Originations

The CPS2 commercial mortgage-backed securities primary servicer rating of Capstone Realty Advisors LLC has been placed on Rating Watch Negative by Fitch Ratings. The rating action was attributed to a notice that the entire senior management team is leaving the company. "In addition, Capstone's parent company, National City Corp., is currently rated A by Fitch with a negative outlook," the rating agency said. Fitch rates commercial mortgage servicers on a scale of 1 to 5, with 1 being the highest rating. Fitch can be found on the Web at http://www.fitchratings.com.

Gregory A. Kares, senior vice president at Wachovia Mortgage FSB in North Las Vegas, has been appointed to the board of directors of the Federal Home Loan Bank of San Francisco. Mr. Kares will fill an open position on the board with a term ending Dec. 31. The FHLBank can be found on the Internet at http://www.fhlbsf.com.

The turmoil in the financial markets is affecting the apartment sector, but apartment demand is holding up reasonably well, according to the National Multi Housing Council's latest quarterly survey. The trade association reported that its Market Tightness Index, which measures changes in occupancy rates and rents, fell from 44 in the first quarter to 40 in the second. Meanwhile, the availability of debt funding for multifamily properties declined to the second-lowest reading on record for the NMHC's Debt Financing Index, which dropped from 22 to 13. "Demand for apartment residences is holding up relatively well despite the weakening job market and sluggish economy," said Mark Obrinsky, the association's chief economist. "If employment continues to fall, however, we'll likely see apartment demand follow suit." The survey's respondent pool consisted of 89 chief executive officers and other senior executives in the multifamily industry who also serve on the NMHC's board of directors or advisory committee. The council can be found online at http://www.nmhc.org.

Barclays PLC, London, continued to suffer mortgage-related writedowns in the first half of this year, but saw 2.75 billion pounds ($5.34 billion) of group pretax profit during the period. Group chief executive John Varley said the pretax figure was positive in that it represented stable year-over-year income. But the company's net income attributable to shareholders for the first half, 1.72 billion pounds ($3.34 billion), was "acutely disappointing" in that it represented a 33% decline in profit, he said. During the period, Barclays saw more than 2 billion pounds ($3.9 billion) in total charges and impairments that were partially related to U.S. mortgages. U.S. subprime mortgage-related charges and other credit market exposures represented about 1.1 billion pounds ($2.1 billion) of those total writedowns.

First American eAppraiseIT, a provider of real estate valuation products and services, has announced the release of a hybrid valuation product designed to help the reverse mortgage industry assess and monitor the value and condition of portfolio properties. The company said ValueView addresses a "major concern" of reverse mortgage lenders: the possibility that properties with reverse mortgages will fall into disrepair. "Reverse mortgage customers frequently have properties requiring repairs, which can affect the lender's ability to sell the loan," the company said. First American eAppraiseIT described ValueView as a "low-cost, data-driven solution" to monitor market value and property condition after a loan has been made. It combines a "drive-by" inspection with a valuation determined by two comprehensive automated valuation models, the company said. Lenders receive a current photograph and a concise on-site inspection report that answers questions concerning the property condition, its overall marketability, and the state of the surrounding neighborhood.

Despite raising its loan fees and pricing several times this year, Fannie Mae says it does not expect to see an increase in revenues in the second half and is beginning to see the Federal Housing Administration take away some of its business. "To date we continue to serve about 45% to 50% of the market -- and we have begun to see some of that market we've previously served move over to FHA," said Fannie executive vice president Thomas Lund. Fannie Mae reported $4 billion in revenues for the second quarter but took $5.3 billion in credit-related expenses, including $3.7 billion loan loss provisions and $1.3 billion in actual credit losses (see above item). Fannie executives told investors and equity analysts that they expect credit-related expenses to accelerate in the second half, especially provisions for loan losses. Due to higher defaults and falling housing prices, Fannie said it expects a 23-to-26-basis-point credit loss ratio in the second half, compared with an annualized 15-bp credit loss ratio in the first half. Despite these headwinds, Fannie executives told analysts that they are comfortable with Fannie's current capital position for the rest of 2008 and that there are no plans to tap Treasury for a line of credit, which Congress recently increased.

Fannie Mae has reported a $2.3 billion loss for the second quarter, up slightly from $2.2 billion in the first quarter, and the mortgage giant said it will cut its dividend to 5 cents and stop purchasing alternative-A mortgages later this year. Credit-related expenses rose to $5.3 billion from $3.2 billion in the first quarter, including $3.7 billion in loan loss reserves, Fannie said. Loan chargeoffs jumped to $942 million from $630 million in the first quarter. The deterioration in credit performance of its $310 billion in alt-A loans was "especially pronounced" and was responsible for 50% of the credit losses on its mortgage guarantee business, Fannie Mae reported. The government-sponsored enterprise said it will stop purchasing alt-A loans effective Jan. 1. The company also warned that it is "ramping up" its default reviews to pursue recoveries from alt-A lenders. Fannie Mae can be found on the Web at http://www.fanniemae.com.

Thirty-six classes of notes issued by six collateralized debt obligations linked to subprime residential mortgage-backed securities have been downgraded by Fitch Ratings and removed from Rating Watch Negative. The affected securities are seven classes from G-Star 2004-4 Ltd. and six classes from G-Star 2005-5 Ltd., both cash flow CDOs; six classes from G-Star 2003-3 Ltd./Corp., a cash flow structured finance CDO; seven classes from E*Trade ABS CDO IV Ltd., a cash flow structured finance CDO; six classes from Vertical ABS CDO 2006-2 Ltd./Corp., a hybrid cash flow and synthetic structured finance CDO; and four classes from Commodore CDO III Ltd./Inc., a cash flow structured finance CDO. The downgrades were attributed to collateral deterioration in, and underlying exposure to, subprime RMBS, as well as (in two cases) structured finance CDOs with underlying exposure to subprime RMBS and (in one case) alternative-A RMBS. Fitch can be found online at http://www.fitchratings.com.

HCP Inc., a real estate investment trust based in Long Beach, Calif., has announced the pricing of a public offering of 13 million shares of common stock at $33.50 per share. The REIT, which invests primarily in health-care-related real estate, said the proceeds of approximately $435 million will be used to repay debt under its bridge loan facility. The underwriters have been given an option to buy up to 1.95 million additional share to cover any overallotments.

National City Corp., Cleveland, has been labeled the "Bear of the Day" for Aug. 7 by Zacks Equity Research, Chicago. Zacks said National City's second-quarter loss was "substantially worse than estimates," chiefly due to higher loss provisions and a noncash goodwill impairment charge of $1.1 billion. Credit metrics "deteriorated significantly" during the quarter and net interest income fell short of expectations, the research firm said. Although the company has undertaken initiatives to restructure its mortgage operations, "we continue to see elevated risks in NCC's mortgage and residential development loan portfolio and expect higher losses in the coming quarters," Zacks said. "We are maintaining our Sell rating with a six-month target price of $4.50 per share for NCC." The research firm can be found online at http://www.zacks.com.

U.S. homeowners' confidence about the value of their homes remained unrealistically high in the second quarter, as 62% said they believed the value had increased or held steady over the previous year, according to a recent Zillow survey. Zillow.com, an online real estate community based in Seattle, said the reality is that 77% of U.S. homes had declined in value over the previous year. "Our survey reveals a wide gap between the perception homeowners have about their own home's value and the realities of a market in which three-quarters of homes declined in value in the past year," said Stan Humphries, vice president of data and analytics at Zillow.com. "We attribute this gap to a combination of inattention and a fair bit of denial that causes people to believe their home is insulated from the woes of the market that affect others, but not them." The survey was conducted by Harris Interactive. Zillow can be found online at http://www.zillow.com.

The Market Composite Index, an overall measure of mortgage applications, rose from 420.8 to 432.6 on a seasonally adjusted basis during the week ended Aug. 1, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index rose from 309.5 to 315.2 on a seasonally adjusted basis, while the Refinance Index climbed from 1074.4 to 1121.8. Refinancings represented 35.9% of total applications, up from 35.2% the previous week, while adjustable-rate mortgages accounted for 6.9%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.46% to 6.41%, and points (including the origination fee) decreased from 1.16 to 1.13 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Fitch Ratings has downgraded the preferred-stock rating of Freddie Mac from A-plus to A, while affirming the Issuer Default Ratings of the government-sponsored enterprise. The GSE's long-term IDR was affirmed at AAA, and its short-term IDR was affirmed at F1-plus. Noting that the actions followed Freddie's announcement of a $972 million net loss for the first half, Fitch attributed the downgrade to a greater likelihood that Freddie will eliminate dividends on preferred stock as housing prices decline. It also speculated that the GSE's expected capital raise "may meet market resistance" and that the way the issue is structured (between preferred and common stock) may affect Freddie's preferred-stock ratings. Fitch can be found on the Web at http://www.fitchratings.com.

Irwin Financial Corp., a bank holding company based in Columbus, Ind., has reported a net loss of $107 million ($3.64 per share) for the second quarter, citing charges linked to a strategic restructuring of the company and its exit from the home equity business. The loss includes approximately $94 million in losses from the leasing and home equity businesses Irwin is leaving. "Through asset sales and significantly reducing our exposure to home equity credit losses, management and the board are refocusing the corporation on our core services to small business and local branch-based customers," said Will Miller, chairman and chief executive officer of Irwin Financial. "With the remaining home equity portfolio in runoff mode, we have capped our exposure to the national home equity industry while we exit this business." Mr. Miller predicted a return to profitability for the company in 2009. Irwin can be found online at http://www.irwinfinancial.com.

The PMI Group Inc., Walnut, Creek, Calif., has reported a net loss of $246.3 million ($3.03 per share) for the second quarter, compared with net income of $83.8 million ($0.95 per share) for the same period last year. The company said the loss was primarily due to a net loss of $225.9 million in U.S. mortgage insurance operations owing to increases in paid claims and loss adjustment expenses and additions to the reserve for losses, partially offset by higher net income from its international operations. The company said it is shutting down its Canadian business and restructuring its European subsidiary. In early August, PMI Guaranty paid approximately $144 million of its excess capital to the parent company. It was able to do this because of an agreement to transfer its entire FGIC-related reinsurance portfolio to a third party. Before the end of the third quarter, PMI Group said it expects to reinvest at least 80% of that capital into its U.S. mortgage insurance operations. In addition, as a result of the closure of PMI Canada, PMI Group said it expects to repatriate approximately $60 million of capital to U.S. mortgage insurance operations in the second half of 2008. PMI Group can be found on the Web at http://www.pmigroup.com.

American International Group, New York, has 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 market losses on AIG's super-senior credit default swaps totaled $3.6 billion. Operating losses at its United Guaranty Corp. mortgage insurance subsidiary were $440 million. "Our second-quarter results were adversely affected by the severe conditions in the housing and credit markets and a very difficult investment environment," said AIG chairman and chief executive Robert B. Willumstad. ".... We are conducting a comprehensive review of all AIG's businesses with the objectives of improving results, reducing AIG's risk profile, and protecting our capital base. We are examining every business, as well as the assumptions underlying how we do business in the markets where we have a presence. We are considering all options." The company can be found online at http://www.aig.com.

Connecticut Attorney General Richard Blumenthal is the latest state AG to file suit against Countrywide Financial Corp. for allegedly pushing consumers into deceptive, unaffordable loans and workouts, and allegedly charging homeowners in default unjustified and excessive legal fees. Mr. Blumenthal's lawsuit, filed in Superior Court in Hartford, seeks restitution of up to $100,000 per violation of state banking laws and up to $5,000 per violation of state consumer protection laws. "Countrywide conned customers into loans that were clearly unaffordable and unsustainable, turning the American Dream of homeownership into a nightmare," Mr. Blumenthal said in a statement. "When consumers defaulted, the company bullied them into workouts doomed to fail. Countrywide crammed unconscionable legal fees into renegotiated loans, digging consumers deeper into debt." A spokeswoman for Bank of America, which now owns Countrywide, said in a statement: "While we cannot comment on pending litigation, we will respond to the AG in due course."

The National Association of Realtors estimates that 2.5 million first-time homebuyers will take advantage of a temporary homebuyer tax credit recently passed by Congress and help push up sales of existing homes in the second half of this year and stabilize house prices. "Home prices are projected to increase 3% to 6% in 2009," NAR chief economist Lawrence Yun said. The Realtors' latest forecast calls for sales of previously owned homes to increase from an annual rate of 4.9 million in the second quarter to a 5.6 million rate in the fourth quarter. The NAR also reported that its pending home sales index rose from 84.5% in May to 89.0% in June as sharply discounted houses in distressed markets attracted multiple buyers. "The pickup in contract signings appears to be broadening, with many affordable markets in mid-America showing year-over-year gains," the NAR said. The NAR can be found online at http://www.realtor.org.

The Department of Housing and Urban Development is preparing to go back to the old standard of charging all Federal Housing Administration borrowers the same upfront mortgage insurance premium starting on Oct 1 -- only this time the premium will be higher. HUD officials are telling industry groups that a notice of the across-the-board MI premium increase might be issued next week. "They are running models right now to see how much we should raise it," a HUD official told MortgageWire. FHA lenders have been charging risk-based premiums since July 14. But a recently passed housing bill requires the FHA to stop risk-based pricing by Oct. 1. Before July 14, the FHA charged a standard 1.5% upfront mortgage insurance premium. Some estimate that the FHA will raise the upfront premium at least 25 basis points.

Eleven classes of notes issued by two collateralized debt obligations linked to subprime residential mortgage-backed securities have been downgraded by Fitch Ratings. The affected securities are six classes from Duke Funding IX Ltd./Corp., a hybrid cash and synthetic structured finance CDO; and five classes from Porter Square CDO III Ltd./Inc., a cash flow structured finance CDO. The downgrades were attributed to "significant collateral deterioration" in the portfolios' subprime RMBS. In the case of Duke Funding IX, the downgrade was also attributed to alternative-A RMBS, and in the case of Porter Square III, it was also attributed to structured finance CDOs with underlying exposure to subprime RMBS. Fitch can be found online at http://www.fitchratings.com.