Origination

Zacks Equity Research, Chicago, has designed Liberty Property Trust, a real estate investment trust headquartered in Malvern, Pa., as its Bear of the Day on April 20. "Office and industrial markets continue to weaken throughout the U.S., which is bad news for Liberty Property Trust. In the current environment, we do not favor suburban industrial/office companies as rental rates and occupancies continue their downward trend," Zacks said. Despite the economic downturn, Liberty's operations held up relatively well in the fourth quarter 2008. Zacks added Liberty has plenty of liquidity on hand to address its near-term debt issues, but it still maintained a near-term sell rating on the company due to macroeconomic factors.

VantageScore, the credit scoring algorithm developed by the three major credit repositories, has been integrated in Standard & Poor's Rating Services' Levels 6.6 mortgage analytical model. Levels analyzes a loan, or a pool of loans, and assigns a risk grade; it also determines foreclosure frequency, loss severity and credit enhancements required for securitization. A spokesman for VantageScore Solutions, the Stamford, Conn.-based company that holds the intellectual property rights to the algorithm, said that with S&P's approval, mortgage loans that were scored using VantageScore can now be included in pools analyzed by Levels. S&P managing director David Goldstein said VantageScore would provide banks greater flexibility by allowing Levels to be used as a risk management tool to monitor their mortgage loan portfolio. Previously, Fitch Ratings incorporated VantageScore into ResiLogic 2.1, its quantitative model that provides credit risk analysis at the individual loan and pool level for residential mortgage loans.

In March the credit performance of securitized subprime and alt-A loans improved for the first time since December 2007, but the bonds are far from being out of the woods, according to a new research report by Five Bridges Advisors. Five Bridges chief Michael Youngblood warns that although there is improvement, March does not "represent a turning point in credit performance" but reflects the ability of some troubled borrowers to refinance their GSE loans or successfully use loan modification programs. Five Bridges also notes that the default rate on securitized prime loans fell to 6.33% in March from 7.07% in February. The alt-A default rate fell to 19.2% from 20.56% and the subprime rate declined to 33.15% from 34.4%. "The declines in payroll employment, increases in household unemployment rates, and declines in existing house prices that have occurred through April 2009 will fuel higher default rates in" most metropolitan areas throughout the year. Mr. Youngblood recently left Friedman Billings Ramsey to form Five Bridges, which is based in Bethesda, Md.

Despite the pleas of mortgage bankers, the government sponsored agencies have no intention of lowering their guarantee fees, their representatives said at the Mortgage Bankers Association's National Secondary Market Conference in Chicago. "No," said Donald Bisenius, Freddie Mac's senior vice of single-family credit guarantee business, when asked by MBA chairman-elect Rob Story whether the GSEs are considering such a move. Thomas Lund, executive vice president of single-family mortgage business at Fannie Mae, said the current fee structure strikes a balance between providing liquidity to the mortgage market and protecting taxpayers from footing the bill for loans that go sour. Mr. Lund also pointed out that the guarantee fees charged by the GSEs are "still far below" those charged in the jumbo market by non-agency investors. Even though the overall credit profile of borrowers has improved, Mr. Bisenius told the meeting, the fees need to remain at their current levels because "the housing market is very, very fragile. Prices at best are flat, and still falling in many places. We need to balance against that risk." On a more positive note, the two GSE spokesmen also said that once their companies, which are in federal receivership, get up to speed on their purchase of conforming jumbo mortgages, the current 150 basis point spread in pricing "should shrink dramatically."

The Federal Housing Finance Agency "very shortly" will offer a proposed rule to lower the affordable housing goals imposed on Fannie Mae and Freddie Mac, a key agency official said at the Mortgage Bankers Association's National Secondary Market Conference in Chicago. The FHFA took over the goal setting function when it assumed the job of regulating the GSEs mission functions from the Department of Housing and Urban Development when it was created by Congress last year. Though Edward DeMarco, the FHFA's chief operating officer and senior deputy director for housing mission and goals, said he was not at liberty to reveal the details of the forthcoming rule, he did say that the plan was to modify the goals so they would be "on par" with those set by HUD for the period from 2004 to 2006. But even at that, he added, "we recognize" that the GSEs will have to "stretch" to meet them. Mr. DeMarco also said that the affordable housing goals set for 2008, most of which were missed by Fannie and Freddie, were "unrealistic" and "not feasible," given the conditions of the housing market at that time. And noting that keeping low and moderate-income families in their homes is sound public policy, he said that Fannie and Freddie will be given credit under the proposed rule for loan modification activities as part of their new affordable housing targets.

The GMAC Bank unit of Residential Capital LLC is expanding its mortgage warehouse lending operations, a spokeswoman for the company confirmed. GMAC has hired Adam Glassner, formerly of Bank of America, to head up these efforts. ResCap shifted the warehouse business from Residential Funding Corp. to the bank more than a year ago. The spokeswoman said the company wants to significantly increase its volume of these loans, which will be funded with capital from GMAC Bank. The bank had aggressively marketed for deposits and now GMAC needs a way to use that capital. Right now, GMAC has 150 warehouse clients and will take on new relationships. There is strong demand in the market for warehouse credit, the spokeswoman said, "so we're willing to lend." GMAC is also expanding its jumbo mortgage lending program. However, the spokeswoman explained, borrowers need a credit score of 700 or above and must be willing to put between 20% and 30% as a down payment.

Bank of America is hiring thousands of new employees to keep up with surging residential originations even though its mortgage business posted a $500 million loss for the first quarter due to deteriorating loan performance. The giant bank originated $85.2 billion in single-family loans in the first quarter, up 91% from the previous quarter. Nearly one quarter of the funding involved home purchases, according to BoA chief financial officer Joe Price. The mortgage business is "going full bore as evidence of the fact we have added or intend to add almost 5,000 new positions in addition to transferring another 700 associates from other parts of the bank to fulfill the increased volume," Mr. Price said during a conference call on the bank's earnings report. The bank reported $5.2 billion in total revenues from its home loan and insurance business, up 60% from the fourth quarter. "However, earnings were negative due to a high level of provisions," the CFO said. The first quarter loss provision was $3.4 billion, up $1.7 billion from the previous quarter. Net charge-offs on its $261.6 billion mortgage portfolio increased $319 million to $785 million in the first quarter. "Nonperforming loans increased by $3.8 billion from the fourth quarter and now represents 4.13% of loans," BoA said.

The land title industry is hoping the first quarter surge in refinancings is going to turn 2009 into a good year after they posted operating losses of $710 million in 2008, following an $87.8 million loss the previous year. "The land title industry is beginning to see an increase in orders and is anticipating growth based on a growing market for refinance transactions," said Kurt Pfotenhauer, chief executive of the American Land Title Association. Economists at the Mortgage Bankers Association recently forecast that refinancings could make 2009 the fourth highest origination year on record. "This is welcome news following a very tough market in 2008," Mr. Pfotenhauer said. Last year was all downhill for ALTA members as the decline in title premiums followed the decline in residential sales and refinancing transactions right up to the very end of the fourth quarter. Despite the large loss, ALTA said the land title industry remains in a "strong financial position."

Mortgage brokers are staging a last-ditch lobbying effort to get Congress to block the implementation of a new appraisal code that applies to all loans sold to Fannie Mae and Freddie Mac. The new code, which goes into effect May 1, prohibits the government sponsored enterprises from purchasing mortgages if loan officers or mortgage brokers are involved in selecting appraisers or influencing the appraisal process. The National Association of Mortgage Brokers claims the GSE code will marginalize brokers and independent appraisers by encouraging major lenders to rely on "unregulated" appraisal management companies. "Please contact your Senators and Representatives today to urge them to stop or delay (for at least 12 months) the implementation of the Home Valuation Code of Conduct, which is de facto regulation, forced on Freddie Mac and Fannie Mae by New York Attorney General Andrew Cuomo," NAMB says in a "Call to Action" emailed to its members on April 16. "Please contact your legislators today at their in-district offices, as Congress currently is in recess." The appraisal management company model is "flawed," NAMB says, and it will produce "poor quality" appraisals at an increased cost to consumers.

Weingarten Realty Investors has priced a public offering of 28 million shares of its common stock at $14.25 per share. The shopping center and industrial real estate investment trust has granted the underwriters an option to purchase up to an additional 4.2 million shares. Merrill Lynch & Co. and JPMorgan are acting as joint book-running managers for the offering. RBC Capital Markets and Wachovia Securities are acting as joint lead managers. Robert W. Baird & Co., BBVA Securities, J.J.B. Hilliard, W.L. Lyons LLC and Stifel Nicolaus are acting as co-managers. The company intends to use the net proceeds, expected to be approximately $381.9 million, to reduce borrowings outstanding on its revolving credit facility and for general corporate purposes, including the repayment or repurchase of outstanding indebtedness. As of midday on April 17, Weingarten was trading at $15.72 per share, up $0.04 on the day.