Origination

Morgan Stanley Real Estate has announced the raising of an additional $2.5 billion of equity commitments for its Special Situations Fund III, more than 60% of it from investors outside the United States. The company said the commitments bring to $5.9 billion the total amount raised for the fund from institutional investors, high-net-worth investors, and Morgan Stanley (which represents 23% of the total). The fund is focused mainly on making noncontrolling investments in real estate securities in growth/emerging, developed, and distressed markets around the world. "The heavy emphasis on the high-growth emerging economies (China, India, Russia, Poland, Mexico, and Brazil), the flexibility to invest across the capital structure of real estate companies, and the ability to invest in developments and recurring income-producing assets in all real estate sectors is what makes this fund attractive in the marketplace," said Willem de Geus, managing director and global portfolio manager of Special Situations. Morgan Stanley Real Estate can be found online at http://www.morganstanley.com/realestate.

Fannie Mae and Freddie Mac are abandoning their affordable housing mission by tightening lending practices and imposing new fees that will put homeownership out of reach for minority and low-income homeowners, according to 80 fair-housing and civil rights organizations that are urging the government-sponsored enterprises to reverse course. "We the undersigned are deeply troubled by the recent announcement of your intentions to raise the cost of low-down payment loans for all but the smallest percentage of homebuyers with near perfect credit," the groups say in a letter to the top executives of Fannie and Freddie. The new "pricing scheme" violates "your charter," the April 22 letter says, and it is "tantamount to both ethnic and gender discrimination." Fannie and Freddie have tightened underwriting standards and imposed new delivery fees on almost all their mortgage programs, including affordable housing products.

Hersha Hospitality Trust, a Philadelphia-based real estate investment trust, has been approved for listing on the New York Stock Exchange, according to the REIT. Hersha, which is now traded on the American Stock Exchange, said its common stock will begin trading on the NYSE under the ticker symbol "HT" on May 5, and its series A preferred stock will trade under the symbol "HT PR A." The lodging REIT can be found on the Web at http://www.hersha.com.

Forty-eight additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on April 21 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed one class on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of $1.5 billion. The pass-through securities affected by the latest downgrades were: 45 classes from eight issues by Residential Asset Mortgage Products; and three classes from one issue by Own It Mortgage Loan Trust. The rating actions were attributed to changes to Fitch's subprime loss forecasting assumptions that "better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness." Fitch can be found online at http://www.fitchratings.com.

Moody's Investors Service has downgraded the ratings of more than 800 tranches in nearly 100 subprime residential mortgage-backed securities transactions from six issuers. The affected securities were as follows: 286 tranches from 30 issues by First Franklin Mortgage Loan Trust; 220 tranches from 25 issues by Citigroup Mortgage Loan Trust; 208 tranches from 27 issues by Securitized Asset Backed Receivables LLC Trust; 90 tranches from 12 issues by Specialty Underwriting and Residential Finance; 27 tranches from three issues by Aegis Asset Backed Securities Trust; and 14 tranches from two issues by Park Place Securities Inc. Of the downgraded tranches, 164 remain on review for possible further downgrade. Moody's said the downgrades were based, in general, on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels. The collateral consists primarily of first-lien, fixed- and adjustable-rate subprime residential mortgage loans.

Simon Turner has been named president of global development at Starwood Hotels & Resorts Worldwide Inc., White Plains, N.Y. Starwood said Mr. Turner has "extensive experience in global hotel development and investment management, as well as expertise" in various areas, including hotel acquisitions and dispositions. Before joining Starwood, Mr. Turner spent more than 10 years as a principal for Hotel Capital Advisers Inc., a hotel investment advisory and asset management firm, Starwood said. Before 1996, he was a director of investment banking at Salomon Brothers. Starwood can be found online at http://www.starwoodhotels.com.

Home prices in 28 states showed a 12-month decrease in February, although the number rises to 36 for states showing a decline over the previous three months, according to the latest LoanPerformance Home Price Index. Riverside-San Bernardino-Ontario (Calif.) headed the index's list of top metropolitan areas with 12-month home price declines with a 21.3% decrease. Los Angeles-Long Beach-Glendale ranked second with an 18.7% decline, and Cape Coral-Fort Myers (Fla.) finished third at 18.1%. "Regionally, it is notable that the three-month declines in New York-White Plains, Philadelphia, Seattle, Detroit, and Portland [Ore.] are steeper than the 12-month declines in these areas, whereas in California and Florida this pattern is reversed," said Mark Fleming, chief economist of First American CoreLogic, the Santa Ana, Calif.-based company that compiles the index. The LoanPerformance HPI provides a comprehensive set of monthly home price indices and median sales prices covering 7,508 ZIP codes and 670 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.

Bank of America says it is adopting very conservative lending guidelines as part of its acquisition of Countrywide Financial Corp. and is structuring its adjustable-rate and interest-only products to prevent payment shock and provide long-term affordability. The combined mortgage businesses will not originate subprime loans or option ARMs, BoA executive Bruce Hammonds told Federal Reserve officials who are seeking public input on BoA's merger application. Essentially, BoA is pledging to offer its retail customers standard Federal Housing Administration, Fannie Mae, and Freddie Mac mortgage products along with other loans designed for low- and moderate-income borrowers. All interest-only mortgages will have a minimum 10-year interest-only period. Industry insiders have been speculating for months that Bank of America will shut down Countrywide's wholesale channel, which used to purchase subprime and option ARMs from mortgage brokers. A BoA spokesman declined to comment on the future of the wholesale business. Bank of America shut down its wholesale lending operation last fall. The Charlotte, N.C.-based banking giant plans to complete its acquisition of Countrywide in the third quarter. BoA can be found online at http://www.bankofamerica.com.

Downey Financial Corp., Newport Beach, Calif., lost $248 million in the first quarter, citing "ongoing" weakness in the housing market. The thrift, which ranks 44th among all residential funders, set aside $236 million to cover credit losses and noted that during the quarter its average loan-to-value ratio had improved to 65% (from 67% in the first quarter of 2007). Its average FICO score was 745 in the first quarter, compared with 721 a year earlier. The company reported that it is seeing a pickup "in the rate at which our foreclosed homes are being sold." Downey said 23% of its inventory of unsold homes "was either in escrow to be sold or in negotiation to be sold" at the end of March. The company can be found online at http://www.downeysavings.com.

Sales of existing single-family homes fell 2.7% in March, erasing a bump up in February, according to the National Association of Realtors, which has detected in a separate survey that 18% of houses and condominiums for sale have negative equity. Of the 4 million existing homes on the market in March, 18% of those properties were short sales or foreclosures, NAR chief economist Lawrence Yun told reporters. The NAR reported that sales of previously owned single-family homes fell from a seasonally adjusted annual rate of 4.47 million in February to 4.35 million in March, which is off 18% from the sales pace in March 2007. The median sales price stood at $198,200 in March, down 8.3% from that of a year earlier. The NAR economist said he expects to see a pickup in sales in the second half as Federal Housing Administration loan production increases and Fannie Mae and Freddie Mac start purchasing jumbo loans. But he remains cautious about the outlook because mortgage rates "may have already reached their low point." And Mr. Yun voiced concern that any further interest rate cuts by the Federal Reserve could send mortgage rates up by stoking fears of inflation.