Origination

The PMI Group Inc., Walnut Creek, Calif., had a net loss in the fourth quarter 2007 of $1 billion (-$12.51 per share), compared with net income of $100.5 million ($1.19 per share) for the same period one year ago. Most of the loss can be attributed to PMI's 42% investment in FGIC Corp., New York. FGIC had a $1.89 billion net loss for the fourth quarter, which resulted in a loss of $776.1 million after-tax for PMI. PMI previously reported its U.S. mortgage insurance operations had a net loss of $236 million in the fourth quarter. PMI created a valuation allowance of approximately $168.1 million against a $214.3 million deferred tax asset associated with its investments in FGIC and RAM Re. The deferred tax asset is created upon the recognition of losses from FGIC and RAM Re in excess of its tax basis with respect to the investment in those companies. PMI took a $2.3 million loss on its RAM Re investment for the quarter. FGIC says it is ceasing writing new financial guarantee business for a period of time to preserve capital. It has hired Goldman Sachs to advise it on capital enhancement initiatives.

President Bush did not single out for criticism a Democratic plan to expand the Federal Housing Administration program in his speech about what should and should not be done in dealing with the housing correction. FHA commissioner Brian Montgomery also avoided commenting on the proposal, which the House and Senate banking committee chairmen are working on to help 1 million distressed borrowers refinance into an FHA loan. The Democratic plan would require the lender/investor to accept severe writedowns in the principal amount of the mortgage. "There are all sorts of options being floated out there," Mr. Montgomery told reporters. "We are exploring some options on our own, and we will have more to say about that in the next few weeks." Lenders are expecting the agency to liberalize its underwriting criteria under the FHA Secure program so more delinquent subprime borrowers can refinance into an FHA loan. Lenders also expect the FHA to issue a mortgagee letter soon that tightens its underwriting criteria on jumbo mortgages.

Federally regulated lenders will file more than 60,000 mortgage-related suspicious activity reports this fiscal year, a federal crime fighter said at last week's Mortgage Bankers Association's National Fraud Issues Conference in Chicago. The Financial Crimes Enforcement Network fielded nearly 15,000 SARs in the first quarter of fiscal `08, according to FBI special agent Scott Broshears. And he expects the flood of filings to continue at the same pace as the year progresses. "We'll get over 60,000" reports from suspicious lenders, the FBI's mortgage fraud coordinator said. In fiscal `07, 46,717 SARs were filed, up from 35,617 in fiscal `06. The FBI is currently working on 1,284 cases. Last fiscal year, the unit worked on 1,210 cases, some of which are still open. According to Mr. Broshears, the investigations cover "approximately $3 billion" in mortgage losses, which is the highest government estimate yet of the impact fraud has had on the lending business.

Twenty-eight classes of subprime mortgage pass-through certificates from three Residential Asset Mortgage Products transactions have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions. Fitch also placed three RAMP classes on Rating Watch Negative and affirmed the ratings on nine other classes. The rating actions were attributed to changes in 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 on the Web at http://www.fitchratings.com.

First Federal of Lakewood, a thrift based in Lakewood, Ohio, has announced the formation of a residential lending division, First Federal Lending, in connection with the opening of two residential lending offices in Westerville, Ohio, and Solon, Ohio. First Federal said it has also expanded its northeast Ohio-based residential lending staff to 10. "As other lenders exit the market, or pull back, we see opportunities to grow our residential loan business, which is one of our core areas of expertise," said Gary Fix, president, chief executive, and managing officer of First Federal of Lakewood. The thrift can be found online at http://www.ffl.net.

Freddie Mac is seeking public comments until April 30 on the appraisal policies it agreed to implement as part of a settlement with New York Attorney General Andrew Cuomo. Freddie Mac and Fannie Mae are slated to implement the new appraisal code by Jan. 1 under the March 3 settlement with Mr. Cuomo. "To implement the Code with minimum disruption to the market and, as required under the agreement, Freddie Mac is requesting comments on operational and implementation issues, as well as unintended consequences or risks you identify in connection with the requirements of the Code," Freddie said. The agreement bars Freddie and Fannie from purchasing mortgages from lenders that use in-house appraisers or subsidiary appraisal firms. On brokered loans, lenders must certify that the mortgage broker did not select the appraiser. Freddie Mac can be found online at http://www.freddiemac.com.

Origen Financial Inc., a manufactured housing lender structured as a REIT, says reduced pricing in the whole-loan sales market and the inability to securitize loans are forcing it to suspend originating loans for its own account until the markets recover. The Southfield, Mich.-based company added that it would continue to provide its third-party loan origination business. Ronald A. Klein, chief executive, said even though Origen has no direct exposure to subprime mortgage loans, it has "been subjected to margin calls and market value adjustments on our credit facilities despite our continued excellent loan performance. The ongoing uncertainty and credit stress in the housing and capital markets, and the resulting lack of liquidity, have curtailed access to the securitization market. Further securitization financings of our loans have effectively become unavailable to us on a profitable basis." Origen made the announcement in its statement of fourth-quarter results, revealing that it lost $39.1 million ($1.54 per share) for the quarter and $31.8 million ($1.26 per share) for all of 2007.

Standard & Poor's has raised its global estimate for total subprime mortgage-related securities writedowns but has indicated that "the end is in sight." S&P has increased the estimate from $265 billion to $285 billion and said that total writedowns to date "are likely past the halfway mark." A recent estimate for total mortgage writedowns from Wall Street firms and academics, in comparison, was $400 billion. But experts citing that figure said it was "very uncertain."

The Department of Housing and Urban Development has issued its long-awaited RESPA reform proposal, and it is more ambitious than the industry expected or wants to implement during the current market turmoil. Most observers expected HUD to issue a Real Estate Settlement Procedures Act proposal narrowly focused on providing consumers with concise and understandable disclosures of loan terms and settlement costs. However, HUD has "cast a wider net," according to RESPA attorney Phillip Schulman, who says the RESPA proposal is "complicated," "confusing," and "controversial." The RESPA proposal mandates the use of a standardized four-page good faith estimate that discloses loan terms and settlement costs, including the mortgage broker's compensation. HUD also wants the closing agent to read a closing scripting that summarizes important loan terms and highlights differences between the GFE and the HUD-1 settlement sheet. HUD Assistant Secretary Brian Montgomery expects industry opposition, but he told reporters it is "no longer acceptable" for industry to stand in the way of giving consumers clear disclosures. HUD has issued the proposal for a 60-day comment period. Seven major financial services trade groups, including the American Bankers Association and the Mortgage Bankers Association, have asked HUD to extend the comment period to 120 days.

The outlook is stable for U.S. bank and insurance Trust Preferred Securities collateralized debt obligations, but it is negative for real estate investment trust TruPS and REIT TruPS CDOs, according to Moody's Investors Service. In an annual sector review and outlook report, Moody's said problems among REIT TruPS CDOs have largely been limited to the mortgage REIT and homebuilder areas. Some portfolios holding REIT obligations have been directly affected by the subprime crisis, the rating agency said. Meanwhile, most bank and insurance issuers in TruPS CDOs have "minimal exposure" to subprime residential mortgages, Moody's said.