Origination

National City Corp., Cleveland, has been tagged the "Bear of the Day" for March 6 by Zacks Equity Research, Chicago. Zacks said National City's fourth-quarter loss and full-year earnings were "substantially worse than the estimates," chiefly due to higher loss provisions and mark-to-market losses on mortgage loans held for sale. "Though NCC has taken several initiatives to restructure its mortgage operations, we continue to see elevated risks in NCC's mortgage and residential development loan portfolio and expect higher losses in the coming quarters," Zacks said. "We are maintaining our Sell rating and our six-month target price of $14 per share for NCC." The research firm can be found online at http://www.zacks.com.

Lower interest rates prompted an increase in refinancings even as residential loan demand "remained sluggish or declined" during January and February, according to the Federal Reserve's Beige Book. The periodic survey of economic activity in the 12 Federal Reserve districts reported that home sales "were low in every district with very few local exceptions." Inventories of unsold homes remain "high," and "districts that reported home prices all saw overall declines." Meanwhile, markets for office and retail space "showed signs of a slowdown" in several districts. "Office vacancies were reported up and leasing volumes down in Manhattan, Baltimore, Washington D.C., Memphis, portions of Maine and Rhode Island, and Las Vegas," the Beige Book says.

The overall home mortgage delinquency rate jumped to 5.82% in the fourth quarter, the highest level since 1985, according to the national delinquency survey of the Mortgage Bankers Association. When the foreclosure inventory is added to the delinquency rate, nearly 8% of all homeowners with a mortgage were not making payments in the fourth quarter. Foreclosures reached the highest level in the history of the MBA survey, with the inventory of loans in the foreclosure process rising to 2.04% and 0.83% of loans entering the foreclosure process during the fourth quarter. In a conference call with reporters, MBA chief economist Doug Duncan noted that adjustable-rate mortgages to subprime borrowers accounted for 42% of the loans entering foreclosure during the fourth quarter, though subprime ARMs only account for 7% of loans outstanding. "Roughly a third of subprime adjustable-rate loans are late on their payments," Mr. Duncan said. The MBA can be found online at http://www.mortgagebankers.org.

Merrill Lynch, which a year ago paid $1.3 billion for subprime giant First Franklin Financial Corp. and two affiliates, has officially pulled the plug on the unit and plans to sell FFFC's servicing division, Home Loan Services. Over the past two months, account executives at the San Jose, Calif.-based First Franklin have been telling MortgageWire that the unit was funding hardly any new loans and that a plan to retrain AEs to originate Fannie Mae loans was never implemented. At one time First Franklin -- which Merrill had purchased from National City Corp. -- ranked among the nation's top five residential subprime lenders. Among subprime servicers, the Pittsburgh-based HLS ranks sixth nationwide, according to the Quarterly Data Report. The closure will affect at least 650 workers at First Franklin and its affiliate, NationsPoint. "Since July, we have reduced staffing at First Franklin by nearly 70%, but after evaluating a number of strategies, we believe it is appropriate to discontinue mortgage origination," said David Sobotka, head of Merrill's fixed-income division. (For further details, see the March 10 issue of National Mortgage News.)

More than 200 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on March 4 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed more than 100 classes of subprime pass-throughs on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of more than $5 billion. The securities affected by the latest downgrades were 95 classes from six Structured Asset Securities Corp. deals, 53 classes from nine J.P. Morgan deals, 29 classes from two BNC deals, 24 classes from two Wells Fargo Home Equity Trust deals, and 11 classes from one Societe Generale Mortgage Securities Trust deal. Fitch also placed the following securities on Rating Watch Negative: 31 classes from two Saxon deals, 29 classes from two SASCO deals, 25 classes from two Asset Backed funding Corp. deals, and 18 classes from one First Franklin Mortgage Loan Trust deal. 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 on the Web at http://www.fitchratings.com.

Defeasance of commercial mortgage-backed securities loans in the United States rose 25% in 2007, as 3,000 loans with an outstanding balance of $32.4 billion were defeased, according to Moody's Investors Service. The record was mostly due to a surge in the first half of the year, which was followed by a "significant drop-off" in defeasance activity in the second half, Moody's said. Defeasance in the fourth quarter was approximately 53% lower than in the same period of 2006. "The tremendous growth of defeasance that CMBS has experienced since 2004 continued into 2007," said Sandra Ruffin, a Moody's senior credit officer. "Strong property appreciation and a robust lending environment during the first half of the year made it attractive for even relatively recently securitized loans to defease." Moody's said it expects reduced liquidity and less scope for real estate appreciation to limit defeasance volumes in the near future. The rating agency can be found online at http://www.moodys.com.

Meanwhile, an analysis released by Global Insight Inc., Waltham, Mass., found that single-family home prices fell at "a precipitous 5.1% annualized rate" in the fourth quarter. The quarterly housing valuation analysis, House Prices in America, looked at the top 330 U.S. real estate markets and found that the number of metropolitan areas deemed overvalued had fallen to 21 from the peak of 58 in 2006. The company said the most highly concentrated declines came in California, Florida, and Michigan, and the most "stubbornly overvalued" areas included Bend and Portland, Ore.; Miami; Honolulu; and Riverside-San Bernardino, Calif. "Overvaluation is being dissipated quickly across U.S. metropolitan areas, though tight credit market conditions will continue to hamper real estate markets throughout 2008," said James Diffley, group managing director of Global Insight's Regional Services Group. The analysis is a joint effort of Global Insight and National City Corp., Cleveland. More information can be found online at http://www.globalinsight.com/housingvaluation and http://www.nationalcity.com/housevaluation.

Home prices decreased at an annualized rate of 0.5% nationwide in the fourth quarter, according to the Conventional Mortgage Home Price Index Classic Series released by Freddie Mac, but the rate of decline jumps to 9.3% under a separate index based only on purchase transactions. The 9.3% annualized drop under the Conventional Mortgage Home Price Index Purchase-Only Series is the largest since the third quarter of 1972, Freddie Mac reported. (The CMHPI Classic Series is based on both home purchases and mortgage refinancings based on appraisals.) "The decline in home values occurred in every region in the U.S., according to the CMHPI Purchase-Only measure, and only four states posted gains in home values during the fourth quarter: Maine, North Dakota, South Dakota, and West Virginia," said Frank Nothaft, Freddie Mac's chief economist. "The Pacific region fell the most, at a 17.2% annualized rate, led by declines in home values in California of nearly 25% on an annualized basis." The CMHPI was jointly developed by Freddie Mac and Fannie Mae. Freddie Mac can be found online at http://www.freddiemac.com.

House Financial Services Committee Chairman Barney Frank, D-Mass., plans to circulate a bill next week that would create a government program to buy distressed mortgages that have been written down to an affordable level and meet Federal Housing Administration eligibility standards. Chairman Frank said he expects the mortgages to be purchased in an auction and that "we will buy the cheapest ones." He noted that his foreclosure prevention proposal is similar to one by the Office of Thrift Supervision, except that the government would take a "soft second" mortgage and share in any appreciation in the property. Rep. Frank has the backing of House Democratic leaders for the new program, which will require an initial $10 billion to $12 billion investment to start. He also told reporters that the bill might include a provision to shield servicers from investor lawsuits. Many servicers are reluctant to write down loans because of disgruntled investors. In related news, the committee chairman said a House/Senate conference on the FHA reform bill is going well and he expects to send the bill to the president in April.

More than 250 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on March 3 as a result of changes to its subprime loss forecasting assumptions. Fitch also affirmed the ratings on classes with outstanding balances of over $15 billion. The securities affected by the latest downgrades included 100 classes from eight Securitized Asset Backed Receivables LLC Trust deals; 56 classes from four HSI Asset Securitization Corp. Trust deals; 32 classes from two IndyMac deals; 28 classes from two Natixis deals; 28 classes from two Washington Mutual deals; seven classes from one Morgan Stanley deal; and five classes from two GSAMP deals. Fitch also placed 11 classes from one UBS MASTR Asset Backed Securities Trust deal on Rating Watch Negative. 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 on the Web at http://www.fitchratings.com.