Originations

Five classes of notes in North Street 2000-2 Ltd., a subprime mortgage-related collateralized debt obligation, have been downgraded by Fitch Ratings. The downgrades were as follows: tranche A, from AA-minus to B; tranche B, from BBB-plus to CCC; tranche C, from BBB-minus to CC; tranche D, from BB-plus to CC; and tranche E, from CCC/DR4 to CC/DR4. Fitch said the downgrades stemmed from higher loss expectations in the subprime residential mortgage-backed securities portion of the partially funded synthetic CDO portfolio. Fitch can be found online at http://www.fitchratings.com.

Meanwhile Zacks posted on its analysts blog that it is upgrading its rating on H&R Block Inc., Kansas City, Mo., from sell to hold following the release of its fourth quarter financial results. "Although the fallout from the mortgage business implosion will likely be felt for some time to come, and we continue to have significant concerns regarding other aspects of HRB's business, we believe that negative and positive aspects of the company's outlook are now roughly balanced," Zacks said. Block had net earnings for the fourth fiscal quarter ended April 30, 2008 of $543.6 million ($1.66 per share). The company reported a loss from discontinued operations of $147.6 million (-$0.45 per share) related to its exit from the subprime mortgage business. Block shut the origination business of Option One Mortgage in December 2007 and sold its mortgage servicing business on April 30.

The Market Composite Index, an overall measure of mortgage applications, increased from 461.3 to 477.7 on a seasonally adjusted basis during the week ended June 27, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index increased from 333.4 to 342.8 on a seasonally adjusted basis, while the Refinance Index increased from 1212.2 to 1269.2. Refinancings represented 36.8% of total applications, a slight increase from 36.3% the previous week, while adjustable-rate mortgages accounted for 8.5%, unchanged from the previous week, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.39% to 6.33%, and points (including the origination fee) decreased from 1.12 to 1.09 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Mortgage brokers that are not approved to originate Federal Housing Administration loans can be paid for counseling borrowers and referring them to FHA-approved lenders, according to Mortgagee Letter 2008-17, issued on June 20. However, the broker has to be paid directly by the borrower in cash and the fee has to be recorded on the HUD-1 settlement sheet, according to the letter. The Department of Housing and Development also expects non-approved brokers to enter into an agreement with the borrower. And FHA lenders must include a copy of this agreement or contract with other loan documents that FHA requires to insure a mortgage. "HUD is signaling that it is going to scrutinize these fees and services to make sure the borrowers are not overcharged," said K&L/Gates attorney Phillip Schulman. Due to the increasing popularity of FHA loans, brokers are rushing to become FHA-approved loan correspondents but HUD cannot process the applications fast enough. To deal with this backlog, several California congressmen are trying to insert a provision in a major housing bill that would temporarily allow FHA direct endorsement lenders to fund loans originated by non-approved brokers. The National Association of Mortgage Brokers supports this bill. The Mortgage Bankers Association and other lender groups oppose this provision.

Florida Attorney General Bill McCollum has sued Countrywide Financial Corp. and its former chairman Angelo Mozilo for allegedly engaging in deceptive and unfair trade practices in originating subprime loans. The AG's lawsuit says the Calabasas, Calif.-based lender failed to ensure that borrowers could repay their loans and even placed prime borrowers into higher interest rate subprime loans. "To foster a culture of loan approvals regardless of a borrower's capacity to pay, Defendants compensated underwriters with bonuses," says the lawsuit filed in Broward Country circuit court. "Defendants' underwriters had incentives to approve as many loans as possible, regardless of credit risk." Countrywide declined to comment on the specifics of the case. The Florida AG filed the lawsuit on June 30, one day before Bank of America completed its acquisition of Countrywide. Attorneys general in Illinois and California have filed similar lawsuits against Countrywide.

Fortes Financial Inc., San Diego, has acquired five regional wholesale offices formerly affiliated with National City Mortgage Corp., Miamisburg, Ohio. Fortes Financial was founded in August of 2007 by Peter J. Levasseur, president and chief executive, and Janice M. Ibey, executive vice president and chief operating officer, with the backing of a private equity firm. Mr. Levasseur held the same positions at ITT Mortgage Corp., while Ms. Ibey was most recently director of capital markets for Finance America LLC. The acquired offices are located in San Diego, Dallas, Chicago, Fredrick, Md., and Atlanta. Mortgage Search & Acquisition, played an integral role in the transaction. MSA's president, Tami Coffey, commented, "Fortes engaged us to identify potential retail or wholesale groups that fit within their corporate profile; we felt that the National City team was a quality, productive entity that would work well under the Fortes umbrella." Mr. Levasseur added "We have grown the company through recent investments into the retail and reverse mortgage sectors and feel that the addition of a high quality wholesale division such as the National City team represents, will help us ascertain not only diversification but also the ability to acquire a substantial market share offering endless upward opportunity going forward."

Three classes of Merrill Lynch Mortgage Loans Inc. 1st Street Tower Trust pass-through certificates, series 1999-1STT, have been downgraded from A3 to A2 by Moody's Investors Service. The affected securities are classes A-1, A-2, and A-3. Moody's said the actions were taken to align the ratings of the securities with the current rating of TransCanada Pipelines Ltd., which was downgraded on June 24. The transaction is secured by a mortgage on a 942,000-square-foot class A office tower in downtown Calgary, Canada, that is occupied by TCPL under a 20-year net lease. Moody's can be found online at http://www.moodys.com.

Ten classes from five military housing transactions with surety bonds from MBIA and Ambac have been placed on Rating Watch Negative by Fitch Ratings. The affected securities are as follows: classes I, II, and III of Pacific Beacon LLC (CA) Military Housing (San Diego) 2006 series A; classes I and II of Ohana Military Communities LLC (HI) Military Housing Revenue Bonds (Marine Corps Hawaii Housing Privatization Project) 2007 series A; class I of Ohana Military Communities LLC (HI) Military Housing Revenue Bonds (Navy Hawaii Housing Privatization Project) 2006 series A; class I of Ohana Military Communities LLC (HI) Military Housing Revenue Bonds (Marine Corps Hawaii Housing Privatization Project) 2006 series B; and Hampton Roads PPV LLC Military Housing Taxable Revenue Bonds (Hampton Roads Unaccompanied Housing Project) 2007 series A. The Hampton Roads issue is insured by Ambac, and the other four are insured by MBIA. "While all of the military housing projects referenced above are in line with initial projections, Fitch is evaluating how each project's cash flows are performing, and will assess the credit value associated with MBIA's and Ambac's ability to meet their obligations under each surety bond for the above transactions," the rating agency said.

Feldman Mall Properties Inc., Great Neck, N.Y., has announced that it will begin trading on the Over the Counter Market as of July 7. The real estate investment trust said it will no longer trade on the New York Stock Exchange. Feldman said it has not yet been assigned a trading symbol. The REIT can be found online at http://www.feldmanmall.com.

Monmouth Real Estate Investment Corp., a real estate investment trust based in Freehold, N.J., and One Liberty Properties Inc., a REIT based in Great Neck, N.Y., have been added to the Russell 3000 Index. Russell Investment Group made the additions in connection with its annual reconstitution of the index. Touting the company's inclusion in the index, Monmouth president Eugene W. Landy said it should result in improved liquidity for the REIT's shareholders and "increased efficiency in the valuation of our shares." Patrick J. Callan Jr., president and chief executive officer of One Liberty, said his company's inclusion "will help raise One Liberty's visibility with investors and institutions that rely on Russell indexes as part of their investment strategy."

The Eleventh Federal Home Loan Bank Cost of Funds Index has fallen below 3% for the first time since September 2005. The index for May 2008 is 2.918%, a decline of over 19 basis points from 3.111% in April. Back in September 2005, the index stood at 2.972%, on its way to a peak of 4.396% in December 2006. Since September 2007, when COFI reached its latest high point of 4.383%, the index has fallen over 146 bps in a nine-month period. For comparative purposes, the one-month certificate of deposit secondary-market rate (collected by the Federal Reserve Bank of St. Louis) stood at 5.51% in August 2007. The most recent data, posted on May 1, had the rate at 2.50%. During that same period, the three-month CD rate fell from 5.49% to 2.66%, and the six-month CD fell from 5.40% to 2.84%.

Republic Mortgage Insurance Co., Winston-Salem, N.C., has been ordered by Freddie Mac to come up with a remediation plan to maintain Type I status as a mortgage insurer. This is a result of Moody's Investors Service's downgrading of the insurance financial strength rating of RMIC from Aa3 to A1. Moody's also cut the debt ratings of RMIC's parent company, Chicago-based Old Republic International Corp., from (P)A1 to (P)A2. Moody's said its rating action reflects the deterioration in RMIC's capital adequacy and medium-term prospects for profitability. While mortgage insurance demand and new business quality have both improved in recent months, the performance of RMIC's book of business originated before 2008 has eroded capitalization and the company remains vulnerable to further economic deterioration. For ORI, mortgage guaranty is one of its three businesses, the others being property/casualty and title. "As the second-largest unit of the three, the deterioration in credit quality at the mortgage insurer directly impacts the profile of the parent company," Moody's said. Freddie Mac said RMIC has committed to submit a remediation plan within 60 days. RMIC did not return a request for comment by deadline time.

LandAmerica Financial Group, Richmond, Va., has announced the merging of its Transnation Title Insurance Co. subsidiary into its Lawyers Title Insurance Corp. subsidiary. LandAmerica said the move was part of a broader effort to transform its collection of independent businesses into a unified operating company. The merger "eliminates the capital requirements of maintaining Transnation as a separate entity, while creating additional surplus for the combined operations that would not exist if Transnation and Lawyers Title remained separate," LandAmerica said. The merger will also enhance the delivery of title, closing, and escrow services to LandAmerica's network of agents through more standardized business practices, the company said. LandAmerica can be found online at http://www.landam.com.

TierOne Corp., the holding company for TierOne Bank, Lincoln, Neb., has announced that it will close all nine of its loan production offices across the country. The company said the goal of the closures is to direct its lending activity to its primary market area of Nebraska, Iowa, and Kansas. The lending offices being closed are located in Phoenix; Colorado Springs, Denver, and Fort Collins, Colo.; Orlando, Fla.; Minneapolis; Las Vegas; and Charlotte and Raleigh, N.C. Loans with existing customers will continue to be serviced by TierOne, the company said. The bank can be found on the Web at https://www.tieronebank.com.

Federal Reserve Board staff members are urging staffers at the Department of Housing and Urban Development to work with them in revising key disclosures for mortgage applicants so they don't produce duplicative and inconsistent forms that confuse consumers. "We believe the inconsistencies and other differences between HUD's proposed good faith estimate and the Fed's Truth in Lending Act disclosures are likely to confuse consumers and undermine consumers' ability to make informed shopping decisions and avoid unnecessarily high settlement costs," Fed consumer affairs director Sandra Braunstein said. In commenting on HUD's Real Estate Settlement Procedures Act proposal, Ms. Braunstein points out that the Fed and HUD are on different tracks when it comes to the disclosure of mortgage broker compensation. She says consumers are confused about how brokers are compensated and reports that the Fed's consumer testing raises concerns about the terminology HUD uses to describe broker fees. "Board staff is concerned that the language on the revised GFE will contribute to consumer confusion rather than provide further clarity for consumers," the Fed's consumer affairs director says in the June 13 letter.

Wachovia Corp., Charlotte, N.C., the nation's largest payment-option adjustable-rate mortgage lender, said Monday that it would no longer offer the "negative amortization" option on the controversial loans. In the fourth quarter, Wachovia funded $5.5 billion in option ARMs, according to the Quarterly Data Report, a 44% decline from the level of a year earlier. Option ARMs have been heavily criticized for fueling the housing boom because they offer homeowners four different payment options each month, including "negative amortization," in which the borrower adds to the debt owed but gets a cheaper monthly payment. Option ARMs were a staple product for World Savings of Oakland, Calif., which Wachovia bought two years ago. Wachovia owns about $120 billion in option ARMs. Wachovia recently said it had hired Goldman Sachs & Co. to analyze its loan portfolio.

CIT Group, New York, has cut a deal to sell its residential subprime business -- including a $9 billion servicing portfolio -- to Lone Star Funds for $1.5 billion in cash and the assumption of $4.4 billion in debt. Among subprime servicers, CIT ranks 18th nationwide, according to the Quarterly Data Report. In a separate transaction, CIT agreed to sell a $470 million manufactured housing portfolio to Vanderbilt Mortgage and Finance for $300 million. CIT said the two sales will bring in $1.8 billion in cash. Even so, it will book a $2.5 billion pretax loss in the second quarter.

Bank of America, Charlotte, N.C., has announced the completion of its acquisition of Countrywide Financial Corp., Calabasas, Calif., creating the nation's largest mortgage originator and servicer. In January, BoA agreed to buy Countrywide for $4 billion in stock, but as the Charlotte bank saw its share price fall this year, so did the value of the deal. The final sale price is in the range of $2.5 billion, on top of the $2 billion that BoA paid last summer for a 16% stake in Countrywide. (At one time Countrywide had a market capitalization of $25 billion.) BoA said it will focus on "responsible home lending" and plans to offer a variety of first-lien mortgages but no subprime loans. It will also discontinue offering payment-option adjustable-rate mortgages, the company said. Among the first-lien mortgages the company says it will offer are: conforming loans underwritten to standard guidelines of the government and the government-sponsored enterprises; nonconforming loans with terms "expected to produce no greater risk of default than conforming loans"; interest-only mortgages subject to a 10-year minimum IO period; and fixed-period ARMs that provide low initial rates with fixed payments. The company can be found online at http://www.bankofamerica.com.

Class L of LB 2006-LLF C5 commercial mortgage pass-through certificates has been downgraded from BBB-minus to BB-minus by Fitch Ratings. Fitch also affirmed the ratings on 14 other classes in the transaction. The downgrade was attributed to the declining performance of the Sheraton Keauhou Bay Resort & Spa loan and three Praedium Rental Portfolio loans.

Seventy-five classes of notes in subprime mortgage-related collateralized debt obligations from six issuers have been downgraded by Fitch Ratings and removed from Rating Watch Negative. The affected securities were as follows: 20 classes from Baker Street Finance Ltd. and Baker Street Finance USD Ltd.; 10 classes from Hanover Street Finance Ltd.; nine classes from Clifton Street Finance Ltd.; nine classes from Dorset Street Finance Ltd.; nine classes from Pembridge Square Finance Ltd.; nine classes from Regent Street Finance Ltd.; and nine classes from Sydney Street Finance Ltd. Fitch said the "driving factor" behind the downgrades was higher loss expectations in the subprime residential mortgage-backed securities and structured finance CDO portions of the managed synthetic CDO portfolios, stemming primarily from "rapid credit deterioration" in the 2005, 2006, and 2007 vintages. Fitch can be found online at http://www.fitchratings.com.