Origination

In a follow-up to regulatory approvals for CapitalSource Inc., Chevy Chase, Md., to buy certain assets and liabilities of Fremont Investment & Loan, Fremont General Corp., Brea, Calif., has filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Fremont General stressed that FIL has not filed for bankruptcy, but court approval will be needed to complete the sale to a de novo California-chartered industrial bank being formed by CapitalSource. Fremont General previously sold its $12.2 billion mortgage servicing rights portfolio to Litton Loan Services, a division of Goldman Sachs. Meanwhile, CapitalSource will make a public offering of 30 million shares of common stock. "This is a 'play offense' capital raise," said John K. Delaney, CapitalSource chairman and chief executive. "With the recent regulatory approval of CapitalSource Bank (in organization), we are well positioned to seize opportunities in the current favorable market conditions."

Triad Guaranty Inc., Winston-Salem, N.C., has ended discussions with Lightyear Capital LLC on the formation of a new mortgage insurance company and has announced that Triad Guaranty Insurance Co. will be transitioned into runoff. The subsidiary will cease issuing commitments for mortgage insurance as of July 15, Triad said. The parent company also reported that Freddie Mac had denied the appeal of its suspension as an approved mortgage insurer. Mark Tonnesen, president and chief executive of Triad, said New York-based Lightyear Capital "worked very hard with us to develop a transaction that we believe would have ultimately served the interests of Triad's stakeholders, but certain hurdles arose that prevented the transaction from being feasible. We are continuing to work with our financial adviser, Goldman Sachs, to explore whether other strategic alternatives are available, but we are not optimistic that any opportunities will surface." Fitch Ratings said it would "monitor Triad's ability to execute an orderly runoff as well as loss developments within the insured portfolio and the extent to which captive reinsurance and rescission activity offset these losses." Fitch said it believes shareholder interests are likely to be a higher priority of management than the interests of policyholders. Triad can be found online at http://www.triadguaranty.com.

Two classes of GMAC Commercial Mortgage Securities Inc.'s mortgage pass-through certificates series 2001-C2 have been downgraded by Fitch Ratings. Class O was downgraded from B to B-minus, and class P was downgraded from B-minus to CCC/DR2. Fitch also affirmed the ratings on 16 other classes in the transaction. "The downgrades reflect expected losses from the specially serviced loans and an increase in Fitch Loans of Concern," the rating agency said. Fitch can be found on the Web at http://www.fitchratings.com.

Zacks Equity Research, Chicago, has named PMI Group, Walnut Creek, Calif., as its Bear of the Day for June 18. "PMI's combined ratio worsened significantly while the claim rates and average claim sizes increased considerably," Zacks said. "We suspect the company may need to raise capital in the coming months in order to satisfy the requirements of the rating agencies. Based on the results, we have further reduced our estimates for fiscal year 2008 and fiscal year 2009. Our sell rating on the shares remains unchanged." As part of the transfer of a reinsurance portfolio to a third party announced on June 17, PMI Group plans to take a $150 million dividend from one of its units and reinvest at least 80% of it into its U.S. mortgage insurance subsidiary, PMI Mortgage Insurance Co. Zacks can be found online at http://www.zacks.com, and PMI can be found at http://www.pmigroup.com.

Commercial real estate prices rose 0.1% in March on a national basis and recorded a 12-month increase of 5.1%, according to the S&P/GRA Commercial Real Estate Indices. The indices showed a 7.7% 12-month rate of return for the apartment sector, and a 10.3% rate for the Pacific West, S&P reported. The worst 12-month performances were recorded in the office sector, 2.3%, and the Desert Mountain West, negative-0.2%, according to the company. "In the property sector, warehouse was the star performer during the March/February period, up 0.9%," said David Blitzer, managing director and chairman of S&P's Index Committee. "The three other property sectors reported small positive returns." The indices can be found on the Web at http://www.spcrex.standardandpoors.com.

Citing declining home prices and deteriorating credit trends, Cincinnati-based Fifth Third Bancorp has announced several moves aimed at strengthening its capital position. Fifth Third said it plans to issue $1 billion of convertible preferred shares to shore up its Tier 1 capital, reduce its quarterly dividend from $0.44 per share to $0.15 per share, and sell certain noncore businesses. The company said it has revised its target Tier 1 capital ratio to 8%-9%. Meanwhile, Fitch Ratings downgraded the long- and short-term Issuer Default Ratings, among others, of Fifth Third and its principal bank subsidiaries. The long-term IDRs were downgraded from AA-minus to A-plus, the short-term from F1-plus to F1. The downgrades were attributed to "the company's deteriorating trends in asset quality, expectations for elevated levels of problem assets in the near term, and a decline in profitability.... The majority of credit weakening is concentrated in Michigan and Florida, and centered in the home equity, homebuilder/developer, and residential mortgage portfolios."

Solera National Bank, Lakewood, Colo., has announced a joint marketing agreement and strategic partnership with Countrywide Home Loans under which Countrywide will establish an office in each of Solera's branch locations. "Since we opened our doors late last year, we have had a significant number of ongoing requests from our customers for residential mortgage products and services," said Paul Ferguson, the bank's chief executive officer. "Our relationship with Countrywide Home Loans and their location in our bank lobby will allow Solera National Bank to deepen our relationship with our customers and prospective customers." Countrywide, which is based in Calabasas, Calif., is being acquired by Bank of America. Solera can be found on the Web at http://www.solerabank.com, and countrywide can be found at http://www.countrywide.com.

The Federal Insurance Deposit Corp. has approved the application for a newly formed California-chartered industrial bank subsidiary of CapitalSource Inc., Chevy Chase, Md., to receive deposit insurance. The approval is the final regulatory OK needed for CapitalSource to acquire certain assets and liabilities of Fremont Investment & Loan, which is being sold by its troubled parent company, Fremont General Corp., Brea, Calif. The FDIC also approved that purchase as well as the establishment of 22 FIL branches as offices of CapitalSource Bank. Under the agreement, CapitalSource is not acquiring the FIL charter, which remains with Fremont General. The California Department of Financial Institutions approved the deal on June 13. "Further diversifying our funding sources has long been an important strategic goal," said John K. Delaney, CapitalSource chairman and chief executive. "The formation and operation of a regulated bank with significant deposits meets that objective."

Despite the record number of foreclosures, housing price declines have been small and will remain so, according to a new paper released by the American Enterprise Institute. Cushioned by such other "fundamental factors" as employment growth and reductions in the housing supply, prices on average will slide by only 4.5% under the study's worst-case scenario, said co-author Charles Calomiris, a professor at Columbia University and a visiting scholar at the conservative think tank. Only 11 states will see prices drop by more than 6% by the end of 2009, he predicted. "Foreclosures and home prices have negative effects on each other over time, but this does not imply a vicious cycle of housing price collapse," Mr. Calomiris said. The paper bases its findings on house-price data compiled by the Office of Federal Housing Enterprise Oversight, maintaining that the more popular S&P/Case-Shiller index is prejudiced toward markets more susceptible to price swings. But Mark Zandi of Moody's Economy.com said it is the OFHEO numbers that are defective because, among other things, they don't include foreclosure sales. Mr. Zandi said 25% of all sales in the first quarter were distress sales, many at 50 cents on the dollar. And with 8.5 million homeowners now owing more than what their properties are worth, the economist warned that the foreclosure problem will get much worse before it gets better.

Wilmington Finance Inc., Plymouth Meeting, Pa., has announced a cessation of wholesale mortgage banking operations that will lead to layoffs of approximately 335 people by year's end. WFI said it will honor the existing loan commitments in its mortgage banking pipeline and maintain a reduced retail operation. The company, an originator of nonconforming mortgage loans, is a wholly owned subsidiary of American General Finance Inc., Evansville, Ind. American General is a subsidiary of American International Group.