Origination

One in 33 U.S. homeowners will likely be in foreclosure over the next two years as a result of subprime loans made in 2005 and 2006, according to a report released by The Pew Charitable Trusts. The numbers projected for Nevada and Arizona are much higher -- 1 in 11 and 1 in 18, respectively -- and another 40 million neighboring homeowners may see their property values and their municipalities' tax bases decline by up to $356 billion, says the report, "Defaulting on the Dream: States Respond to America's Foreclosure Crisis." Pew said states are generally in the forefront of developing policies aimed at preventing abusive lending. "Let's make certain federal laws build upon, rather than pre-empt, the strong and smart state efforts already under way and ensure that states retail flexibility to respond to local circumstances," said Shelley A. Hearne, managing director of Pew's Health and Human Services Program. Pew can be found online at http://www.pewtrusts.org.

LaSalle Hotel Properties, Bethesda, Md., and LaSalle Investment Management, Chicago, have announced a joint venture to seek U.S. hotel investments in urban and resort markets with high barriers to entry. The companies said they plan to invest up to an aggregate of $250 million of equity in the venture. LaSalle Hotel Properties, a real estate investment trust, will own 15% of the venture, which is expected to have an acquisition period of up to three years and a life of up to seven years, the companies said. They can be found online at http://www.lasallehotels.com and http://www.lasalle.com.

MGIC Investment Corp., Milwaukee, has reported a net loss of $34.4 million ($0.41 per share) for the first quarter, compared with net income of $92.4 million ($1.12 per share) a year earlier. Curt S. Culver, MGIC's chairman and chief executive, said the loss stemmed from increases in delinquencies and foreclosures. Higher loss severities and lower cure rates, especially in California and Florida, also affected MGIC's results. Delinquencies, including loans insured through the bulk channel, totaled 7.68% as of March 31, compared with 5.92% a year earlier. Losses incurred in the first quarter totaled $691.6 million, up from $181.8 million for the same period in 2007. On the good news front, new insurance written totaled $19.1 million in the first quarter, compared with $12.7 billion a year earlier. Persistency also continued to improve, standing at 77.5% as of March 31, compared with 70.3% on the same date last year.

Lenders have tightened their credit standards on residential and commercial real estate loans over the past six weeks, but there has been "some stabilization" in single-family originations, according to the Federal Reserve's Beige Book. "Banks reported mixed trends in lending activity, with fairly widespread slowing in the consumer segment, but some stabilization, at low levels, in residential mortgage activity," the April Beige Book says. The Fed's periodic report of economic activity refers to housing sales and construction as "generally anemic," with declines or downward pressure on selling prices in nine of the 12 Federal Reserve districts. Meanwhile, activity in the CRE sector has slowed, and eight districts reported "weaker" rental conditions. "The Boston, Philadelphia, Minneapolis, Kansas City, Dallas, and San Francisco districts all reported weakness in CRE sales and prices," the Fed publication said.

Freddie Mac has enlisted three major mortgage lenders to start up its jumbo mortgage program, and it is looking to enter into agreements with other lenders, according to a Freddie executive. Freddie Mac will provide 90-day forward pricing on jumbos originated by Wells Fargo Home Mortgage, Chase Home Finance, and CitiMortgage and purchase those newly originated mortgages for its portfolio, according to Freddie vice president Bob Ryan. "We expect to take some deliveries in April, and for sure in May," Mr. Ryan said. Separately, Fannie Mae said it has provided 90-day forward pricing for its lenders since April 1. "We have 90-day forward MBS commitments available as well and already have several in place," Fannie spokesman Brian Faith said. Fannie and Freddie can also purchase seasoned jumbos that were originated after June 30, 2007, under the economic stimulus bill Congress passed in February, which temporarily raises the conforming loan limit to 125% of median home prices in high-cost areas, with a maximum cap of $729,750. "We have consummated some trades" on seasoned jumbos, "but those are small amounts," Mr. Ryan said.

ValuAmerica, Pittsburgh, a developer of settlement services technology, has announced a new release of its ValuNet xsp software aimed at preventing directed appraisals and ensuring compliance with federal valuation requirements. The system will also help lenders comply with a recent agreement on appraisals between the New York attorney general and Fannie Mae, Freddie Mac, and the Office of Federal Housing Enterprise Oversight, the company said. "It's the industry's worst-kept secret: some lenders apparently would rather face a fine from their regulators than risk alienating their commission-based loan officers by preventing them from meddling in the appraisal selection and review process," said Robert Murphy, chairman and chief executive of ValuAmerica. ".... Now that Fannie and Freddie have developed their new code, lenders should be looking for new ways not only to end appraisal pressure but to document their compliance." ValuNet xsp is designed to prevent loan officers from selecting or contacting appraisers by automatically selecting appraisers based on their licensing, skill levels, location, price, workload, and past performance, ValuAmerica said. The company can be found online at http://www.valuamerica.com.

The comptroller of the currency says he is uncomfortable with the way New York Attorney General Andrew Cuomo is trying to impose an appraisal standard on all institutions through a settlement agreement with Fannie Mae and Freddie Mac. "To have a situation where a one-off agreement with a single state would have a national policy impact raises questions as to whether that is an appropriate way to make these kinds of policies," Comptroller John Dugan said. The supervisor of national banks is planning to submit a comment letter on the settlement agreement by April 30. Mr. Dugan also questioned whether the settlement's "blanket prohibition" on the use of in-house appraisers or affiliated appraisal firms is necessary to assure "real" independence between the lending and appraisal functions. "It's not at all clear to me that means the appraisal function has to be outside the institution," the comptroller told members of the Exchequer Club in Washington.

Many subprime borrowers who receive loan modifications are still likely to fall back into default, according to servicing executives who spoke Thursday at SourceMedia's second annual mortgage servicing conference in Dallas. Weak housing markets, a possible recession, and changing borrower behavior mean that helping borrowers avoid foreclosure by modifying their loans will not always keep those borrowers out of trouble for long, the speakers said. Larry Litton, president and CEO of Litton Loan Servicing, said 35% of the high-foreclosure-risk loans that are modified at his firm end up back in default after the modification. Robert Meachum, executive vice president at Saxon Mortgage, said he believes that is actually on the low side. He expects 40% to 45% to re-default. While a 35% or higher default rate may sound high, Mr. Litton said it may be inevitable in today's environment. Moreover, he said such modifications are probably still in the interests of servicers, investors, and borrowers. Tightening up on modification requirements would lead to a higher frequency of foreclosure, and given the rising loss severity rates, it is best to try to keep foreclosure frequency down, he said.

Merrill Lynch -- once the largest Wall Street player in the subprime market -- took $4.5 billion in mortgage-related writedowns in the first quarter and revealed that it has additional asset-backed security exposure of $6.7 billion. The figures were released along with Merrill's announcement that it lost $1.97 billion in the first quarter, compared with a $2 billion profit a year earlier. The $4.5 billion in subprime charges includes a $1.5 billion writedown on ABS-related collateralized debt obligations and $3 billion in charges that Merrill says are "related to hedges with financial guarantors." At the end of the fourth quarter, Merrill said it had subprime ABS exposure of $5.1 billion. In early March the investment banking firm closed its subprime origination unit, First Franklin Financial Corp. of San Jose, Calif., and placed its servicing operation on the auction block. A little more than a year ago Merrill paid $1.3 billion for the units. The seller was National City Corp. of Cleveland.

Two classes of Citigroup Commercial Mortgage Securities Inc. commercial mortgage pass-through certificates, series 2006-C5, have been downgraded by Fitch Ratings. The downgrades were as follows: class M, from B-plus to B, and class N, from B to B-minus. In addition, class O (rated B-minus) has been assigned a Distressed Recovery rating of DR1, class L has been placed on Rating Watch Negative, and the ratings on 22 other classes have been affirmed. The negative rating actions were attributed to expected losses on five specially serviced loans, including three controlled by MBS Cos. on properties located in three Texas towns: Seabrook, Humble, and DeSoto.