Originations

Impac Mortgage Holdings, a subprime lender based in Irvine, Calif., has reported a net loss of $31.3 million ($0.51 per share) in the first half, compared with a net loss of $274.2 million in the first half of 2007. Impac, a real estate investment trust, said the "broad repricing of mortgage credit risk continued the severe contraction in market liquidity" and that the volatile capital markets "have effectively been unavailable" to the company. The mortgage REIT said it hopes to "align the costs of our operations to the cash flows from our long-term mortgage portfolio (residual interests in securitizations), master servicing portfolio, and real estate advisory fees." The company said other goals include reducing or eliminating dividend payments on its preferred stock and modifying its trust preferred securities. Impac can be found online at http://www.impaccompanies.com.

The Office of Comptroller of the Currency is checking national banks that fund brokered loans to make sure the mortgage brokers are properly disclosing their fees to consumers as outlined in a 2003 advisory letter. "We have been reviewing bank compliance with this particular section of our guidance recently since it has been more than five years since the advisory letter was issued," Michael Bylsma, the OCC's director of consumer law, told a Mortgage Bankers Association compliance conference. The OCC guidance calls for national banks to enter into written agreements with mortgage brokers to ensure they make loans that meet the consumer's "needs, objectives and financial situation," Mr. Bylsma said. These agreements "should limit total broker compensation to prevent inappropriate steering," he added. The 2003 advisory letter also calls for disclosure of broker fees to consumers, including a written agreement between the borrower and the broker. The broker's fees should be conspicuously disclosed in the agreement that is signed and dated by the consumer before the broker starts work. "National banks should have a process in place to review the written agreements," Mr. Bylsma said. The OCC officials declined to comment on the level of compliance with the advisory letter. National banks originated 45% of all home mortgages in 2007, according to the OCC.

Fitch Ratings says the impact of investments in Fannie Mae and Freddie Mac by life and property/casualty insurers will have a limited impact on those companies' ratings. The rating agency estimates insurers' loss exposure to Fannie Mae and Freddie Mac preferred and common stock to be approximately $4 billion, which equates to approximately 0.5% of combined statutory capital for life and property/casualty insurers. There is a material exposure to the GSEs' debt, an estimated $350 billion, which represents 11% of total investments and 44% of statutory capital. Fitch added that it views GSE debt as having the explicit support of the federal government. Fitch has only taken one downgrade of a life insurer because of its exposure to Fannie Mae and Freddie Mac. Old Mutual PLC's life insurance business was downgraded from BBB-plus to BBB because the company will incur investment impairments of $135 million on GSE preferred securities. Old Mutual previously took a $149 million impairment because of its exposure to residential mortgage-backed securities, as well as corporate bonds and preferred stocks.

The regulator of the housing GSEs says Fannie Mae and Freddie Mac can continue to operate their multifamily businesses as usual, and they will not have to liquidate their holdings of Low Income Housing Tax Credits or mortgage revenue bonds. The support of the government-sponsored enterprises for multifamily housing finance is "central to the enterprises' public purposes," according to a statement issued by the Federal Housing Finance Agency. "FHFA has stated that business will continue as usual at the enterprises during the conservatorship -- this applies to both the single-family and multifamily businesses." Centerline Capital Group, New York, welcomed the FHFA statement. "Our multifamily financing business is still strong," Centerline president Marc Schnitzer said. "We expect to continue doing business with both companies in our multifamily and affordable housing lending practices."

Discussions between the New York attorney general, Fannie Mae, and Freddie Mac on appraisals reforms are continuing and "progress is bring made," according to Alfred Pollard, general counsel of the Federal Housing Finance Agency. The appraisal reforms announced by AG Andrew Cuomo, Fannie, Freddie, and the GSE regulator in March have already gone through a comment period that generated a very hostile response from industry groups and federal banking regulators. "Fannie and Freddie have reviewed the comments," Mr. Pollard told a Mortgage Bankers Association compliance conference. "They have done a very good job of looking at them and making changes that would be merited." Nevertheless, discussions with the New York AG's office are continuing. "The best I can tell you now is that progress is being made," FHFA official said.

Department of Housing and Urban Development officials have refused to testify before a House Financial Services subcommittee and defend its RESPA rule before congressional and industry critics who want to kill the rule. HUD told subcommittee Chairman Mel Watt, D-N.C., that they should not comment about the Real Estate Settlement Procedures Act rule while it is under review at the Office of Management and Budget. Rep. Watt said at the hearing that he was disappointed that HUD Secretary Steve Preston did not show up. "I though it would be fun to see a bipartisan pummeling of a federal government agency and a spirited defense," he said. Federal Reserve Board officials also declined to testify, "citing a reluctance to be critical of another federal agency," Rep. Watt said. Congressional critics have urged HUD to withdraw the RESPA rule and work with Federal Reserve staff in developing more simplified mortgage and real estate settlement cost disclosure forms. Fed staffers have also urged HUD to take a more coordinated approach in revamping the consumer disclosures. But HUD ignored the Fed and sent the final RESPA rule to the OMB on Aug. 21. Meanwhile, Rep. Judy Biggert, R-Ill., said she expects to get over 200 fellow members of Congress to sign a "dear colleague" letter that urges the OMB to postpone final approval of the RESPA rule until HUD holds public hearings on it.

Despite the woes of its insurance conglomerate parent, United Guaranty Inc., the nation's fourth-largest mortgage insurance company, is still writing new policies. "I can't say anything right now," said a spokeswoman for American International Group, "but UGI is open for business." She declined to elaborate, and company president William Nutt did not return a telephone call about the matter. A subsidiary of AIG, UGI is the nation's fourth-largest MI in terms of new policies written ($7.7 billion in the second quarter) and the fifth-largest as measured by policies-in-force ($135.2 billion). United Guaranty lost $440 million in the second quarter. (Its earnings were disclosed as part of AIG's results.) AIG's share price plunged Tuesday after its credit ratings were cut, fueling concerns that the $1 trillion-asset company might be forced into bankruptcy. AIG has suffered massive losses because of credit default swaps (insurance policies) it wrote on collateralized debt obligations backed by subprime mortgages. When subprime bonds go bad, AIG must make good on the insurance policies it wrote.

Another turn of the screw pushed American International Group closer to the brink as the three major credit rating agencies downgraded the troubled company. The moves are reportedly making it difficult for the company to raise additional capital. On Monday, New York Gov. David Patterson announced that the state would allow AIG to transfer some assets to provide about $20 billion in cash for short-term liquidity. Gov. Patterson has sent the state's insurance superintendent, Eric Dinallo, to work with the Federal Reserve on a plan to help AIG. However, reports indicate that no money is coming from the Fed. Fitch cut AIG's long-term issuer default rating from AA-minus to A. In its report, Fitch noted that as of July 31, AIG "estimated that it could be required to post $10.5 billion of additional collateral if the company's ratings are downgraded one notch from current levels by the other major rating agencies and $13.3 billion of collateral if downgraded by both of the other agencies." Standard & Poor's Ratings Services lowered its long-term counterparty rating on AIG from AA-minus to A-minus. S&P credit analyst Rodney A. Clark said mark-to-market losses from mortgage-related investments and swap exposures have pressured AIG's ability to access capital. Moody's Investors Service downgraded AIG's senior unsecured debt rating from Aa3 to A2, noting that the volatility in AIG's stock price and borrowing spreads "have made it more difficult to address the company's immediate liquidity and capital needs through traditional capital market issuance." A.M. Best downgraded AIG's financial strength from A-plus to A.

Among the ripple effects of Lehman Brothers Holdings Inc.'s bankruptcy filing are possible downgrades of some European commercial mortgage-backed securities transactions. Moody's Investors Service analysts in London said Moody's has placed 10 European CMBS transactions on review for further possible downgrade based on their exposures to LBHI or its subsidiaries. Fitch Ratings also said it is reviewing Lehman's counterparty exposure in global structured finance transactions. In addition, UBS AG has said it expects to incur a cost not to exceed $300 million related to closing out its exposures to Lehman net of hedges, something it has "substantially" completed.

Asian financial institutions -- Japanese banks in particular -- are among the 30 largest unsecured creditors of Lehman Brothers, which collapsed Monday, filing for Chapter 11 bankruptcy protection. According to the company's petition, eight Japanese banks are owed $1.62 billion on loans they had extended to Lehman, once a major player in the subprime and alternative-A markets. (Lehman owns Aurora Loan Services of Colorado, the nation's largest alt-A servicer.) Citibank NA and The Bank of New York Mellon Corp. are serving as indenture trustees of the bankruptcy, representing bondholders that are owed upwards of $155 billion. (Separately, Citibank's Hong Kong division is owed $275 million.) According to Peter Chapman of bankrupt.com, a service that tracks bankruptcies, Lehman's junior bonds are now trading as low as 28 cents on the dollar. On Tuesday night Lehman's creditors' committee will hold its first meeting. At $600 billion in assets, Lehman is the largest American company ever to fail. "Before Lehman, Worldcom was the largest at $100 billion, and Enron $70 billion," Mr. Chapman noted.

Twenty-five classes of notes issued by four collateralized debt obligations linked to subprime or alternative-A residential mortgage-backed securities have been downgraded by Fitch Ratings. The affected securities include eight classes from Bluegrass ABS CDO II Ltd., a structured finance CDO; seven classes from Tigris CDO 2007-1 Ltd./LLC, a cash flow structured finance CDO; five classes from Kleros Preferred Funding Ltd./Inc., a static CDO; and five classes from Inman Square Funding I Ltd./Inc. Seventeen of the downgraded classes were removed from Rating Watch Negative, and two were placed on Rating Watch Negative. The downgrades were attributed variously to collateral or credit deterioration in the portfolios' subprime or alt-A RMBS or structured finance CDOs with underlying exposure to subprime RMBS. Fitch can be found online at http://www.fitchratings.com.

Zacks Equity Research's Bear of the Day for Sept. 15 is The PMI Group Inc., Walnut Creek, Calif. Zacks said PMI's second-quarter operating loss was "substantially worse than the estimates." While the sale of its Australian and Asian businesses to QBE Insurance Group Ltd. helped to support the mortgage insurer's capital and liquidity position, Zacks said it did not rule out the need for PMI to raise additional capital in the near to medium term. Zacks added that it increased its loss estimates for 2008 to $10.80 per share and for 2009 to $2.30 per share. "The rise in delinquencies and defaults on loan payments may continue for a longer time than expected earlier, leading to increased losses for the mortgage insurers," Chicago-based Zacks said. The research firm can be found online at http://www.zacks.com.

DBRS has placed all ratings of Washington Mutual Inc. and Washington Mutual Bank Under Review with Negative Implications. The rating agency said the action reflects its concerns that recent market events may hurt WaMu's ability to protect its strong national franchise. (WaMu's issuer and senior debt rating stands at BBB.) DBRS noted WaMu's Sept. 11 release laying out expectations for its third-quarter performance, including lower expected loan-loss provisions. The release reported no change in the company's long-term credit outlook and said liquidity remained stable at approximately $50 billion. "DBRS views liquidity at the holding company level as adequate, with cash to meet its obligations throughout the next several years," the rating agency said. "WaMu expects that capital will remain above well-capitalized levels. Although DBRS currently views liquidity as sufficient, it also realizes that market events can quickly affect the financial flexibility of an organization."

Lenders originated $156.5 billion in FHA single-family loans in the first 11 months of fiscal year 2008, nearly triple the total for all of fiscal 2007, according to Department of Housing and Urban Development data. The HUD numbers show that FHA loan production accelerated in the spring and the summer. In July and August, lenders originated $47.9 billion in FHA loans, nearly topping the $54.3 billion originated over the previous three months. The FHA surge is also boosting the issuance of Ginnie Mae mortgage-backed securities. In July, Ginnie's single-family MBS issuance totaled $25.8 billion, which exceeded Freddie Mac's MBS issuance by $4 billion. In August, FHA lenders originated $24.4 billion in single-family loans and Ginnie guaranteed $28.8 billion in MBS. The Department of Veterans Affairs guarantee loan program is also kicking in. Lenders originated $8.2 billion in VA loans in July and August, compared with $10.4 during the previous three months.

Will American International Group be the next domino to fall? That seems to be the bet on Wall Street, as the company's common stock price fell over 65% just after noon Sept. 15 from its close on Sept. 12, off $7.89 to $4.25. Other media outlets are reporting that AIG will offer a restructuring plan, and the company has reportedly contacted the Federal Reserve seeking a bridge loan. AIG said it was unable to confirm this information. Standard & Poor's placed AIG on CreditWatch with negative implications on Sept. 12. "We believe that AIG has sufficient capital and liquidity to meet its policy obligations and potential collateral requirements, which are significantly greater than the expected cash losses on the mortgage-related assets," said S&P credit analyst Rodney Clark. "However, additional market value losses will place some strain on the company's resources." S&P added that AIG's access to the capital market may be more restricted in the short term. AIG reported a net loss of $5.86 billion ($2.06 per share) for the second quarter, compared with net income of $4.28 billion ($1.64 per share) a year earlier. The effect of capital markets unrealized losses on AIG's super senior credit default swaps was $3.6 billion. Operating losses at AIG's United Guaranty Corp. mortgage insurance subsidiary totaled $440 million for the quarter.

Standard & Poor's Ratings Services has lowered its long-term counterparty credit rating on Bank of America Corp. from AA to AA-minus following BoA's agreement to acquire Merrill Lynch. The long-term ratings of its subsidiaries were also lowered one notch, and those on its holding company and bank subsidiaries were placed on CreditWatch with negative implications. S&P also placed its ratings on Merrill Lynch & Co. and all related entities on CreditWatch with developing implications. The rating actions "reflect the risks of acquiring Merrill Lynch in the present turbulent market environment," said S&P credit analyst John Bartko. S&P noted that the acquisition "takes place on the heels of BoA's recent July 1 acquisition of troubled mortgage lender Countrywide Financial Corp. In our view, the purchase of Merrill will place further pressure on BofA's capital, already strained by the Countrywide acquisition." S&P said Merrill will introduce more residential housing risk to BoA, "notably in the form of its sizable holdings of collateralized debt obligations backed by subprime residential mortgage-backed securities." The rating agency can be found online at http://www.standardandpoors.com.

Bank of America's deal to buy Merrill Lynch could spell trouble for PHH Corp., which has a mortgage lending and servicing relationship with Merrill. Analysts at FBR Capital Markets note that the lending and servicing contract cannot be terminated until the end of 2010, but say they expect that Bank of America probably will take over Merrill's lending and servicing business at that time. FBR said Merrill accounts for 20%, or $8 billion, of PHH's origination volume. The loss of the Merrill relationship could be "incrementally negative for PHH," an FBR report said. FBR lowered its rating on PHH to "market perform" in the wake of the BoA/Merrill Lynch deal.

Eleven classes of notes issued by two collateralized debt obligations linked to subprime or alternative-A residential mortgage-backed securities have been downgraded by Fitch Ratings. The affected securities include seven classes from Charles River CDO I Ltd./Inc., and four classes from Northlake CDO I Ltd., both structured finance CDOs. All the downgraded classes were removed from Rating Watch Negative, as well as an additional class whose rating was affirmed. The downgrades were attributed variously to collateral deterioration in the portfolios from subprime and alt-A RMBS as well as to underlying exposure to subprime RMBS. Fitch can be found online at http://www.fitchratings.com.

Behringer Harvard Multifamily REIT I Inc., a Dallas-based company that intends to qualify as a real estate investment trust, has announced a $2 billion initial public offering. The offering will include the sale of up to 200 million shares of common stock at $10 per share, Behringer Harvard said. The company said it is offering all the shares in a "best efforts" offering through a network of independent financial advisers, and up to 50 million shares through a distribution reinvestment plan at $9.50 per share. The company can be found on the Web at http://www.bhfunds.com.

Late next month the Federal Deposit Insurance Corp. will accept bids for $360 million in performing commercial real estate loans owned by IndyMac Bank, Pasadena, Calif. The portfolio is being marketed for the agency by First Financial Network Inc., Oklahoma City. As reported by MortgageWire on Sept. 8, bids are due on most of IndyMac's other assets, including its residential servicing franchise. Buyers can buy the whole company or pieces of it. The commercial real estate loan portfolio is being marketed separately, with bids due Oct. 21. FDIC and FFN officials did not respond to telephone calls about the auctions by MW's deadline. The commercial portfolio is being stratified into pools based on collateral and geographic location. The loans are backed by properties in California, Texas, Ohio, Washington, Arizona, and Georgia, according to a statement released by FFN.