Origination

The Securities and Exchange Commission is putting out for public comment a new set of proposed credit agency reform measures, noting that the agencies' ratings of mortgage securities "backed by subprime mortgage loans" and collateralized debt obligations linked to subprime loans "contributed to the recent turmoil in the credit markets." The new measures "impose additional requirements on credit rating agencies," the SEC said. This is the second set of credit rating agency reforms since the SEC received its new regulatory authority from Congress to register and oversee credit rating agencies. According to Mortgage Bankers Association chairman John A. Courson, the SEC also delayed a vote on a measure that would have "imposed different ratings symbols for structured finance versus other investment products" and likely would have led to "confusion" and "continued disruption to secondary market transactions."

Commercial real estate markets "weakened broadly," according to the Beige Book, which noted that many Federal Reserve district banks reported falling rents and rising vacancy rates. "Leasing activity was down in almost all districts," the Beige Book says. Vacancy rates rose in the Boston, New York, Richmond, Chicago, and Kansas City districts while rents fell in the Boston, New York and Kansas City districts. Meanwhile, CRE and residential lending contracted. Home sales were down in most districts. The only bright spot in the Beige Book is that some district banks reported "relatively stronger demand" for starter homes. In a recent speech, Federal Reserve Board chairman Ben Bernanke noted that the housing correction still has a way to go. "Housing markets remain weak, with low demand and the increased number of distressed properties on the market contributing to further declines in house prices," the Fed chairman said.

A Federal Reserve Board study discovered that banks and thrifts made only a small percentage of subprime loans in their Community Reinvestment Act assessment areas and these findings refute critics who claim CRA lending contributed to the subprime crisis. "Only 6% of all higher-priced [subprime] loans were extended by CRA-covered lenders to lower-income borrowers or neighborhoods in their CRA assessment areas," Fed governor Randall Kroszner said. This evidence does not support the view that CRA contributed in any substantial way to the subprime mortgage crisis, he added. In examining foreclosure data, Fed researchers also discovered that foreclosure filings have increased at a faster pace in middle-income and higher-income areas than in lower-income areas served by CRA lenders.

Capital One Financial Corp., McLean, Va., has gotten a thumbs up from two of the rating agencies in how it is treating the option adjustable-rate mortgage portfolio it will acquire in its $520 million purchase of Chevy Chase Bank FSB, Bethesda, Md. Capital One will take a net credit mark of $1.75 billion for potential losses in the loan portfolio. Fitch Ratings, New York, said it believes Capital One "has made the appropriate valuation adjustments to the $11.4 billion loan portfolio, which includes $4.1 billion in option ARMs originated largely through a broker network." A statement from Standard & Poor's noted that it believes "the substantial $1.75 billion in credit marks that Capital One has factored into the price of this acquisition will buffer the firm from future loan credit losses as the gross credit mark equals 33% of the existing Chevy Chase option ARM portfolio." In addition, Capital One has a good track record of integrating institutions into its operations, especially ones with residential mortgage portfolios, S&P said, which added that on a pro forma basis, Capital One's residential mortgage portfolio will total $20.1 billion or 12.8% of total loans, equivalent to its current loan mix.

Credit card giant Capital One Financial Corp., McLean, Va., has agreed to buy Chevy Chase Bank and its B.F. Saul Mortgage unit in a stock transaction valued at $520 million. According to figures compiled by the Quarterly Data Report, the Maryland-based BFSM is the nation's 40th largest lender and 34th largest servicer with $20 billion in housing receivables. No figures were immediately available on the mortgage unit of Capital One. A few years back the card company bought the Long Island-based North Fork Bank and its residential division, Greenpoint Mortgage, a large player in the 'alt-A' market. Capital One eventually closed the unit, booking a large loss on the transaction. BFSM, until recently, funded risky payment option ARMs both nationally and in the Washington, D.C. area where it is based.

In an attempt to spark a housing recovery the Treasury Department is working on a plan that ultimately could lead to a 4.5% 30-year fixed rate loan for consumers. According to combined news reports breaking Thursday morning, Treasury would be the ultimate buyer of mortgage-backed securities that yield 4.5%. Over the past two days 30-year 'A' paper loans were yielding just over 6%. The bonds would be backed by newly originated loans that would be used by homebuyers to purchase new or existing homes. The Department would buy guaranteed MBS from Fannie Mae or Freddie Mac. The loans would meet underwriting criteria of the two GSEs and the Federal Housing Administration. The idea is still in the planning stages and at press time Treasury officials were not commenting about the idea.

Howard Gaines, an attorney and licensed title agent from Delray Beach, Fla., has been convicted of charges relating to his participation in a $10 million mortgage loan scheme to defraud mortgage lenders on properties located in Broward County. Sentencing is scheduled for Feb. 10, 2009. According to the evidence presented at trial, Gaines was a licensed title agent at Your Title Choice in Deerfield Beach, Fla. Gaines, as a title agent, aided co-conspirator Anthony Dehaney and others to close on fraudulent loans. Among the fraudulent documents presented at closings were HUD-1 Settlement Forms, which falsely represented that buyers were using their own money to close on the purchases. The evidence showed that Gaines helped Dehaney close more than $10 million in loans during 2004, 2005, and 2006, including $5 million in fraudulent mortgages. There were seven who were originally arrested and Gaines' conviction was the sixth conviction in this matter. The following five conspirators have pleaded guilty: Anthony Dehaney, Marcia Mestre, Angela Angela Manalaysay, Beverly Ireland and Donna Patricia Grant. The seventh defendant, Andrea Dehaney, is still pending trial.

Fitch Ratings has placed the ratings of Fidelity National Financial and its title insurance subsidiaries on "rating watch negative" status following Fidelity's proposed acquisition of LandAmerica's largest title subsidiaries. Citing concern about "leverage and capitalization ratios" that will result from the acquisition, Fitch said it will complete a review following the closing of the acquisition and taking into account the capitalization plans for for the subsidiaries. Fidelity National currently carries a "BBB" rating from Fitch, which is just two notches above junk status. Fidelity's title subsidiaries have a financial strength rating of "A-minus."

Fitch Ratings said it will now seek and evaluate third-party loan-level reviews on all residential mortgage pools it is asked to rate in order to better identify poor underwriting practices. The ratings agency said the reviews will be conducted by a "due diligence" company prior to Fitch providing ratings on the transactions. Fitch said an independent company with no ties to the loan originator, the issuer of the notes, or the security underwriter must be used in conducting reviews. Companies conducting reviews also "will need to have the appropriate company and management experience for the type of loans being reviewed and have the procedures and controls, staff experience levels, technology, and tools to adequately conduct and report on the reviews," the ratings agency said.

Integrated Mortgage Solutions of Houston, TX has launched Asset Disposition and Management Services, a new division created to further expand the company's ability to serve as a one-stop-shop loss mitigation center, ADAM, as executives call it, will help reduce short sale costs and increase process efficiency in times when lenders face rising real estate owned inventory costs. The goal is to list a property as sold and closed within 90 days. ADAM is an addition to what IMS already offers, such as loss draft, inspections and preservation, hazard claims processing, property repair, loss mitigation and consulting for mortgage servicers dealing with defaulted and damaged properties. "We are excited to offer a service we think is unique in the marketplace," IMS president Cheryl Lang said. "We are licensed to do so in 50 states and that calms a lot of the nerves as far as lawsuits go. We want to be that good neighbor who keeps the borrower in the house and helps avoid foreclosure, which is the best thing for everybody."