its lowest point since April 2009. He also noted mixed news regarding the housing market, as the S&P/Case-Shiller index rose for the third consecutive quarter but the pace of new home sales slowed to their smallest level since 1963. The average rate for 15-year FRMs increased 7 bps from the previous week to 4.40%, the 5/1 adjustable-rate mortgage increased 4 bps to 4.16% and the one-year ARM decreased 7 bps to 4.23%. Average fees and points on the FRM products were 0.7% and on the ARM product they were 0.6%.

House prices fell 1.6% in December and wiped out price gains in November and October, according to the Federal Housing Finance Agency. On a seasonally adjusted basis, the FHFA house price index fell 0.1% in the fourth quarter and it is down 1.2% for 2009 after dropping 8.2% in 2008. The GSE regulator originally reported that house prices rose 0.7% in November and 0.4% in October. But the increases were revised downward to 0.4% in November and 0.2% in October. "The decline in prices in the fourth quarter was much more significant when measured without seasonal adjustment. The unadjusted national decline was 1.5%, a much larger drop than the 0.1% decline measured on a seasonally adjusted basis," FHFA said.

Freddie Mac could lose up to $700 million because of the failure of Taylor Bean & Whitaker — $200 million more than previously disclosed. The Florida-based nonbank sold mortgages to Freddie and as recently as 2008 accounted for 5% of its total purchase business. In a new filing with the Securities and Exchange Commission, the GSE says the bankrupt TBW owes it money for loan buybacks and on servicing-related charges. In November, Freddie said it might lose $500 million on TBW but has since updated that estimate. The government-controlled mortgage giant said its seller/servicers are not honoring buyback requests in a timely manner with $4 billion of loan repurchase requests unfulfilled at yearend. TBW failed in August of last year.