Origination

The First American Corp., Santa Ana, Calif., reported a fourth quarter 2008 loss of $66.9 million ($0.72 per share) a slight improvement over the fourth quarter 2007 of $67.5 million per share ($0.74 per share). The bulk of the loss is due to a $50.7 million reserve strengthening adjustment; FAF also took intangible asset impairments of $13.7 million and employee separation and other restructuring costs of $11.3 million. For the full year, the company lost $26.3 million ($0.28 per share), compared with a $3.1 million ($0.03 per share) loss in 2007. Total revenues for the fourth quarter were $1.4 billion, down 28% from $1.9 billion for the same period in 2007. In the title insurance and services segment, FAF had a pretax loss of $94.2 million, much improved over the $185.5 million for the fourth quarter of 2007. Total revenues in this segment were down 32% from the previous year due to a decline in the number of title orders closed, a decrease in the average revenue per order closed and the termination of certain agency relationships. Average revenue per direct title order was $1,462, a 19% drop off from the fourth quarter 2007.

Moody's Investors Service is again increasing its loss expectations for U.S. subprime residential mortgage-backed securities issued between 2005 and 2007, raising them to a range of 28% to 32% of the original pool balance from 22% and placing 7,942 tranches of subprime RMBS with an original balance of $680 billion on review for possible downgrade. It said that ratings actions expected to occur as a result of this move make it likely that "mezzanine and subordinate certificates currently rated B or above would be downgraded to ratings of Caa or below, particularly for bonds issued in 2006 and 2007" while actions on senior bonds "will differ based on payment priority and protection relative to projected losses." The rating agency added however, that "given the losses currently being projected, a majority of senior certificates will likely be downgraded below investment grade" and "many are expected to be downgraded to Caa or below, particularly longer duration bonds from 2006 and 2007." Moody's said the Homeowner Affordability and Stability Plan "is expected to have a mitigating impact" on this. It added that while it already has formed a preliminary estimate of the impact of the plan and included that estimate in its numbers, that estimate could change when additional detail of the plans are released on March 4.

Zan Hamilton, former chief executive of the recently defunct Lime Financial Services of Lake Oswego, Ore., is already planning his return to the mortgage industry but isn't giving many hints about which direction he's headed. An official close to Mr. Hamilton said he has put together a "core group" of investors and is working on a "mortgage related" venture. Mr. Hamilton declined to comment. The Credit Suisse-owned Lime announced that it was closing its doors in December and officially shut its office in mid-February. It funded its last subprime loan in 2007 and then switched menus to focus on Fannie Mae and Freddie Mac products. It was in the process of receiving its FHA approvals when Credit Suisse decided to pull the plug on the company.

In yet another sign that there is no end in sight to the nation's housing depression, new home sales fell to a record low annualized rate of 309,000 units in January with the inventory measure swelling to 13.3 months. According to new figures released by the Commerce Department, single-family home sales fell 48.2% compared to the same month in 2008, and 10.2% compared to December. Based on the current sales pace, there is a 13.3 month supply of new homes on the market, the highest measure ever recorded. The median sales price fell to $201,100 in January, a 9.9% drop from December. The poor sales showing comes with the national unemployment rate climbing toward 8% but with mortgages rates — for those with good credit — hovering above their historic lows. Meanwhile, the Federal Reserve this week released figures showing that the nation's commercial banks have an overall delinquency rate of 6.92% on their residential holdings, a record. A year ago the ratio was less than half: 3.31%.

The Mortgage Bankers Association is adamantly opposed to the federal government capping the mortgage interest deduction as well as deductions for mortgage insurance payments and real estate taxes. MBA was reacting to an early read of President Obama's first budget which moves to cap itemized deductions for taxpayers who earn $250,000 a year or more. MBA believes that such a cap, if approved, would affect not only mortgage interest payments but also other itemized deductions. "We do not like a cap of any sort," said Josh Denney, vice president of public policy for MBA. "It would have an adverse impact on a market that's already in trouble." The Obama administration estimates that the deficit for fiscal year 2009 will reach $1.75 trillion, or 12.3% of U.S. gross domestic product. The deficit would be a record in dollar terms and is the highest as a share of GDP since the 1940s.

A number of real estate-related stocks have been affected by changes to several Standard & Poor's indices that are scheduled to go into effect after the close of trading on March 3. Being removed from the S&P MidCap 400 are Hovnanian Enterprises Inc., Red Bank, N.J., and The PMI Group Inc., Walnut Creek, Calif. At the close of trading on Feb. 24, S&P said, "Hovnanian and PMI Group had market capitalizations of $74 million and $64 million, respectively, whereas the minimum market cap needed to be admitted to the S&P MidCap 400 index is currently $750 million." Ventas, a health care real estate investment trust headquartered in Chicago, will be added to the S&P 500 in the GICS Specialized REITs Sub-Industry index. Trustmark Corp., a Jackson, Miss.-based financial services company, will replace Hormel Foods in the S&P MidCap 400, which is being moved to the S&P 500. Anchor BanCorp Wisconsin Inc., Madison, Wis., is being dropped from the S&P SmallCap 600, because it had a $19 million market cap, whereas the minimum market cap for this index is currently $200 million.

Virgin Money USA, Waltham, Mass., is marketing its traditional and social mortgage lending through "Uncrunch America," a campaign with Lending Club and other personal finance companies aiming to provide viable financing alternatives to consumers who lack them due to today's high credit card rates and tighter bank credit. Virgin Money USA said its social mortgages made between people that know each other often provide greater flexibility and lower rates than a traditional mortgage. It added that it aims to offer both "fair rates" and a "timely closing" when it comes to both these and its traditional mortgages. Personal finance companies also participating in the campaign are OnDeck Capital, Credit Karma, Geezeo and Changewave. Virgin Money is owned by British conglomerate the Virgin Group.

Three former Wall Street executives have formed the Rumson, N.J.-based Loan Value Group, an independent, third-party provider of advisory services aimed at helping clients assess, evaluate and manage residential mortgage risk. The startup company's three principals are former Morgan Stanley executives Howard Hubler, Jason MacRae and Frank Pallotta. Loan Value Group's clients include mortgage and mortgage insurance companies as well as banks, funds and rating agencies. The group plans to operate at least three business lines: data aggregation, which compiles statistics from multiple sources to create a multidimensional portfolio profile; research, which focuses on identifying the main drivers of default and performance through analysis and statistical modeling; and advisory services, which are aimed at helping clients drive present value with loan modification and optimization strategies.

Waves of commercial mortgage-backed securities downgrades are following in the wake of Moody's Investors Service's review of large loan and single borrower U.S. CMBS ratings, in which the rating agency found the current economic recession is hurting cash flows and likely to lead to a marked increase in term defaults. "Due to the current economic recession, Moody's expects a significant overall decline in future property cash flows as a result of a higher incidence of tenant defaults and bankruptcies and a sharp decline in lease renewal rates," the rating agency said. "This drop in cash flows is likely to lead to a marked increase in term defaults on commercial mortgage loans particularly for those loans that were underwritten with significant upside at a peak point in the real estate cycle and valued using historically low capitalization rates."

Mortgage applications tracked by the Mortgage Bankers Association during the week ended Feb. 20 dropped 15.1% from the previous week, as refinances gave back some recent gains. The 19.1% drop in the refi index that contributed to the larger decrease "partly erased an unexpectedly large (64%) pickup a week earlier" during the President's Day holiday-shortened week, according to Barclays Capital researchers. The researchers said seasonally purchase applications, which were down 2.6% week-to-week and have so far "failed to react to ... low mortgage rates," might reflect "prospective buyers ... reluctant to enter a declining market in advance of government action to revive the housing sector." Also noted by the MBA was a 22.6% unadjusted decline in overall apps for the week and a 9.8% unadjusted increase in apps overall during the same week a year ago. The four-week moving average for the seasonally adjusted index is up 0.4%. The conventional purchase index slid 4.4% week-to-week, while the Federal Housing Administration product dominated government purchase index inched down by 0.8%. Refinance market share dropped to 69.7% of total apps from 74.2% the previous week and adjustable-rate mortgage share of activity inched up to 1.9% from 1.7%. Average contract interest rates and points (including the origination fee) as tracked by the MBA during the period were as follows: 5.07%, up from 4.99%, for 30-year fixed-rate mortgages, with points decreasing to 1.25 from 1.37; 4.71%, up from 4.66% for 15-year FRMs, with points dropped to 1.25 from 1.37; and 6.13%, up from 6.10% for one-year ARMs, with points declining to 0.21 from 0.23.