Originations

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.

The House Financial Services Committee is slated to mark up a bill Sept. 16 that would give the Federal Housing Administration some latitude to price mortgage insurance premiums based on risk and allow nonprofit housing groups to continue to arrange downpayment assistance on FHA loans. The bill (H.R. 6694) would reverse provisions in a major housing bill Congress passed this summer that bans seller-funded downpayment assistance on FHA loans starting Oct 1 and bars the FHA from using risk-based pricing for 12 months. The Department of Housing and Urban Development says it has "deep reservations" about the bill even though the FHA has been seeking congressional authorization for risk-based pricing for several years. On Tuesday morning, a HUD official is scheduled to testify before a House Financial Services subcommittee on its Real Estate Settlement Procedures Act reform proposal, which many in Congress and the housing industry want HUD to withdraw. HUD Secretary Steve Preston continues to insist, however, that the department will issue a final RESPA rule that will provide homebuyers with a "clear and understandable" disclosure of their mortgage terms and costs.

JPMorgan Chase is in advanced talks to buy Washington Mutual, one of the nation's largest residential lenders and servicers, according to a report in American Banker. No other details were available at deadline time. According to figures compiled by National Mortgage News and the Quarterly Data Report, if JPM buys WaMu and all its mortgage assets, it would challenge Wells Fargo for the No. 2 spot among residential servicers. A combined Chase/WaMu servicing platform would have $1.429 trillion in housing receivables, compared with $1.496 trillion for Wells. Bank of America and its Countrywide franchise serviced $2.025 trillion in home mortgages at midyear, according to NMN/QDR. Over the past few years WaMu has been mentioned as a takeover target, with JPM, Citigroup, and a handful of foreign banks mentioned as possible suitors. Hammered by delinquent loans (including subprime), WaMu has been hemorrhaging money. Its stock recently fell to just $1.75. Late Thursday the nation's largest thrift released a preview of its third-quarter results, saying its credit loss provision would be about $4.5 billion, with residential mortgage losses accounting for $3.4 billion of the total. In the second quarter, WaMu's loss provision totaled $5.9 billion. WaMu said net chargeoffs may increase by about 20% in the third quarter, down from a 60% increase tallied in the second quarter.

Four classes of notes issued by Orion 2006-1 Ltd./LLC, a collateralized debt obligation linked to subprime residential mortgage-backed securities, have been downgraded by Fitch Ratings. The downgrades in the hybrid cash and synthetic structured finance CDO were as follows: class A, from BB-minus to CC; class B, from B to CC; class C, from CCC to CC; and class D, from CCC-minus to CC. All four classes were removed from Rating Watch Negative. Fitch said the downgrades stemmed from "significant collateral deterioration" in the portfolio, especially from U.S. subprime RMBS and structured finance CDOs with underlying exposure to subprime RMBS.

Markit, New York, has announced plans to launch a tradable synthetic index of U.S. subprime asset-backed securities referencing 20 qualifying residential mortgage deals issued in the first half of 2005. "The addition of a new index, following a majority vote of licensed dealers, will provide institutional investors with a greater ability to gain or hedge exposure to an earlier vintage of U.S. residential mortgage-backed securities," the company said. Markit said it would make the new index, ABX.HE 05-2, available on Oct. 2.

Commercial and multifamily mortgage delinquencies rose slightly for most major investor groups in the second quarter, according to the Mortgage Bankers Association. The 30-plus-day delinquency rate for loans held in commercial mortgage-backed securities rose 0.05 of a percentage point to 0.53% at the end of the quarter, and the delinquency rates for multifamily loans (60 or more days delinquent) held or insured by Fannie Mae or Freddie Mac rose 0.02 of a percentage point to 0.11% for Fannie loans and 0.01 of a percentage point to 0.03% for Freddie loans. (Delinquency rates are not comparable because the MBA analysis incorporates the varying measures used by each investor group.) The delinquency rate for loans held in life insurance company portfolios (60-plus days delinquent) rose 0.02 of a percentage point to 0.03%, and the rate for loans held by banks and thrifts (90 or more days delinquent) rose 0.17 percentage points to 1.18%. "Commercial/multifamily mortgages are not seeing the same kinds of deterioration in performance that single-family mortgages, construction, and some other types of loans have seen," said Jamie Woodwell, MBA's vice president of commercial/multifamily research. The MBA can be found online at http://www.mortgagebankers.org.

The $700 billion U.S. homebuilding industry faces more economic distress over the next six months, especially small to medium-size builders, according to Grant Thornton Corporate Advisory and Restructuring Services. National builders will continue to acquire local and regional builders, and the latter will consolidate to become more attractive acquisition targets, the company predicted. "Homebuilders are unique from a restructuring standpoint," said John Bittner, a partner at Grant Thornton's CARS practice. "It's not like a manufacturing company that can quickly cut costs to improve operations and increase profitability. When a builder finds itself in distress, there are fewer options to improve cash flow short of having a fire sale on existing inventory." Grant Thornton can be found online at http://www.grantthornton.com.

Two former Ditech.com executives have announced the launch of Lendability.com, an online mortgage lender based in Scottsdale, Ariz., that aims to be "the leader in both cost and transparency." Paulo La Greca, the new venture's chief executive officer, said the company plans to be in all 50 states by the summer of 2009. Brent Kirk, its chief operating officer, said other online lenders "got carried away with their businesses" by getting heavily involved in subprime mortgages. He said "everything is upfront" at Lendability.com, including rates, fees, and consumer options. Several other former executives at Ditech.com, Costa Mesa, Calif., have joined the company and will remain in Southern California to head up Lendability.com's satellite operations there. The company can be found on the Web at http://www.lendability.com.

Demand for federal rural development single-family loans has doubled this fiscal year to $6.1 billion, and agency officials estimate that the rural housing program could guarantee $10 billion in loans in fiscal 2009 if Congress approves additional support for the program. "We are bolstering the market and providing support the way government should during hard times," said Joaquin Tremolf, single-family director of the U.S. Department of Agriculture's Rural Development agency. The rural housing program provides no-downpayment loans for low- and moderate-income homebuyers in rural areas. "It is the only no-downpayment program left for nonveterans," Mr. Tremolf said. However, the agency has strict underwriting standards, and it reviews "every single appraisal" before approving a loan, the director said. The foreclosure rate on rural housing loans was 1.4% as of June 30, compared with 2.3% for Federal Housing Administration single-family loans.

Supporters of the controversial seller-funded downpayment assistance program rallied in Washington on Wednesday, calling on Congress to pass a bill that would save DPA from being eliminated Oct. 1. The Oct. 1 ban -- signed into law July 30 as part of the Housing and Economic Recovery Act of 2008 -- has mobilized community activists who say it will disproportionately affect minorities, especially first-time homebuyers and female-headed households. A recent analysis by Washington-based Matrix Global Advisors of government data on FHA-insured loans found that over 40% of African-Americans who receive FHA loans, and 27% of Hispanics, rely on seller-funded DPA. According to Scott Syphax, president and chief executive of DPA pioneer Nehemiah Corporation of America, 90% of the 300,000 families Nehemiah has directly served have not faced foreclosure. While stressing that roughly 40% of Nehemiah clients have been minorities, he called on the administration to right a wrong "by supporting H.R. 6694 and reinstating DPA indefinitely."

Long-term mortgages became more affordable this week as the market digested news of the Treasury's rescue plan for Fannie Mae and Freddie Mac. The average rate on conforming, 30-year fixed-rate mortgages declined to 5.93% this week, a decline of 42 basis points from that of last week. It was the first time the average 30-year mortgage rate had dropped below 6% since May. The average rate on 15-year fixed-rate mortgages declined to 5.54%, down 36 basis points from the level recorded the week before. But the rate drop may not spark a refinancing boom. Brian Koss, executive vice president of national production at Mortgage Network Inc., Danvers, Mass., told American Banker, "Most borrowers don't have the equity in their homes or don't meet current guidelines, so a lot of people who want to refinance, can't."

Originations of piggyback loans declined by 63% in 2007, but Fannie Mae and Freddie Mac continued to purchase about the same number of such loans, according to just-released Home Mortgage Disclosure Act data. The HMDA report indicates that the number of piggybacks (where a first lien and a second lien are made simultaneously) fell from 1.1 million in 2006 to 389,150 in 2007. However, the mortgage giants purchased nearly 30% of the 2007 piggybacks, compared with 12.5% in 2006. The Federal Reserve commentary on the HMDA data notes that piggybacks are usually originated to avoid buying mortgage insurance or to make sure that the first lien is below the conforming loan limit (which was $417,000 last year). As expected, the HMDA report also shows a sharp decline in subprime lending. Subprime or "higher-priced" loans fell to 1.9 million in 2007 from 2.9 million the previous year. Nearly 170 lenders closed up shop in 2007 and did not file HMDA reports. In 2006, those lenders reported making nearly 400,000 subprime loans.

Two classes of subprime second-lien residential mortgage-backed securities insured by XLCA have been downgraded by Fitch Ratings. Classes A1 and A2 of C-BASS series 2007-SL1 were downgraded from BB to CCC. The downgrades were based on Fitch's recent downgrade of XLCA's insurer financial strength rating to CCC, the rating agency said.

Twenty-eight classes from eight mortgage-related transactions insured by Financial Guaranty Insurance Co. have been downgraded by Fitch Ratings, and two classes have been placed on Rating Watch Negative. The downgrades affected deals issued by Ameriquest Mortgage Securities, Aegis, Ace Securities Corp., Morgan Stanley ABS Capital, GMAC Mortgage Corp., and CSFB. Most involve subprime residential MBS. Fitch attributed the downgrades to its recent downgrade of FGIC's insurer financial strength rating to CCC.

Thirty-eight classes of notes issued by five collateralized debt obligations linked to alternative-A and subprime residential mortgage-backed securities have been downgraded by Fitch Ratings. The affected securities include 10 classes from Maxim High Grade CDO I Ltd. and eight classes from Maxim High Grade CDO II Ltd, both static high-grade cash flow structured finance CDOs; and eight classes from Nautilus RMBS CDO I Ltd./LLC, six classes from Nautilus RMBS CDO II Ltd./LLC, and six classes from Nautilus RMBS CDO V Ltd./LLC, all static cash flow structured finance CDOs. Twenty-three of the downgraded classes were removed from Rating Watch Negative. The downgrades were attributed in all cases to collateral or credit deterioration in the portfolios' alt-A RMBS and, in four of the five cases, in their subprime RMBS. Fitch can be found online at http://www.fitchratings.com.

Kimco Realty Corp., New Hyde Park, N.Y., has priced a public offering of 10 million shares of its common stock at $37.10 per share. UBS Investment Bank, Citi, and Wachovia Securities are the joint book-running managers for the offering. Kimco has granted the underwriters an option to buy up to 1.5 million additional shares to cover any overallotments. The net proceeds will be used for general corporate purposes, the company said. Kimco, a real estate investment trust specializing in shopping centers, can be found online at http://www.kimcorealty.com.

Two years ago, 45% of homeowners who were experiencing difficulty paying down their home equity lines of credit were also struggling to pay their first mortgages. Today, that figure has climbed to 61%, according to data also released by Equifax Analytical Services at the Consumer Bankers Association's annual Home Equity Lending Conference in Austin, Texas. Worse, in California and Florida, the two states that have become synonymous with the housing market debacle, late payments on HELOCs and home equity loans are associated with late first mortgages "over 80% of the time," senior consultant David Whitin reported. Equifax also found that because lenders have all but shut down home equity lending, bank card balances are starting to grow, and if economic conditions continue to drive consumers toward an increased reliance on their plastic, credit scores are likely to deteriorate. Mr. Whitin said home equity lenders would do well to study the main attributes that drive loan performance and adjust their exposure accordingly. Changes in these attributes, he said, result in "a five to 16-times increase in the HELOC delinquency rate."

Confirming what has been suspected for some time now, an analysis by Equifax has found that many financially strapped consumers are no longer paying their mortgages first. In previous down cycles, borrowers have given their homes their highest priority. At least that's the traditional industry consensus. But a look at both 2002 and 2005 vintage loans revealed that "more consumers are letting their houses go," David Whitin of Equifax Analytical Services, Orange Park, Fla., reported at the Consumer Bankers Association's annual Home Equity Lending Conference in Austin, Texas. Delinquent borrowers who took out their home loans in 2005 are more likely to have clean slates when it comes to their credit cards and auto loans than tardy borrowers who got their loans three years earlier, Mr. Whitin told the conference. Equifax also found that borrowers in the six states with the largest price declines -- Arizona, California, Florida, Massachusetts, Maryland, and New York -- are more likely to fit that description than those in other states. Another key finding: borrowers who have trouble paying their mortgages but manage to make their credit card and car payments tend to have larger mortgages than those who fail to meet any of the three obligations. Mr. Whitin's conclusion: "Lenders need to make some changes to make this kind of behavior more unattractive."

An analyst's report issued by Friedman Billings Ramsey says putting Fannie Mae and Freddie Mac into government conservatorship would have little impact on the private mortgage insurance companies in the near term. "Longer-term risks remain, however, as the very real possibility exists that [Sunday's] actions could make the use of mortgage insurance an obsolete form of credit enhancement," said FBR analyst Steve Stelmach. "While nothing currently exists on the legislative front with regard to doing away with the 20% down payment requirement for the GSEs, any upcoming changes to the GSEs' charters resulting from [Sunday's] actions could include legislation that forgoes the need for mortgage insurance." Radian Group Inc., Philadelphia, issued a statement saying it would continue to insure loans for Fannie and Freddie in accordance with their charters. "Fannie Mae and Freddie Mac have historically relied heavily on mortgage insurance, and Radian has been working closely with both companies through this difficult environment," Radian said. "Radian remains committed to its principal mortgage insurance subsidiary, Radian Guaranty." FBR can be found online at http://www.fbr.com, and Radian can be found at http://www.radianmi.com.

Fannie Mae and Freddie Mac will be removed from the S&P 500 Index after the close of trading on Sept. 10, Standard & Poor's has announced. S&P said the reason for the removals is that the market capitalization of both government-sponsored enterprises has fallen far below the $5 billion minimum required for listing on the S&P 500. As of the close of trading on Sept. 9, Fannie's market capitalization totaled approximately $1.04 billion and Freddie's stood at approximately $614 million, S&P reported. Fannie will be replaced in the index by Fastenal Co., and Freddie's place will be taken by Salesforce.com. S&P can be found online at http://www.standardandpoors.com.