Origination

Thirty-eight classes of notes issued by five collateralized debt obligations linked to alternative-A and subprime residential mortgage-backed securities have been downgraded by Fitch Ratings. The affected securities include 10 classes from Maxim High Grade CDO I Ltd. and eight classes from Maxim High Grade CDO II Ltd, both static high-grade cash flow structured finance CDOs; and eight classes from Nautilus RMBS CDO I Ltd./LLC, six classes from Nautilus RMBS CDO II Ltd./LLC, and six classes from Nautilus RMBS CDO V Ltd./LLC, all static cash flow structured finance CDOs. Twenty-three of the downgraded classes were removed from Rating Watch Negative. The downgrades were attributed in all cases to collateral or credit deterioration in the portfolios' alt-A RMBS and, in four of the five cases, in their subprime RMBS. Fitch can be found online at http://www.fitchratings.com.

Kimco Realty Corp., New Hyde Park, N.Y., has priced a public offering of 10 million shares of its common stock at $37.10 per share. UBS Investment Bank, Citi, and Wachovia Securities are the joint book-running managers for the offering. Kimco has granted the underwriters an option to buy up to 1.5 million additional shares to cover any overallotments. The net proceeds will be used for general corporate purposes, the company said. Kimco, a real estate investment trust specializing in shopping centers, can be found online at http://www.kimcorealty.com.

Two years ago, 45% of homeowners who were experiencing difficulty paying down their home equity lines of credit were also struggling to pay their first mortgages. Today, that figure has climbed to 61%, according to data also released by Equifax Analytical Services at the Consumer Bankers Association's annual Home Equity Lending Conference in Austin, Texas. Worse, in California and Florida, the two states that have become synonymous with the housing market debacle, late payments on HELOCs and home equity loans are associated with late first mortgages "over 80% of the time," senior consultant David Whitin reported. Equifax also found that because lenders have all but shut down home equity lending, bank card balances are starting to grow, and if economic conditions continue to drive consumers toward an increased reliance on their plastic, credit scores are likely to deteriorate. Mr. Whitin said home equity lenders would do well to study the main attributes that drive loan performance and adjust their exposure accordingly. Changes in these attributes, he said, result in "a five to 16-times increase in the HELOC delinquency rate."

Confirming what has been suspected for some time now, an analysis by Equifax has found that many financially strapped consumers are no longer paying their mortgages first. In previous down cycles, borrowers have given their homes their highest priority. At least that's the traditional industry consensus. But a look at both 2002 and 2005 vintage loans revealed that "more consumers are letting their houses go," David Whitin of Equifax Analytical Services, Orange Park, Fla., reported at the Consumer Bankers Association's annual Home Equity Lending Conference in Austin, Texas. Delinquent borrowers who took out their home loans in 2005 are more likely to have clean slates when it comes to their credit cards and auto loans than tardy borrowers who got their loans three years earlier, Mr. Whitin told the conference. Equifax also found that borrowers in the six states with the largest price declines -- Arizona, California, Florida, Massachusetts, Maryland, and New York -- are more likely to fit that description than those in other states. Another key finding: borrowers who have trouble paying their mortgages but manage to make their credit card and car payments tend to have larger mortgages than those who fail to meet any of the three obligations. Mr. Whitin's conclusion: "Lenders need to make some changes to make this kind of behavior more unattractive."

An analyst's report issued by Friedman Billings Ramsey says putting Fannie Mae and Freddie Mac into government conservatorship would have little impact on the private mortgage insurance companies in the near term. "Longer-term risks remain, however, as the very real possibility exists that [Sunday's] actions could make the use of mortgage insurance an obsolete form of credit enhancement," said FBR analyst Steve Stelmach. "While nothing currently exists on the legislative front with regard to doing away with the 20% down payment requirement for the GSEs, any upcoming changes to the GSEs' charters resulting from [Sunday's] actions could include legislation that forgoes the need for mortgage insurance." Radian Group Inc., Philadelphia, issued a statement saying it would continue to insure loans for Fannie and Freddie in accordance with their charters. "Fannie Mae and Freddie Mac have historically relied heavily on mortgage insurance, and Radian has been working closely with both companies through this difficult environment," Radian said. "Radian remains committed to its principal mortgage insurance subsidiary, Radian Guaranty." FBR can be found online at http://www.fbr.com, and Radian can be found at http://www.radianmi.com.

Fannie Mae and Freddie Mac will be removed from the S&P 500 Index after the close of trading on Sept. 10, Standard & Poor's has announced. S&P said the reason for the removals is that the market capitalization of both government-sponsored enterprises has fallen far below the $5 billion minimum required for listing on the S&P 500. As of the close of trading on Sept. 9, Fannie's market capitalization totaled approximately $1.04 billion and Freddie's stood at approximately $614 million, S&P reported. Fannie will be replaced in the index by Fastenal Co., and Freddie's place will be taken by Salesforce.com. S&P can be found online at http://www.standardandpoors.com.

Lehman Brothers Holdings Inc., which suffered an estimated $7.8 billion in gross writedowns largely related to residential mortgages and commercial real estate in the third quarter, has made plans to sell approximately $4 billion of its United Kingdom mortgage portfolio and spin off its CRE-related exposures into a new company. The Wall Street firm, which has estimated that it will take a $3.9 billion net loss in reporting preliminary third-quarter results, said it also plans to sell a majority interest in its investment management division. The company said it has retained BlackRock Financial Management Inc. to sell the United Kingdom portfolio and expects to complete the sale within a few weeks. DBRS has downgraded the company's long-term ratings in response and placed all ratings under review with negative implications. Earlier, Standard & Poor's and Fitch had warned that some of Lehman's ratings might be downgraded due to large percentage declines in its stock price resulting from intensifying concerns about its capitalization.

Highwoods Properties Inc., a real estate investment trust based in Raleigh, N.C., has announced the pricing of 5 million shares of its common stock. The net proceeds of approximately $195.2 million will be used initially to repay borrowings under its $450 million unsecured revolving credit facility, Highwoods said. The company can be found on the Web at http://www.highwoods.com.

Despite the housing bust, Chicago-based market research firm Mintel says it sees "golden opportunities in this dismal market" -- namely, young adults and minorities. Mintel said its latest consumer survey suggests that so-called Echo Boomers (aged 13-30) and Hispanic, Asian, and black Americans will be key to the turnaround of the real estate market. "As home prices fall, we see more first-time buyers stepping up," senior analyst Susan Menke said. "Those who couldn't afford to buy during the housing boom -- and now have nothing to sell -- are taking advantage of lower prices. Lenders should focus on first-time buyers, especially Echo Boomers and minorities, to pump life back into the mortgage market." Mintel said the survey revealed that more young adults and minorities plan to buy a house in the next five years. Only 23% of the general population plans to buy, but 38% of adults aged 18-24 and 39% of those 25-34 say they will, the company reported. More Asians (42%), blacks (37%), and Hispanics (30%) say they will buy a home in the next five years than whites (20%). Mintel can be found online at http://www.mintel.com.

National banks are too heavily concentrated in commercial real estate, including acquisition, development, and construction loans with homebuilders and developers, a government official warned at the Consumer Bankers Association's annual Home Equity Lending Conference in Austin, Texas. Timothy Long of the Office of the Comptroller of the Currency said nearly 400 of the banks his agency regulates have 100% or more of their capital invested in this type of financing. "And we're not talking 105% or 100%," he said, "we're talking 300%, 400%, and 500%." Mr. Long also said that some 700 state-chartered banks that are overseen at the state level are in the same predicament. "These are some big numbers, and they are cause for concern," the senior deputy comptroller said. "We've never gone into a significant downturn with this kind of concentration, but we've got it now."