Origination

Lenders originated just $7.8 billion in second liens in the third quarter, a 56% decline from the same period last year, according to new figures compiled by National Mortgage News and the Alternative Products Quarterly Data Report. The weak showing for second lien production is in contrast to all residential originations which increased by 31% in the third quarter to $443 billion. Many non-depository mortgage banking firms have stopped originating seconds entirely while bank lenders have severely tightened underwriting standards on both closed- and open-ended lines. Also, many seconds were once part of 80-10-10 and similar loan structures, a product that is now near-extinct. Wells Fargo & Co., San Francisco, ranked first among all second lien lenders in third quarter with $1.9 billion in fundings. Its second lien originations fell 24% year-over-year. Every lender among the top 10 ranked funders showed a decline with drop-offs ranging from 24% (Wells) to 80% (Chase).

A.M. Best Co., Oldwick, N.J., has given Stewart Title Group a financial strength rating of "B++(Good)" and an issuer credit rating of "bbb+," stating the Houston-based global title insurer's ratings reflect its adequate capitalization along with its moderate underwriting leverage. Parent company Stewart Information Services Corp. received an ICR of "bb+." In its statement, Best added that in spite of the 35% decline in statutory surplus at the company, this is still "relatively moderate compared to that of the title insurance industry as a whole." The rating agency said it expects the statutory surplus to increase at the end of this year as Stewart Title Guaranty Co., the lead underwriting unit, retires short-term debt through the use of longer term debt issued by the parent company in the form of convertible senior notes. Stewart's underwriting results in 2009 have been affected by reserve strengthening because of an increase in claims from prior policy years, along with large title claims, some resulting from agency defalcations. Best noted that Stewart is not only the third largest underwriter of title insurance with a 14% market share in the U.S., it does business in approximately 40 countries, enhancing its geographic diversification.

Specialized Portfolio Servicing LLC, Salt Lake City, Utah, has had its primary servicer ratings for alt-A, subprime and home equity lines of credit upgraded by Fitch Ratings, New York, from "RPS3+" to "RPS2-." The company's residential special servicer rating and residential primary specialty servicer rating for second lien products received the same upgrade. Fitch cited the company's seasoned management team, technology enhancements and improvements in customer service and default management, which have increased its ability to proactively target problem accounts. The special servicer rating reflects Specialized Portfolio Servicing's "ability to liquidate nonperforming assets utilizing its focused default management expertise." These ratings also reflect the company's ability to attract, hire and retain key employees. It also reflects the ratings of its parent company, Shinsei Bank Ltd., which are "BBB/F2" with a negative outlook. Specialized Portfolio Servicing has a portfolio with an unpaid principal balance of $9.35 billion, of which 2.3% is special servicing. Approximately 37% of the loans are first lien and 63% second lien. By product it includes 20% subprime loans, 28% closed end seconds, 8% HELOCs and 6% alt-A.

Fitch Ratings has placed $20.6 billion in bonds from 33 floating-rate U.S. CMBS on Rating Watch Negative. The rating agency also said it has assigned negative rating outlooks to 22 classes totaling $1.1 billion that currently have fairly high AAA and AA+ investment grade ratings. "The Rating Watch Negative placements are the result of the significant stress on cash flow experienced by floating-rate loans in 2009 and Fitch Ratings' expectation that cash flows will continue to be stressed for the foreseeable future," Fitch said. "Floating-rate loans are transitional in nature and more susceptible to declining market conditions."

DBRS's New York office downgraded 497 classes from 122 residential mortgage-backed securities transactions, the majority of which are pre-2006 vintages backed by subprime or alternative A credit collateral. "Given the combination of current delinquencies and corresponding potential significant losses, along with expectations for future delinquencies and defaults, current credit support is not expected to sufficiently cover the anticipated losses," the rating agency said. "In many cases, subordinate classes have already been impaired, further weakening the available credit support for the remaining senior and mezzanine classes."

Luxembourg-based investment companies affiliated with private investment firm Elliott Management Corp. have agreed to buy all of the outstanding shares of Capmark Financial's Tokyo-based servicing business, Premier Asset Management Co. Financial terms for the transaction were not disclosed. Elliott said it will keep Premier's current management in place and expects to maintain its existing platform in the Japanese market. Premier is a commercial mortgage-backed securities and warehouse non-recourse loan servicer that also provides special servicing to defaulted non-recourse loans as well as third party nonperforming loan collections. A U.S. bankruptcy court has approved the transaction and it is expected to close by Jan. 29, 2010.

Embrace Home Loans, Newport, R.I., has acquired Mason Dixon Funding, Rockville, Md. The terms of the agreement were not disclosed. Mason Dixon Funding said its principal owners, including executive vice president Cary Reines, will remain with the company and report to Embrace Home Loans' president, Kurt Noyce, and Embrace's chief executive officer and founder Dennis Hardiman. Mason Dixon has nine retail branches in Maryland, Virginia, the District of Columbia and Delaware. Embrace, which earlier this month changed its name from Advanced Financial Services, has originated more than $3 billion in loans this year and operates 16 retail branches.

The Department of Housing and Urban Development expects lenders to provide consumers with a just-updated consumer booklet when they start using the new good faith estimate disclosure and the newly designed HUD-1 Settlement sheet on Jan. 1. But some lenders are ticked that HUD did not give them more notice about the newly revised "Settlement Closing Booklet" that was released on Dec. 18. "We were startled to learn that HUD expects us to begin using the new Booklet on Jan. 1, 2010 - 10 business days from its publication," the Consumer Mortgage Coalition said in a letter to HUD. The mortgage industry group is asking HUD to go easy on lenders that don't have the new booklet until May 1. "This would allow an orderly transition, and would help reduce unnecessary expenses," CMC executive director Anne Canfield says in the letter. Mortgage banking attorney Robert Lotstein said the new settlement cost booklet will be "really helpful" to consumers. It goes over the various sections of the four-page GFE and explains how mortgage brokers' fees (yield spread premium) works and what the tolerances are for certain settlement services. It also tells the consumer in plain English that origination fees charged by the lenders cannot change, unless certain circumstances arise, he said. Mr. Lotstein is the managing attorney at Mortgage Banking Advisors in Washington.

The Federal Reserve has purchased more than $1 trillion in agency mortgage-backed securities to support the mortgage market this year and Fed officials are trying to wind down its $1.25 trillion purchase program by March 31. The New York Federal Reserve Bank purchased $1.09 trillion in Fannie Mae, Freddie Mac and Ginnie Mae MBS this year, according to the Federal Housing Finance Agency. At the start of the program in early January, the New York Federal Reserve Bank was purchasing $20 billion to $25 billion in agency MBS a week. Now the Fed is purchasing agency MBS at a $16 billion weekly rate, which means it could continue at that pace for another 10 weeks. At the conclusion of its monetary policy meeting on Dec. 16, Fed officials said they are "gradually slowing" the pace of MBS purchases so the last transactions will be completed by the end of the first quarter of 2010. Mortgage strategists at Credit Suisse say the slowdown in Fed purchases will not affect MBS spreads to any large degree. "The Fed's exit from the MBS purchase program will likely be well absorbed by the market," according to a weekly Credit Suisse "Market Watch" publication. After March 31, the "Fed will likely assume a backstop role for the MBS market to prevent a double dip in housing," Credit Suisse strategists say.

Fitch Ratings has placed $20.6 billion in bonds from 33 floating-rate U.S. CMBS on Rating Watch Negative. The rating also said it also has assigned negative rating outlooks to 22 classes totaling $1.1 billion that currently have fairly high AAA and AA+ investment grade ratings. "The Rating Watch Negative placements are the result of the significant stress on cash flow experienced by floating-rate loans in 2009 and Fitch Ratings' expectation that cash flows will continue to be stressed for the foreseeable future," Fitch said. "Floating-rate loans are transitional in nature and more susceptible to declining market conditions."