Originations

With single-family housing starts falling 3% in July, home construction has plummeted 65% since the peak in January 2006, and some building industry economists say a bottom is finally in sight and may be only months away. The U.S. Census Bureau reported that single-family housing starts declined from a seasonally adjusted annual rate of 660,000 in June to 641,000 in July -- down 39% from the level recorded a year earlier. Bernard Markstein, senior economist at the National Association of Home Builders, noted that the Census Bureau revised the June number upward from 647,000 starts, which sometimes signals a bottom is near. The NAHB forecaster said he believes the bottom in single-family starts is only a few months away. "We are approaching the bottom here, and at least by the end of the year we will have hit bottom," he told MortgageWire. Mr. Markstein also said he expects home sales to "stabilize shortly," due in part to the $7,500 first-time homebuyer tax credit recently passed by Congress.

The Department of Housing and Urban Development says it intends to move ahead with RESPA reform and provide homebuyers with better disclosures of mortgage terms and costs even though 243 members of Congress have petitioned HUD to withdraw its rule. "The current housing finance situation has dramatically highlighted the need to move forward responsibly and expeditiously with measures to help American homebuyers," HUD Assistant Secretary Sheila Greenwood said in a letter to Reps. Ruben Hinojosa, D-Texas, and Judy Biggert, R-Ill. "This response is unacceptable," Rep. Biggert said. "Our concerns are serious, and they are shared by a broad, bipartisan coalition of industry and consumer interests." A majority of the House of Representatives signed a letter circulated by Reps. Hinojosa and Biggert that says HUD's Real Estate Settlement Procedures Act proposal is too complex and would confuse consumers and hurt small businesses. The HUD assistant secretary for congressional relations stressed that HUD is "carefully considering" the comment letters by industry groups, consumer groups, and other interested parties and that HUD "will make appropriate modifications and improvements to the rule."

Twenty-five classes of notes issued by six collateralized debt obligations linked to subprime residential mortgage-backed securities have been downgraded by Fitch Ratings. All but one of the downgraded classes were removed from Rating Watch Negative. (The rating on the one exception was withdrawn because of the withdrawal of the Insurer Financial Strength rating of MBIA, which Fitch no longer rates.) The affected securities are as follows: six classes from North Street Referenced Linked Notes 2002-4 Ltd., a partially funded synthetic, structured finance CDO; five classes from Fulton Street CDO Ltd./Funding Corp., a cash flow structured finance CDO; five classes from Glacier Funding CDO III Ltd./Inc.; four classes from Glacier Funding CDO II Ltd./Inc.; four classes from Northwall Funding CDO I Ltd./Inc., a cash flow structured finance CDO; and one class from ABSpoke 2005-XA Ltd., a partially funded static, synthetic, structured finance CDO. The downgrades were attributed to collateral deterioration in subprime RMBS, alternative-A RMBS (in two transactions), and structured finance CDOs with underlying exposure to subprime RMBS (in one transaction).

Delinquencies on mortgages supporting commercial mortgage-backed securities increased 2 basis points to 0.43% in July, according to a Fitch Ratings loan delinquency index. The rating agency pointed to "substantial differentiation" in the performance of small-balance pools, which typically have loans ranging from $150,000 to $15 million. "For instance, Fitch's year-to-date upgrade-to-downgrade ratio of 2.5-to-1 for traditional CMBS was driven to 1.5-to-1 when small-balance transactions were factored in," said Susan Merrick, a Fitch managing director who heads the rating agency's U.S. CMBS group. Fitch also said a high concentration of delinquencies (15.4%) in the index is represented by transactions issued in 1998, many of which have a large percentage of loans with 10-year terms. Fitch can be found online at http://www.fitchratings.com.

Franklin Credit Management Corp., a New York-based company that buys, manages, and sells subprime residential mortgage assets, says it expects to report a second-quarter loss of $280-285 million, compared with a net loss of $3.6 million a year earlier. The company says the loss is due to deterioration in the subprime market and the performance of its portfolio of acquired and originated loans, especially acquired second-lien mortgage loans. The company has filed a five-day automatic extension for filing its second-quarter Form 10-Q with the Securities and Exchange Commission. The expected loss reflects a higher provision for credit losses. "Franklin's updated evaluation of its provision and reserves is more in line with the assumptions we used and reserves established as part of our 2007 fourth-quarter restructuring of this commercial lending relationship," said Thomas E. Hoaglin, chairman, president, and chief executive officer of Huntington Bancshares Inc., which has a $1.1 billion commercial lending relationship with Franklin. "The provision does not have any impact on our reported reserve level." Franklin is evaluating the legal structure of its servicing platform as a result of the expected second-quarter loss. Franklin can be found on the Web at http://www.franklincredit.com.

Home prices declined 10.7% nationally over the past 12 months, according to the latest LoanPerformance Home Price Index. "Given our home price expectations for the remainder of this year, we expect 2.7 million preforeclosure and foreclosure filings in 2008, up nearly 50%" from the level recorded in 2007, said Mark Fleming, chief economist of First American CoreLogic, the Santa Ana, Calif.-based company that compiles the index. "Nominal home price declines have stabilized in the 10% to 11% range for several months. However, given the surge in inflation, real inflation-adjusted home prices are still declining at a faster rate." He said 37 states are experiencing price declines, and that homes in California and Nevada are depreciating at an annualized rate of more than 20%. Los Angeles-Long Beach-Glendale headed the index's list of top metropolitan areas with 12-month home price declines with a 26.6% decrease. The LoanPerformance HPI provides monthly home price indices and median sales prices covering 7,569 ZIP codes and 676 counties in all 50 states and the District of Columbia, the company said. First American CoreLogic can be found online at http://www.facorelogic.com.

Four classes of notes issued by C-Bass CBO XIII Ltd., a cash flow collateralized debt obligation linked to subprime residential mortgage-backed securities, have been downgraded by Fitch Ratings. The downgrades were as follows: class A, from AAA to BBB-plus; class B, from AA to BB-plus; class C, from A to BB-minus; and class D, from BBB to B-minus. Classes B, C, and D were removed from Rating Watch Negative. The downgrades were attributed to credit deterioration in the portfolio and underlying exposure to subprime RMBS. More than half, 51.6%, of the portfolio consists of subprime RMBS, while the remainder consists of alternative-A RMBS, 22.2%; prime RMBS, 7.1%; commercial MBS, 5.3%; commercial real estate CDOs, 4.8%; manufactured housing RMBS, 3.9%; commercial asset-backed securities, 2.4%; U.S. structured finance CDOs, 2.0%; and high-yield bond CDOs, 0.7%.

NovaStar Financial Inc., Kansas City, Mo., has acquired a majority interest in PipeFire LLC, a residential appraisal management firm headquartered in Indianapolis. The business will now operate under the name StreetLinks National Appraisal Services. "PipeFire is well known to us from our days as a retail lender as we used its services in our operation," said Lance Anderson, chief executive of NovaStar Financial. "With the enhanced focus on the appraisal process as the result of the recent downturn in the housing market, we feel we can provide a valuable service to the lending community. While we cannot expect this transaction or StreetLinks to resolve the significant challenges NovaStar still faces, we view the acquisition as a positive step toward re-establishing niche operations in the residential housing market." Steve Haslam, senior vice president of NovaStar Mortgage, will become chief executive of StreetLinks. NovaStar Financial's current business is managing its portfolio of nonconforming residential mortgage securities.

Originations of Federal Housing Administration single-family loans are catching up with Fannie Mae and Freddie Mac loans, according to the chief executive of a cooperative of 125 regional mortgage banking firms. "FHA is the fastest-growing product," said Scott Stern, CEO of St. Louis-based Lenders One. In January 2007, FHA lending made up only 1% of Lenders One loan production, and 60% was Fannie/Freddie conventional loans. In the second quarter of 2008, FHA product constituted 41.5% of originations, while conventional originations totaled 53.1%, Mr. Stern told MortgageWire. The co-op members originated $7.6 billion in mortgage loans in the first quarter. The Lenders One CEO noted that the FHA is getting a lot of good publicity and that the federal mortgage insurance program has not raised its fees or tightened its underwriting standards, as Fannie and Freddie and the private mortgage insurance companies have. But Mr. Stern said investors will no longer buy FHA loans with credit scores below 580. "Some won't do it below 600 or 620," he added. The FHA can be found online at http://www.fha.gov.

The residential primary specialty-reverse mortgage servicer rating of Financial Freedom Senior Funding Corp. has been upgraded from RPS5 to RPS3 by Fitch Ratings for subprime loans. The rating has been placed on Rating Watch Evolving. Financial Freedom is a wholly owned subsidiary of IndyMac Federal Bank (see item above). "The rating actions reflect the operational capabilities of the existing servicing platform, and the financial backing of the FDIC," Fitch said.

Fitch Ratings has assigned RPS3 residential primary servicer ratings for prime, alternative-A, and subprime loans to Indymac Federal Bank FSB, the successor to the defunct IndyMac Bank. In addition, Fitch assigned the company an RSS3 residential special servicer rating. The ratings were placed on Rating Watch Evolving. "The rating actions reflect the operational capabilities of the existing servicing platform, and the financial backing of the FDIC," Fitch said. The Federal Deposit Insurance Corp. was appointed conservator of the bank after IndyMac Bank was closed by the Office of Thrift Supervision. (Fitch's servicer ratings of IndyMac Bank have been withdrawn.) Fitch rates residential servicers on a scale of 1 to 5, with 1 being the highest rating. The rating agency can be found online at http://www.fitchratings.com.

Boston Properties Inc., a Boston-based real estate investment trust, has reported that its operating partnership, Boston Properties LP, has priced an offering of $650 million of exchangeable senior notes. The net proceeds of the 3.625% notes, due 2014, will be used for the funding of a capped call transaction, the repayment of debt, real estate development opportunities, the acquisition of real estate assets, and other real estate investment opportunities, the REIT said. The company can be found online at http://www.bostonproperties.com.

Downey Financial Corp., a thrift institution based in Newport Beach, Calif., will be dropped from the S&P SmallCap 600 after the close of trading on Aug. 20, according to Standard & Poor's. It will be replaced by Interval Leisure Group Inc., Miami, a provider of membership services to the vacation ownership industry. At the close of trading on Aug. 13, Downey had a market capitalization below the target range for the SmallCap index, S&P said. Downey can be found on the Web at http://www.downeysavings.com, and S&P can be found at http://www.standardandpoors.com.

The sales of existing homes, including single-family homes and condominiums, fell 0.8% to a seasonally adjusted annual rate of 4.91 million units in the second quarter and were down 16.3% from 5.87 million a year earlier, according to the National Association of Realtors. The NAR stressed, however, that resales rose in 13 states, largely as a result of buyer response to discounted home prices. Out of 150 metropolitan statistical areas, 115 recorded declines in median single-family resale prices from levels recorded a year earlier. The median resale price stood at $206,500, down 7.6% from $223,500 in the second quarter of 2007. NAR president Richard Gaylord, a broker with RE/Max Real Estate Specialists in Long Beach, Calif., said foreclosures are distorting the price data. "In many areas with large concentrations of foreclosure sales, homes are being purchased below replacement-cost values," Mr. Gaylord said. ".... Once the inventory is drawn down, price pressure will return because the costs of construction are rising -- today's buyers are very well positioned to build wealth over time." The NAR can be found online at http://www.realtor.org.

Prudential Financial Inc., Parsippany, N.J., has announced that its PREI real estate investment management business has formed a joint venture with L&L Holding Co., New York, to acquire office properties in the New York City area on behalf of institutional investors. Prudential said the joint venture will invest up to $500 million to acquire prime New York City office buildings, chiefly in Manhattan. It said New York City's office market has remained "remarkably strong" and that vacancy rates have held steady. "The current markets have provided our investors with a unique opportunity to take advantage of softening prices," said Leonard Kaplan, principal for PREI's global merchant banking team. PREI can be found on the Web at http://www.prei.com.

As part of its efforts to concentrate on its core U.S. mortgage insurance business, The PMI Group Inc., Walnut Creek, Calif., is selling its Australian mortgage insurance subsidiary to QBE Insurance Group Ltd., that country's largest general insurance and reinsurance group. The purchase price is approximately 100% of the net tangible asset value of PMI Australia under U.S. generally accepted accounting principles as of June 30. The aggregate purchase price payable upon closing is approximately $920 million. The purchase price will be payable 80% in cash at closing and 20% in the form of an interest-bearing promissory note issued by QBE. PMI will also fund premiums of approximately $46.5 million to assist in procuring an excess of loss reinsurance coverage for PMI Australia. Steve Smith, chairman and chief executive of PMI Group, said the transaction "represents an important step in our five-point plan for progress, specifically maintaining our financial strength and focusing on our core U.S. mortgage insurance business." PMI and QBE have also reached an agreement in principle for the sale of PMI Asia, based in Hong Kong.

The Federal Home Loan Bank of San Francisco has finally launched its foreclosure prevention program, which provides matching grants to cover lender costs of refinancing or restructuring subprime mortgages into fixed-rate 30-year mortgage. The FHLBank will provide up to $25,000 for each restructuring, but the lender has to put up $2 for every $1 in grant monies. The $10 million pilot was approved by the Federal Housing Finance Board in January, but the FHLBank regulator did not give final clearance until this summer. The program is designed to help low-income homeowners who cannot afford the reset on their mortgage. The recently passed housing bill authorizes the FHLBanks to use affordable-housing funds to assist and refinance troubled borrowers. The San Francisco bank can be found on the Web at http://www.fhlbsf.com.

The Market Composite Index, an overall measure of mortgage applications, fell from 432.6 425.9 on a seasonally adjusted basis during the week ended Aug. 8, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index was unchanged, at 315.2, on a seasonally adjusted basis, while the Refinance Index declined from 1121.8 to 1074.6. Refinancings represented 35.2% of total applications, down from 35.9% the previous week, while adjustable-rate mortgages accounted for 7.3%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 6.41% to 6.57%, and points (including the origination fee) increased from 1.13 to 1.14 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Nehemiah Corporation of America, Sacramento, Calif., has announced the launch of DPAGroundSwell.org, a Web-based community aimed at mobilizing industry opposition to the ban on seller-funded downpayment assistance. The site will provide a central information hub to fight the ban, which was written into law with the signing of H.R. 3221 Housing and Economic Recovery Act of 2008. "Since the passage of the housing bill, we have been contacted by families, industry groups, and individuals voicing concern about the long-term impact of this ban on themselves and their communities," said Scott Syphax, president and CEO of Nehemiah. "When the bill passed, we pledged to continue to fight for these programs, and DPAGroundSwell.org is an important tool that will enable us to harness the swell of industry dissent against the ban by empowering individuals at all levels to influence public-policy decisions." The new site can be found online at http://www.dpagroundswell.org.

The Federal Home Loan Bank of Chicago has recorded a $74 million loss for the second quarter, compared with a $78 million loss in the previous quarter, and the bank expects to report losses in "subsequent quarters," according to a securities filing. The FHLBank blamed the continuing losses mainly on a $30 million impairment loss on its investments in subprime mortgage-backed securities and $35 million in derivative and hedging costs related to its $33.5 billion Mortgage Partnership Finance portfolio. However, the bank's president and chief executive, Matthew Feldman, says he hopes the second quarter will be a "turning point" for the Chicago bank, which has $92.8 billion in assets. The FHLBank is expanding its advance business as it sheds MPF single-family loans that it purchased from members and other FHLBanks. In the second quarter, advances rose 6% to $34.7 billion and exceeded MPF loans for the first time since 2002. The Chicago bank stopped buying mortgage loans on Aug. 1, and other FHLBanks have stepped in to buy loans from Chicago members and keep the MPF program going.