Origination

The risk of home price declines in the nation's 50 largest housing markets is still rising in states where price growth has far exceeded historical norms, but has begun to decline elsewhere, according to PMI Mortgage Insurance Co., Walnut Creek, Calif. According to the PMI U.S. Market Risk Index, there are now 13 markets with a greater than 60% chance of price declines over the next two years. Risk is largely concentrated in various MSAs in California and Florida as well as in Las Vegas and Phoenix, PMI reported. "Excess supply is responsible for much of the risk we're seeing in the market," said David W. Berson, chief economist and strategist for The PMI Group. "The excess supply of housing in the United States is 9.2 months for existing homes (the 20-year average has been 6.0) and 9.8 months for new homes (the 20-year average has been 5.5), which will continue to depress prices for MSAs in risk ranks 1 and 2." PMI can be found online at http://www.pmigroup.com.

All the Federal Home Loan Banks could use affordable housing grants to help refinance or restructure nontraditional and subprime mortgages under a proposed rule issued by the Federal Housing Finance Board. The proposal is modeled after a $10 million pilot program initiated by the San Francisco FHLBank to provide matching grants of up to $25,000 to member banks and thrifts that want to refinance troubled mortgages that are "under water" due to negative amortization or declining property values. The Finance Board approved the San Francisco pilot on Jan. 15, and now it is issuing a proposal that would allow the other FHLBanks to develop similar affordable housing programs. "The proposed rule would temporarily add authority for the banks to use the AHP direct set-aside subsidy to refinance or restructure low- and moderate-income households' subprime or nontraditional mortgages held by bank members or their affiliates," the Finance Board said. The proposed rule is being issued for a 60-day comment period.

Bayview Financial of Florida -- a "scratch-and-dent" and small-balance commercial lender -- has laid off more than 100 workers at two affiliates, Silver Hill Financial and InterBay Funding, industry executives have told MortgageWire. At deadline time, the company had not returned telephone calls about the matter. Based in Coral Gables, Bayview operates several mortgage-related businesses, including a loan acquisition group that has been very active in the scratch-and-dent niche, according to investors who play in that market. Until recently, Silver Hill employed at least 450 and InterBay 800, said a source, but those numbers could not be confirmed. David Ertel, Bayview's chairman and chief executive, has worked in various aspects of the mortgage business for three decades.

More than 250 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on April 8 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed 32 classes of subprime pass-throughs on Rating Watch Negative, removed seven classes from Rating Watch Negative, and affirmed the ratings on classes with outstanding balances of approximately $7 billion. The pass-through securities affected by the latest downgrades were: 80 classes from 12 issues by Morgan Stanley; 60 classes from seven issues by Long Beach Mortgage Co.; 36 classes from five issues by J.P. Morgan Mortgage Acquisition Corp.; 31 classes from three issues by People's Choice Home Loan; 29 classes from five issues by ACE Securities Corp. Home Equity Loan Trust; 13 classes from two issues by GSAMP; and four classes from one issue by Renaissance. 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 more than 350 tranches in over 50 subprime residential mortgage-backed security transactions from two issuers. Of the downgraded tranches, 106 remain on review for possible further downgrade. The negative rating actions affected the following securities: 205 tranches from 33 subprime RMBS deals issued by RASC, and 156 tranches from 20 deals issued by RAMP. The downgrades were generally based on higher-than-expected rates of delinquency, foreclosure, and real estate owned in the underlying collateral relative to credit enhancement levels, Moody's said. The collateral consists primarily of first-lien subprime mortgage loans. Moody's can be found on the Web at http://www.moodys.com.

Highwoods Properties, Raleigh, N.C., has been designated the "Bear of the Day" for April 9 by Zacks Equity Research, Chicago. The designation is given to stocks expected to underperform the markets over the next three to six months. Zacks said the real estate investment trust is still rated a Sell "based on macroeconomic factors" such as the declining economy and rising unemployment. "We think operations will get worse in 2008, and suburban office owners will have difficulties maintaining occupancy and increasing rents when corporate layoffs continue," the research firm said. Zacks can be found online at http://www.zacks.com, and Highwoods can be found at http://www.highwoods.com.

Standard & Poor's has downgraded certain ratings of mortgage insurers MGIC, PMI, Radian, and Old Republic International Corp. in response to the "greater-than-expected housing slump," and some have now fallen below what are considered key levels by Fannie Mae and Freddie Mac. At least one downgraded MI, MGIC, said it did not expect the downgrades to affect its business. Commenting on the fact that some of the ratings had slipped below levels considered key for the government-sponsored enterprises, S&P noted that, "in the short term, replacing the capacity provided by those mortgage insurers ... would be extremely difficult" because they "accounted for 58% of the industry's flow market share in 2007." Freddie Mac, which in February changed and eased somewhat its mortgage insurer rules, has asked MIs with ratings below AA-minus to submit remediation plans for their ratings within 90 days or be placed in the Type II category that imposes additional restrictions. Fannie Mae had not responded to a call for comment by deadline time.

Freddie Mac is enhancing its disclosures so that investors in its guaranteed mortgage-backed securities can tell whether the underlying loans were originated by mortgage brokers or the borrower's income and assets were verified. "Beginning no later than August 2008, Freddie Mac expects to expand its third-party origination disclosure on all newly issued Participation Certificate securities," the secondary-market agency said, so investors can see whether the loans were made by brokers, correspondents, or retail lenders. Freddie Mac says it also plans to start disclosing in June nine new loan-level variables involving income verification, combined loan-to-value ratios, and debt-to-income ratios starting. "These expanded disclosures are timely, particularly in light of continuing volatility in the housing and mortgage markets, and we believe they will help investors better evaluate our securities and help support our mission to provide stability and affordability to America's home financing system," Freddie vice president Mark Hanson said. The government-sponsored enterprise can be found online at http://www.freddiemac.com.

In recent meetings at which extraordinary steps were taken, the Federal Reserve's monetary policy-making panel had concluded that "monetary policy alone could not address fully the underlying problems in the housing market and in financial markets," according to newly released minutes from the meetings. At the March 18 meeting, held in the wake of liquidity concerns at Bear Stearns and Fed assistance that helped mitigate them, members of the Federal Open Market Committee said they had seen "evidence that an adverse feedback loop was under way, in which a restriction in credit availability prompts a deterioration in the economic outlook that, in turn, spurs additional tightening in credit conditions." Minutes of a March 10 conference call, in which the FOMC decided to provide a new term securities lending facility to ease mortgage-related liquidity concerns, are sparse. But they note that participants did have concerns about the possible precedent set by the facility and how well it would work in practice. But "on balance" the minutes indicate that FOMC members considered the facility something that "could prove useful in preventing an escalation of an unhealthy dynamic that was developing in money and credit markets."

In its latest study, the Center for Responsible Lending maintains that subprime borrowers pay significantly more for getting a loan from a mortgage broker than from a retail lender. The study, "Steered Wrong: Brokers, Borrowers and Subprime Loans," looked at more than 1.7 million mortgages originated from 2004 to 2006. The data included credit scores and borrower's equity, but only back-end fees. It did not include upfront fees paid by a consumer to a lender. At a news conference to discuss the study, co-author Brian Ernst said the typical subprime borrower pays $5,222 more in the first four years of a $166,000 mortgage than a similar borrower who received a loan directly from a lender. The CRL attributes the disparity to yield-spread premiums and prepayment penalties. In the prime world, Mr. Ernst said, there is more competitive pricing between loans originated by mortgage brokers and those originated in the retail channel. One of the reasons for the difference, he said, is that in the subprime arena, brokers can give a higher price to a less knowledgeable borrower.