Origination

The Winans International Real Estate Index of new-home prices in the United States has reported a 16.8% decline over the past year, its steepest decline in nearly 40 years. From its record high of 296,000 in March 2007, the index has fallen to 246,300, its worst nosedive since the 17-month decline of 17.8% from May 1969 to October 1970, Winans said. The company said the worst decline in the past 100 years was the 55% plunge recorded from 1929 to 1932. Winans can be found online at http://www.winansintl.com.

Fremont General Corp., Brea, Calif., has received notifications from two affiliated third-party purchasers of $3.15 billion of residential subprime mortgage loans alleging that Fremont is in default in connection with the loan sales. "To support the bank's obligation to repurchase any loans that were sold in the transaction, ... Fremont General provided each of the purchasers with a guaranty to honor any of the bank's obligations under such loan sale agreements," Fremont said. The company said it has failed to deliver specified financial statements and certifications as required under the covenants, but stressed that the notifications do not allege that Fremont is in breach of its obligations under the loan sale agreements. Fremont said it cannot confirm its ability to satisfy a tangible net worth covenant due to its efforts to complete its 2007 consolidated financial statements. The company said it is in discussions with the purchasers to seek a waiver of the requirement. Fremont can be found online at http://www.fremontgeneral.com.

FDIC Chairman Sheila Bair says she expects loan modifications to increase, but she is still concerned that servicers continue to rely too heavily on repayment plans. Repayment plans may be "unsustainable for borrowers and lead to delinquencies down the road and ongoing borrower distress," the Federal Deposit Insurance Corp. chairman told the Senate Banking Committee. Hope Now servicers reported that they modified 45,320 subprime loans in January and placed 48,155 subprime borrowers in repayment plans. The FDIC chairman testified that additional approaches may be needed to reduce foreclosures, including writedowns of the principal amount of the "underwater" mortgages. Meanwhile, Federal Reserve Board Chairman Ben S. Bernanke spoke favorably about an Office of Thrift Supervision proposal that would encourage writedowns by giving investors a share in future appreciation. "A writedown that is sufficient to make borrowers eligible for a new loan would remove downsize risk to investors of additional writedowns or a re-default," the Fed chairman told the annual convention of the Independent Community Bankers of America.

The U.S. District Court for the Eastern District of California has ruled against the Department of Housing and Urban Development's ban on private, seller-funded downpayment assistance. Commenting on the ruling, president and CEO of DPA pioneer Nehemiah Corporation of America, Scott Syphax called it "a major and conclusive judgment," and a heartening decision that reaffirms "that downpayment assistance is a lifeline" to the families in need. "This decision preserves access and supports the use of sensible and reasonable approaches to homeownership for millions of working-class families," he said. "As we have said before, we look forward to working with HUD to support deserving families across the country." The ban on seller-funded DPA was imposed by HUD in the Standards for Mortgagor's Investment in Mortgaged Property, published Oct. 1, 2007.

More than 300 additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on Feb. 29 as a result of changes to its subprime loss forecasting assumptions. Fitch also affirmed the ratings on classes with outstanding balances of over $7 billion. The first-lien securities affected by the latest downgrades were 112 classes from 11 Carrington Mortgage Loan Trust deals; 38 classes from three GMAC Residential Funding Co. deals; 38 classes from three Credit Suisse First Boston Home Equity Asset Trust deals; 19 classes from four Residential Asset Mortgage Product Inc. deals; 13 classes from one Goldman Sachs deal; 12 classes from one New Century deal; and 12 classes from one Equifirst Loan Securitization Trust deal. The first- and second-lien securities affected were 63 classes from six Credit-Based Asset Servicing and Securitization LLC deals and 29 classes from two Asset Backed Securities Corp. Home Equity Loan Trust deals. 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.

Fremont General Corp., the Brea, Calif.-based holding company for mortgage servicer Fremont Investment & Loan, will be removed from the S&P SmallCap 600 index after the close of trading March 3, Standard & Poor's has announced. S&P said Fremont has fallen below the $300 million minimum market capitalization required for listing on the index. As of the close of trading on Feb. 29, Fremont's capitalization stood at approximately $79 million, S&P reported. In addition, S&P said Pennsylvania Real Estate Investment Trust will be added to the SmallCap 600 after the close of trading on March 5. S&P can be found online at http://www.standardandpoors.com.

The dichotomy in the mortgage insurance world continued in January as the amount of traditional primary new insurance written held strong while the cure/default ratio tanked. The members of the Mortgage Insurance Companies of America wrote $22.2 billion of primary new insurance in January 2008, down from $25.8 billion in December but well ahead of the $16.0 billion in January 2007 (which was the worst month of the calendar year for business). Nearly all the business, $21.7 billion, came through the traditional channel, down from $22.8 billion in December (but its ninth month in a row over the $20 billion mark). But the bulk category continued to sink, with just $496 million coming through this channel, the third month of the last four in which less than $1 billion in volume was written. The number of applications received fell from 154,637 in December to 138,679 in January. Primary insurance in force continued to climb, going from $819.8 billion in December to $832.7 billion in January. The cure/default ratio sank from 54.1% in December to 51.4% in January, with 35,468 cures and 68,950 defaults.

The Eleventh Federal Home Loan District Cost of Funds Index stood at 3.970% in January, a 10-basis-point decline from 4.072% in December. The decline puts the index below the 4% level for the first time since May 2006, when it stood at 3.884%. The following month it jumped 2 bps and continued to rise until peaking at 4.996% in December 2006. In comparison, the monthly average commitment rate for the one-year adjustable-rate mortgage (as measured by the Freddie Mac Primary Mortgage Market Survey) was 5.23% in January, its lowest point since January 2006. For the 30-year fixed-rate mortgage it stood at 5.76%, its lowest level since September 2005. But the monthly numbers don't tell the whole story. The weekly results for the one-year ARM averaged between 4.98% and 5.05% for the five weeks starting Jan. 24, before rising to 5.11% in the most recent survey. The rise of the 30-year fixed-rate mortgage has been sharper, with the average climbing 76 bps since the week of Jan. 24 to 6.24% in the most recent survey.

Standard & Poor's has lowered the financial strength rating on Radian Insurance Inc., a subsidiary of Philadelphia-based Radian Guaranty Inc., by three notches, cutting it from AA-minus to A-minus. The move came two weeks after S&P put this rating and others associated with Radian Guaranty on CreditWatch with negative implications. A statement from Radian said the move by S&P was not related to the financial solvency of Radian Insurance but because of the decision to stop writing net-interest-margin security and second-lien business. (Radian Insurance does not write any insurance for first-lien loans.) In its statement, S&P said Radian Insurance "could report strong statutory net income for 2008 and 2009, but S&P believes that over the next five years, the firm's paid losses will be several times larger than the premium it collects. Radian Insurance has a sizable capital base, but it could still require support from Radian Guaranty or Radian Group because of the significant claim payments Standard & Poor's expects it will have to make in the next few years." Radian's statement in response declared that Radian Insurance "has adequate claims-paying resources to cover its losses and pay all policyholders even without the support" of its corporate parents.

Hope Now servicers modified 45,000 subprime loans in January, up 16% from December's level, and Treasury Secretary Henry Paulson said he expects the numbers to increase now that all the servicers have adopted the American Securitization Forum's protocol for fast-tracking subprime borrowers into loan modifications and refinancings. "I am pleased to announce that as of today, all of the Hope Now members that service subprime mortgages have the protocol in place, ahead of the rising volume of resets in the coming months," Secretary Paulson told the National Association of Business Economists. The Treasury secretary stressed that government-led efforts to prevent foreclosures should be focused on borrowers struggling to make their payments or facing a reset they cannot afford. And he threw cold water on a proposal to restructure "underwater" mortgages so the borrowers have an incentive to stay in their homes. "Any homeowner who can afford their mortgage payments but chooses to walk away from the underwater property is simply a speculator -- and one who is not honoring his obligation," Mr. Paulson said.