Originations

The Federal Reserve cut short-term interest rates by 50 basis points early Wednesday morning, a move that should result in lower mortgage rates for consumers. The overnight Fed funds rate now stands at 150 basis points (1.50%). The U.S. central bank cut rates in tandem with its counterparts in Europe including the European Central Bank, the Bank of England and others. Earlier in the decade, after the terrorist attacks of 9-11, the Fed funds rate reached a low of 1% which ultimately led to a boom in mortgage lending, in particular the non-prime sector.

The credit performance of Downey Financial's payment option ARM portfolio is continuing to deteriorate, according to a new research report released by Credit Suisse. The thrift had $2.03 billion in non-performing assets in August, representing 14.68% of its total holdings. CS analyst Moshe Orenbuch said he is maintaining his "neutral" rating on the California-based lender "given the risks associated with recapitalization in the current environment." Downey is operating under a regulatory consent order from the Office of Thrift Supervision. Among residential servicers, it ranks 44th with $10.8 billion in receivables.

Chase Home Finance, the residential arm of JPM Morgan Chase, dominated what's left of the subprime industry in the first half, funding just over $1 billion in new loans, giving it a production market share of 23.42%. According to survey figures compiled by National Mortgage News and the Quarterly Data Report, CIT Group Consumer Finance, Livingston, N.J., ranked a distant second with $652 million. CIT, though, has since exited the business. HSBC Consumer Lending, the subprime retail arm of HSBC Holdings, ranked third with $550 million. HSBC's volume, however, is an estimate. The company no longer supplies any information on subprime production being done by its retail division which includes the old Household Finance storefront network. NMN/QDR collected subprime origination figures from just 13 firms. Five of those involve estimates made by the newspaper. Very few firms continue to originate subprime mortgages through loan brokers. Lenders funded just $3.7 billion in subprime during the first half, a 92% decline from the same period last year.

Ten state attorneys generals and banking commissioners are pressuring 16 subprime servicers to adopt more systematic loan modification programs following their "breakthrough" settlement agreement with Bank of America to modify 390,000 Countrywide subprime and payment-option mortgages. "We urge you in the strongest possible terms to adopt a comprehensive, streamlined and effective loan modification program as soon as possible," the state officials say in a letter that was sent to the servicers on Oct. 7. These officials are part of a State Foreclosure Prevention Working Group that began meeting with major servicers last summer to encourage and monitor their mortgage workout efforts. In a September report, the working group concluded that servicers' foreclosure prevention efforts had "slipped" since April and "nearly 8 out of 10 seriously delinquent homeowners are not on track for any loss mitigation outcome." A spokesman for Iowa AG Tom Miller noted the working group wants to work with the servicers in adopting a more efficient response to the foreclosure crisis. "Later on, if it is necessary, we would consider litigation," he said.

Lenders originated nearly 1.1 million Federal Housing Administration loans in fiscal year 2008 (which ended Sept. 30), more than double the 425,000 loans endorsed by FHA in the previous fiscal year, according to housing commissioner Brian Montgomery. The Department of Housing and Urban Development is projecting FHA single-family originations will hit 1.4 million loans in FY 2009. "Those are really encouraging numbers and it shows that FHA is not only back in the game but at the forefront of the housing market these days," Mr. Montgomery told a HUD sponsored housing summit. The FHA Secure program accounted for 375,000 of FHA endorsements in FY 2008. FHA Secure is designed to help subprime borrowers to refinance into safer, less expensive FHA loans. FHA purchase mortgage originations totaled 632,000 in FY 2008.

Mortgage industry costs rose and profits fell last year, as lenders grappled with higher loan production costs and dwindling returns from warehouse operations and secondary market sales, according to an annual cost study, produced by the Mortgage Bankers Association. Mortgage companies lost an average of $560 per loan they originated in 2007, a widening from an average loss of just $50 in 2006. Overall, loan production operating expenses increased 7% last year to $3,663 per loan. Marina Walsh, associate vice president of research and economics at the MBA, said the drop in gross production operating expense last year did not keep pace with the decline in loan volume. Ms. Walsh told MortgageWire that cost cutting and staff reductions that began in 2007 would likely be more evident in data for this year. On average, participating firms posted pre-tax net financial income of $900,000 last year, down from $6.4 million in 2006. Ms. Walsh said subsidiaries of large financial companies performed better than independent and privately held firms. "It really helps to be part of a well-capitalized bank," she said. One surprise: servicing profits rose to $109 per loan and servicing productivity improved in 2007, though not enough to offset the weak loan production environment. The study largely excludes subprime lenders.

First Industrial Realty Trust Inc., Chicago, has announced a major downward revision of its guidance for earnings per share in 2008 from a range of $4.30 to $4.60 to a range of $2.05 to $2.35. The real estate investment trust attributed the revision primarily to the "rapid deterioration in the capital markets throughout September." The company also revised its 2008 guidance for funds from operations (an alternate financial measure favored by REITs), reducing it from a range of $4.70 to $5.00 per share to a range of $3.45 to $3.75 per share. First Industrial also offered EPS guidance of $1.25 to $1.75 for 2009. The industrial REIT can be found on the Web at http://www.firstindustrial.com.

Oaks Development Group, a Cary, N.C.-based developer of medical properties, has announced the formation of a new, Boston-based division focused on providing venture capital and partnership opportunities to private equity investors. Oaks' tenant ownership model creates a three-way partnership among medical tenants, private investors, and the developer, with 50% ownership residing with the medical tenants. Oaks said it is now focused on expanding its office ownership model nationwide. The company can be found online at http://www.oaksdevelopment.net.

Citigroup and Wells Fargo moved their arguments over who has a valid deal to acquire Wachovia into several courtrooms over the weekend. On Oct. 4, Justice Charles Ramos of the Supreme Court of the State of New York issued an order giving Citi emergency injunctive relief extending the exclusivity agreement with Wachovia until further order of the court. Under the order, Citi and Wachovia must appear before the judge on Oct. 10. In a statement, Citi said it is prepared to resume negotiating in good faith to complete the transaction. The next day, a New York State appellate court vacated the Oct. 4 order. A statement from Wells Fargo said it was "pleased that the unfounded order entered yesterday has been vacated. Wells Fargo will continue working toward the completion of its firm, binding merger agreement with Wachovia Corp." In its own statement, Wachovia said Citi "is always free to make a superior offer to Wachovia." Furthermore, two Wachovia shareholders, Mary Louise Guttmann and Leslie M. "Bud" Baker, say they have obtained a temporary restraining order from Mecklenburg County (N.C.) General Court of Justice, Superior Court Division, prohibiting Citi from taking legal action to enforce any provisions regarding the exclusivity limitations.

Radian Guaranty -- the nation's third-largest mortgage insurance company -- is changing its underwriting guidelines, effectively locking loan brokers out of the condominium market. Come Oct. 20, the mortgage insurer will only accept insurance applications on condo loans if they are funded through a lender's retail network. It's believed that Radian is the first of the nation's seven MIs to adopt such a policy on broker-sourced condo loans. The National Association of Mortgage Brokers is none too happy about the change. "They're singling out brokers," said NAMB chief Marc Savitt. "They're hurting consumers, because brokers still do a large portion of the nation's originations." Mr. Savitt said the NAMB has not yet talked to Radian about the new policy, but may soon. "I think we'll wait until the dust clears first," he said. At deadline time, Radian officials could not be reached for comment. The condo/broker language is not the only underwriting change being made by the MI. It also is tightening up some of its loan-to-value ratio guidelines. Radian can be found online at http://www.radianmi.com.

ProLogis, a Denver-based industrial real estate investment trust, has been added to the Dow Jones Sustainability Indexes. ProLogis said the Dow indices track the performance of companies that meet certain criteria for economic, environmental, and social sustainability. The company said it has qualified for the North American Index and the World Index. The first includes the top 20% of sustainability leaders from the largest 600 North American companies in the Dow Jones Global Index. The second consists of the top 10% of such leaders from the largest 2,500 companies worldwide. The company, which owns, manages, and develops distribution facilities, can be found on the Web at http://www.prologis.com.

Kite Realty Group Trust, an Indianapolis-based real estate investment trust, has priced a public offering of 4.75 million shares of common stock at $10.55 per share. The company said it plans to use the net proceeds to repay debt under its unsecured revolving credit facility. The joint book-running managers for the offering are Raymond James & Associates, Citigroup Global Markets, and Banc of America Securities. The shopping center REIT has granted the underwriters an option to buy up to 712,500 additional shares to cover any overallotments. Kite can be found on the Web at http://www.kiterealty.com.

Weingarten Realty Investors, Houston, has priced a pubic offering of 3 million shares of common shares of beneficial interest at $34.20 per share. The real estate investment trust said it will use the net proceeds to repay outstanding debt under its revolving debt facilities and for general corporate purposes. Weingarten has granted the underwriters an option to buy up to 450,000 additional shares to cover any overallotments. Merrill Lynch & Co. and Morgan Stanley are the joint book-running managers for the offering. The REIT can be found online at http://www.weingarten.com.

Liberty Property Trust, Malvern, Pa., has priced a public offering of 4.75 million shares of common stock at $33 per share. The real estate investment trust said it has granted the underwriters an option to buy up to 712,500 additional shares. The joint book-running managers for the offering are Banc of America Securities LLC, Citi, and J.P. Morgan Securities Inc. The REIT can be found online at http://www.libertyproperty.com.

Edmund Hoyt has been named interim chief financial officer of General Growth Properties Inc., a Chicago-based real estate investment trust. Mr. Hoyt, who has served as senior vice president and chief accounting officer of the company since 2000, succeeds Bernard Freibaum, who is no longer employed by the REIT. GGP announced that all continuing executive officers have informed the company that they have repaid in full all margin loans, and therefore "there will be no further sales of company stock by those executive officers to satisfy margin calls." Citing the uncertainty and volatility in the capital markets, the shopping center REIT said its board has decided to suspend the payment of common stock dividends.

The Eleventh District Federal Home Loan Bank Cost of Funds Index for August stands at 2.693%, virtually unchanged from 2.698% in July. According to the Federal Home Loan Bank of San Francisco, which uses a weighted-average calculation to determine the index, the average total funds for August were $375.6 billion and the total interest expense was $842.7 million. In calculating the total funds, the averages consist of the simple average of the month-end balances for that month and the prior month for total funds, deposit accounts, advances, and other borrowing, according to the FHLBank's website. The total interest expense is derived from interest expense reported on deposit accounts, Federal Home Loan Bank advances, and other borrowings, adjusted for the number of days in the month. Among the factors that could affect future calculations is the failure of Washington Mutual, which was a member of the San Francisco FHLBank. A disclaimer in the COFI announcement said if there is a charter change or merger, the FHLBank might determine that a financial institution no longer qualifies as a COFI reporting member. "The impact of such removals on the COFI will depend entirely on the amount of interest expense and total funds of the entity being removed, and may be significant," the FHLBank said.

August 2008 was the worst month for total primary new insurance written for the members of the Mortgage Insurance Companies of America since MICA changed its reporting methodology seven years ago. There was just $10.2 billion of primary new insurance written, all of it through the traditional channel. No bulk certificates were issued in August -- the previous low was 10 in May of this year. The bulk channel is where most subprime mortgages were insured. In August 2007, 24,698 certificates were issued. The $10.2 billion figure was not the all-time low volume for the traditional channel. In February 2006, the channel contributed $9.3 billion, compared with $10.1 billion the month before. Another event that has affected the reported volume was the departure of Radian Group from the organization in 2003. Triad Guaranty, which entered runoff this summer, is also no longer counted in the organization's statistics. In July, $12.3 billion of primary new insurance was written, all but $31.2 million from the traditional channel. In August, the cure/default ratio stood at 57.4%, with 41,783 cures and 72,818 defaults.

American International Group Inc., New York, is refocusing its business on its core property-and-casualty insurance units, as it looks to raise liquidity to repay its loan from the Federal Reserve Bank of New York. AIG has already drawn $61 billion of the $85 billion available. In a statement, the company said it is "exploring divestiture opportunities for its remaining high-quality businesses and assets." Representatives of the company said specifics of the sales have not been disclosed, and it could not confirm whether the mortgage insurance business, United Guaranty Corp., Greensboro, N.C., was one of the units on the block. The AIG statement added that the company was "actively at work on a number of alternatives for its financial products business and its securities lending program." AIG's global coordinators for the divestiture program are The Blackstone Group and J.P. Morgan.

The Department of Housing and Urban Development is shooting for a Nov. 1 increase in the loan limit for Home Equity Conversion Mortgages to $417,000. The new single, nationwide maximum isn't as great as some had hoped, but it will still be higher than the current $200,160 floor or the $362,790 maximum in high-cost markets. Lending interests tried to persuade the FHA to go along with the new national $625,000 ceiling on Fannie Mae-Freddie Mac loans, which took effect Oct. 1. But at this week's Mortgage Bankers Association's reverse mortgage lending conference in Atlanta, FHA Commissioner Brian Montgomery revealed that the lower figure prevailed. "We tried to convince HUD that [reverse mortgages] should be tied to the higher limit," said Daryl Hicks, vice president of communications at the National Reverse Mortgage Lenders Association, "but the lower ceiling is still going to be very helpful." Mr. Montgomery also said that HECM origination fees would be capped at $6,000. While HUD is aiming for Nov. 1, the exact effective date will not be finalized until Mr. Montgomery issues a mortgagee letter on the new loan limit.

Fannie Mae is rolling back a 25-basis-point hike in its "adverse market" delivery fee that went into effect Oct. 1, and it is telling its lenders to waive the additional charge for borrowers who have not yet closed on their loan. Freddie Mac also said it is rescinding a previously announced 25-bp hike in its "market condition" delivery fee that was due to take effect Nov. 7. Over the past year, the two secondary-market agencies have increased their fees and underwriting standards as they struggled to deal with rising delinquencies and losses. The agencies told lenders in August that they were going to double those delivery fees before the companies were placed into conservatorships by their regulator. Since then, Fannie and Freddie have been under orders to review their loans fees and underwriting standards to increase the availability of affordable mortgage credit. Fannie is evaluating underwriting guidelines, pricing, and cost in light of changing market conditions, according to chief executive Herb Allison. "As we move forward, we will seek to balance our responsibility to provide the most market support possible with our obligation to protect the company and its many stakeholders, including taxpayers," Mr. Allison said. Fannie can be found online at http://www.fanniemae.com.