Originations

Columbia Bancorp, The Dalles, Ore., is shutting the in-house mortgage banking operation at its subsidiary Columbia River Bank. The closure will affect approximately 39 employees over the next 60 days as the unit winds down. "Columbia's decision to no longer operate an in-house mortgage lending service was necessary because of the uncertainty in the mortgage markets and the risk associated with the industry," explained Roger Christensen, president and chief executive of Columbia. "This will allow us to focus on our core business services, a central point of our management team's vision for the future." CRB has also fired 20 other employees and eliminated 15 others through attrition. Columbia lost $206,000 ($0.02 per share) in the second quarter, which included a loan loss provision of $5.7 million due to increased risk in its residential construction portfolio. The bank can be found online at http://www.columbiariverbank.com.

Twenty-five classes of notes issued by four collateralized debt obligations with exposure to subprime residential mortgage-backed securities have been downgraded by Fitch Ratings. All the downgraded classes were removed from Rating Watch Negative. The affected securities are as follows: nine classes from Norma CDO I Ltd., a hybrid cash and synthetic arbitrage CDO; six classes from GSC ABS CDO 2006-4u Ltd., a hybrid cash and synthetic arbitrage CDO; five classes from Fort Point Funding II Corp., a cash flow structured finance CDO; six classes from Straits Global ABS CDO I Ltd., a cash flow CDO; and five classes from Saybrook CBO II Ltd., a structured finance CDO. The downgrades were attributed to collateral deterioration in the portfolios, especially in subprime RMBS, or underlying exposure to subprime RMBS.

Wachovia Securities was the largest commercial and multifamily mortgage servicer as of midyear, with $434.3 billion in primary and master servicing volume, according to the Mortgage Bankers Association. According to the MBA's midyear update, the other top commercial mortgage servicers were: Midland Loan Services/PNC Real Estate Finance ($273.8 billion), Capmark Finance ($258.3 billion), and Wells Fargo ($179.5 billion). The largest master and primary servicers of commercial/multifamily loans in U.S. commercial mortgage-backed securities, collateralized debt obligations, and other asset-backed securities were Wachovia, Midland/PNC, Capmark, and Wells Fargo, the MBA reported. The largest Fannie Mae/Freddie Mac servicers were Midland/PNC, Wachovia, Deutsche Bank, and Capmark. The MBA can be found online at http://www.mortgagebankers.org.

First American Field Services and First American Real Estate Tax Service have announced the availability of a new vacant-property registration service aimed at helping lenders and servicers comply with changing municipal ordinances. The service identifies properties in a lender's servicing or real-estate-owned portfolio that require vacant-property registration and then manages the registration process, including the disbursement of fees. "As new ordinances are passed in various jurisdictions, our vacant-property registration database is updated and we are able to revise the registration information on behalf of our clients as needed," said Paul Dauterive, president of First American Field Services. ".... This new service reduces the lender's risk of compliance-related penalties by ensuring that all necessary properties remain properly registered throughout the default process." The First American Corp., the Dallas-based parent company of the two units, can be found online at http://www.firstam.com.

Residential lending and housing activity weakened in August, while commercial real estate activity showed more signs of softening, according to the Federal Reserve's Beige Book. Federal Reserve district banks reported that "residential mortgage lending fell in New York and Richmond [Va.], remained slow in Chicago and Dallas, but gained slightly in Philadelphia." The Atlanta and Dallas district banks reported that inventories of unsold houses have edged down since July when the last Beige Book was issued. Meanwhile, CRE activity "moved down or remained weak in all districts, except Dallas," the Beige Book says. "Boston, New York, Philadelphia, Atlanta and Chicago reported signs of softening demand, including declining leasing activity, rising vacancies and decreasing construction."

Extreme overvaluation in the nation's housing market was "essentially nonexistent" in the second quarter, an indication that "the nation's housing 'bubble' has popped and house prices reflect a healthy balance in relation to long-term fundamentals," according to an analysis released by Global Insight Inc., Waltham, Mass. The quarterly housing valuation analysis, House Prices in America, found that prices fell in 152 of the 330 covered metropolitan markets in the second quarter, representing 46% of all single-family units in the United States. "Although the markets that were extremely overvalued two years ago are seeing expected price declines, other areas are seeing price declines due to weak economic conditions," said Jeannine Cataldi, senior economist and manager of Global Insight's Regional Real Estate Service. "The market has a lot of inventory to work through before prices will change course." The analysis is a joint effort of Global Insight and National City Corp., Cleveland. More information can be found online at http://www.globalinsight.com/housingvaluation and http://www.nationalcity.com/housevaluation.

GMAC Financial Services shocked the market Wednesday, announcing that it will close all 200 of its retail residential branches and cease table funding through its broker division, Homecomings Financial. According to figures compiled by National Mortgage News and the Quarterly Data Report, GMAC's mortgage division, Residential Capital LLC of Minneapolis, ranks sixth nationwide among all home mortgage originators. The company said it will still fund loans on a correspondent basis and through what it calls "direct lending channels." In total, 5,000 mortgage jobs (60% of the work force) will disappear. "While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment," said new ResCap chairman and chief executive Tom Marano. "Conditions in the mortgage and credit markets have not abated and, therefore, we need to respond aggressively by further reducing both operating costs and business risk." ResCap is also the nation's 10th-largest servicer, with $449 billion in receivables. ResCap can be found online at https://www.rescapholdings.com.

GMAC Financial Services says its overall residential loan production may not drop by much despite the fact that it is closing its wholesale and traditional retail branches [see item below]. A company spokeswoman said Residential Capital will aggressively market its Ditech direct-to-consumer brand and maintain a presence as a correspondent buyer of mortgages. Asked about origination volume, she cautioned, "I don't want to make any predictions, but volumes may not drop much." In the first quarter, ResCap funded $20.8 billion in home mortgages, a 44% decline from the level of a year earlier, according to the Quarterly Data Report. In the first quarter, roughly half its production came through the correspondent channel, with retail and wholesale accounting for about 25% each. (Second-quarter results were not available.) In addition, no breakouts were available for Ditech. "We hope to do a lot of volume," she added. "We stand behind these two channels."

GMAC Financial Services on Wednesday shocked the market, announcing that it will close all 200 of its retail residential branches and cease table funding through its broker division, Homecomings Financial. According to figures compiled by National Mortgage News and the Quarterly Data Report, GMAC's mortgage division, Residential Capital LLC of Minneapolis, ranks sixth nationwide among all home mortgage originators. The company said it will still fund loans on a correspondent basis and through what it calls "direct lending channels." At press time no further details were available. Public relations officials could not be reached for comment. In total, 5,000 mortgage jobs (60% of the workforce) will disappear. "While these actions are extremely difficult, they are necessary to position ResCap to withstand this challenging environment," said new ResCap chairman and CEO Tom Marano. "Conditions in the mortgage and credit markets have not abated and, therefore, we need to respond aggressively by further reducing both operating costs and business risk." ResCap is also the nation's 10th largest servicer with $449 billion in receivables.

Value Financial, a reverse mortgage lender based in Miami, has added $2 million in funding capacity for these loans. The new warehouse credit gives the company a total of $5 million available, which it says is enough to fund 100 reverse mortgage transactions a month. Last year Value originated over $125 million in reverse mortgages in Florida and is now expanding into five more states. Its proprietary LGS marketing system, Value continued, has a year-to-date conversion rate of over 20%, and the company can close a Federal Housing Administration Home Equity Conversion Mortgage in 21 days.

Financial Crossing, Palo Alto, Calif., has launched a technology-enabled program that expands the professional capacity of financial advisors, mortgage originators and other industry professionals. The Independent Advisor Program allows these professionals to function as personal liability managers, providing mortgage and liability analysis, planning, monitoring, and execution in real time and on an ethical and objective basis through FC's Liability Manager software. The software incorporates patent-pending analytics, market data, and leverages real-time pricing and eligibility from NYLX for thousands of loan programs from multiple lenders; offers seamless mortgage fulfillment services through integration with Lydian Data Services; and has execution and origination of loans and plans in all 50 states through an integrated partnership with Citizens Community Bank of New Jersey, a commercial bank and correspondent. FC can be found on the Web at http://www.financialcrossing.com.

The Eleventh District Federal Home Loan Bank Cost of Funds Index for July was 2.698%, a decline of 13 basis points from June's 2.829%. COFI is computed from the actual interest expense reported for a given month by the Arizona, California, and Nevada savings institutions members of the Federal Home Loan Bank of San Francisco. Since reaching its latest peak last September, the index has declined nearly 169 basis points. To calculate July's COFI, FHLB-SF said the average total funds were $372.0 billion, while the total interest expense was $836.4 million. COFI is now at its lowest point since June 2005. For comparative purposes, the Freddie Mac Primary Mortgage Market Survey reports the monthly average rate for the one-year adjustable rate mortgage peaked at 5.71% in July 2007. One year later it is down 47% basis points but up 21 basis points since February. The same survey's monthly average commitment rate for the 30-year fixed rate loan peaked in July 2007 at 6.70%. It fell to 5.76% in January, but has rebounded to 6.43% for this July.

The Market Composite Index, an overall measure of mortgage applications, jumped from 421.6 to 453.1 on a seasonally adjusted basis during the week ended Aug. 29, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index increased from 315.9 to 349.0 on a seasonally adjusted basis, while the Refinance Index rose from 1038.0 to 1059.7. Refinancings represented 34.0% of total applications, down from 35.2% the previous week, while adjustable-rate mortgages accounted for 6.6%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages dropped from 6.44% to 6.39% and points (including the origination fee) declined from 1.03 to 1.00 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Lenders and servicers choosing to participate in a special Federal Housing Administration refinancing program will have to worry about "second guessing" by FHA, which has a reputation for seeking indemnification for losses when loans go into default, according to mortgage banking attorney Laurence Platt. "Presumably, lenders that closely follow the new underwriting requirements developed by the [Hope for Homeowners Oversight] Board will be insulated from attack by FHA," the K&L Gates partner says in a Mortgage Banking Alert to clients. However, the Hope program loans are expected to have high default rates because lenders will be refinancing subprime borrowers that have defaulted or are expected to default. "It will be interesting to see how 'squishy' the new underwriting guidelines are, because the risk of second-guessing is greater when the standards are more ambiguous," the Sept. 2 alert says. Meanwhile, the House Financial Services Committee is holding a hearing Sept. 17 to see if FHA and the oversight board will be ready to launch the Hope program by Oct. 1. Committee chairman Barney Frank, D-Mass., also wants to know if servicers are holding off on foreclosures for borrowers who might be refinanced through the Hope program.

Michael Nierenberg from JP Morgan will be joining New York-based Merrill Lynch & Co. to head global mortgages and securitized products businesses, and James De Mare from Citigroup will also be joining to run the company's mortgage trading operations. Mr. Nierenberg will report directly to Thomas K. Montag, head of global sales and trading, and Mr. De Mare will report to Mr. Nierenberg. Mr. Nierenberg was most recently JP Morgan's head of global securitized products, a position he held after moving to that firm following its purchase of Bear Stearns earlier this year. Mr. Nierenberg joined Bear Stearns in 1994, moving quickly through the ranks to hold positions such as head of interest rate and foreign exchange trading operations, co-head of structured products and co-head of mortgage-backed securities trading. Before Bear Stearns, Mr. Nierenberg spent seven years at Lehman Brothers, where he was instrumental in building up that firm's adjustable rate mortgage business. Mr. De Mare was with Citigroup for 11 years, having most recently served as the global head of mortgage trading, which included the trading of all securitized products in Citigroup's fixed income currencies and commodities group. He joined Salomon Brothers in 1997 to run its adjustable rate trading business. Prior to joining Salomon in 1997, Mr. De Mare traded agency and non-agency adjustable rate mortgages at Bear Stearns and Prudential Securities.

The dollar volume of primary new mortgage insurance written and the number of applications received both hit new lows for the year in July, according to data provided by the Mortgage Insurance Cos. of America. Total primary new insurance written for the month was $12.3 billion (all but $31 million through the traditional channel), a decline from June's $13.7 billion, which had been the low point. Application volume fell from 90,868 in June to 86,734 in July. July's data, according to MICA does not include Triad Guaranty Insurance Corp., which went into run-off during the month. It also does not include Radian Guaranty, which is not a member of the group. Primary insurance in force is $801.6 billion down from $863 billion, but the decline is due to Triad's removal. The cure/default ratio fell from 63.6% to 57.0%, with 39,229 cures and 68,831 defaults. New pool risk written in July was $31.9 million, compared with $30.1 million in June.

The Federal Reserve Board needs to adjust its benchmark for subprime loans so it does not "misclassify" prime jumbo loans, as well as prime loans with government or private mortgage insurance, and reduce the availably of mortgage credit, according to five major trade groups. Without adjustments for these types of loans, the Home Mortgage Disclosure Act data will misclassify prime loans and many prime loans will be treated as subprime under the Home Ownership and Equity Protection Act, according to their comment letter. The American Bankers Association, American Financial Services Association, Consumer Bankers Association, Consumer Mortgage Association and Mortgage Bankers Association sent the Aug. 29 letter in response to a HMDA proposal. "Applying the new HOEPA rules - and liability - to large segments of the prime market will decrease the availability and affordability of mortgages," the signers warn. As part of an overhaul of its HOEPA regulations in July to stop deceptive subprime lending practices, the Fed adopted the weekly Freddie Mac primary mortgage market survey plus 150 basis points as its benchmark for determining subprime loans. Now the Fed is proposing to use the same benchmark for HMDA reporting. The industry commenters point out that the interest rate on the average jumbo loan has exceeded the benchmark for almost every week for the past six months.

Fitch Ratings on Tuesday downgraded Fannie Mae and Freddie Mac's preferred shares, while noting that the capital levels at both "remains adequate for the intermediate term." Fitch downgraded Fannie's preferred to BBB- from A+. Freddie was downgraded to BBB- from A. In a statement Fitch writes that the "lack of reliable access to the public equity markets appears to be more permanent" than it had anticipated, adding that the GSEs' "ability to access equity markets may need to be precipitated or replaced by more tangible forms of government support." Fitch does not expect either company to be profitable this year or next. It cites Fannie and Freddie's large holdings of subprime and alt-A assets as a chief reason for its concerns.

The nation's tenth bank failure this year, Integrity Bank, had 60% of its assets tied up in construction and development loans and 50% of those loans were seriously delinquent when Georgia regulators closed the $1.1 billion bank. The Federal Deposit Insurance Corp. sold the deposits for a 1% premium to Regions Bank, Birmingham, but FDIC will have to sell off the assets, including the $668.4 million in C&D loans and $8.5 million in real estate owned. The Alpharetta, Ga., bank reported a $33.6 million loss for the second quarter. FDIC estimates the failure will cost the deposit insurance fund $250 million to $350 million.

Goldman Sachs & Co., has agreed to purchase $1.17 billion in loans - including subprime assets - and their servicing rights from Popular Inc., a depository based in San Juan, P.R. Details were not available at press time, but in a statement Popular (stock symbol: BPOP) said it will book a $450 million loss in regard to the sale. "We are continuing to narrow the scope of our mainland U.S. operations that are most exposed to the credit and mortgage markets," said Popular chairman and president Richard Carrion.