Origination

The ratings on three classes of noted issued by Visage CDO I Ltd., a managed hybrid collateralized debt obligation relating partly to commercial real estate, have been downgraded by Fitch Ratings and withdrawn. The downgrades were as follows: class A, from CCC to C/DR6; class B, from CC to C/DR6; and class C, from CC to C/DR6. The downgrades were attributed to a default resulting from the fact that the class A par value ratio was less than 100%. The CDO references a portfolio of mezzanine and high-grade asset-backed securities CDO tranches and commercial real estate CDO tranches, Fitch said.

Five classes of notes in North Street 2000-2 Ltd., a subprime mortgage-related collateralized debt obligation, have been downgraded by Fitch Ratings. The downgrades were as follows: tranche A, from AA-minus to B; tranche B, from BBB-plus to CCC; tranche C, from BBB-minus to CC; tranche D, from BB-plus to CC; and tranche E, from CCC/DR4 to CC/DR4. Fitch said the downgrades stemmed from higher loss expectations in the subprime residential mortgage-backed securities portion of the partially funded synthetic CDO portfolio. Fitch can be found online at http://www.fitchratings.com.

Meanwhile Zacks posted on its analysts blog that it is upgrading its rating on H&R Block Inc., Kansas City, Mo., from sell to hold following the release of its fourth quarter financial results. "Although the fallout from the mortgage business implosion will likely be felt for some time to come, and we continue to have significant concerns regarding other aspects of HRB's business, we believe that negative and positive aspects of the company's outlook are now roughly balanced," Zacks said. Block had net earnings for the fourth fiscal quarter ended April 30, 2008 of $543.6 million ($1.66 per share). The company reported a loss from discontinued operations of $147.6 million (-$0.45 per share) related to its exit from the subprime mortgage business. Block shut the origination business of Option One Mortgage in December 2007 and sold its mortgage servicing business on April 30.

The Market Composite Index, an overall measure of mortgage applications, increased from 461.3 to 477.7 on a seasonally adjusted basis during the week ended June 27, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index increased from 333.4 to 342.8 on a seasonally adjusted basis, while the Refinance Index increased from 1212.2 to 1269.2. Refinancings represented 36.8% of total applications, a slight increase from 36.3% the previous week, while adjustable-rate mortgages accounted for 8.5%, unchanged from the previous week, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.39% to 6.33%, and points (including the origination fee) decreased from 1.12 to 1.09 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Mortgage brokers that are not approved to originate Federal Housing Administration loans can be paid for counseling borrowers and referring them to FHA-approved lenders, according to Mortgagee Letter 2008-17, issued on June 20. However, the broker has to be paid directly by the borrower in cash and the fee has to be recorded on the HUD-1 settlement sheet, according to the letter. The Department of Housing and Development also expects non-approved brokers to enter into an agreement with the borrower. And FHA lenders must include a copy of this agreement or contract with other loan documents that FHA requires to insure a mortgage. "HUD is signaling that it is going to scrutinize these fees and services to make sure the borrowers are not overcharged," said K&L/Gates attorney Phillip Schulman. Due to the increasing popularity of FHA loans, brokers are rushing to become FHA-approved loan correspondents but HUD cannot process the applications fast enough. To deal with this backlog, several California congressmen are trying to insert a provision in a major housing bill that would temporarily allow FHA direct endorsement lenders to fund loans originated by non-approved brokers. The National Association of Mortgage Brokers supports this bill. The Mortgage Bankers Association and other lender groups oppose this provision.

Florida Attorney General Bill McCollum has sued Countrywide Financial Corp. and its former chairman Angelo Mozilo for allegedly engaging in deceptive and unfair trade practices in originating subprime loans. The AG's lawsuit says the Calabasas, Calif.-based lender failed to ensure that borrowers could repay their loans and even placed prime borrowers into higher interest rate subprime loans. "To foster a culture of loan approvals regardless of a borrower's capacity to pay, Defendants compensated underwriters with bonuses," says the lawsuit filed in Broward Country circuit court. "Defendants' underwriters had incentives to approve as many loans as possible, regardless of credit risk." Countrywide declined to comment on the specifics of the case. The Florida AG filed the lawsuit on June 30, one day before Bank of America completed its acquisition of Countrywide. Attorneys general in Illinois and California have filed similar lawsuits against Countrywide.

Fortes Financial Inc., San Diego, has acquired five regional wholesale offices formerly affiliated with National City Mortgage Corp., Miamisburg, Ohio. Fortes Financial was founded in August of 2007 by Peter J. Levasseur, president and chief executive, and Janice M. Ibey, executive vice president and chief operating officer, with the backing of a private equity firm. Mr. Levasseur held the same positions at ITT Mortgage Corp., while Ms. Ibey was most recently director of capital markets for Finance America LLC. The acquired offices are located in San Diego, Dallas, Chicago, Fredrick, Md., and Atlanta. Mortgage Search & Acquisition, played an integral role in the transaction. MSA's president, Tami Coffey, commented, "Fortes engaged us to identify potential retail or wholesale groups that fit within their corporate profile; we felt that the National City team was a quality, productive entity that would work well under the Fortes umbrella." Mr. Levasseur added "We have grown the company through recent investments into the retail and reverse mortgage sectors and feel that the addition of a high quality wholesale division such as the National City team represents, will help us ascertain not only diversification but also the ability to acquire a substantial market share offering endless upward opportunity going forward."

Three classes of Merrill Lynch Mortgage Loans Inc. 1st Street Tower Trust pass-through certificates, series 1999-1STT, have been downgraded from A3 to A2 by Moody's Investors Service. The affected securities are classes A-1, A-2, and A-3. Moody's said the actions were taken to align the ratings of the securities with the current rating of TransCanada Pipelines Ltd., which was downgraded on June 24. The transaction is secured by a mortgage on a 942,000-square-foot class A office tower in downtown Calgary, Canada, that is occupied by TCPL under a 20-year net lease. Moody's can be found online at http://www.moodys.com.

Ten classes from five military housing transactions with surety bonds from MBIA and Ambac have been placed on Rating Watch Negative by Fitch Ratings. The affected securities are as follows: classes I, II, and III of Pacific Beacon LLC (CA) Military Housing (San Diego) 2006 series A; classes I and II of Ohana Military Communities LLC (HI) Military Housing Revenue Bonds (Marine Corps Hawaii Housing Privatization Project) 2007 series A; class I of Ohana Military Communities LLC (HI) Military Housing Revenue Bonds (Navy Hawaii Housing Privatization Project) 2006 series A; class I of Ohana Military Communities LLC (HI) Military Housing Revenue Bonds (Marine Corps Hawaii Housing Privatization Project) 2006 series B; and Hampton Roads PPV LLC Military Housing Taxable Revenue Bonds (Hampton Roads Unaccompanied Housing Project) 2007 series A. The Hampton Roads issue is insured by Ambac, and the other four are insured by MBIA. "While all of the military housing projects referenced above are in line with initial projections, Fitch is evaluating how each project's cash flows are performing, and will assess the credit value associated with MBIA's and Ambac's ability to meet their obligations under each surety bond for the above transactions," the rating agency said.

Feldman Mall Properties Inc., Great Neck, N.Y., has announced that it will begin trading on the Over the Counter Market as of July 7. The real estate investment trust said it will no longer trade on the New York Stock Exchange. Feldman said it has not yet been assigned a trading symbol. The REIT can be found online at http://www.feldmanmall.com.