Originations

Atlanta-based Equifax and Minneapolis-based Fair Isaac have ended their war over FICO 08 and VantageScore. When FICO 08 was introduced earlier this year, Equifax said it was not ready to support the product because Fair Isaac was suing it over VantageScore. But the two companies in a joint statement said they are now forming a partnership to develop and sell advanced analytics and scoring solutions for businesses and consumers. The statement goes on to say they are working together to accelerate the testing and roll-out of the FICO 08 model for Equifax customers. Finally, Fair Isaac said it will dismiss Equifax as a defendant in the lawsuit against VantageScore LLC and the national credit reporting companies. Richard F. Smith, chairman and chief executive of Equifax, said in the statement, "This new agreement further solidifies our working relationship and allows both companies to provide better solutions to their customers."

Eastern Real Estate LLC and Highfields Capital Management, both of Boston, have announced the formation of a $1 billion joint venture that will acquire high-yield commercial real estate debt and other assets to respond to the dislocation in U.S. CRE capital markets. The companies said the joint venture has been formed by Eastern's principals, Dan Doherty and Brian Kelly, together with Highfields' co-founders, Jonathon S. Jacobson and Richard L. Grubman. Eastern will serve as the joint venture's sponsor and invest its own capital, along with the nearly $1 billion being provided by Highfields. In addition to buying CRE debt, the venture will provide preferred equity and buy high-quality assets, the companies reported. "The joint venture is actively acquiring positions from financial institutions, which are seeking to increase their liquidity and provide alternatives for their capital-constrained clients," they said.

The Securities and Exchange Commission wants the credit rating agencies to publicly disclose the information they use in rating mortgage-backed securities (including information about the underlying mortgages) to provide more transparency for investors and other rating agencies. "That would permit broad market scrutiny, as well as competitive analysis by other rating agencies that are not paid by the issuer," SEC Chairman Christopher Cox said. The proposal approved by the commissioners for public comment would prohibit credit rating agencies from assisting MBS issuers in structuring their deals to get a certain rating. However, it would be acceptable to tell the issuer how much overcollateralization is needed to achieve a triple-A rating, an SEC staffer said. The rating agencies would also have to maintain a history of their rating actions, including default statistics for the initial rating and defaults that occur after a rating is withdrawn. The wide-ranging proposal addresses conflicts of interest, disclosures, internal practices, and business practices of the rating agencies and is designed to prevent another "subprime mess," Mr. Cox said.

Eight classes of subprime mortgage pass-through certificates from two issuers were downgraded by Fitch Ratings on June 9. The affected securities were as follows: seven classes from two Option One deals, and one class from a Long Beach deal. Fitch also affirmed the ratings on over 60 classes from 29 subprime transactions.

Defaults on loans in commercial mortgage-backed securities remained low in 2007, totaling $1.2 billion (22 basis points) of $535 billion of CMBS loans outstanding, according to an annual study by Fitch Ratings. The rating agency reported that the 10-year cumulative default rate totaled 7.4%, down from that of previous studies. Fitch said it expects CMBS loan defaults to rise, however, as "solid real estate fundamentals" are affected by the slowing economy and limited capital availability.

Fitch Ratings has downgraded the Issuer Default Ratings of eight homebuilders and affirmed the IDRs of four others. The downgrades were as follows: Lennar Corp., from BBB to BBB-minus; Pulte Homes Inc., BBB to BBB-minus; Centex Corp., from BBB to BB-plus; D.R. Horton Inc., from BBB-minus to BB-plus; Ryland Group Inc., from BBB-minus to BB-plus; Meritage Homes Corp., from BB-minus to B-plus; M/I Homes Inc., from BB-minus to B-plus; and Beazer Homes USA Inc., from B-plus to B. Beazer's ratings remain on Rating Watch Negative, and the Rating Outlooks for the other homebuilders' ratings remain negative. The downgrades reflect the "difficult housing environment and Fitch's expectations that housing activity will be even more challenging than previously anticipated during the balance of calendar 2008 and that new-home activity will still be on the decline well into 2009." The rating agency also cited negative trends in the companies' operating margins, further deterioration in their credit metrics, and erosion in their tangible net worth from noncash real estate charges. Fitch also affirmed the IDRs of the following homebuilders: NVR Inc., at BBB; Toll Brothers Inc., at BBB; KB Home, at BB-plus; and Hovnanian Enterprises Inc., at B-minus. The Rating Outlook is stable for NVR and negative for the other three.

Mortgage Network Inc., Danvers, Mass., has announced plans to expand its wholesale operations in North Carolina, South Carolina, Tennessee, Georgia, and Alabama. The company also announced the hiring of mortgage veteran Thomas Palmer as its national wholesale manager. Mr. Palmer was most recently senior vice president and channel executive for correspondent lending at Bank of America Securities. He was previously senior vice president and channel director for correspondent national sales at Washington Mutual/Fleet Mortgage. Mortgage Network said it has opened eight new offices in the past 12 months and increased its staff by over 33%. The company can be found on the Web at http://www.mortgagenetwork.com.

Residential Finance Corp., a nationwide mortgage lender, has announced plans to hire 75 to 100 people in the third quarter, the majority of them to fill positions in the company's Columbus, Ohio, headquarters and its office in Tampa, Fla. "The slowdown in the housing market has put more than 200 U.S. lending operations out of business, leaving nearly 1,000 talented mortgage professionals jobless in Ohio, and even more in Florida," said company president Michael Isaacs. "We'd like to invite those seasoned loan officers with extensive mortgage banking experience and a commitment to excellence to give us a call." Residential Finance said its mortgage professionals receive 25 hours of intense mortgage training, including team training in its proprietary "incubator," a simulated classroom environment where experienced trainers provide additional training support. The company can be found online at http://www.myrfc.com.

Lehman Brothers expects to see a net loss of $2.8 billion in its fiscal second quarter (which included the extreme market dislocation seen in March) but says it was able to make progress in reducing troubled residential and commercial mortgage exposures during the quarter. The company also estimates that it will take a $3.7 billion net loss for mark-to-market adjustments on partially mortgage-related holdings for the quarter ended May 31. Chairman and chief executive Richard Fuld said he was "disappointed" by the company's expected first-ever quarterly net loss, but added that he was heartened by Lehman's "strengthened balance sheet and the improvement in financial markets since March." Lehman Brothers can be found on the Web at http://www.lehman.com.

To stem losses to the FHA insurance fund, the Department of Housing and Urban Development is reissuing a proposed rule that would ban seller-funded downpayment assistance on Federal Housing Administration-insured mortgages. HUD has been tangling for several years with nonprofit groups that arrange for low-income homebuyers to receive downpayment assistance from home sellers. HUD maintains that foreclosures on these FHA loans are three times higher than for other loans because the seller jacks up the price to recoup the downpayment "gift." In March, a federal district court judge ruled that HUD violated the Administrative Procedures Act in issuing a similar rule to stop seller-funded DPA programs. FHA Commissioner Brian Montgomery said the judge provided HUD with a "roadmap" to modify the proposed rule and reissue it for a new 60-day comment period. The FHA commissioner also told the National Press Club Monday that the FHA has booked $4.6 billion in "unanticipated long-term losses" mostly due to seller-funded DPA loans. He stressed that the FHA is solvent but may need a congressional appropriation if such losses continue. Meanwhile, downpayment assistance providers are ready to block the rule again. "We will not watch Commissioner Montgomery or HUD sever the only lifeline available to the low- to moderate-income families," said Scott Syphax, president and chief executive of Nehemiah Corporation of America.

Increasing demand for Federal Housing Administration-insured loans has pushed the FHA's market share above 10%, and loan endorsements in the first eight months of fiscal year 2008 already exceed the total for all of fiscal 2007. "Since September 2007, FHA has helped pump more than $76.1 billion in mortgage activity into the housing market," FHA Commissioner Brian Montgomery said, and $30.3 billion of those loans have helped conventional borrowers refinance into FHA loans. The FHA endorsed 424,700 mortgages totaling $59.8 billion in fiscal 2007 when subprime lenders were still taking customers away from the agency. Since the subprime meltdown last year, the FHA's market share has risen from 3% to 10%-12%, Mr. Montgomery told the National Press Club. The latest FHA activity report shows mortgage applications running at a 2.1 million annual rate during the last two weeks of May, compared with an annual rate of 777,900 in the same period of fiscal 2007. FHA loan endorsements are running at a 1.36 million annual rate, up 130% from that of a year ago.

Sixty-three classes of subprime mortgage pass-through certificates from nine issuers were downgraded by Fitch Ratings on June 6. The affected securities were as follows: 17 classes from nine Delta Funding deals; 10 classes from four Asset-Backed Securities Corp. deals; eight classes from three First Franklin Mortgage Loan Trust deals; seven classes from three CDC Mortgage Capital Trust deals; six classes from two Wilshire deals; four classes from one Ameriquest Mortgage Securities deal; four classes from two Equity One deals; four classes from two Ameriquest Mortgage Securities Inc. deals; and three classes from one CSFB deal. Fitch also affirmed the ratings on over 70 classes from 41 subprime transactions.

Commercial mortgage-backed securities are being mispriced based on an "irrational" market reaction that presents "significant arbitrage opportunities" for investors, according to a new study released by the Commercial Mortgage Securities Association. The study, which performed multiple stress tests on CMBS based on three historical and worst-case recession scenarios, predicts that CMBS will perform well in a recessionary environment and concludes that current spreads for most vintages are "far wider" than warranted by their fair value. "There are no skeletons in the CMBS closet," said Jun Han, the author of the study. "Market fears and the liquidity crunch have dramatically distorted the value of commercial mortgage-backed securities, creating one of the best environments in history for investing in CMBS." The study was presented at the CMSA's 14th annual convention in New York. The association can be found online at http://www.cmbs.org.

Stewart Title of California, San Diego, has announced the creation of the Stewart Title Absolute Rate, which represents a reduction in its base title insurance rates. "The S.T.A.R. is lower and simpler than the previous bundled and short-term rates and offers significant savings for refinance transactions that meet specific criteria," the company said. The new rate is available only when all title-related documents are conveyed electronically to all the parties. Stewart said it has also reduced its residential title insurance rate and its basic rate for commercial, agricultural, industrial, and other related properties. Stewart Title of California is a wholly owned subsidiary of Stewart Information Services Corp., which can be found online at http://www.stewart.com.

North River Investment Management LLC, New York, has announced the launch of its first commercial real estate private equity fund with $100 million of committed capital. The fund, North River Opportunity Partners I LP, will initially buy discounted pools of commercial mortgage debt and originate first-mortgage and mezzanine loans on high-quality commercial real estate properties, the company said. "The fund will pursue investment strategies designed to capitalize on opportunities created by turmoil in the global credit markets," North River Investment said.

Anthony Hsieh, an entrepreneur and veteran of the financial services industry, has announced the formation of Grander Financial, Irvine, Calif., which he says is the first full-service consumer finance company to offer a variety of alternatives to mortgages. Grander's flagship product, My Equity Freedom, allows homeowners to receive cash based on the equity they have built without making monthly payments. The company said the product enables Grander to "share in the appreciation (or depreciation) of the home" while providing cash to the homeowner. "We have created a new financial model for homeowners, eliminating the costly need of a traditional mortgage," Mr. Hsieh said. ".... The option of maximizing one's equity with a cash advance without having to incur mounting interest or monthly payments is truly revolutionary to the housing and lending market."

A forward-looking indicator of existing-home sales rose 6.3% in April, its highest level since October, according to the National Association of Realtors. The NAR's Pending Home Sales Index, which is based on sales contracts signed in April, rose to 88.2 in April from 83.0 in March. On a year-over-year basis, the index was down 13.1%. "Bargain hunters have entered the market en masse, especially in areas that have experienced double-digit price declines, but it's unclear if they are investors or owner-occupants," NAR senior economist Lawrence Yun said. "Sharp price reductions are leading to a quicker discovery of price equilibrium points. The West is already seeing year-over-year gains in pending contracts." The NAR can be found online at http://www.realtor.org.

Jeff Walton has been named chief executive officer of Accredited Home Lenders Holding Co., a troubled San Diego-based subprime lender that recently confirmed an undisclosed number of layoffs. Mr. Walton replaces Jim Moran, who has served as interim CEO since February 2008. A veteran of 25 years in the mortgage industry, Mr. Walton was previously president, CEO, and senior managing director of Bear Stearns Residential Mortgage Corp., Accredited said. Before launching BSRMC, he served as president of the mortgage division for First National Bank of Arizona and First National Bank of Nevada. Accredited, once a top-ranked publicly traded subprime lender, was sold last fall to Lone Star, a private equity fund. Accredited can be found on the Web at http://www.accredhome.com, and Lone Star can be found at http://www.lonestarfunds.com.

Nearly 100 classes of subprime mortgage pass-through certificates from seven issuers have been downgraded by Fitch Ratings. The affected securities were as follows: 31 classes from 10 Lehman-related deals; 25 classes from eight Credit Based Asset Servicing and Securitization LLC deals; 11 classes from three Asset Back Funding Corp. deals; 10 classes from three Residential Funding Mortgage Securities II deals; nine classes from four GE Capital home equity deals; seven classes from five Saxon deals; and three classes from one Fremont Home Loan Trust deal. Fitch also placed four classes on Rating Watch Negative and affirmed the ratings on over 130 classes from more than 60 subprime transactions.

The ratings of 259 certificates from 50 subprime mortgage-backed securities deals backed by Ameriquest collateral have been downgraded by Moody's Investors Service. The downgrades were based on "recent and expected pool losses and the resulting erosion of credit support," the rating agency said. "Moreover, increasing delinquencies along with step-down, or the possibility thereof, is likely to cause further erosion of credit enhancement levels." The transactions are backed primarily by first-lien subprime mortgage loans originated through Ameriquest's retail and wholesale channels. Moody's can be found on the Web at http://www.moodys.com.