Originations

Higher mortgage rates have reduced house prices throughout the United States by more than 10%, according to a study by Christopher J. Mayer, Paul Milstein professor of real estate and senior vice dean at Columbia Business School. For the past 20 years, mortgage rates have averaged 1.6% above the 10-year Treasury rate, whereas in today's distressed market they exceed that rate by more than 2.4%, according to the study. Professor Mayer's analysis predicts that further deterioration in mortgage markets and economic fundamentals will cause house prices to keep falling nationwide, including in "bubble" markets such as Miami, Phoenix, and Tampa, Fla., where he says prices are likely to drop at least another 10%-15%; coastal markets such as San Francisco, Boston, and New York; and hard-hit markets such as Detroit and Cleveland. "The problems in the mortgage market have put the nation's housing in a downward spiral that will be hard to break," he said. The Columbia Business School can be found online at http://www.gsb.columbia.edu.

The servicer quality ratings of SN Servicing Corp., Eureka, Calif., have been downgraded by Moody's Investors Service from SQ3-plus to SQ3-minus as a primary servicer of subprime loans and from SQ2-minus to SQ3 as a special servicer. Moody's attributed the downgrades mainly to a change in the company's servicing stability assessment from average to below average. SN is a wholly owned subsidiary of Security National Master Holding Co. LLC, whose core business is purchasing and servicing distressed residential and small-balance commercial mortgages. Moody's can be found on the Web at http://www.moodys.com.

Mission Capital Advisors LLC, a New York-based loan sale adviser, is accepting bids for a $55 million portfolio of nonperforming commercial mortgage loans and real-estate-owned properties. On behalf of an unidentified Southeast bank client, Mission Capital said it is soliciting indicative bids for the purchase of an individual asset, any combination of assets, or the entire portfolio. "The portfolio is divided into 17 single-asset pools, allowing investors to target specific assets by performance, collateral type, or geography based on their individual acquisition criteria," Mission Capital said. The real estate collateral consists of developed condominium, retail, office, mixed-use, and single-family properties, as well as commercial and residential development land, in Florida, Georgia, South Carolina, Nevada, Virginia, Tennessee, and North Carolina. Mission Capital is initially soliciting indicative bids by Aug. 21, with final bids due on Sept. 11. The company can be found online at http://www.missioncap.com.

Home values fell 1.7% in the second quarter, dropping to a level 9.9% below that of a year earlier and posting the largest year-over-year decline in the past 12 years, according to Zillow.com, an online real estate community based in Seattle. Zillow's quarterly national home value report found that median home values stood at a Zillow Home Value Index level of $206,919, the lowest since the fourth quarter of 2004. The company also reported that 29.1% of homeowners who purchased their home since early 2003 have negative equity, owing more than the home is now worth. "The second quarter is the sixth consecutive quarter of home value declines, and we see little promise of turnaround in the short term, as the rates of decline have yet to slow and, in fact, actually accelerated in many markets," said Stan Humphries, Zillow's vice president of data and analytics. Zillow can be found online at http://www.zillow.com.

Only 32% of 50 banks in a Federal Reserve Board survey said they have securitized or sold "conforming jumbo" mortgages to Fannie Mae or Freddie Mac in the past three months. But 44% of the banks expect to securitize or sell jumbo loans to the government-sponsored enterprises over the next six months, according to the Fed's July survey of senior loan officers. Congress raised the maximum loan limit for the GSEs from $417,000 to $729,050 in high-cost areas as part of an economic stimulus package President Bush signed into law Feb. 13. The two GSEs began purchasing jumbos in April and, according to securities filings, Fannie purchased $947 million in jumbos in the second quarter and Freddie $471 million. In its 10-Q filing, Freddie said it does "not anticipate purchasing material amounts of conforming jumbo product in 2008," due to increased competition, especially from the Federal Housing Administration. The Fed's survey also found that 75% of domestic banks tightened their lending standards on prime mortgages -- up from 60% in the April survey. And 80% of respondent banks tightened their standards for approving applications for home equity lines of credit.

Thirty-two 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 affected securities are as follows: eight classes from Lexington Capital Funding Ltd./Inc., a cash flow structured finance CDO; six classes from Blue Heron Funding II Ltd.; six classes from Ischus CDO II Ltd./LLC, a cash flow structured finance CDO; five classes from NovaStar ABS CDO I Ltd., a cash flow structured finance CDO; four classes from Lexington Capital Funding III Ltd./LLC, a hybrid cash and synthetic CDO; and three classes from Mulberry Street CDO Ltd./Corp., a cash flow structured finance CDO. The downgrades were attributed to collateral deterioration in subprime RMBS, as well as (in the cases of Lexington III and Mulberry Street) alternative-A RMBS and (in the cases of Lexington, Blue Heron, and Mulberry Street) structured finance CDOs with underlying exposure to subprime RMBS.

The Issuer Default Ratings of Chevy Chase Bank FSB, Bethesda, Md., have been downgraded by Fitch Ratings, partly for mortgage-related reasons. The long-term IDR was downgraded from BBB-minus to BB-plus, and the short-term IDR was downgraded from F3 to B. The downgrades were based on the "continued deterioration" of asset quality, as nonperforming assets rose from 1.7% of loans and real estate owned at Dec. 31, 2007, to 4.2% at June 30, Fitch said. "In March 2008, Fitch affirmed the company's ratings with a negative outlook that included the expectation of continued deterioration," the rating agency noted. "However, the pace in recent periods exceeded the initial expectation." Fitch noted that the bank has discontinued the origination of payment-option adjustable-rate mortgages, which had been "its primary lending product."

The corporate credit and senior unsecured debt ratings on M/I Homes Inc. have been downgraded from B-plus to B by Standard & Poor's Ratings Services. S&P also downgraded M/I's 9.75% preferred stock from CCC-plus to C. The outlook remains negative. "The lowering of the credit rating reflects a weaker second quarter than we originally anticipated," S&P credit analyst Lisa Wright said. "We expect further operating pressure amid very challenging conditions in the company's mid-Atlantic and Florida markets and are concerned that the company will face additional significant impairment charges over the next year." S&P said the preferred stock downgrade was due to the company's announcement that it is barred from paying stock dividends because of a restricted payments basket covenant under its senior notes indenture. The rating agency can be found online at http://www.standardandpoors.com.

Sun Communities Inc., a Southfield, Mich.-based real estate investment trust that owns and operates manufactured housing communities, has posted a net loss of $7.4 million ($0.41 per share) for the second quarter, compared with a loss of $2.2 million ($0.12 per share) a year earlier. Included in the most recent loss was a $6.8 million adjustment to the carrying value of Sun's investment in Origen Financial Inc., also of Southfield, a REIT that until recently was an originator and servicer of manufactured housing loans. Using the funds from operations measurement, Sun had profits of $4.8 million ($0.23 per share), down from $13.7 million ($0.68 per share) for the second quarter of 2007.

BankUnited Financial Corp., Coral Gables, Fla., has reported a mortgage-related net loss of $117.7 million ($3.35 per share) for the second quarter, compared with net income of $23.2 million ($0.62 per share) a year earlier. The loss was chiefly attributable to a $130 million provision for loan losses. Alfred R. Camner, the company's chairman and chief executive officer, said the quarter was "a mix of strong results from our core banking operations offset by continued deterioration in the mortgage portfolio." Mr. Camner pointed to the company's launch of a Mortgage Assistance Program to provide relief to borrowers with payment-option adjustable-rate mortgages. "We will be reaching out to thousands of option ARM borrowers, the largest portion of which are in Florida, to place them into traditional mortgage products, including government agency loans," he said. "We intend to waive prepayment fees and to create additional incentives for these borrowers to make the transition both easy and affordable." The company can be found online at http://www.bankunited.com.

Meanwhile, Radian Group has cut its quarterly dividend from $0.02 per share to $0.0025 per share, a reduction of $0.0175. The reduced dividend is payable on Sept. 19 to stockholders of record as of Aug. 19. "As a result of current volatility in the U.S. residential and mortgage markets, we believe this is an appropriate decision until we return to a more stable environment," said S.A. Ibrahim, chief executive of Radian. "Our current liquidity position remains strong, and this reduction will further support our position."

Radian Group Inc., Philadelphia, has reported a net loss of $392.5 million ($4.91 per share) for the second quarter, compared with net earnings of $21.1 million ($0.26 per share) a year earlier. The loss is due to a pretax, first-lien, premium deficiency reserve of $421.8 million that was established after updating Radian's loss projections. The company said the reserve is its best estimate of the present value of future losses not already included in the June 30, 2008 reserves. Radian Group also announced that it plans to contribute its investment in Radian Asset Assurance to Radian Guaranty in the third quarter. Radian Asset has $960 million of statutory surplus, which is part of $3 billion in claims-paying resources. As of June 30 (on a pro forma basis following the contribution of Radian Asset), Radian Guaranty would have a 10.3-to-1 risk-to-capital ratio, but its actual risk-to-capital ratio is 14.9 to 1. S.A. Ibrahim, Radian chief executive, said the company "is in the unique position to fill its capital needs through internal resources." The company can be found online at http://www.radian.biz.

Standard & Poor's Ratings Services has downgraded its subordinated debt and preferred stock ratings on Freddie Mac from AA-minus to A-minus and its risk-to-the government rating from AA-minus to A. S&P also affirmed its senior unsecured debt rating of AAA/Stable/A-1-plus on Freddie Mac. The ratings were removed from CreditWatch Negative, but the outlook is negative. "The lower risk-to-the-government, subordinated debt, and preferred stock ratings reflect Freddie Mac's pressured capital position in the face of higher operating losses," said S&P credit analyst Victoria Wagner. "....Higher credit expenses are the driver of net operating losses, as Freddie Mac is not immune to the weak housing markets." The lower subordinated debt and preferred stock ratings reflect "heightened subordination risk," S&P said, noting that recent housing legislation creates a new regulatory structure with receivership powers that would place nonsenior creditors at a greater risk of nonpayment, especially on preferred stock dividends.

Following in Fannie Mae's footsteps, Freddie Mac is doubling its market risk delivery fee to 50 basis points, which will be added to other delivery fees currently in place starting Nov. 7. "We are increasing the Market Condition delivery fee from 25 basis points to 50 basis points," Freddie says in an Aug. 8 bulletin to lenders. Like its fellow secondary-market agency, Freddie is cushioning the delivery fee hike for borrowers with loan-to-value ratios of 85% to 95% and credit scores above 680 by reducing their existing delivery fees by 25 bps or giving them a 25-bp credit. Freddie also notified its lenders about increases in its delivery fees for investor loans and said it will stop purchasing cash-out refinancings with LTVs above 85% starting Nov. 7. In addition, the agency raised its delivery fees on A-minus loans from 3.25% to 4.00% for borrowers with lower credit scores. On Aug. 4, Fannie Mae said it would double its "adverse market" delivery fee to 50 bps effective Oct. 1. Freddie Mac can be found on the Web at http://www.freddiemac.com.

Over 240 members of Congress are urging the Department of Housing and Urban Development to withdraw a proposed RESPA rule and undertake a joint rulemaking effort with the Federal Reserve Board to improve mortgage disclosures. The 243 lawmakers signed a letter circulated by Reps. Ruben Hinojosa, D-Texas, and Judy Biggert, R-Ill., that says HUD's Real Estate Settlement Procedures Act proposal fails to improve and simplify disclosures of mortgage terms and settlement costs. "We are profoundly concerned that HUD's proposed RESPA rule will hinder rather than help the recovery of the housing market," says the letter to HUD Secretary Steve Preston. Over a dozen housing groups lobbied members of Congress to sign the letter, which was circulated a few weeks ago. "When an overwhelming bipartisan majority in the U.S. House of Representatives asks you to withdraw your rule, it's time to listen to your critics and go back to the drawing board," said Kurt Pfotenhauer, executive vice president of the American Land Title Association. Earlier this year, when HUD first issued the RESPA proposal, the industry groups succeeded in getting 140 members of Congress to sign a petition requesting a 60-day extension of the public comment period. HUD agreed to a 30-day extension.

Class M-7 of CBA Commercial Assets 2005-1 has been downgraded from CCC-minus to D by Standard & Poor's Ratings Services. The downgrade resulted from a $1.1 million principal loss stemming from the liquidation of two assets in special servicing, S&P said. The first asset was a 95-unit multifamily property in Wichita Falls, Texas, and the second was a nine-unit multifamily property in Manchester, N.H.

Four classes from Banc of America Commercial Mortgage Inc. series 2006-3 have been placed on Rating Watch Negative by Fitch Ratings. The affected securities are classes J through M. The negative rating actions were attributed to exposure to seven single-tenant retail loans, of which Boscov's Inc. is the borrower and tenant. "Boscov's filed Chapter 11 bankruptcy on Aug. 4, 2008, and plans to close these stores," Fitch said.

Eight classes from Banc of America Commercial Mortgage Trust 2007-2 have been downgraded by Standard & Poor's Ratings Services. S&P also affirmed the ratings on 18 other classes in the transaction. "The downgrades reflect anticipated credit support erosion upon the eventual resolution of three of the six specially serviced assets," S&P said.

Six classes from J.P. Morgan Commercial Mortgage Trust commercial mortgage pass-through certificates series 2005-CIBC13 have been downgraded by Moody's Investors Service. The downgrades were as follows: class J, from Ba1 to Ba3; class K, from Ba2 to B1; class L, from Ba3 to B2; class M, from B1 to Caa1; class N, from B2 to Caa2; and class P, from B3 to Caa3. In addition, classes F, G, and H were placed on review for possible downgrade. The downgrades were attributed to an overall decline in pool performance, increased dispersion, and estimated losses from specially serviced loans. The other negative actions were due to significant expected losses for loans currently in special servicing, Moody's said. The rating agency can be found online at http://www.moodys.com.

Standard & Poor's Ratings Services has lowered its ratings on 171 tranches (totaling $29.46 billion) from 43 U.S. cash flow and hybrid collateralized debt obligation transactions. The rating agency also removed 93 of the downgraded ratings from CreditWatch with negative implications and affirmed four ratings and removed them from CreditWatch negative. S&P said 27 of the affected transactions are mezzanine structured finance CDOs of asset-backed securities, which are collateralized largely by mezzanine tranches of residential mortgage-backed securities and other structured finance securities. Twelve are "high-grade" structured finance CDOs of ABS, which the rating agency defined as those backed at origination primarily by tranches of RMBS and other structured finance assets that are rated from single-A through triple-A. The other four are CDOs of CDOs backed chiefly by notes from other CDOs. The downgrades reflect various factors, including credit deterioration and recent negative rating actions on subprime RMBS securities, the rating agency said. S&P can be found on the Web at http://www.standardandpoors.com.