Origination

Treasury and FDIC officials are making progress on developing a loan modification program that relies on government guarantees to help up to 3 million struggling homeowners -- but a final agreement has not yet been reached. Washington sources indicate that a program being pushed by Federal Deposit Insurance Corp. chairman Sheila Bair might provide $500 billion to $600 billion in loan guarantees that would allow banks, hedge funds and other mortgage holders to restructure residential loans and lower a homeowners' monthly payments. The program could include some guarantees on second liens which might prevent HELOC investors from blocking loan modifications. The talks between Treasury and FDIC are ongoing. "While we've had productive conservations with Treasury and the Administration about options for the use of credit enhancements and loan guarantees, it would be premature to speculate about any final framework or parameters of a potential program," said an FDIC spokesman.

The Market Composite Index, an overall measure of mortgage applications, increased 16.8% on a seasonally adjusted basis from 408.1 to 476.7 during the week ended Oct. 24, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index increased from 279.3 to 303.1 on a seasonally adjusted basis, while the Refinance Index increased from 1158.8 to 1489.4. Refinancings represented 46.9% of total applications, up from 42.6% the previous week, while adjustable-rate mortgages accounted for 1.9%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages decreased 2 basis points from 6.28% to 6.26%, and points (including the origination fee) increased from 1.09 to 1.10 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

The mandate for investing in commercial real estate is on the rise, according to a recent survey released by J.E. Robert Companies. According to the survey, 60% of respondents indicated their mandate for real estate is growing. When asked to rank their top choice of regions to invest in commercial real estate, 44% of respondents chose North America, 30% selected Asia and 18% named Europe. Other findings indicate that senior management, overall performance and history/reputation are the most important attributes investors consider when selecting a particular commercial real estate investment firm. Of the survey respondents, 45% indicated that senior management is the most important criteria in selecting an investing partner, followed by performance at 34% and history/reputation at 17%.

The commercial real estate sector is at a virtual standstill, with lenders on one sideline and borrowers on the other, each waiting for the right investment opportunity, specialists said at the Urban Land Institute's annual fall meeting in Miami Beach. They also agreed that the credit markets are, in the words of Randy Reiff, senior managing director at JP Morgan, New York, in a period of "protracted restructuring." Last year at this time, Mr. Reiff was at Bears Stearns and had $28 billion to invest. Now, at JP Morgan, he has only $5 billion to $7 billion at his disposal. "I definitely don't think the credit crisis is a blip," he said on a panel with other capital market experts. "It's gone far past a blip. As far as the pendulum has swung one ways, that's how far back it's swung back now." John Kukral, president of Northwood Investors, Greenwich, Conn., took a more optimistic view. "My feeling is that we're back to normal after being abnormal for the last five years," he said. But Mark Gibson, executive managing director of Holiday Fenoglio Fowler, Dallas, said commercial real estate specialists aren't facing a liquidity issue. "Capital is available," he commented. "We just don't like the price." About 6,100 real estate professionals are attending the three-day conference. That's down from 7,000 last year when ULI met in Las Vegas. But the sessions on capital markets were all standing room only.

Now that the Treasury is handing out TARP investment money to insurance companies (or is about to), speculation is beginning to center on the nation's seven mortgage insurers. According to a new research report from Sandler O'Neill, MIs are potential participants in the "capital investment program" under TARP where Treasury buys preferred stock in selected financial service firms, including insurers. But a spokesman for the Mortgage Insurance Companies of America said the trade group has not seen any of its members apply for a capital infusion. The Troubled Asset Relief Program initially involved Treasury buying problem loans and securities from financial services firms. Instead of buying problem mortgages Treasury has earmarked $250 billion of the $700 billion bailout money to buy preferred stock in banks and others, believing the firms will use the cash to lend, freeing up the so-called logjam in the commercial paper market. The Sandler report notes that with TARP MI firms would be on "new regulatory ground," adding that, "It is unclear how insurers can or will access TARP."

Fannie Mae has reinstated mandatory homeownership counseling and education requirement for first-time homebuyers interested in qualifying for Fannie's MyCommunityMortgage loan or nontraditional credit profile customers applying for any other loan type. The goal, Fannie Mae said, is to help borrowers "better assess their options and responsibilities both before and after they purchase a home." The service must be provided in compliance with the National Industry Standards for Homeownership Education and Counseling developed by a national advisory council of industry stakeholders, including Fannie Mae, launched by the NeighborWorks Center for Homeownership Education and Counseling. "In this extraordinary market, we think it is critical to reinstate this requirement and to work with counseling agencies and our lender partners to help homeowners succeed," Fannie Mae president and CEO Herb Allison said in a press release.

Zillow, an online provider of home price data, said that mortgage rates dropped by 36 basis points in the week ending Oct. 24. The average 30-year mortgage rate fell to 6.00%, from 6.36% the week before, according to Zillow. However, Zillow said rates rose on Monday, Oct. 26, to 6.20%. The Zillow rate monitor is based on rates quoted by lenders on the Zillow mortgage Marketplace.

The number of vacant houses for sale edged up to 2.23 million vacant units in the third quarter from 2.1 million units in the second quarter, according to a Census Bureau report, as foreclosures continue to bolster this inventory of unsold homes. The number of vacant houses on the market rose above 2 million in the fourth quarter of 2006 and has not retreated despite builders slashing construction of new homes to levels not seen in 26 years. The U.S. Census Bureau also reported that the homeownership rate declined to 67.9% in the third quarter from 68.1% in the second quarter. The homeownership rate was unchanged for African-Americans (47.8%) and Hispanics (49.5%). On the brighter side, a quarterly survey by the Wall Street Journal finds that the total number of homes on the market in 28 major metropolitan areas declined in most areas during the third quarter.

Winthrop Realty Trust, Boston, has acquired 3.5 million shares of the common stock of Lexington Realty Trust for $5.60 per share in a privately-negotiated transaction. The seller of the shares has provided Winthrop with non-recourse financing equal to 50% of the purchase price, with a term of three years at an interest rate set at LIBOR plus 250 basis points. Michael Ashner, chairman and CEO of Winthrop, said his company's view is that Lexington's shares "have been significantly oversold by the market." He said the view reflects Winthrop's focus on pursuing "deep value and distressed investments."

First Financial Network, Inc., Oklahoma City, Okla., is marketing a $500 million loan portfolio on behalf of the Federal Deposit Insurance Corp. It includes loans from the recently failed First National Bank of Nevada, Reno, Nev. and First Heritage Bank, NA, Newport Beach, Calif. There are approximately 585 performing and non-performing commercial real estate, commercial and industrial, gaming, Small Business Administration 504, residential and consumer loans to bid on Dec. 16. The majority of the collateralized properties are located in Arizona (44%), Nevada (35%) and California (15%). The portfolio will be stratified into pools based on performance, collateral type and geographic location. Investor due diligence materials will be available online at http://www.firstfinancialnet.com/ beginning Nov. 3. Bliss Morris, president and CEO of First Financial Network, said, "First Financial Network anticipates continued strong secondary market interest for this diverse portfolio comprised predominantly of CRE and C&I loans. We continue to see high demand for both performing and non-performing loans in all asset classes as evidenced by the successful closing of several major transactions conducted by First Financial Network in the third quarter."