Origination

Nearly one third of Federal Housing Administration foreclosures completed in 2008 involved FHA loans with seller-funded downpayment assistance, HUD secretary Shaun Donovan told senators. FHA loans where the downpayment assistance was arranged by non-profit housing groups represented only 12% of all FHA loans at the start of 2008. "Much or our recent loss activities have been attributed to the growth of seller-funded downpayment assistance," the Department of Housing and Urban Development secretary testified. Congress banned such down payment assistance on FHA loans. That ban went into effect October 1, 2008. "The termination of this program should substantially reduce FHA losses in new originations in the years ahead," Mr. Donovan testified.

Federal Housing Administration is experiencing elevated defaults and foreclosures, but FHA loans continue to outperform subprime loans, according to HUD secretary Shaun Donovan. "Although this is a challenging time for all entities in the mortgage market, FHA is unlikely to face the catastrophic losses borne in the subprime sector," the Department of Housing and Urban Development secretary told a Senate appropriations subcommittee. He noted that only 7% of FHA loans are seriously delinquent or in foreclosure, compared to 23% for subprime loans. In addition, FHA is not overexposed in high-cost markets like California because of its loan limits. The Office of Management and Budget is expected to release its fiscal year 2010 budget in a few weeks. It will include re-estimates of FHA's performance and financial strengths. It is unclear if this re-estimate will lead to losses that Congress will have to cover or force FHA to charge higher mortgage insurance premiums. "We should, within a few weeks, be able to present to you our estimates of whether it will be self financing," Mr. Donovan told a Senate appropriations subcommittee. FHA single-family insurance program has always operated without congressional appropriations.

California's real estate professionals are putting their money where their collective mouths are. The California Association of Realtors is dedicating $1 million to back a mortgage protection plan for first-time buyers. Under the group's Housing Affordability Fund, should buyers who haven't owned a home within the last three years lose their jobs, they will receive up to $1,500 a month to cover their house payments for six months. A qualified co-buyer also can participate in the program, and receive an additional monthly benefit of $750 per month for up to six months. The plan is for W-2 employees only, self-employed persons need not apply. "The Mortgage Protection Program was developed to help ease the anxiety of consumers who are concerned about potential job loss," said CAR President James Liptak, who estimated that as many as 3,000 families will benefit from the plan. There are some other requirements. A CAR member must be involved in the transaction. And the property must be located in the Golden State. The program, which will be open to rookie buyers who close by the end of the year, also includes coverage for accidental disability and a $10,000 death benefit. With 180,000 members, CAR is the largest state affiliate of the National Association of Realtors.

Mortgage companies pared their payrolls by only 200 full-time employees in February and it appears employment is finally stabilizing with the increasing demand for refinancings and loan modifications. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell from 271,300 in January to 271,100 in February, down 18% from a year ago. Orawin Velz, director for economic forecasting at the Mortgage Bankers Association, expects the refinancing boom will be sustainable and mortgage executives will have to begin hiring. "We should see some pickup in the coming months," Ms. Velz said. But she cautioned industry employment will rise very slowly, possibly to 300,000 by the end of the year.

Wells Fargo & Company plans to expand its presence in warehouse lending using a platform it acquired when it bought Wachovia Corp. at year-end, according to industry officials familiar with the matter. Two sources at Wells confirmed the move but at press time a spokesman could not be reached for official comment. "The good news is that not only are they going to stay in it but they're going to expand it out," said one warehouse advisor. It's believed that at year-end Wachovia had commitments of about $1 billion. Non-depositories depend on warehouse credit to make loans in the primary market. Warehouse lending has been severely restricted because many banks and Wall Street firms have left the sector because of losses, failures, or capital restraints.

Anthracite Capital Inc., New York, is still in discussions with its secured credit facility lenders and therefore the waivers granted by those lenders have been extended by such lenders from April 1, 2009 to April 15, 2009. Anthracite did not make interest payments due on March 30, 2009 on its junior subordinated notes due 2036 related to Anthracite Capital Trust III and 7.20% senior notes due 2016. Under the indentures governing these notes, the failure to make an interest payment is subject to a 30-day cure period before constituting an event of default.

Gramercy Capital Corp., New York, has entered into an amendment and compromise agreement with KeyBank NA, the administrative agent for a group of lenders, to settle and satisfy at a discount pre-existing loan obligations of approximately $174.6 million. Gramercy made a cash payment of $45.0 million and agreed to pay over time an additional $15.0 million from a portion of free cash flow generated by its collateralized debt obligations. Furthermore, Gramercy satisfied all of its obligations under a $9.5 million master repurchase facility with JP Morgan Chase Bank N.A. by making a cash payment of approximately $1.9 million to the bank. JP Morgan assumed full ownership and control of, and responsibility for, the related loan asset. Gramercy and its advisors continue to negotiate amendments of its credit facility with Wachovia Bank NA, and its master repurchase facility with an affiliate of Goldman, Sachs & Co. Clifford Chance US LLP was the restructuring counsel for these transactions, while Barclays Capital acted as the financial advisor in connection with the KeyBank transaction. Previously, Goldman, Sachs & Co. also acted as a financial advisor in connection with the KeyBank transaction.

Corporate Office Properties Trust, Columbia, Md., has priced its public offering of 2.6 million common shares at $24.35 per share. The offering is 500,000 shares larger than originally planned. COPT has granted the underwriters an option to purchase up to an additional 390,000 shares during the next 30 days. It estimates that the net proceeds from this offering, before expenses, will be approximately $63 million. If the underwriters' option to purchase additional shares is exercised in full, it will bring in approximately $73 million. The offering is expected to close on April 7, 2009, subject to customary closing conditions. The joint book-running managers for this offering are Merrill Lynch & Co. and KeyBanc Capital Markets. COPT plans to use the net proceeds from the sale to repay borrowings under its unsecured revolving credit facility and for general corporate purposes. On April 1, the day the offering was priced, COPT closed at $24.40; by midday of the next trading day, it was trading at $26.05 per share.

The 11th District Federal Home Loan District Cost of Funds Index has lost 115 basis points in three months, bringing the rate for COFI-indexed adjustable-rate mortgages to a low not seen since October 2004. The index for February 2009, as calculated by the Federal Home Loan Bank of San Francisco, is 2.003%. This marks a decline of 45 basis points from January and the second largest decline in the index's history. It comes after drops of nearly 40 basis points between November and December and 30 basis points between December and January. In comparison, the monthly average interest rate for the one-year ARMs as measured by the Freddie Mac Primary Mortgage Market Survey declined from 5.26% in November 2008 to 4.86% in March. For the 30-year fixed-rate mortgages tracked by Freddie, the monthly average interest rate has gone from 6.48% in August 2008 to 5.00% in March. COFI generally lags movements in other rates. It has not been this low since October 2004, when it was at 1.960%. COFI set its all-time low of 1.708% in May 2004.

The National Association of Mortgage Brokers has withdrawn its lawsuit against the Federal Housing Finance Agency, one day after it sent a letter to Congress asking it for help to stop implementation of the Home Valuation Code of Conduct. The trade group called the withdrawal a "strategic maneuver;" it said it wants to assess the FHFA's claim that no court may review its decisions while Fannie Mae and Freddie Mac are in conservatorship. "This issue goes beyond the bounds of this particular case," said NAMB president Marc Savitt. "All companies, investors, and trade groups should understand there may not be a court, any court, able to hear their case while FHFA is utilizing their conservatorship powers." NAMB said its options include filing suit again with revised and expanded arguments directed at FHFA's new claim.