Origination

Markit, New York, has announced plans to launch a tradable synthetic index of U.S. subprime asset-backed securities referencing 20 qualifying residential mortgage deals issued in the first half of 2005. "The addition of a new index, following a majority vote of licensed dealers, will provide institutional investors with a greater ability to gain or hedge exposure to an earlier vintage of U.S. residential mortgage-backed securities," the company said. Markit said it would make the new index, ABX.HE 05-2, available on Oct. 2.

Commercial and multifamily mortgage delinquencies rose slightly for most major investor groups in the second quarter, according to the Mortgage Bankers Association. The 30-plus-day delinquency rate for loans held in commercial mortgage-backed securities rose 0.05 of a percentage point to 0.53% at the end of the quarter, and the delinquency rates for multifamily loans (60 or more days delinquent) held or insured by Fannie Mae or Freddie Mac rose 0.02 of a percentage point to 0.11% for Fannie loans and 0.01 of a percentage point to 0.03% for Freddie loans. (Delinquency rates are not comparable because the MBA analysis incorporates the varying measures used by each investor group.) The delinquency rate for loans held in life insurance company portfolios (60-plus days delinquent) rose 0.02 of a percentage point to 0.03%, and the rate for loans held by banks and thrifts (90 or more days delinquent) rose 0.17 percentage points to 1.18%. "Commercial/multifamily mortgages are not seeing the same kinds of deterioration in performance that single-family mortgages, construction, and some other types of loans have seen," said Jamie Woodwell, MBA's vice president of commercial/multifamily research. The MBA can be found online at http://www.mortgagebankers.org.

The $700 billion U.S. homebuilding industry faces more economic distress over the next six months, especially small to medium-size builders, according to Grant Thornton Corporate Advisory and Restructuring Services. National builders will continue to acquire local and regional builders, and the latter will consolidate to become more attractive acquisition targets, the company predicted. "Homebuilders are unique from a restructuring standpoint," said John Bittner, a partner at Grant Thornton's CARS practice. "It's not like a manufacturing company that can quickly cut costs to improve operations and increase profitability. When a builder finds itself in distress, there are fewer options to improve cash flow short of having a fire sale on existing inventory." Grant Thornton can be found online at http://www.grantthornton.com.

Two former Ditech.com executives have announced the launch of Lendability.com, an online mortgage lender based in Scottsdale, Ariz., that aims to be "the leader in both cost and transparency." Paulo La Greca, the new venture's chief executive officer, said the company plans to be in all 50 states by the summer of 2009. Brent Kirk, its chief operating officer, said other online lenders "got carried away with their businesses" by getting heavily involved in subprime mortgages. He said "everything is upfront" at Lendability.com, including rates, fees, and consumer options. Several other former executives at Ditech.com, Costa Mesa, Calif., have joined the company and will remain in Southern California to head up Lendability.com's satellite operations there. The company can be found on the Web at http://www.lendability.com.

Demand for federal rural development single-family loans has doubled this fiscal year to $6.1 billion, and agency officials estimate that the rural housing program could guarantee $10 billion in loans in fiscal 2009 if Congress approves additional support for the program. "We are bolstering the market and providing support the way government should during hard times," said Joaquin Tremolf, single-family director of the U.S. Department of Agriculture's Rural Development agency. The rural housing program provides no-downpayment loans for low- and moderate-income homebuyers in rural areas. "It is the only no-downpayment program left for nonveterans," Mr. Tremolf said. However, the agency has strict underwriting standards, and it reviews "every single appraisal" before approving a loan, the director said. The foreclosure rate on rural housing loans was 1.4% as of June 30, compared with 2.3% for Federal Housing Administration single-family loans.

Supporters of the controversial seller-funded downpayment assistance program rallied in Washington on Wednesday, calling on Congress to pass a bill that would save DPA from being eliminated Oct. 1. The Oct. 1 ban -- signed into law July 30 as part of the Housing and Economic Recovery Act of 2008 -- has mobilized community activists who say it will disproportionately affect minorities, especially first-time homebuyers and female-headed households. A recent analysis by Washington-based Matrix Global Advisors of government data on FHA-insured loans found that over 40% of African-Americans who receive FHA loans, and 27% of Hispanics, rely on seller-funded DPA. According to Scott Syphax, president and chief executive of DPA pioneer Nehemiah Corporation of America, 90% of the 300,000 families Nehemiah has directly served have not faced foreclosure. While stressing that roughly 40% of Nehemiah clients have been minorities, he called on the administration to right a wrong "by supporting H.R. 6694 and reinstating DPA indefinitely."

Long-term mortgages became more affordable this week as the market digested news of the Treasury's rescue plan for Fannie Mae and Freddie Mac. The average rate on conforming, 30-year fixed-rate mortgages declined to 5.93% this week, a decline of 42 basis points from that of last week. It was the first time the average 30-year mortgage rate had dropped below 6% since May. The average rate on 15-year fixed-rate mortgages declined to 5.54%, down 36 basis points from the level recorded the week before. But the rate drop may not spark a refinancing boom. Brian Koss, executive vice president of national production at Mortgage Network Inc., Danvers, Mass., told American Banker, "Most borrowers don't have the equity in their homes or don't meet current guidelines, so a lot of people who want to refinance, can't."

Originations of piggyback loans declined by 63% in 2007, but Fannie Mae and Freddie Mac continued to purchase about the same number of such loans, according to just-released Home Mortgage Disclosure Act data. The HMDA report indicates that the number of piggybacks (where a first lien and a second lien are made simultaneously) fell from 1.1 million in 2006 to 389,150 in 2007. However, the mortgage giants purchased nearly 30% of the 2007 piggybacks, compared with 12.5% in 2006. The Federal Reserve commentary on the HMDA data notes that piggybacks are usually originated to avoid buying mortgage insurance or to make sure that the first lien is below the conforming loan limit (which was $417,000 last year). As expected, the HMDA report also shows a sharp decline in subprime lending. Subprime or "higher-priced" loans fell to 1.9 million in 2007 from 2.9 million the previous year. Nearly 170 lenders closed up shop in 2007 and did not file HMDA reports. In 2006, those lenders reported making nearly 400,000 subprime loans.

Two classes of subprime second-lien residential mortgage-backed securities insured by XLCA have been downgraded by Fitch Ratings. Classes A1 and A2 of C-BASS series 2007-SL1 were downgraded from BB to CCC. The downgrades were based on Fitch's recent downgrade of XLCA's insurer financial strength rating to CCC, the rating agency said.

Twenty-eight classes from eight mortgage-related transactions insured by Financial Guaranty Insurance Co. have been downgraded by Fitch Ratings, and two classes have been placed on Rating Watch Negative. The downgrades affected deals issued by Ameriquest Mortgage Securities, Aegis, Ace Securities Corp., Morgan Stanley ABS Capital, GMAC Mortgage Corp., and CSFB. Most involve subprime residential MBS. Fitch attributed the downgrades to its recent downgrade of FGIC's insurer financial strength rating to CCC.