Origination

The Department of Housing and Urban Development says it intends to move ahead with RESPA reform and provide homebuyers with better disclosures of mortgage terms and costs even though 243 members of Congress have petitioned HUD to withdraw its rule. "The current housing finance situation has dramatically highlighted the need to move forward responsibly and expeditiously with measures to help American homebuyers," HUD Assistant Secretary Sheila Greenwood said in a letter to Reps. Ruben Hinojosa, D-Texas, and Judy Biggert, R-Ill. "This response is unacceptable," Rep. Biggert said. "Our concerns are serious, and they are shared by a broad, bipartisan coalition of industry and consumer interests." A majority of the House of Representatives signed a letter circulated by Reps. Hinojosa and Biggert that says HUD's Real Estate Settlement Procedures Act proposal is too complex and would confuse consumers and hurt small businesses. The HUD assistant secretary for congressional relations stressed that HUD is "carefully considering" the comment letters by industry groups, consumer groups, and other interested parties and that HUD "will make appropriate modifications and improvements to the rule."

Twenty-five classes of notes issued by six collateralized debt obligations linked to subprime residential mortgage-backed securities have been downgraded by Fitch Ratings. All but one of the downgraded classes were removed from Rating Watch Negative. (The rating on the one exception was withdrawn because of the withdrawal of the Insurer Financial Strength rating of MBIA, which Fitch no longer rates.) The affected securities are as follows: six classes from North Street Referenced Linked Notes 2002-4 Ltd., a partially funded synthetic, structured finance CDO; five classes from Fulton Street CDO Ltd./Funding Corp., a cash flow structured finance CDO; five classes from Glacier Funding CDO III Ltd./Inc.; four classes from Glacier Funding CDO II Ltd./Inc.; four classes from Northwall Funding CDO I Ltd./Inc., a cash flow structured finance CDO; and one class from ABSpoke 2005-XA Ltd., a partially funded static, synthetic, structured finance CDO. The downgrades were attributed to collateral deterioration in subprime RMBS, alternative-A RMBS (in two transactions), and structured finance CDOs with underlying exposure to subprime RMBS (in one transaction).

Delinquencies on mortgages supporting commercial mortgage-backed securities increased 2 basis points to 0.43% in July, according to a Fitch Ratings loan delinquency index. The rating agency pointed to "substantial differentiation" in the performance of small-balance pools, which typically have loans ranging from $150,000 to $15 million. "For instance, Fitch's year-to-date upgrade-to-downgrade ratio of 2.5-to-1 for traditional CMBS was driven to 1.5-to-1 when small-balance transactions were factored in," said Susan Merrick, a Fitch managing director who heads the rating agency's U.S. CMBS group. Fitch also said a high concentration of delinquencies (15.4%) in the index is represented by transactions issued in 1998, many of which have a large percentage of loans with 10-year terms. Fitch can be found online at http://www.fitchratings.com.

Franklin Credit Management Corp., a New York-based company that buys, manages, and sells subprime residential mortgage assets, says it expects to report a second-quarter loss of $280-285 million, compared with a net loss of $3.6 million a year earlier. The company says the loss is due to deterioration in the subprime market and the performance of its portfolio of acquired and originated loans, especially acquired second-lien mortgage loans. The company has filed a five-day automatic extension for filing its second-quarter Form 10-Q with the Securities and Exchange Commission. The expected loss reflects a higher provision for credit losses. "Franklin's updated evaluation of its provision and reserves is more in line with the assumptions we used and reserves established as part of our 2007 fourth-quarter restructuring of this commercial lending relationship," said Thomas E. Hoaglin, chairman, president, and chief executive officer of Huntington Bancshares Inc., which has a $1.1 billion commercial lending relationship with Franklin. "The provision does not have any impact on our reported reserve level." Franklin is evaluating the legal structure of its servicing platform as a result of the expected second-quarter loss. Franklin can be found on the Web at http://www.franklincredit.com.

Home prices declined 10.7% nationally over the past 12 months, according to the latest LoanPerformance Home Price Index. "Given our home price expectations for the remainder of this year, we expect 2.7 million preforeclosure and foreclosure filings in 2008, up nearly 50%" from the level recorded in 2007, said Mark Fleming, chief economist of First American CoreLogic, the Santa Ana, Calif.-based company that compiles the index. "Nominal home price declines have stabilized in the 10% to 11% range for several months. However, given the surge in inflation, real inflation-adjusted home prices are still declining at a faster rate." He said 37 states are experiencing price declines, and that homes in California and Nevada are depreciating at an annualized rate of more than 20%. Los Angeles-Long Beach-Glendale headed the index's list of top metropolitan areas with 12-month home price declines with a 26.6% decrease. The LoanPerformance HPI provides monthly home price indices and median sales prices covering 7,569 ZIP codes and 676 counties in all 50 states and the District of Columbia, the company said. First American CoreLogic can be found online at http://www.facorelogic.com.

Four classes of notes issued by C-Bass CBO XIII Ltd., a cash flow collateralized debt obligation linked to subprime residential mortgage-backed securities, have been downgraded by Fitch Ratings. The downgrades were as follows: class A, from AAA to BBB-plus; class B, from AA to BB-plus; class C, from A to BB-minus; and class D, from BBB to B-minus. Classes B, C, and D were removed from Rating Watch Negative. The downgrades were attributed to credit deterioration in the portfolio and underlying exposure to subprime RMBS. More than half, 51.6%, of the portfolio consists of subprime RMBS, while the remainder consists of alternative-A RMBS, 22.2%; prime RMBS, 7.1%; commercial MBS, 5.3%; commercial real estate CDOs, 4.8%; manufactured housing RMBS, 3.9%; commercial asset-backed securities, 2.4%; U.S. structured finance CDOs, 2.0%; and high-yield bond CDOs, 0.7%.

NovaStar Financial Inc., Kansas City, Mo., has acquired a majority interest in PipeFire LLC, a residential appraisal management firm headquartered in Indianapolis. The business will now operate under the name StreetLinks National Appraisal Services. "PipeFire is well known to us from our days as a retail lender as we used its services in our operation," said Lance Anderson, chief executive of NovaStar Financial. "With the enhanced focus on the appraisal process as the result of the recent downturn in the housing market, we feel we can provide a valuable service to the lending community. While we cannot expect this transaction or StreetLinks to resolve the significant challenges NovaStar still faces, we view the acquisition as a positive step toward re-establishing niche operations in the residential housing market." Steve Haslam, senior vice president of NovaStar Mortgage, will become chief executive of StreetLinks. NovaStar Financial's current business is managing its portfolio of nonconforming residential mortgage securities.

Originations of Federal Housing Administration single-family loans are catching up with Fannie Mae and Freddie Mac loans, according to the chief executive of a cooperative of 125 regional mortgage banking firms. "FHA is the fastest-growing product," said Scott Stern, CEO of St. Louis-based Lenders One. In January 2007, FHA lending made up only 1% of Lenders One loan production, and 60% was Fannie/Freddie conventional loans. In the second quarter of 2008, FHA product constituted 41.5% of originations, while conventional originations totaled 53.1%, Mr. Stern told MortgageWire. The co-op members originated $7.6 billion in mortgage loans in the first quarter. The Lenders One CEO noted that the FHA is getting a lot of good publicity and that the federal mortgage insurance program has not raised its fees or tightened its underwriting standards, as Fannie and Freddie and the private mortgage insurance companies have. But Mr. Stern said investors will no longer buy FHA loans with credit scores below 580. "Some won't do it below 600 or 620," he added. The FHA can be found online at http://www.fha.gov.

The residential primary specialty-reverse mortgage servicer rating of Financial Freedom Senior Funding Corp. has been upgraded from RPS5 to RPS3 by Fitch Ratings for subprime loans. The rating has been placed on Rating Watch Evolving. Financial Freedom is a wholly owned subsidiary of IndyMac Federal Bank (see item above). "The rating actions reflect the operational capabilities of the existing servicing platform, and the financial backing of the FDIC," Fitch said.

Fitch Ratings has assigned RPS3 residential primary servicer ratings for prime, alternative-A, and subprime loans to Indymac Federal Bank FSB, the successor to the defunct IndyMac Bank. In addition, Fitch assigned the company an RSS3 residential special servicer rating. The ratings were placed on Rating Watch Evolving. "The rating actions reflect the operational capabilities of the existing servicing platform, and the financial backing of the FDIC," Fitch said. The Federal Deposit Insurance Corp. was appointed conservator of the bank after IndyMac Bank was closed by the Office of Thrift Supervision. (Fitch's servicer ratings of IndyMac Bank have been withdrawn.) Fitch rates residential servicers on a scale of 1 to 5, with 1 being the highest rating. The rating agency can be found online at http://www.fitchratings.com.