Origination

Twenty-one classes of notes issued by four collateralized debt obligations with exposure to subprime residential mortgage-backed securities have been downgraded by Fitch Ratings and removed from Rating Watch Negative. The affected securities are as follows: six classes from Independence IV CDO Ltd./Inc., a cash flow structured finance CDO; five classes from C-BASS CBO XVIII Ltd., a static cash structured finance CDO; five classes from C-BASS CBO XIX Ltd., a static CDO; and five classes from Costa Bella CDO Ltd./Corp., a hybrid structured finance CDO. The downgrades were attributed to collateral deterioration in the portfolios, especially in subprime RMBS and structured finance CDOs with underlying exposure to subprime RMBS.

The ratings of American International Group Inc. and its insurance and financial services subsidiaries have been placed on Rating Watch Negative by Fitch Ratings, partly as a result of exposures to residential mortgage-backed securities. Fitch previously had a negative rating outlook on AIG and the majority of its insurance-related subsidiaries that are rated by Fitch, and a stable rating outlook on AIG's financial services subsidiaries (including AIG Capital Corp., International Lease Finance Corp., and American General Finance Inc.). Fitch said the rating actions were based on an updated assessment as part of its ongoing ratings review of AIG and its subsidiaries. The actions reflect "Fitch's uncertainty regarding potential outcomes of AIG's previously announced business unit review, which is expected to be completed in late September," the rating agency said. The actions also reflect uncertainty related to AIG's "potential for additional losses" on various exposures to residential mortgage-backed securities, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

KfW Bankengruppe, Frankfurt, Germany, says it has agreed to sell its shares in IKB Deutsche Industriebank, a German company that has been hard hit by the U.S. subprime mortgage crisis, to U.S. private equity firm Lone Star. The purchase price for the 90.8% stake in the Dusseldorf-based company was not disclosed, but KfW described it as having an "adequate" and "positive" value. KfW also said it has agreed to share "certain portfolio and legal risks" with the Dallas-based Lone Star in the deal, but added that the agreement calls for KfW to acquire a smaller share of IKB's on-balance-sheet portfolio than originally planned. In addition, Lone Star will provide KfW with "additional equity," according to the latter company. Lone Star is a known buyer of subprime mortgage assets. KfW is 80% owned by Germany's federal government.

Reported incidents of residential mortgage fraud in the United States increased by 42% in the first quarter from the level recorded a year earlier, according to a new report from the Mortgage Asset Research Institute. Florida led the states in mortgage fraud, accounting for 24% of all properties with material misrepresentation for loans originated in the first quarter, according to the MARI Quarterly Fraud Report. California ranked second, followed by a three-way tie for third place among Illinois, Maryland, and Michigan. The top fraud incident type was in general application misrepresentation, followed closely by misrepresentations related to income and employment, MARI said. The report is based on data submitted by MARI subscribers about loans originated in the first quarter that have since been classified as fraudulent. MARI, a ChoicePoint company, can be found online at http://www.marisolutions.com.

Citigroup, in a new report, says it is unlikely that the federal government will nationalize Fannie Mae and Freddie Mac, while admitting that in time some type of federal action may be necessary. The report says the government-sponsored enterprises are not entirely without options, adding that their new regulator, the Federal Housing Finance Agency, could ease "the arbitrary capital surplus requirement further." It adds, "given our analysis, which shows that both [Fannie Mae and Freddie Mac] should have sufficient capital through (at least) year-end 2008 under a variety of negative credit scenarios, all parties could wait-it-out until market conditions improve." In Monday's trading, Freddie's share price was up 15% at one point to $3.26, while Fannie's was up 5% to $5.24.

The sales of existing single-family homes jumped 3.1% in July due to strong sales in markets that previously have seen substantial price declines, such as Ft. Myers, Fla., Sacramento, Calif., and Las Vegas, but nationwide sales are slow and properties listed for sale remain at historic highs. The National Association of Realtors reported that sales of previously owned homes rose to a seasonally adjusted annual rate of 4.39 million in July from 4.26 million in June. Sales were off 12.4% since July 2007, and the median price of a single-family home was down 7.7% since that time, to $210,900. Meanwhile, 3.9 million single-family homes were listed for sale in July, unchanged from the level in June despite the rebound in sales. The Realtors estimate that 33% to 40% of resales involve short sales and foreclosure sales. NAR economists are also hearing that brokers are selling bank-owned properties before posting them on a multiple listing service. These prelisted bank sales don't show up in NAR sales data. In many markets, sales are down 10% to 20% from the levels of a year ago, according to NAR chief economist Lawrence Yun. And he says he is worried that tightening by Fannie Mae and Freddie Mae is crimping sales. For example, the job market is very strong in Texas and home prices are very affordable, which normally translates into increased sales, Mr. Yun told reporters. "But it is not happening in Texas, which is saying there is a credit crunch impacting buyers." The NAR can be found online at http://www.realtor.org.

Three classes from Citigroup Commercial Mortgage Trust commercial mortgage pass-through certificates series 2006-FL2 have been downgraded by Moody's Investors Service. The downgrades were as follows: class L, from Baa3 to Ba1; class RAM-1, from Baa3 to Ba2; and class RAM-2, from Ba1 to Ba3. Moody's said it downgraded pooled class L and rake classes RAM-1 and RAM-2 based on a decline in its estimate of property value for the Radisson Ambassador Plaza Hotel and Casino in San Juan, Puerto Rico.

Impac Mortgage Holdings Inc., Irvine, Calif., has been given a four-month cure period to fix noncompliance issues regarding its listing on the New York Stock Exchange. The regulatory arm of NYSE notified Impac that it had once again fallen out of compliance with the continued-listing standards because, as of July 1, its 30-day average price had fallen below the $1 average requirement. This counted as a repeat instance of quantitative noncompliance within 12 months of a cure of a first notice of noncompliance. NYSE Regulation reviewed materials on the real estate investment trust's plans to address the current share price deficiency and gave Impac four months to cure the problem. NYSE Regulation will also continue to closely monitor Impac regarding share price levels and progress on planned initiatives. The last time Impac traded above $1 was on June 2, according to Yahoo! Finance. The stock traded as low as $0.69 on June 30. On Aug. 21, it closed at $0.77 per share.

Nonprofit housing groups and the National Association of Home Builders are forming a coalition to press Congress to reverse a ban on seller-funded downpayment assistance on Federal Housing Administration-insured loans. "We would like to see it happen this year, but the prospects are bleak," said Jerry Howard, executive vice president and chief executive of the NAHB. Nevertheless, the builders will be talking to the presidential candidates and their campaigns along with senators and congressmen to "make sure we can move this bill early next session," Mr. Howard said. Congress passed a major housing bill in July that bans seller-funded downpayment assistance on FHA loans starting Oct. 1 because of high defaults rates and losses to the FHA insurance fund. The builders are working with Nehemiah Corporation of America, AmeriDream, and other nonprofit housing groups on a grassroots effort to pass a bill sponsored by Rep. Al Green, D-Texas. The Green bill protects the insurance fund by allowing the FHA to charge higher premiums on DPA borrowers with low credit scores.

Two classes of Credit Suisse First Boston Mortgage Securities Corp. commercial mortgage securities trust series 2006-TFL2 have been placed on review for possible downgrade by Moody's Investors Service. The affected securities are classes MW-A and MW-B. The rating actions were due to slower-than-expected condominium sales and a lower sales price per square foot at Metropolitan Warner Center, Moody's said. The rating agency can be found on the Web at http://www.moodys.com.