Originations

Over 400 individuals have been charged with mortgage fraud as the result of a national "takedown" led by the Department of Justice and the Federal Bureau of Investigation. The law enforcement operation called "Malicious Mortgage" netted real estate agents, mortgage brokers, appraisers, and others allegedly engaged in lending fraud, foreclosure rescue schemes, and mortgage-related bankruptcy schemes. So far, the three-month sweep had led to 287 arrests and 173 convictions, and 82 individuals have been sentenced, the DoJ said. The Mortgage Bankers Association and the American Financial Services Association welcomed the crackdown. "We support efforts to prosecute unscrupulous operators who give the mortgage industry a bad name," AFSA president Chris Stinebert said. MBA president Kiernan Quinn said the sweep shows that federal authorities are taking the issue of mortgage fraud seriously. "We will continue to work with the FBI to help them target these kinds of crimes," Mr. Quinn said. The FBI said it has set up 42 task groups and working groups around the country that are investigating 1,400 mortgage fraud cases.

Cole Operating Partnership II LP, the operating partnership of Cole Credit Property Trust II Inc., recently entered into a $135 million revolving credit facility, according to Cole Cos., a Phoenix-based family of real estate companies. The three-year facility, which can be increased to $235 million and has a one-year extension option, is secured by an assignment of Cole OP II's equity interests in the assets of certain of its limited-liability subsidiaries, Cole said. Banc of America Securities was the sole lead arranger of the facility.

Genworth Financial Inc., Richmond, Va., has made a change in its organizational chart that shifts the reporting responsibility of the head of its U.S. mortgage insurance business. Until now, Kevin Schneider, president of U.S. mortgage insurance, reported to the company's executive vice president, Tom Mann. Mr. Mann will now concentrate on leading the international segment, while Mr. Schneider will report directly to Genworth's chairman and chief executive, Michael D. Fraizer. "Kevin and his organization have kept a clear focus on executing our strategy and positioning the business for the future -- all while mitigating risk during a difficult industry transition," said Mr. Fraizer. Genworth can be found on the Web at http://www.genworth.com.

Washington Mutual Inc., Seattle, has announced the commitment of an additional $1 billion to help homeowners with subprime mortgage loans avoid foreclosure. WaMu noted that the pledge brings the commitment to its borrowers' assistance program to $3 billion. "Since the fund was first established in April 2007, WaMu has helped more than 7,500 homeowners work to avoid foreclosure," said Kerry Killinger, WaMu's chief executive officer. Under the program, eligible WaMu subprime borrowers who remain current on their loans and expect payment increases may apply for new, discounted fixed-rate loans or certain other mortgage products, the company said. The thrift can be found on the Web at http://www.wamu.com.

Shanti Home Loans.com, a mortgage company that offers low-flat-fee closing costs, has been launched by Prem Bajaj, president of Sterling Lending Group Inc., Danbury, Conn. The cost savings promised by Shanti are possible because "today's homeowners are computer-savvy, green-conscious, and can apply online," the company said. Mr. Bajaj said the company will donate 5% of its net profits to local charities. Shanti can be found on the Web at http://www.shantihomeloans.com.

In a follow-up to regulatory approvals for CapitalSource Inc., Chevy Chase, Md., to buy certain assets and liabilities of Fremont Investment & Loan, Fremont General Corp., Brea, Calif., has filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Fremont General stressed that FIL has not filed for bankruptcy, but court approval will be needed to complete the sale to a de novo California-chartered industrial bank being formed by CapitalSource. Fremont General previously sold its $12.2 billion mortgage servicing rights portfolio to Litton Loan Services, a division of Goldman Sachs. Meanwhile, CapitalSource will make a public offering of 30 million shares of common stock. "This is a 'play offense' capital raise," said John K. Delaney, CapitalSource chairman and chief executive. "With the recent regulatory approval of CapitalSource Bank (in organization), we are well positioned to seize opportunities in the current favorable market conditions."

Triad Guaranty Inc., Winston-Salem, N.C., has ended discussions with Lightyear Capital LLC on the formation of a new mortgage insurance company and has announced that Triad Guaranty Insurance Co. will be transitioned into runoff. The subsidiary will cease issuing commitments for mortgage insurance as of July 15, Triad said. The parent company also reported that Freddie Mac had denied the appeal of its suspension as an approved mortgage insurer. Mark Tonnesen, president and chief executive of Triad, said New York-based Lightyear Capital "worked very hard with us to develop a transaction that we believe would have ultimately served the interests of Triad's stakeholders, but certain hurdles arose that prevented the transaction from being feasible. We are continuing to work with our financial adviser, Goldman Sachs, to explore whether other strategic alternatives are available, but we are not optimistic that any opportunities will surface." Fitch Ratings said it would "monitor Triad's ability to execute an orderly runoff as well as loss developments within the insured portfolio and the extent to which captive reinsurance and rescission activity offset these losses." Fitch said it believes shareholder interests are likely to be a higher priority of management than the interests of policyholders. Triad can be found online at http://www.triadguaranty.com.

Two classes of GMAC Commercial Mortgage Securities Inc.'s mortgage pass-through certificates series 2001-C2 have been downgraded by Fitch Ratings. Class O was downgraded from B to B-minus, and class P was downgraded from B-minus to CCC/DR2. Fitch also affirmed the ratings on 16 other classes in the transaction. "The downgrades reflect expected losses from the specially serviced loans and an increase in Fitch Loans of Concern," the rating agency said. Fitch can be found on the Web at http://www.fitchratings.com.

Zacks Equity Research, Chicago, has named PMI Group, Walnut Creek, Calif., as its Bear of the Day for June 18. "PMI's combined ratio worsened significantly while the claim rates and average claim sizes increased considerably," Zacks said. "We suspect the company may need to raise capital in the coming months in order to satisfy the requirements of the rating agencies. Based on the results, we have further reduced our estimates for fiscal year 2008 and fiscal year 2009. Our sell rating on the shares remains unchanged." As part of the transfer of a reinsurance portfolio to a third party announced on June 17, PMI Group plans to take a $150 million dividend from one of its units and reinvest at least 80% of it into its U.S. mortgage insurance subsidiary, PMI Mortgage Insurance Co. Zacks can be found online at http://www.zacks.com, and PMI can be found at http://www.pmigroup.com.

Commercial real estate prices rose 0.1% in March on a national basis and recorded a 12-month increase of 5.1%, according to the S&P/GRA Commercial Real Estate Indices. The indices showed a 7.7% 12-month rate of return for the apartment sector, and a 10.3% rate for the Pacific West, S&P reported. The worst 12-month performances were recorded in the office sector, 2.3%, and the Desert Mountain West, negative-0.2%, according to the company. "In the property sector, warehouse was the star performer during the March/February period, up 0.9%," said David Blitzer, managing director and chairman of S&P's Index Committee. "The three other property sectors reported small positive returns." The indices can be found on the Web at http://www.spcrex.standardandpoors.com.

Citing declining home prices and deteriorating credit trends, Cincinnati-based Fifth Third Bancorp has announced several moves aimed at strengthening its capital position. Fifth Third said it plans to issue $1 billion of convertible preferred shares to shore up its Tier 1 capital, reduce its quarterly dividend from $0.44 per share to $0.15 per share, and sell certain noncore businesses. The company said it has revised its target Tier 1 capital ratio to 8%-9%. Meanwhile, Fitch Ratings downgraded the long- and short-term Issuer Default Ratings, among others, of Fifth Third and its principal bank subsidiaries. The long-term IDRs were downgraded from AA-minus to A-plus, the short-term from F1-plus to F1. The downgrades were attributed to "the company's deteriorating trends in asset quality, expectations for elevated levels of problem assets in the near term, and a decline in profitability.... The majority of credit weakening is concentrated in Michigan and Florida, and centered in the home equity, homebuilder/developer, and residential mortgage portfolios."

Solera National Bank, Lakewood, Colo., has announced a joint marketing agreement and strategic partnership with Countrywide Home Loans under which Countrywide will establish an office in each of Solera's branch locations. "Since we opened our doors late last year, we have had a significant number of ongoing requests from our customers for residential mortgage products and services," said Paul Ferguson, the bank's chief executive officer. "Our relationship with Countrywide Home Loans and their location in our bank lobby will allow Solera National Bank to deepen our relationship with our customers and prospective customers." Countrywide, which is based in Calabasas, Calif., is being acquired by Bank of America. Solera can be found on the Web at http://www.solerabank.com, and countrywide can be found at http://www.countrywide.com.

The Federal Insurance Deposit Corp. has approved the application for a newly formed California-chartered industrial bank subsidiary of CapitalSource Inc., Chevy Chase, Md., to receive deposit insurance. The approval is the final regulatory OK needed for CapitalSource to acquire certain assets and liabilities of Fremont Investment & Loan, which is being sold by its troubled parent company, Fremont General Corp., Brea, Calif. The FDIC also approved that purchase as well as the establishment of 22 FIL branches as offices of CapitalSource Bank. Under the agreement, CapitalSource is not acquiring the FIL charter, which remains with Fremont General. The California Department of Financial Institutions approved the deal on June 13. "Further diversifying our funding sources has long been an important strategic goal," said John K. Delaney, CapitalSource chairman and chief executive. "The formation and operation of a regulated bank with significant deposits meets that objective."

Despite the record number of foreclosures, housing price declines have been small and will remain so, according to a new paper released by the American Enterprise Institute. Cushioned by such other "fundamental factors" as employment growth and reductions in the housing supply, prices on average will slide by only 4.5% under the study's worst-case scenario, said co-author Charles Calomiris, a professor at Columbia University and a visiting scholar at the conservative think tank. Only 11 states will see prices drop by more than 6% by the end of 2009, he predicted. "Foreclosures and home prices have negative effects on each other over time, but this does not imply a vicious cycle of housing price collapse," Mr. Calomiris said. The paper bases its findings on house-price data compiled by the Office of Federal Housing Enterprise Oversight, maintaining that the more popular S&P/Case-Shiller index is prejudiced toward markets more susceptible to price swings. But Mark Zandi of Moody's Economy.com said it is the OFHEO numbers that are defective because, among other things, they don't include foreclosure sales. Mr. Zandi said 25% of all sales in the first quarter were distress sales, many at 50 cents on the dollar. And with 8.5 million homeowners now owing more than what their properties are worth, the economist warned that the foreclosure problem will get much worse before it gets better.

Wilmington Finance Inc., Plymouth Meeting, Pa., has announced a cessation of wholesale mortgage banking operations that will lead to layoffs of approximately 335 people by year's end. WFI said it will honor the existing loan commitments in its mortgage banking pipeline and maintain a reduced retail operation. The company, an originator of nonconforming mortgage loans, is a wholly owned subsidiary of American General Finance Inc., Evansville, Ind. American General is a subsidiary of American International Group.

Several financial services groups, and even the U.S. Chamber of Commerce, say they support a major housing bill pending in the Senate, but they want a section of the bill dealing with the licensing and registration of mortgage originators dropped from the legislative package. Title VI has "serious faults" and imposes suitability requirements on employees of lending institutions that will create uncertainty in the origination and underwriting process, according to the six industry groups. The American Financial Services Association, the Consumer Bankers Association, the Consumer Mortgage Coalition, the House Policy Counsel of the Financial Services Roundtable, the Mortgage Bankers Association, and the CoC signed the June 17 letter. "We strongly support" the GSE regulatory reforms and the FHA modernization provisions in the housing bill, as well as the FHA foreclosure rescue program, says the letter addressed to Sens. Christopher J. Dodd, D-Conn., and Richard C. Shelby, R-Ala. "Therefore, we urge that Title VI be separated from the rest of the bill and be considered separately once the licensing and registration provisions are perfected," the groups say.

Three classes of J.P. Morgan Chase Commercial Mortgage Securities Corp. series 2005-CIBC12 have been downgraded by Fitch Ratings. The downgrades were as follows: class M, from B-plus to B; class N, from B to B-minus; and class P, from B-minus to CCC/DR1. Fitch also affirmed the ratings on 21 other classes in the transaction. The downgrades were attributed to projected losses on the mortgage pool's three specially serviced loans, which are collateralized by: a retail property in St. Thomas, Virgin Islands, that is 90 days delinquent; a suburban office building in New London, Conn., that is 90 days delinquent; and an office property in Buffalo, N.Y., that has defaulted.

Luminent Mortgage Capital Inc., a real estate investment trust based in Philadelphia, says a triggering event has occurred under the indenture agreement for its convertible senior notes. The event is related to the delisting of Luminent's common stock by the New York Stock Exchange on May 3. The delisting of the stock by NYSE for 30 consecutive trading days constitutes a triggering event, Luminent said. The holders of the $90 million in convertible senior notes may surrender their notes for conversion. The company's common stock currently trades on the over-the-counter bulletin board. On June 16, the common stock closed at $0.20 per share. At the end of March, Luminent announced plans to convert from a REIT to a publicly traded partnership. The company can be found online at http://www.luminentcapital.com.

Nearly 60% of real estate professionals surveyed believe that commercial property in the United States is overvalued, according to a survey by international law firm Bryan Cave LLP. The survey found that 59% of the executives polled believe commercial properties are overvalued and only 4% believe they are undervalued. Barry C. Ross, a partner at Bryan Cave, said 91% of the respondents "believe the credit crunch will continue to reduce capital for commercial real estate financings for at least seven more months." The fifth annual Bryan Cave Real Estate Executives' Forecast Survey was conducted among more than 300 commercial real estate professionals, including brokers, lenders, title insurers, and mortgage bankers. Bryan Cave can be found online at http://www.bryancave.com.

Standard & Poor's has downgraded the financial strength rating of New York-based Radian Asset Assurance Inc. (the financial guaranty unit of Radian Group Inc., Philadelphia) from AA to A. "In our view, business prospects and financial flexibility have declined for Radian Asset, and there is ongoing uncertainty regarding its competitive position and ownership," said S&P credit analyst Robert Green. Because RAA has exited its collateralized debt obligation business lines and the disrupted mortgage market has hurt the company's reinsurance business, par written in the first quarter totaled only $2.6 billion, down from $14.4 billion in the first quarter of 2007. "Looking ahead, we believe that business growth for the company's reinsurance business is uncertain," said Mr. Green. Another issue, S&P said, is that RAA is less likely to receive capital from Radian Group because the parent is raising capital for Radian Guaranty Inc., the mortgage insurance subsidiary. In a statement, Radian Group said the downgrade was not due to a lack of capital adequacy or credit issues, reporting that RAA had $1.6 billion of statutory capital at the end of the first quarter. The downgrade, it said, is likely to restrain RAA's ability to write business. S&P can be found online at http://www.standardandpoors.com.