Origination

Fannie Mae appears to be emphasizing its credit guarantee/securitization business and taking a slow-growth approach when it comes to its mortgage investment portfolio, based on a monthly activity report issued by the giant mortgage company. During the first five months of this year, Fannie has issued $290.8 billion in mortgage-backed securities, according to the May report. (In comparison, Freddie has reported the issuance of $204.1 billion in MBS so far this year.) Meanwhile, Fannie has increased the size of its mortgage portfolio by $15.3 billion to $736.9 billion since March 1, when the Office of Federal Housing Enterprise Oversight removed a cap on its portfolio growth. OFHEO also removed a cap on Freddie's portfolio, but Fannie's competitor increased the size of its portfolio by $70.9 billion, to $770.4 billion, from March 1 to the end of May. The May activity reports show that Fannie had a 1.22% serious delinquency rate on its single-family portfolio and Freddie had a 0.81% rate.

Fannie Mae has tightened its underwriting guidelines to prevent homeowners who are preparing to default on their mortgage from purchasing a more affordable home with Fannie-guaranteed financing. To prevent these "buy-and-bail" schemes, Fannie is requiring the borrowers who are proposing to rent their home to show they have 30% equity in the property, a copy of the lease agreement, and a receipt for the security deposit. Usually buy-and-bail transactions involve borrowers with upside-down mortgages. If they don't have 30% equity, the borrowers must show that they have the resources to service both mortgages and reserves to cover six months of mortgage payments (including insurance and taxes) for both properties. These requirements go into effect Aug. 1. The June 25 seller guide announcement also requires lenders that sell loans seasoned six to 12 months to provide warranties that the original value of the property has not declined. Fannie also updated it policies on how long it takes borrowers involved in bankruptcies and foreclosures to quality for a new mortgage. Fannie Mae can be found online at http://www.fanniemae.com.

The Federal Open Market Committee has left the target federal funds rate unchanged as expected, marking the first time in recent months that it has not decided to cut rates. The FOMC, the monetary policy-making committee of the Federal Reserve Board, said June 25 that it remains concerned about "tight credit conditions, the ongoing housing contraction, and the rise in energy prices," which "are likely to weigh on economic growth over the next few quarters," but it is also concerned about inflation. "In light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high," the committee said. The federal funds rate is the interest rate banks charge each other for overnight loans.

Meanwhile, Countrywide Financial Corp.'s litigation problems are growing as California and Washington state officials filed separate complaints against the giant mortgage lender for its lending practices. California Attorney General Edmund G. "Jerry" Brown Jr. has sued Countrywide and its chairman Angelo Mozilo and president David Sambol for allegedly using deceptive practices to "push" borrower into complex, risky, and expensive loans they did not understand and could not afford so the company could sell as many loans as possible to Wall Street securitizers at the highest premiums. "The lawsuit seeks relief for California who were ripped off by Countrywide's deceptive scheme," Mr. Brown said. The Washington Department of Financial Institutions has charged Countrywide with allegedly engaging in discriminatory lending and fined the Calabasas, Calif.-based lender $1 million. In addition, the state is seeking to revoke Countrywide's lending license. As previously reported, the Illinois attorney general has sued Countrywide and Mr. Mozilo for allegedly engaging in unfair and deceptive lending practices. Countrywide had no comment on the California complaint, but said, "We continue to be duly authorized to conduct business in Washington and are actively serving homebuyers and existing customers there."

Single-family existing-home sales rose 1.6% in May as buyers took advantage of declining prices in distressed markets and snatched up foreclosed properties, according to the National Association of Realtors. The Realtors reported that sales of previously owned homes rose from a seasonally adjusted annual rate 4.34 million in April to 4.41 million in May. NAR senior economist Paul Bishop said one-third of resales in May involved short sales or sales of bank-owned real estate. He noted that sales have picked up in troubled markets like Battle Creek, Mich.; Sarasota, Fla.; Las Vegas; and Orange County, Riverside, and Sacramento, Calif. The median home price in the West has declined 16% since May 2007. However, sales have softened in stable markets -- such as Portland, Ore.; Seattle; Raleigh, N.C.; and Salt Lake City -- that continue to enjoy solid job growth. Meanwhile, the median price of a single-family home was $296,700 in May, down 6.8% from that of a year ago. The inventory of single-family homes fell slightly in May to a 10.4 month-supply. The NAR can be found online at http://www.realtor.org.

Two classes of J.P. Morgan Chase Commercial Mortgage Securities Corp. series 2005-CIBC13 have been downgraded by Fitch Ratings. Class N was downgraded from B to B-minus, and class P was downgraded from B-minus to CCC/DR1. Fitch affirmed the ratings on 23 other classes in the deal. The downgrades were attributed to projected losses on the seven specially serviced loans. The projected losses are expected to affect the credit enhancement to classes N and P, Fitch said.

Private commercial mortgages recorded a total return of 0.82% for the first quarter, according to the LifeComps Commercial Mortgage Index. Of the total return, income return accounted for 1.58% and price return amounted to negative-0.78%, LifeComps reported. The index had recorded a 3.11% total return for the previous quarter. Office properties topped the ranks in total return for 2007, with 6.70%, compared with 6.62% for industrial properties, 6.51% for apartments, and 6.35% for retail properties, according to the index. LifeComps said its index is "the only published benchmark for the private commercial mortgage market based on actual cash flow data, which has been collected quarterly from participating life insurance companies since 1996." LifeComps can be found on the Web at http://www.lifecomps.com.

The Radian Group Inc., Philadelphia, will be dropped from the S&P MidCap 400 after the close of trading on July 2, according to Standard & Poor's. It will be replaced by Lender Processing Services Inc., Jacksonville, Fla., which is being spun off by Fidelity National Information Services, also of Jacksonville, on July 3. At the close of trading on June 24, Radian had a market capitalization of $165 million, ranking it 400th in the index. S&P is also removing BankUnited Financial Corp., Coral Gables, Fla., from the S&P SmallCap 600 as of the close of trading on June 30. On June 24, BankUnited was 600th in the index in terms of its market cap, at $47 million, S&P said. It will be replaced by media company E.W. Scripps Co. (On July 1, the original E.W. Scripps is slated to spin off Scripps Networks Interactive Inc., which will take its former parent's place in the S&P 500.) S&P can be found online at http://www.standardandpoors.com.

California is usually the bellwether of the housing market, but new home production in the Golden State is expected to drop to the lowest level since accurate counts of statewide totals began in 1954, according to the Construction Industry Research Board. The board is forecasting just 79,000 starts for all of 2008. During the first four months of the year, single-family home production was down 58% from that of the same period last year, with 15,254 units permitted, while multifamily home production fell 24%, with 14,419 permits pulled. Overall, production was off 46%, and start figures for May show the slowdown continuing. Total starts for the month declined 37% from the level recorded a year earlier, CIRB reports. Just 3,531 single-family permits were pulled in the entire state in May. Don't look for the things to pick up in California any time soon, either, according to Alan Nevin, chief economist of the California Building Industry Association. The prospect of a major recovery by the end of the year is looking less and less likely as demand for new construction continues to wane in the face of the foreclosure crisis, Mr. Nevin said. "We see little change in the status of the new residential construction market for the balance of 2008 as homebuilders opt to wait out a return of demand," he said.

The Illinois attorney general has sued Countrywide Financial Corp. and its chairman Angelo Mozilo for engaging in allegedly unfair and deceptive lending practices that placed borrowers into risky subprime and payment-option mortgages they could not afford. "Countrywide used egregious unfair and deceptive lending practices to steer borrowers into loans that were destined to fail," AG Lisa Madigan said. The lawsuit alleges that Countrywide weakened its lending standards and pushed reduced document loans to qualify more borrowers and increase its loan production. "Through the investigation, we have learned the larger story of how Countrywide created and implemented a corporate strategy that resulted in widespread loan failures," Ms. Madigan said. Countrywide, which is being acquired by Bank of America, had not responded to a request for comment by deadline time. The Illinois AG wants the Cook County Circuit Court to order the Calabasas, Calif.-based lender to rescind or restructure all the loans it originated using the allegedly unfair and deceptive practices.