Originations

Genworth Financial Inc., Richmond, Va., has reported a net loss of $109 million ($0.25 per share) for the second quarter, compared with net income of $379 million ($0.84 per share) in the same period of last year. The company reported net investment losses of $321 million for the period as it took a $326 million impairment related to subprime and alternative-A residential mortgage and asset-backed securities, the majority of which are now rated below single-A. Its U.S. mortgage insurance operations had a net operating loss of $59 million, compared with net operating income of $66 million one year ago. The company said 28% earned premium growth was more than offset by higher incurred losses. Genworth's international business saw an increase in net operating income, from $142 million a year ago to $183 million for the most recent quarter. It affirmed its outlook for 2008 operating earnings to be in the range of $2.25-$2.65 per share. "We continue to manage through a difficult environment in the U.S. housing and financial markets," said Michael D. Fraizer, chairman and chief executive. "We are actively mitigating risk in U.S. mortgage insurance as we build a strong 2008 book based on stringent guidelines and higher prices." The company can be found online at http://www.genworth.com.

Great Florida Bank, Coral Gables, Fla., has announced an expansion of its residential lending division with the hiring of three new managing directors. The new directors are Chris Buttafuoco, Todd Roderiquez, and Ed Wilburn, all of whom were previously managing partners at Capital Mortgage LLC. Mr. Roderiquez was also that company's chief financial officer. The expansion of Great Florida's residential lending will also bring the addition of new programs to the bank's product lineup, including fixed- and adjustable-rate first-lien conforming loans, Federal Housing Administration loans, and other loans designed for low- and moderate-income borrowers, the bank said. The bank can be found on the Web at http://www.greatfloridabank.com.

Hope Now servicers completed nearly 522,000 loan workouts in the second quarter, up 8% from the level recorded in the first quarter, as loan modifications jumped 30%. Loan modifications for subprime loans jumped from 122,100 in the first quarter to 164,200 in the second quarter, while loan-mods for prime mortgages rose from 48,100 to 55,100 over the same period. Meanwhile, 301,900 troubled borrowers ended up in repayment plans. Workouts involving loan modifications and repayment plans are "far greater than the actual foreclosures taking place in the market," Hope Now executive director Faith Schwartz told reporters. Servicers closely monitor loans that start the foreclosure process, and "we work aggressively to avoid those foreclosures," she said. Hope Now data show that sales of foreclosed properties have jumped dramatically since the fourth quarter and totaled nearly 245,700 in the second quarter. Sales of foreclosed properties resulting from subprime defaults totaled 138,000 in the second quarter, up 34% since the fourth quarter. Sales of foreclosed prime loan properties totaled 107,700, up 45% from the fourth-quarter level.

Ideal Mortgage Bankers Ltd., Melville, N.Y., is exiting its wholesale lending business, which operates under the name Ideal Mortgage, to concentrate on expanding Lend America, its retail lending platform. The company specializes in doing Federal Housing Administration products. "After conducting an extensive review of our wholesale operations and taking into consideration the inherent risk in the current environment and the direction of the mortgage industry, we have decided to exit the wholesale lending business after approximately a year in operation," said Michael Ashley, chief business strategist. "Our core competency has historically been as a direct-to-consumer retail lender, which is validated by the enormous success over the last two years of Lend America, our rapidly growing retail platform." Job losses as a result of the closing will be limited to outside account executives, Ideal said. Many employees will be redeployed within Lend America. Ideal said it will accept submissions until July 31, and will honor all commitments and close its wholesale pipeline in the normal course of business. The company can be found online at https://www.idealmb.com.

Twenty-seven classes of notes issued by five collateralized debt obligations linked to subprime residential mortgage-backed securities have been downgraded by Fitch Ratings. The affected securities include six classes from Jupiter High-Grade CDO II Ltd./Inc., a cash CDO; six classes of notes from ACA ABS 2003-1 Ltd. and six from ACA ABS 2003-2 Ltd., both cash flow structured finance CDOs; and five classes of notes from GSC ABS CDO 2005-1 Ltd. and four from GSC ABS CDO 2006-1c Ltd., both hybrid CDOs. The downgrades were attributed to "significant collateral deterioration" in the portfolios' subprime RMBS as well as (in the Jupiter and GSC ABS 2005-1 CDOs) structured finance CDOs with underlying exposure to subprime RMBS and (in the Jupiter CDO) alternative-A RMBS with underlying exposure to subprime RMBS. Fitch can be found online at http://www.fitchratings.com.

Taylor Capital Group Inc., Rosemont, Ill., has reported a net loss of $25.3 million ($2.42 per share) for the second quarter, primarily as a result of a $49.4 million provision for largely construction-related loan losses. Taylor Capital, the holding company for Cole Taylor Bank, reported net income of $7.2 million ($0.65 per share) a year earlier. "The unprecedented downturn in the residential real estate market continued into the second quarter, significantly eroding the value of the collateral supporting loans to some of our Chicago-area homebuilder clients," said Bruce W. Taylor, chairman of Taylor Capital.

Corus Bankshares Inc., a Chicago-based construction lender, has reported a net loss of $16.2 million ($0.30 per share) for the second quarter, its first-ever quarterly loss. The company reported net income of $42.4 million ($0.74 per share) in the second quarter of 2007. Corus said the housing slump and the company's focus on condominium construction lending have resulted in "significant increases" in nonaccrual loans and loan loss provisions. "Credit quality issues, the driver behind the company's moves to increase its loan loss reserves, resulted in substantial increases in nonperforming loans, with nonaccrual commercial real estate loans growing to $830 million at June 30, 2008, up from $420 million at March 31, 2008, and $201 million at June 30, 2007," said Robert J. Glickman, president and chief executive officer of Corus. Mr. Glickman said the company is "seeing new opportunities in the office, apartment, and hotel markets," where it expects to see "a considerable portion of our near-term originations." He said Corus is "not contemplating any major changes" in its business model.

Scott Syphax, president and chief executive of The Nehemiah Corporation of America, Sacramento, Calif., has called on President Bush to save the controversial seller-funded downpayment assistance program that would be banned by the housing bill he is expected to sign into law. The elimination of DPA programs "will negatively impact generations to come," Nehemiah said. Mr. Syphax stressed in his letter that what is being ignored is that "seller-funded downpayment assistance is the only remaining safety net available to millions of families today seeking home ownership." The Department of Housing and Urban Development "has spent more than 10 years fighting to shut us down rather than work with us to determine how to improve a downpayment assistance program that has helped more than 1,000,000 American families," he wrote.

The second half of 2007 showed the mortgage originations market moving even more heavily toward a fixed-rate, prime-credit business, according to the latest Mortgage Bankers Association Mortgage Originations Survey. "Long-term rates declined substantially in the second half of 2007," the report said. "At the same time, the spread between the [adjustable-rate mortgage] and fixed mortgage rates narrowed. As a result, the demand for fixed-rate mortgage products increased." For first mortgages, fixed-rate loans (excluding interest-only loans) accounted for 63.6% of loans by dollar volume in the second half of 2007, compared with 53.4% in the first half of 2007, according to the MBA survey. By number of loans originated, 77.8% were fixed-rate loans. In the second half of 2007, 79.0% of all origination dollars went for prime loans, compared with 70.0% in the first half of 2007. Subprime production made up 7.5%, compared with 10.4% in the first half of 2007, while alternative-A loans constituted 7.8%, compared with 15.8% in the first half of 2007, the MBA said. The share of government loans produced rose from 3.8% in the first half of 2007 to 5.7% in the second half. Refinancings constituted 54.8% of production in the second half of 2007, virtually unchanged from the level recorded in the first half. The MBA can be found online at http://www.mortgagebankers.org.

Hoping to revive the private-label mortgage-backed securities market, the Treasury Department on Monday issued a best- practices guide aimed at underwriters that are interested in issuing "covered bonds" backed by nonconforming loans. "The private-label market is severely constrained," said Treasury Secretary Henry Paulson at a news conference. "Fannie Mae and Freddie Mac are funding more than 70% of all mortgages today." A covered bond is a debt instrument backed by a specific pool of mortgages. The underlying collateral is held on the balance sheet of the institution issuing the security. Mr. Paulson called covered bonds a "new funding source" for nonagency loans and said he is hoping the Treasury's guidance will create "greater risk awareness and investor discipline." He said his agency is looking to support the nascent market for covered (housing) bonds, and noted that four major banks -- Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo -- are creating covered-bond programs for mortgages [see item below]. Capital Research and Management of Los Angeles, an investment adviser, said, "We expect the covered-bond initiative will provide an important new source of long-term funding in the mortgage market. We also believe that the Treasury Department's best-practices guide, especially its requirement for high-quality collateral, will provide the structure needed for the covered-bond market to develop over time."

Merrill Lynch has planned a series of moves to improve its capital position, including the sale of problematic mortgage-related collateralized debt obligations (with a gross notional value of $30.6 billion) for $6.7 billion. An affiliate of private equity firm Lone Star, which has held investments in two surviving subprime firms, has agreed to buy the super-senior asset-backed security CDOs involved in the sale. Merrill said the ABS CDOs were carried at $11.1 billion at the end of the second quarter. The company said it expects to take a third-quarter pretax writedown of about $4.4 billion as a result of the deal, which chairman John Thain said is a "significant milestone" in Merrill's risk reduction efforts. Other moves the firm is making to improve its capital position include the termination of ABS CDO hedges with a monoline guarantor and settlement negotiations with other monoline counterparties that are expected to result in a maximum loss of $1.3 billion. The Wall Street firm is also issuing new common shares with gross proceeds of approximately $8.5 billion through a public offering in which Singapore investment house Temasek Holdings has agreed to purchase about $3.4 billion in common stock. Merrill Lynch can be found online at http://www.ml.com.

Nine classes of variable-rate notes issued by Abacus 2006-NS1 Ltd., a collateralized debt obligation referencing commercial mortgage-backed securities and others, have been placed on review for possible downgrade by Moody's Investors Service. The affected securities are classes B through H and classes J and K. Moody's also affirmed one class in the CDO, which references a portfolio of synthetic CMBS and commercial real estate CDO securities. The negative rating actions were attributed to a deteriorating pool performance. As of the June 30 distribution date, the transaction consisted of 57 classes of CMBS from 57 separate deals and 13 classes of CRE CDO securities from 13 separate deals, Moody's said.

Seven classes of notes issued by Tallships Funding Ltd., a collateralized debt obligation composed largely of subprime residential mortgage-backed securities, have been downgraded by Fitch Ratings. The downgrades were as follows: advance swap, from BBB to CCC; revolver, from BBB to CCC; class A-1, from B-plus to CC; class A-2, from B-minus to CC; class B, from CCC to C; class C, from CC to C; and class D, from CC to C. Fitch attributed the downgrades to "significant collateral deterioration within the portfolio, specifically subprime RMBS. Since the last review conducted in November 2007, approximately 84.2% of the portfolio has been downgraded." Tallships Funding is an arbitrage hybrid synthetic and cash CDO that includes an unfunded super senior liquidity facility consisting of an advance swap and a revolving credit agreement.

Nine classes of Crystal River CDO 2005-1 Ltd., a collateralized debt obligation backed partly by subprime residential mortgage-backed securities, have been downgraded by Fitch Ratings. Eight of the nine classes were removed from Rating Watch Negative. Fitch attributed the downgrades to "significant collateral deterioration" in the portfolio, specifically regarding subprime RMBS and structured finance CDOs with underlying exposure to subprime RMBS. "Since the last review conducted in November 2007, approximately 48.8% of the portfolio has been downgraded," Fitch said, adding that 95.9% is rated below investment grade. The rating agency can be found online at http://www.fitchratings.com.

FNB United Corp., Asheboro, N.C., has reported that it took a goodwill impairment charge of $1.8 million ($0.16 per share) in the second quarter related to its Dover Mortgage Co. subsidiary. The charge reduced second-quarter earnings for FNB United to $140,000 ($0.01 per share), compared with net earnings of $3.7 million ($0.33 per share) for the same period a year earlier. FNB United said it made changes to Dover's business model, which included the closing of certain offices that were not accretive to earnings. "Dover is far better structured to succeed in today's mortgage market," said Mike Miller, president and chief executive officer of FNB United. "It is well-positioned to take advantage of its 20-plus-year experience in FHA and government-backed mortgages, along with its menu of conforming and reverse mortgages." Dover can be found on the Web at http://www.dovermortgage.com.

The Office of the Comptroller of the Currency has seized First National Bank of Nevada, Reno, and First Heritage Bank NA, Newport Beach, Calif., both formerly owned by First National Bank Holding Co., Scottsdale, Ariz. On June 30, First National Bank of Arizona -- the nation's 39th-largest wholesaler and 65th-largest mortgage lender overall in 2006, according to the latest edition of the Mortgage Industry Directory -- was merged into First National Bank of Nevada. The branches and deposits were acquired by Mutual of Omaha Bank, Omaha, Neb. Mutual of Omaha purchased $200 million in assets from the receiverships at a 4.41% premium, but it said most of the First National loan portfolio will be retained by the Federal Deposit Insurance Corp.

The Senate voted 72-13 on Saturday to pass a landmark housing bill that will provide up to $300 billion in new FHA money for distressed homebuyers and create a new, tougher regulator for Fannie Mae, Freddie Mac, and the other housing GSEs. President Bush is expected to sign the bill by midweek. The House passed the bill last week. Among other things, the "Housing and Economic Recovery Act of 2008" permanently raises the Fannie/Freddie loan limit to $625,000 and bans downpayment assistance programs in regard to Federal Housing Administration loans. It also allows for the Treasury Department to invest in Fannie/Freddie securities, if need be. "For Americans out there today with distressed mortgages and worried about their economic future, we hope this legislation could be the first piece of good news in a long time," Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., told reporters over the weekend.

Three classes of Wachovia Bank Commercial Mortgage Trust commercial mortgage pass-through certificates, series 2005-C20, have been downgraded by Moody's Investors Service. The downgrades were as follows: class F, from Baa1 to Baa2; class G, from Baa2 to Baa3; and class H, from Baa3 to Ba2. Moody's also placed classes D, E, F, and G on review for possible downgrade. The negative rating actions were due to expected losses associated with the specially serviced Macon & Burlington Mall Pool Loan, the rating agency said. The loan is secured by the borrower's interest in two regional malls, one in Macon, Ga., and the other in Burlington, N.C.

Four classes of notes issued by C-BASS CBO XVII Ltd., a collateralized debt obligation consisting largely of subprime and alternative-A residential mortgage-backed securities, have been downgraded and removed from Rating Watch Negative by Fitch Ratings. The downgrades were as follows: class A, from BBB to CCC; class B, from BBB-minus to CC; class C, from BB to C; and class D, from B-plus to C. The downgrades were attributed to "significant collateral deterioration" in the portfolio, especially regarding the subprime and alt-A RMBS. Fitch can be found online at http://www.fitchratings.com.

The Issuer Default Ratings of Associated Banc-Corp have been downgraded by Fitch Ratings, and the rating outlook of its subsidiaries has been revised to negative due to growth in nonperforming assets linked to residential land development and construction loans. The company's long-term IDR was downgraded from A-minus to BBB-plus and its short-term IDR was downgraded from F1 to F2. The downgrades reflect Associated Banc-Corp's "continued reliance on short-term borrowings while maintaining a modest level of liquid assets and bank-level capital ratios that remain less" than those of most peers, the rating agency said. The ratings of the company's principal subsidiaries were affirmed, but the outlook was revised to negative because of "marked increases" in its NPAs and net chargeoffs that were attributed largely to weakness in the residential land development and construction loan book. Fitch said the company "has a lengthy track record of very manageable credit losses even during periods of elevated NPAs," but that real estate prices and mortgage market conditions are likely to "challenge" it in remediating problem credits.