Originations

Fitch has revised the status of Capmark Finance Inc.'s commercial mortgage-backed securities servicing ratings to Rating Watch Evolving from Rating Watch Negative, citing a put option agreement to sell its servicing and origination operations to Berkadia III LLC. Fitch also said the rating may change "depending upon whether the transaction is completed." The company's CMBS servicing ratings are as follows: primary servicer, CPS2-; master servicer, CMS2-; special servicer, CSS2-. Fitch said it is closely monitoring Capmark. As of June 30, its total servicing portfolio consisted of 35,507 loans with an unpaid principal balance of $270.1 billion, of which $131.1 billion were CMBS.

Delinquency rates are continuing to increase for all commercial/multifamily mortgage investor groups, according to the most recent Commercial/Multifamily Delinquency Report from the Mortgage Bankers Association. The economic recession drove the latest surge in commercial and multifamily delinquency rates during the second quarter, said Jamie Woodwell, MBA's vice president of commercial real estate research. Between the first and second quarters, the 30-plus day delinquency rate on loans held in commercial mortgage-backed securities rose 2.04 percentage points to 3.89%. The 60-plus day delinquency rate on loans held in life company portfolios rose 0.03 percentage points to 0.15%. The 60-plus day delinquency rate on multifamily loans held or insured by Fannie Mae rose 0.17 percentage points to 0.51%. The 90-plus day delinquency rate on multifamily loans held or insured by Freddie Mac rose 0.02 percentage points to 0.11%. The 90-plus day delinquency rate on loans held by FDIC-insured banks and thrifts rose 0.64 percentage points to 2.92%. "Lower levels of employment, the pullback by consumers and other aspects of the slowdown translated into a difficult operating environment for many income-producing properties. That in turn has led to increased stress on the loans those properties support," Mr. Woodwell added.

Finn Casperson, former chief executive of Beneficial Finance — once one of the largest players in consumer home equity-based lending — has been found dead in what authorities say is an apparent suicide. Mr. Casperson served as CEO from 1976 to 1998, during a time when the firm specialized in low loan-to-value ratio second liens backed by homes. When he became CEO of the firm he succeeded his father. Beneficial was sold to Household International in 1998 for about $9 billion. HSBC Holdings eventually bought Household for $14 billion. The British bank later booked huge losses on Household's subprime business.

Due to the scarcity of warehouse lending, Fannie Mae is providing faster funding in mortgage-backed securities transactions so lenders can quickly turn around and make more loans. "We're providing faster funding to lenders so that they get cash immediately after closing to continue funding loans," Fannie president and chief executive Michael Williams said. "Previously, they had to wait a month or more for the MBS transaction to settle," he told the financial services executives and lobbyists at an Exchequer Club luncheon in Washington. In response to a question from one executive, the CEO indicated that Fannie is not interested in getting into the warehouse lending business. But Fannie has looked at ways to provide support for warehousing lending at the request of the GSE regulator and Treasury Department. "If asked, we will do it," Mr. Williams said.

The average weekly 30-year conforming mortgage rate appears to be stabilizing at levels near 5.07%, according to the Freddie Mac Primary Mortgage Market Survey. That rate, seen during the week ending Sept. 10, was down just slightly from 5.08% the week before, despite economic indicators the market interpreted as somewhat positive. Among these was news the economy lost 216,000 jobs in August, the smallest job loss seen since the previous August. These indicators may have contributed to increases in the benchmark 10-year Treasury yield that generally serves as a rough indicator of long-term rates at certain points during the week. But on a net basis the secondary market mortgage bond yields that more closely correlate to rates appear to have remained relatively stable. A year ago the average 30-year primary mortgage rate was higher at 5.93%. The average 15-year mortgage rate in the most recent week, at 4.50%, also was down slightly from last week (when it was 4.54%) and represented a more marked decrease from a year ago (when it was 5.54%). The average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages was 4.51%, down from 4.59% the week previous and from 5.87% a year ago. The average one-year Treasury ARM rate was 4.64%, up from the previous week's 4.62% and from 5.21% a year ago. Average points during the week ended Sept. 10 were as follows: 0.7 for 30- and 15-year mortgages, 0.5 for five-year Treasury hybrids and 0.6 for one-year ARMs.

The dollar amount of mortgages funded through loan brokers hit a new low in the second quarter in terms of market share — just 14.9% of all originations — according to new figures compiled by National Mortgage News. The newspaper found that wholesale lenders tabled funded just $87 billion in loans in the period out of a total origination pie of $583 billion. In the first quarter 2009 and fourth quarter 2008 brokers had a 15.5% and 15% share respectively. The results could indicate that wholesale/broker lending has stabilized at a low rate and is no longer falling off the cliff. Loan brokers' dominance of mortgage lending peaked in the fourth quarter of 2007 just shy of 30%. Many loan brokers see their business under attack by federal regulators who hold them responsible, in part, for the mortgage crisis because of the all the subprime loans they facilitated from 2002 to 2007. Loan brokers, in turn, blame wholesalers and Wall Street firms for creating subprime loan menus tailor made for certain securities and investors.

The 10 large markets which will have the best performance in home price over the next 12 months were those that did not have a housing boom and had relatively small job losses in the past year, according to the Local Market Monitor third quarter 2009 Home Price Forecast. Those markets are: Baton Rouge, La.; Buffalo/Niagara Falls, N.Y.; Dallas; Fort Worth/Arlington; Houston; Little Rock, Ark.; Omaha, Neb.; Pittsburgh; San Antonio; Syracuse, N.Y.; and Wichita Falls, Texas. "Right now, a good market is still one where home prices aren't going down. However, this will change as the recession eases. Next year we'll see good price increases in many markets," said Ingo Winzer, president of Local Market Monitor, a Cary, N.C.-based company that provides real estate valuation forecasts. At the other end of the spectrum, the markets with populations over 600,000 which could see the largest declines in home prices in the next 12 months are: Fresno, Calif.; Las Vegas; Miami; Orlando; Phoenix; Portland, Ore.; San Jose, Calif.; Stockton, Calif.; Tacoma, Wash.; Tucson, Ariz.; and West Palm Beach, Fla.

Genworth Financial, which operates the nation's fourth largest mortgage insurer, said it is seeing a decline in delinquencies in such hard hit states as Arizona, California, Florida, and Nevada. Speaking at an investor conference in New York, company chief financial officer and senior vice president Patrick Kelleher said Genworth's improvement is coming from a variety of factors, including active loss mitigation. Its MI business, he noted, is the company's "biggest source of pressure." Even though there is improvement in the four "sand states," the company is seeing an increase in delinquencies on prime products. "These trends are what we would expect, given the historic relationship between rising unemployment and delinquencies." The company's stock has made a strong comeback over the past two months and at deadline was trading at just over $10 compared to a 52-week low of 70 cents.

PMI Mortgage Insurance Co., Walnut Creek, Calif., said Arizona legislation that gives state regulators discretionary authority over MI firms in the event they do not meet the state's required minimum policyholder position to write new business would help it as well as its competitors. PMI is domiciled in Arizona and is regulated by the state's Department of Insurance. The company said the bill, which becomes effective in November, recognizes that minimum policyholder position (MPP) should not be the only factor used to evaluate a mortgage insurer's ability to write new business. PMI noted there are 16 states that have a maximum risk-to-capital ratio or MPP. Although the Arizona bill may benefit PMI the most, the capital standard for the state can apply to all MI firms that underwrite policies there.

Residential mortgage-backed securities performance is expected to continue to deteriorate into 2010 while commercial MBS woes could persist into 2010 or 2011, according to Moody's Investors Service. "Commercial real estate is usually one of the last sectors both to enter a recession and exit one," Moody's said. Claire Robinson, a Moody's senior managing director, said changes in disclosure and regulation affecting the securitized markets is among other reasons MBS recovery may take this long. Higher investor risk premiums also play a role. The combination of these are likely to mean higher costs of securitization for issuers that also affect the market's rate of recovery, she said.

The use of knowledge qualifiers in representations and warranties by originators, sponsors and issuers of mortgage-backed securities may be one of the reasons residential MBS investors remain wary of the market, according to Digital Risk, Maitland, Fla. The analytics and advisory company has asked the American Securitization Forum, which is in the midst of a project aimed at restoring investor confidence in the market, to issue a guideline recommending against their use. The knowledge qualifiers, which limit what the parties involved represent to have information about, discourage thorough risk mitigation policies and procedures, Digital Risk said.

The Mortgage Bankers Association's Market Composite Index increased 17% on a seasonally adjusted basis for the week ended Sept. 4, driven by a notable increase in refinance applications as rates fell. In fact, the Refinance Index increased by 22.5% over the previous week, a jump that was its biggest since mid-March, MBA said. On an unadjusted basis, the MCI increased 15.8% compared with the previous week and 64.5% compared with the same week one year earlier. The MCI is calculated from the MBA's Weekly Mortgage Applications Survey. There is also strong home purchase mortgage application activity, as the Purchase Index increased by 9.5% over the previous week. This is the largest gain in this component since early April and it puts the Purchase Index at its highest level since the first week of January. The share of refinancing applications increased to 59.8% of total applications, up from 56.5% the previous week. The share of adjustable-rate mortgage applications for the week was 5.8%, up from 5.6% one week before. The average contract interest rate for 30-year fixed-rate mortgages fell to 5.02% from 5.15%, with points increasing to 1.23 from 1.09 (including the origination fee) for loans with an 80% percent loan-to-value ratio, according to the association. The average contract interest rate for 15-year FRMs decreased by 12 basis points to 4.45%, while for one-year adjustable rate loans, it decreased by 2 basis points to 6.69%. The MBA can be found online at http://www.mortgagebankers.org.

Starting Oct. 1, Federal Housing Administration direct endorsement lenders can determine whether a condominium project meets HUD eligibility requirements and begin financing unit sales. Currently, HUD field staff must approve condominium projects, which can be a slow process. The National Association of Realtors likes the new streamlined approach. However, the Department of Housing and Urban Development still requires a 50% occupancy rate to be eligible and no more than 30% of the units can be financed through FHA-insured loans, according to mortgagee letter 2009-19. NAR is urging HUD to relax the occupancy and concentration ratios to encourage more condo sales. "Increasing the concentration limit, or temporarily suspending it, will result in a greater number of owner-occupied units because more borrowers will be able to use FHA in more condominium projects," NAR says in a July 31 letter to HUD. FHA's new condominium policy ends "spot-loan" approvals (starting Oct. 1), which allow lenders to make a loan on one unit in a condo that is not FHA approved. The new streamlined and "uncomplicated" approval process eliminates the need for spot loans, HUD said.

U.S. payment option adjustable-rate mortgages set to see their rates recast over the next two years represent $134 billion in loan volume, according to Fitch, New York. Fitch said of the $189 billion in securitized option ARMs outstanding, 88% have not been through a recast event. The rating agency, which has rated about 5% of option ARM deals, said that of the loans yet to experience a recast event, 94% have used the minimum monthly payment to allow the loans to negatively amortize, allowing the loan balance to grow over time to caps that generally range between 110% to 125% of the original mortgage. A recast event generally occurs when the loan reaches that cap or has been outstanding for five years, at which point the borrower is obliged to stop making minimum payments and to instead make regular, fully amortizing principal and interest payments. This potentially creates payment shock for borrowers as the size of the fully amortizing P&I payment is on average 63% higher than the minimum monthly payment many borrowers have been making. Fitch expects this to put stress on recent vintage option ARM borrowers, creating expected losses that range from 35% to 45%, depending on collateral quality. Many option ARMs are secured by properties in states where values have declined by an average 48% since the second quarter of 2006. Even if these declines cease, Fitch believes the fact that many of these borrowers will be unable to refinance into alternative mortgages will cause a spike in option ARM defaults. Even though the origination of payment option ARMs has ground to a halt, the loans must still be serviced. As recently as the fourth quarter of last year Wachovia Mortgage - which is now part of Wells Fargo - was still originating the loans but did not offer the negative amortization option. In 3Q it funded $1 billion in POAs but by the fourth quarter originations had plummeted to just $40 million, according to the Quarterly Data Report.

Eastern Mortgage Capital, Boston, is providing $3.27 million in permanent financing for a 75-unit apartment building for seniors in Chicago. Eastern Mortgage, a division of Eastern Bank, funded the commercial loan under the Federal Housing Administration's 223(f) insurance program. The apartment building, known as the MooGoong Terrace project, was originally built in 1983 and has 51,960 square feet of space.

U.S. subprime asset values may be showing some early signs of stabilizing along with U.S. home prices, according to a report by Fitch Solutions, New York. Fitch said its total market U.S. subprime index as of the beginning of this month was 8.34, which was higher than its all-time low of 7.27 seen in May, but was still significantly lower than its opening value of 42.56 on in November 2007. Fitch managing director and author of the report, Thomas Aubrey, said his company — which is introducing five new asset-backed securities credit default swap indices — has found that the synthetic subprime market is still seeing more activity than its cash equivalent and is still being looked to as a proxy for asset values.

CMG Mortgage, San Ramon, Calif., has hired 18 wholesale account executives that were left jobless when Taylor, Bean & Whitaker, Ocala, Fla., closed that division and then went bankrupt a few weeks later. CMG president Chris George said most of the AE hires have been in the western U.S., including California, Oklahoma and Texas. CMG, a non-bank, funds mortgages through retail and wholesale means. Roughly 65% of its production is wholesale. TBW was a top ten ranked lender, according to the Quarterly Data Report.

The House Financial Services Committee has set September 23 as a tentative date to mark up legislation to create a new consumer protection agency that would set uniform mortgage lending standards for depositories, non-banks and other players in residential finance. The American Bankers Association strongly opposes the bill (H.R. 3126) because it would limit federal preemption and create the Consumer Financial Protection Agency (CFPA), which would have regulatory and enforcement powers over depositories (on top of what they already face). The Mortgage Bankers Association claims the legislation — proposed by the White House and introduced by committee chairman Barney Frank, D-Mass. — fails to create a federal safety and soundness regulator for non-depository lenders. The CFPA would be responsible for compliance with uniform national lending standards. "The CFPA bill doesn't hit all the marks," said MBA chairman John Courson. Meanwhile, the Independent Community Bankers of America has proposed changes to the CFPA bill that would minimize the burden on community banks. "We are participating in the process," said ICBA's top lobbyist Steve Verdier. ICBA accepts the concept behind a CFPA but wants the agency to focus mainly on enforcement and examinations of non-depository lenders.

Default rates on commercial MBS could hit 6% by yearend as the recession finally takes its toll on the performance of commercial and multifamily properties, the president of the Commercial Mortgage Securities Association said Tuesday. CMSA chief president Patrick Sargent noted that the default rate (loans 60 days or more past due) generally averages 50 basis points. "Now we are starting to see these default rates go up to 3% and 4% and by yearend they could perhaps go up to 5% or 6%," he said on CNBC. The CMBS default rate rose nearly 100 bp to 2.39% in the second quarter from the first quarter, according to Trepp LLC data. CMSA's main focus is to bring liquidity back into the CMBS market, Mr. Sargent said. He noted the Federal Reserve's Term Asset-Backed Securities Loan Facility (TALF) has been helpful so far but noted that it will take more time to be effective. The Fed has already extended the TALF program for newly issued CMBS by six months to June 30. "We would like to see TALF extended [again] if it makes sense after next June," Mr. Sargent said.

The Credit Managers' Index combined score for August was 48.1, up from 48 in July, according to the National Association of Credit Management, Columbia, Md. NACM said it originally stated the gain incorrectly as slightly higher. As a result, a news item that originally ran Sept. 2 incorrectly stated the combined index score for August.