Originations

The PMI Group Inc. responded to downgrades by Fitch Ratings with an assurance that it has "significant financial resources" to pay claims. The company also issued a reminder that it is still an approved mortgage insurer for Fannie Mae and Freddie Mac. Besides the two-notch cut in the insurer financial strength of the U.S. operations [see above item], Fitch dropped the IFS rating on PMI's international businesses from AA to A-plus and the parent company's long-term issuer rating was cut from A to BBB-plus. After Standard & Poor's cut its ratings in April, PMI was ordered to create a remediation plan. The plan, which has been submitted to Fannie and Freddie, details its strategy on how to return to profitability as well as its financial forecast and capital plan, among other things. Options being considered by PMI include capital markets transactions, utilization of excess capital at its wholly owned financial guaranty subsidiary, reinsurance, and asset sales.

Fitch Ratings has reduced the insurer financial strength ratings of PMI Mortgage Insurance Co., Walnut Creek, Calif., and Republic Mortgage Insurance Co., Winston-Salem, N.C. PMI's IFS rating was downgraded from AA to A-plus, a drop of two notches, while RMIC's was cut from AA to AA-minus. The changes echo downgrades made by Standard & Poor's in April. At that time, Freddie Mac ordered PMI to come up with a remediation plan, but did not require one of RMIC or its parent, Old Republic Corp., Chicago. The changes were announced in a Fitch news release about the whole mortgage insurance industry. Since late February, Fitch said it "has grown considerably more pessimistic on the outlook for the sector." It added that 2007 will likely turn out to be one of the worst underwriting years in MI history, with that year's book of business turning delinquent significantly faster than the 2005 or 2006 vintages. In addition, Fitch placed the IFS rating of Genworth Mortgage Insurance Co., Raleigh, N.C., on Rating Watch Negative and cut the long-term issuer rating for MGIC Investment Corp., Milwaukee, from A to BBB-plus.

Although falling house prices and credit losses continue to be a problem, Freddie Mac chairman and chief executive Richard Syron has told investors that the mortgage giant is on the right track and that they will not see a repeat of the $3.1 billion loss the company suffered last year. "We believe our 2008 results will be significantly better than [those of] 2007," Mr. Syron said at Freddie's annual shareholder meeting. The CEO reported that Freddie will probably increase its provisions for loan losses by $5 billion to $6 billion this year. However, he said he expects to achieve 15% to 20% growth in the mortgage guarantee business and "very strong growth" in net interest income from the investment portfolio. "The bottom line is that while our credit costs are increasing in this tough environment, we believe they are manageable in any realistic scenario and mitigated by our revenue growth going forward," Mr. Syron said. The CEO also reported that Freddie is close to completing the stock registration process with the Securities and Exchange Commission. Freddie can be found online at http://www.freddiemac.com.

Mortgage companies cut their payrolls by 3,900 full-time employees in April, and it looks like the industry will continue to shed jobs now that the unemployment rate has jumped to 5.5%, dashing hopes for a recovery in the housing market this year. The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell from 360,700 in March to 356,800 in April. But the real bad news for the industry is that Friday's jobs report showed an increase of 861,000 (to 8.5 million) in the number of unemployed people in May, the biggest monthly increase since 1996. Wells Fargo & Co. senior economist Scott Anderson said the dismal jobs report confirms that the downturn in the housing market will be prolonged. He said he expects house price declines to continue into 2009 and that a bottom for home sales might be pushed back to the end of the year or the first part of 2009. "This is what we were afraid of," Mr. Anderson said, that a weakening jobs market would compound the problems in the housing market.

Six classes in four net-interest-margin mortgage securities from two issuers have been downgraded by Fitch Ratings. The affected securities were as follows: five classes from three Ixis NIM issues; and one class from an Ameriquest NIM issue. The rating agency said the actions "reflect actual pay-down performance of the NIM securities to date compared to initial projections, as well as changes that Fitch previously made to its subprime loss forecasting assumptions for the underlying transactions."

Seventy-three classes of subprime mortgage pass-through certificates from five issuers have been downgraded by Fitch Ratings. The affected securities were as follows: 37 classes from 18 Morgan Stanley deals; 18 classes from seven IndyMac deals; 14 classes from seven Chase deals; three classes from one Industry Mortgage Co. deal; and one class from a Metropolitan Mortgage deal. Fitch also affirmed the ratings on more than 90 classes from over 40 subprime transactions. The rating agency can be found on the Web at http://www.fitchratings.com.

Behringer Harvard, a Dallas-based commercial real estate company, has closed on a $75 million secured credit facility on behalf of Behringer Harvard Opportunity REIT I Inc. The facility may be increased by up to $150 million under certain conditions, including additions to the collateral pool, the company said. Banc of America Securities acted as the lead arranger of the transaction. The company can be found on the Web at http://www.behringerharvard.com.

Weingarten Realty Investors, a Houston-based real estate investment trust, has priced $120.6 million of depositary shares, each representing one one-hundredth of a share of the company's 6.50% series F cumulative redeemable preferred stock. The 6 million depositary shares were priced at $20.10 per share, a discount to the $25 par value, the company said. They will be redeemable, at Weingarten's election, on or after Jan. 30, 2012. The REIT can be found online at http://www.weingarten.com.

Citizens Republic Bancorp., Flint, Mich., has recorded a $180 million noncash goodwill impairment charge and a $47.1 million writedown related to deterioration in the credit quality of its commercial real estate portfolio. The company said the goodwill impairment stemmed from volatility in the financial industry and a decrease in its market capitalization to a level below tangible book value as well as the deterioration in its CRE portfolio. The writedown consists of the following fair-value adjustments: $38.5 million on $131.4 million of nonperforming CRE and residential mortgage loans; $2.7 million on $30.3 million of commercial loans held for sale; and $5.9 million on $37.6 million of commercial and residential repossessed assets. The company can be found on the Web at http://www.citizensbanking.com.

Despite a weak housing market and tight credit conditions, one- to four-family loan originations by banks rose 14% in the first quarter, while federally chartered thrifts reported a decline in loan production. Single-family loan originations by commercial banks and savings banks totaled $288.6 billion in the first quarter, up 14% from the level of the previous quarter, according to the Federal Deposit Insurance Corp. Loan production matched the $286.4 billion in originations during the same period in 2007. In the first quarter, 673 commercial banks and savings banks reported origination data to the FDIC. Meanwhile, 831 federally chartered thrifts originated $115.2 billion in one- to four-family mortgages in the first quarter, down 20% from the level of fourth quarter and down 23% from that of the first quarter of 2007. The Office of Thrift Supervision reported that refinancings constituted 50% of thrift originations and adjustable-rate mortgages made up only 10% of loan volume.

The Federal Deposit Insurance Corp. is accelerating its on-site reviews of insured banks with high concentrations of construction and development loans, according to Sheila Bair, chairman of the Federal Deposit Insurance Corp. Targeted examinations of 27 FDIC-supervised banks earlier this year found that some institutions with C&D concentrations in formerly high-growth markets are "experiencing a rapid increase in problem loans that may translate into losses this year," Ms. Bair told the Senate Banking Committee. As of March 31, 2,535 insured institutions had C&D loan concentrations of 100% or greater to Tier One capital. Nearly 5% of the $632 billion in outstanding C&D loans are 89 days or more past due. Bank chargeoffs on C&D loans skyrocketed from $106 million in the fourth quarter to $1.6 billion in the first quarter.

Subprime lender Accredited Home Lenders of San Diego has laid off an undisclosed number of workers, MortgageWire has learned. A spokesman for the company confirmed the cutbacks, noting that, "The restructure was done in order to maintain Accredited's financial position in the marketplace and improve the company's long-term prospects by realizing efficiencies." He declined to comment further. According to a posting on the BrokerUniverse website (an affiliate of National Mortgage News), Accredited closed operation centers in Orange, Calif.; Beaverton, Ore.; St. Petersburg, Fla.; and Woodcliff Lake, N.J. However, the information could not be confirmed and the spokesman would not comment. Last fall Accredited, once a top-ranked publicly traded subprime lender, was sold to Lone Star, a private equity fund.

The number of loans entering foreclosure and in foreclosure, in addition to the number of loans more than 30 days delinquent, all reached record highs in the first quarter, according to the Mortgage Bankers Association. The MBA's quarterly delinquency survey showed that overall, 8.82% of loans were at least 30 days past due or in foreclosure during the first quarter. When the foreclosure inventory of 2.47% is considered separately, 6.35% of loans were at least 30 days past due. The foreclosure inventory rose 43 basis points from the level of the fourth quarter of 2007 and 119 bps from that of one year earlier. That means the number of loans in foreclosure is nearly double what it was a year earlier. Loans entered foreclosure at a 0.99% rate in the first quarter. Jay Brinkmann, the MBA's vice president for research and economics, said the deterioration in credit quality was largely driven by certain loan products in certain states. Specifically, subprime adjustable-rate mortgage loans, which accounted for 39% of foreclosures started in the first quarter, helped push up foreclosure and delinquency rates. Two states, California and Florida, also continued to drive up national delinquency and default figures, Mr. Brinkmann said. The MBA can be found online at http://www.mortgagebankers.org.

Seventeen classes in 12 net-interest-margin mortgage securities from three issuers have been downgraded by Fitch Ratings. The affected securities were as follows: nine classes from seven First Franklin NIM issues; seven classes from four Park Place Securities Inc. NIM Trust issues; and one class from a Merrill Lynch Mortgage Investors NIM Trust issue. The rating agency said the actions "reflect actual pay-down performance of the NIM securities to date compared to initial projections, as well as changes that Fitch previously made to its subprime loss forecasting assumptions for the underlying transactions."

Senior Housing Properties Trust, a real estate investment trust based in Newton, Mass., has priced a public offering of 17 million common shares of beneficial interest at $21.09 per share. The joint book-running managers of the offering are UBS Investment Bank, Merrill Lynch & Co., and Morgan Stanley. The REIT said it has granted the underwriters an option to buy up to 2.55 million additional shares to cover any overallotments. The company can be found online at http://www.snhreit.com.

The liquidity of U.S. equity real estate investment trusts is likely to strengthen in the coming months, according to Fitch Ratings. In a new report, Fitch cites recent unsecured bond issuances from several equity REITs as evidence that access to capital via public debt and equity markets has increased in recent months. Steven Marks, managing director and head of Fitch's U.S. REIT Group, pointed to the recent unsecured bond issuances and added that another advantage for equity REITs is that "large REITs remain well positioned to weather an environment of reduced capital access given limited unsecured debt maturity exposure and limited refinance risk." The new report, "Liquidity of U.S. Equity REITs Strengthening," also comments on the liquidity profiles of U.S. equity REITs rated by Fitch. The rating agency can be found online at http://www.fitchratings.com.

Capital Trust Inc., New York, has announced that $667 million in commitments has been raised from two institutional investors to form CT High Grade Partners II LLC, which will invest in "high-grade" commercial real estate debt. The fund will be managed by CT Investment Management Co., Capital Trust's wholly owned investment management subsidiary. Capital Trust, a real estate investment trust that specializes in investment management and finance, can be found on the Web at http://www.capitaltrust.com.

Two classes from Argent Net Interest Margin 2006-M1 have been downgraded by Fitch Ratings. Class N1 was downgraded from BB to C/DR6, and class N2 was downgraded from B to C/DR6. "The rating actions reflect actual pay-down performance of the NIM securities to date compared to initial projections, as well as changes that Fitch previously made to its subprime loss forecasting assumptions for the underlying transactions," the rating agency said.

Mack-Cali Realty, a real estate investment trust based in Edison, N.J., has been designated the "Bear of the Day" for June 3 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. Zacks said the office REIT "will have a difficult time holding steady occupancy and increasing rents" and that suburban office landlords are expected to "have a tough time in 2008." Zacks can be found online at http://www.zacks.com, and Mack-Cali can be found at http://www.mack-cali.com.

The Mortgage Industry Standards Maintenance Organization has announced the release of its Version 1.2 Commercial Reference Model containing specifications for data fields used in commercial standards. Version 1.2 augments three commercial standards released in February by the Environmental and PCA Reports Workgroup, MISMO said. "It provides a combined snapshot of the content for all of MISMO's commercial standards, and shows how all the pieces fit together," said Dan Szparaga, executive vice president of MISMO. "As new standards are released, it will be evident where the new content fits within the model and how logical and orderly it is for the industry's use." MISMO is a not-for-profit subsidiary of the Mortgage Bankers Association that develops data transfer protocols for the residential and commercial real estate finance industry. It can be found online at http://www.mismo.org.