Originations

Twenty-two classes from two small-balance commercial mortgage-backed securities deals issued by Hometown Commercial Capital Trust have been placed on Rating Watch Negative by Fitch Ratings. The affected transactions are Hometown Commercial Capital Trust 2006-1 and Hometown Commercial Capital Trust 2007-1. The negative rating actions were attributed to "a potential for significant losses from loans currently in special servicing," of which there are six in Hometown 2006-1 and nine in Hometown 2007-1, Fitch reported. Six of the specially serviced loans have the same sponsor, which is no longer able to operate the properties and has put them up for sale as part of a larger portfolio sale, the rating agency said.

Class L of Greenwich Capital Commercial Funding Corp. series 2006-FL4 commercial mortgage pass-through certificates has been downgraded from BB-plus to BB-minus by Fitch Ratings. Fitch also placed classes N, O, P, and Q on Rating Watch Negative and affirmed the ratings on 12 other classes as well as on 12 classes of nonpooled trust assets. The downgrade was based on the failure of the Galleria Sheraton Metairie loan, located in the New Orleans area, to perform up to expectations, the rating agency said.

Three classes of Morgan Stanley Capital I Trust 2006-IQ11 commercial mortgage pass-through certificates have been downgraded by Fitch Ratings. The downgrades were as follows: class J, from BB-plus to BB; class K, from BB to BB-minus; and class L, from BB-minus to B-plus. Fitch also placed classes G and H on Rating Watch Negative and affirmed the ratings on 14 other classes in the transaction. The downgrades reflect an increase in specially serviced assets and an increase in Fitch's expected losses on those assets, the rating agency said.

Delinquencies on mortgages supporting commercial mortgage-backed securities rose 2 basis points to 0.41% in June, largely as a result of higher delinquencies on retail and office loans, according to a Fitch Ratings loan delinquency index. The rating agency maintained that the retail sector is still under pressure. "An increase in retail bankruptcies and a continued decline in consumer disposable income are evident, though they have yet to impact retail performance," said Susan Merrick, a Fitch managing director. Delinquencies on retail loans rose 25.7% on a month-to-month basis due to the addition of 15 newly delinquent loans in 12 states, the rating agency said. Fitch can be found online at http://www.fitchratings.com.

Moody's Investors Service has downgraded the ratings of iStar Financial, a New York-based real estate investment trust, from Baa2 to Baa3 in the wake of an announcement that the commercial REIT expects to take increased loan provisions of $275 million for the second quarter. The outlook remains negative. Moody's said it expects iStar's nonperforming assets and core earnings to continue to be pressured in the near term "given the persistent instability of the credit markets." The negative outlook reflects this instability and the weakening economic environment, the rating agency said. The downgrade also reflects the higher leverage that resulted from the Fremont transaction in mid-2007, Moody's said. The rating agency can be found online at http://www.moodys.com.

More than 10,000 people with criminal records were allowed to work in Florida's mortgage industry, according to a report in The Miami Herald. Of those, more than 4,000 cleared background checks despite committing crimes that state law requires regulators to screen, including fraud, racketeering, and extortion. The state's chief financial officer, Alex Sink, is calling for an executive order to stop issuing and renewing mortgage broker licenses to convicted felons. He has also requested that Florida's chief mortgage regulator, Don Saxon, step down. Mr. Saxon is commissioner of the Office of Financial Regulation.

Freddie Mac has been designated the "Bear of the Day" for July 21 by Zacks Equity Research, Chicago. The Bear of the Day is a stock expected to underperform the markets over the next three to six months. "As the housing situation continues to worsen, we anticipate higher losses and writeoffs in the coming quarters," Zacks said. The research firm said Freddie will need to raise more capital, "which is becoming increasingly difficult and expensive," and predicted that the government-sponsored enterprise will suspend or cut its dividend. "Recent measures announced by the Treasury affirm our belief that both the GSEs [Freddie Mac and Fannie Mae] are too big and important to fail, but any investment by the Treasury will further dilute the existing shareholders," Zacks said, adding that it is maintaining its Sell recommendation on Freddie's shares and reducing its six-month target price to $4.50 per share. Zacks can be found online at http://www.zacks.com, and Freddie Mac can be found at http://www.freddiemac.com.

Bank of America confirmed Monday that it is committed to maintaining the wholesale and correspondent platforms of Countrywide Financial Corp., which it purchased on July 1. According to the Quarterly Data Report, the Calabasas, Calif.-based Countrywide was the nation's largest correspondent lender and second-largest wholesaler in the first quarter, with production volumes of $31 billion and $9 billion, respectively. In a presentation released along with its second-quarter earnings, the Charlotte, N.C.-based BoA noted that the Countrywide mortgage franchise would discontinue the origination of certain types of nonconforming loans, including payment-option adjustable-rate mortgages. It reported that Countrywide will "significantly curtail" its use of low-documentation loans. Countrywide is no longer funding subprime loans of any type. In the first quarter, Countrywide's subprime servicing portfolio had a delinquency rate of 33%.

Class J of Gramercy Real Estate CDO 2007-1 Ltd./LLC has been placed on Rating Watch Negative by Fitch Ratings. Fitch also affirmed the ratings on 14 other classes of notes in the collateralized debt obligation. The negative rating action stemmed from the cross-defaulted Sheraton Hotel Miami and Sheraton Hotel Orlando loans, which are now 60 days delinquent and whose borrowers have filed for bankruptcy, the rating agency said. The deal is a revolving commercial real estate cash-flow CDO.

Eight classes of notes issued by Abacus 2005-CB1 Ltd., a synthetic collateralized debt obligation based primarily on subprime residential mortgage-backed securities, have been downgraded and removed from Rating Watch Negative by Fitch Ratings. The downgrades were as follows: class A-1, from A-minus to CCC; class A-2, from BBB-plus to CCC; class B, from BBB to CC; class C, from BBB-minus to CC; class D, from BBB-minus to CC; class E-1, from BB-plus to CC; class E-2, from BB to CC; and class F, from BB-minus to CC. The downgrades were attributed to "significant" collateral deterioration of subprime RMBS in the portfolio. Fitch said the synthetic CDO was created to enter into credit default swaps with Goldman Sachs Capital Markets. The rating agency can be found on the Web at http://www.fitchratings.com.

Maguire Properties, a Los Angeles-based real estate investment trust, has been designated the "Bear of the Day" for July 18 by Zacks Equity Research, Chicago. The Bear of the Day is a stock expected to underperform the markets over the next three to six months. Pointing to Maguire's "high debt load due to heavy acquisition activity in 2007," Zacks said the office REIT "was put up for sale, but found no buyer." Most senior management has been replaced, and the company "is scrambling to shore up operations," the research firm said. Zacks can be found online at http://www.zacks.com, and Maguire can be found at http://www.maguireproperties.com.

MGIC Investment Corp., Milwaukee, has reported a net loss of $97.9 million ($0.79 per share) for the second quarter, compared with net income of $76.7 million ($0.93 per share) a year earlier. Curt S. Culver, MGIC's chairman and chief executive, said the loss stemmed from increases in delinquencies and foreclosures. He also noted that the company during the second quarter had announced additional underwriting changes, increased premiums on all insurance products, amended its revolving credit facility, and entered into a reinsurance agreement for new writings. Delinquencies, including loans insured through the bulk channel, totaled 8.60% as of June 30, compared with 6.11% a year earlier, MGIC reported. Losses incurred in the quarter totaled $688.1 million, up from $235.2 million for the same period in 2007. New insurance written totaled $14.0 billion in the second quarter, compared with $19.0 billion a year earlier. Persistency continued to improve, standing at 79.7% as of June 30, compared with 72.0% on the same date last year. The company can be found online at http://www.mgic.com.

The Florida State Legislature has no mortgage brokers as members, but five members of the Florida Association of Mortgage Brokers hope to change that with their candidacies. Four of the five candidates spoke at the group's annual convention in Kissimmee, Fla. Nancy Detert, who had been term-limited out of the state House of Representatives and ran second in a Republican primary for an open seat in Congress, is seeking election to the state Senate. She proposed using state affordable housing trust fund money as a soft second mortgage to help "work force people" qualify for a mortgage. The other four broker candidates are seeking seats in the state House, including D. Ritch Workman, the current FAMB president. Mr. Workman said he is running as a small businessman who is fed up with intrusions into business by federal and state legislators and regulators. The other candidates are Debbie Mayfield, Rafael Perez, and Terry Lynn Sanchez.

The mortgage broker industry has long sought licensing of all originators, no matter who they work for, and "that dream is almost a reality," said Joe Falk, past president of the National Association of Mortgage Brokers. Mr. Falk, who is also past president of the Florida Association of Mortgage Brokers, was speaking at that group's annual convention in Kissimmee, Fla. He was referring to the housing bill being considered in conference committee by Congress. In his presentation, Mr. Falk also spoke of the Federal Reserve Board and its recently released "ground-breaking rulemaking" for the subprime industry, which for the first time contains a regulatory definition of a subprime loan. The Fed is now a source "of great activism," he said, and in coming months will be issuing new rules on Regulation Z. The NAMB can be found on the Web at http://www.namb.org.

Citigroup Inc., New York, took $6.67 billion in largely mortgage-related writedowns in the second quarter and has reported a net loss of $2.5 billion that it said marked a relative improvement given that it was half the size of the first-quarter loss. The company said $3.4 billion of its writedowns stemmed from subprime-related direct exposures, $2.4 billion was related to exposure to monoline insurers, $545 million was linked to commercial real estate positions, and $325 million was tied to alternative-A credit mortgages, net of hedges. "The cost of credit increased by 20% from the first quarter, but writedowns in our securities and banking business dropped by 42%," said Vikram Pandit, Citi's chief executive officer. "Additionally, headcount and expenses declined sequentially. While there is still much to do, we are encouraged by our progress in delivering on our commitment to the re-engineering efforts." Citigroup can be found on the Web at http://www.citigroup.com.

Merrill Lynch has reported a $4.7 billion net loss in the second quarter and saw more than $9 billion in writedowns and losses that were partly mortgage-related, but says it is making progress in reducing its problem assets and bolstering its liquidity. Writedowns and losses during the quarter included $3.5 billion related to U.S. super-senior asset-backed security collateralized debt obligations, as well as credit valuation adjustments of negative $2.9 billion related to hedges with financial guarantors, about half of which were linked to U.S. super-senior ABS CDOs. Other losses and writedowns included $1.3 billion from "certain residential mortgage exposures" and $1.7 billion from the investment portfolio of Merrill's U.S. banks. "Our core franchise continues to perform well despite the extremely challenging market environment," said John A. Thain, chairman and chief executive officer. "Against this backdrop, we increased our excess liquidity pool to a record level of $92 billion and significantly reduced our exposures in key asset classes." Merrill can be found online at http://www.ml.com.

The Department of Housing and Urban Development should withdraw its RESPA proposal and work with the Federal Reserve Board in developing "more simplified mortgage and real estate settlement cost disclosure forms," according to a "dear colleague" letter being circulated in the House. Reps. Ruben Hinojosa, D-Texas, and Judy Biggert, R-Ill., are leading the effort to get Housing Secretary Steve Preston to abandon HUD's proposed Real Estate Settlement Procedures Act rule. The two House Financial Services Committee members are urging fellow members of Congress to sign a letter that petitions HUD to immediately commence a joint rulemaking process with the Fed, which is working on improving Truth in Lending Act disclosures for mortgage borrowers. "It is critically important for consumers that any revision to RESPA achieve the following goals: simplify, clarify and reduce the cost of mortgage and real estate settlement processes," the letter to the HUD secretary says. However, HUD's RESPA proposal does not meet those goals, according to Reps. Hinojosa and Biggert. "We are profoundly concerned that HUD's proposed RESPA rule will hinder rather than help the recovery of the housing market." Over a dozen banking, mortgage, and settlement provider trade groups will be lobbying lawmakers to sign the letter.

Tamalpais Bank, San Rafael, Calif., has announced a partnership with First California Mortgage Co., Petaluma, Calif., under which the bank will offer residential mortgage loans of up to $10 million. The loans will be available for purchases and refinancings of properties located in California. Mark Garwood, chairman, president, and chief executive officer of Tamalpais, said the bank is "heeding the call" of Federal Reserve Board Chairman Ben S. Bernanke, who has suggested that community banks play a larger role in home mortgage lending. "Every day we learn about cutbacks in home lending by large banks and mortgage banking companies," Mr. Garwood said. "We believe we have an obligation to step in to provide home loans in the communities we serve." Tamalpais can be found on the Web at http://www.tambancorp.com.

The mortgage insurance industry's troubles are not over, and they may get worse before they improve, according to Fitch Ratings. In a special report on mortgage insurer delinquencies, the rating agency says the rapid growth for key mortgage insurers last year will cause the 2007 vintage to account for growing losses in 2008 and 2009 that will stress their balance sheets. "The mortgage insurance industry underestimated both the scope and severity of the decline in residential mortgage markets that became increasingly acute in 2007," Fitch said. "Initial industry optimism over increased demand and better premiums in early 2007 reversed over the second half of the year, and by the early fourth quarter the industry was significantly tightening underwriting guidelines to limit damage from ongoing poor mortgage origination standards and the prospect of substantial and widespread housing price declines."

Even though mortgage fraud for housing "doesn't seem quite as violent" as mortgage fraud for profit, it has its own consequences, according to a representative of the Florida Office of Financial Regulation's Bureau of Financial Investigations. Rui Goncalves told attendees at the Florida Association of Mortgage Brokers annual convention in Kissimmee, Fla., that fraud for housing is "more of a temptation" because it is easy for people to think they are trying to help someone get into a home. But those who participate might not realize the consequences, even if the loan never goes into default. For example, having unqualified buyers in the market competing for properties drives up prices, and eventually there will be a crash, Mr. Goncalves said. He called on originators to strive for transparency in their dealings and to ask questions of their customers.