Originations

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.

Suitability is a key point in determining what might be mortgage fraud, the chief of the Florida state attorney general's mortgage fraud task force told attendees Wednesday at the Florida Association of Mortgage Brokers annual convention in Kissimmee, Fla. R. Scott Palmer, who is also the special counsel for antitrust enforcement, said that under his office's definition of suitability, it is a violation of the state's unfair and deceptive practices act to put someone into a loan if the originator knows the borrower cannot repay it. Questioned by an audience member, Mr. Palmer added that suitability is "a developing concept" that is in its infancy and that case law will likely be developed around it. The real issue, he said, is whether the broker is aware that the information is false. Don Saxon, commissioner of the Office of Financial Regulation, said the concept could be similar to what exists in the securities industry, where (while there is no hard and fast rule) practitioners have to consider the consumer's portfolio as a whole to determine suitability.

The FBI had launched an investigation of IndyMac Bank for possible mortgage fraud shortly before the insolvent Pasadena, Calif.-based thrift was closed by regulators and placed into receivership, according to news reports. The $32 billion thrift, which specialized in alternative-A lending, is apparently one of 21 companies under scrutiny for possible mortgage fraud. "The FBI is currently investigating 21 companies involved in the mortgage/subprime industry," the bureau said in a statement in response to news reports about IndyMac. One month ago, FBI Director Robert Mueller told reporters that his agency had initiated 19 subprime-related corporate fraud investigations. Many of these investigations are coordinated with the Department of Justice and the Securities and Exchange Commission. In testimony July 15, SEC Chairman Christopher Cox told Congress that his agency has over four dozen law enforcement investigations in the subprime area. The Federal Deposit Insurance Corp. is operating IndyMac as a conservatorship and offering banking services to depositors and borrowers.

Thirteen classes from three Attentus collateralized debt obligations have been placed on Rating Watch Negative by Fitch Ratings. The managed CDOs -- Attentus CDO I Ltd./LLC, Attentus CDO II Ltd./LLC, and Attentus CDO III Ltd./LLC -- are supported by portfolios of trust preferred securities and subordinated debt issued by subsidiaries of real estate investment trusts, real estate operating companies, homebuilders, and specialty finance companies, as well as senior debt securities, commercial mortgage-backed securities and, in some cases, commercial real estate loans. Fitch attributed its rating actions to "heightened concern related to continued negative portfolio credit migration," as well as a collateral balance reduction stemming from one credit risk sale for Attentus CDO I and additional default activity for Attentus CDO II.

Thirty-one classes from six Taberna collateralized debt obligations have been placed on Rating Watch Negative by Fitch Ratings. Four of the transactions -- Taberna Preferred Funding II, II, IV, and V -- are static CDOs, and the other two -- Taberna Preferred Funding VI and VII -- are managed CDOs. The transactions are supported by portfolios of trust preferred securities and subordinated debt issued by subsidiaries of real estate investment trusts, real estate operating companies, homebuilders, and specialty finance companies, as well as commercial mortgage-backed securities and, in some cases, senior debt securities or commercial real estate loans. Fitch attributed its rating actions to "heightened concern related to continued negative portfolio credit migration, as well as additional default activity." Fitch can be found on the Web at http://www.fitchratings.com.

The Market Composite Index, an overall measure of mortgage applications, rose from 513.4 to 522.2 on a seasonally adjusted basis during the week ended July 11, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index fell from 365.8 to 359.7 on a seasonally adjusted basis, while the Refinance Index climbed from 1379.3 to 1474.9. Refinancings represented 39.2% of total applications, up from 37.3% the previous week, while adjustable-rate mortgages accounted for 9.1%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.43% to 6.22%, and points (including the origination fee) increased from 1.06 to 1.21 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

ITAC, a Washington-based identity theft assistance center, is warning consumers "to regularly check their HELOC accounts" following the release of an FBI report showing an increase in the use of false identities to drain home equity from unsuspecting homeowners. ITAC said the report may indicate the emergence of a new identity-theft trend that could threaten holders of home equity lines of credit. According to the most recent FBI Mortgage Fraud Report, ID thieves are now targeting specific groups of individuals due to the mortgage crisis. "As financial institutions begin to enforce higher lending standards, the identities of individuals with good credit will increase in value to perpetrators," the FBI report said. The report warns homeowners that because they are seen as higher-value targets, individuals with good credit "will likely be at a more significant risk for identity theft."

Wells Fargo's second-quarter earnings fell $500 million short of last year's level, but investors cheered as the company's quarterly revenue rose to a new high and the board approved a 10% dividend increase. Wells earned $1.8 billion ($0.53 per share) in the second quarter, down from $2.3 billion ($0.67 per share) a year earlier. Results were weighed down by a $1.5 billion increase in the provision for future credit losses. Chargeoffs in the second quarter also totaled $1.5 billion, unchanged from the level recorded in the first quarter but double that of the first quarter of 2007. Chief credit officer Mike Loughlin said the increase in credit reserve reflects "expected higher losses" in Wells Fargo's home equity group and unsecured retail loans. Wells also reported higher losses from its first-lien mortgage portfolio, which Mr. Loughlin said was expected given the continued declines in home prices. Wells Fargo originated $31 billion of retail mortgages in the first quarter, little changed from the previous year's volume, and increased the size of its servicing portfolio to $1.55 trillion. Wells Fargo's stock price rose more than 20% in morning trading on Wednesday after the results were released.

Moody's has corrected a rating action affecting securities issued by First Franklin Mortgage Loan Trust on April 21, noting that 282 tranches from 30 transactions were downgraded rather than 286 as the ratings agency originally reported. "Certain specific features of the cash waterfall and loss allocation were not fully accounted for," Moody's said. The ratings agency said the collateral backing the residential mortgage-backed securities are first-lien, subprime adjustable-rate mortgage loans. "The ratings were downgraded, in general, based on higher than anticipated rates of delinquency, foreclosure, and REO in the underlying collateral relative to credit enhancement levels," Moody's said.

The Federal government's proposal to provide support for Fannie Mae and Freddie Mac has so far failed to stop the blood-letting for shareholders in the two firms. The Federal government's proposal to provide support for Fannie Mae and Freddie Mac has so far failed to stop the blood-letting for shareholders in the two firms. At the close of trading on Tuesday, Fannie Mae's shares were trading at $7.07, down 27% from their opening. Freddie Mac's shares were trading around $5.26, down 26%. Moody's Investors Service lowered key preferred stock and financial strength ratings on the firms. Other financials also fell after Federal Reserve Board chairman Ben Bernanke warned Congress that the economy faces "numerous difficulties," including the risk of higher inflation. The Dow industrial average was off 45 points, or about 0.4%, just after noon after recovering from a fall of nearly 200 points in earlier trading.

Fitch recorded a higher U.S. commercial real estate loan collateralized debt obligation delinquency rate in June that it said stemmed from the maturity default of one participated loan secured by a hotel/condominium development in South Florida. The CREL CDO delinquency index increased to 1.58% during the month from 1.08% the previous month. This is much higher than Fitch's commercial mortgage-backed securities delinquency rate because "the assets securing the loans in a CREL CDO are transitional in nature or highly leveraged," the ratings agency said. "In addition, the CREL DI covers 25 transactions with 340 assets while the CMBS DI covers many more (500) transactions with significantly more (42,000) loans," Fitch said. "As a result, because of the smaller number of loans in the index, one loan can have a big impact on the delinquency percentage," the ratings agency said. The CREL CDO delinquency index includes loans that are 60 days or longer delinquent, matured balloon loans and repurchased assets.

Thornburg Mortgage, Santa Fe, N.M., has received a majority consent to amend its preferred stock tender offer. The amendment changes the requirement that a tender offer for preferred stock result in the tender of at least 90% of the aggregate liquidation preference of the company's outstanding preferred stock. "To successfully complete the tender offer, the company must instead complete a tender of at least 66 2/3% of the aggregate liquidation preference of each series of its outstanding preferred stock," the company said. "Under the terms of the tender offer, for each share of Thornburg Mortgage Series C, D, E and F Preferred Stock that is validly tendered and accepted upon expiration of the tender offer, the holder will receive $5.00 in cash and approximately 3.5 shares of common stock." Executives have said that completion of the tender offer would clear a financial hurdle for the company.