Originations

Class B-2 of Morgan Stanley mortgage pass-through certificates series 2002-AM3 has been downgraded from CC/DR2 to C/DR4 by Fitch Ratings. Fitch also affirmed the ratings on five other classes in the transaction and removed class A-2 from Rating Watch Negative. The collateral consists of fixed- and adjustable-rate subprime mortgages.

Fitch Ratings has downgraded 30 classes of notes from eight collateralized debt obligations backed primarily or partly by subprime residential mortgage-backed securities. The affected securities are: seven classes issued by Jupiter High-Grade CDO III Ltd.; five classes issued by Davis Square Funding III Ltd.; four classes issued by Pacific Bay CDO Ltd.; four classes issued by South Coast Funding II Ltd.; three classes issued by South Coast Funding VI Ltd.; three classes issued by Grenadier Funding Ltd.; three classes issued by Davis Square Funding II Inc.; and one class issued by Millstone Funding Ltd. Fitch attributed the downgrades to "significant collateral deterioration" in the portfolios' subprime RMBS and, in some cases, alternative-A RMBS, commercial MBS, prime MBS, and structured finance CDOs with underlying exposure to subprime RMBS.

Three large portfolios of mortgage servicing rights have just been put out for bidding. Interactive Mortgage Advisors, Denver, is selling servicing rights on a $5.5 billion portfolio of subprime mortgage loans. The two-part offering includes both primary and master servicing rights on the portfolio. The portfolio has an average loan size of $160,686; an average weighted interest rate of 8.523%; an average weighted servicing fee of 45.3 basis points; and a total 30-day-plus delinquency rate of 19.6%. Bids are due May 28. Separately, IMA is also taking master and primary servicing bids on alternative-A and subprime deals involving $5.0 billion and $3.9 billion, respectively. The portfolios have similar characteristics to the previous one. Bids are due May 28. Also separately, the Prestwick Mortgage Group, Alexandria, Va., is brokering the sale of monthly flow servicing rights on an estimated $5 million per month of Fannie Mae loans. The seller desires to start deliveries in July. Bids are due May 21.

Irwin Financial Corp., a bank holding company and mortgage lender based in Columbus, Ind., has reported a net loss of $22.2 million ($0.77 per share) for the first quarter, compared with a net loss of $10 million ($0.22 per share) in the first quarter of 2007. The loss includes a noncash mark-to-market of $8 million in the company's securities portfolio. "Through asset sales and a solution to our exposure to home equity credit losses, management and the board are refocusing the corporation on our core banking services to small-business customers," said Will Miller, chairman and chief executive officer of Irwin Financial. "Towards this end, we suspended originations in our home equity segment of loans for our own portfolio, including second mortgages. The home equity segment is now focused on government-insured and conforming, conventional first-mortgage loans that can be sold into the secondary markets." Mr. Miller said Irwin has engaged Stifel, Nicolaus & Co. and Milestone Advisors LLC to explore strategic options, including the sale of loans, a spinoff of assets, or a recapitalization. Irwin can be found online at http://www.irwinfinancial.com.

At the end of March, 36% of subprime mortgages being serviced by Countrywide Financial Corp. were in some stage of delinquency, according to a recent public filing by the company. Countrywide services roughly $100 billion in subprime mortgages, which means that nearly $36 billion worth of loans are at risk of going into foreclosure. According to the Quarterly Data Report, Countrywide is the nation's largest subprime servicer. The 90-day-plus late ratio on the portfolio is 21.04%. A year ago the 90-day rate was 7.82%. Countrywide is being sold to Bank of America, and the sale is expected to close by the end of the third quarter. The company, based in Calabasas, Calif., can be found on the Web at http://www.countrywide.com.

Bowing to congressional pressure, the Department of Housing and Urban Development has extended the comment period on its Real Estate Settlement Procedures Act reform proposal for 30 days. But HUD acting Secretary Roy Bernardi says he is determined to finalize the RESPA rule before the end of this year. "In light of congressional and industry requests to extend the comment period for the rule, and our desire to develop the best possible rule, we are allowing additional time," Mr. Bernardi said. "However, we remain committed to finalizing the rule before the end of the administration." Nearly 150 members of Congress have signed a petition seeking an extension. Industry groups began clamoring for an extension as soon as the proposal was issued because it goes beyond revising the good-faith estimate to provide consumers with a clear and concise disclosure of loan terms and settlement costs. The HUD proposal is more ambitious and opens the door to volume discounts and other issues that have raised concerns among many settlement service providers. The comment period was due to expire May 13.

Six classes of Mezz Cap commercial mortgage pass-through certificates have been downgraded by Fitch Ratings. The downgrades were as follows: series 2005-C3, class F, from BBB-minus to BB-plus, class G, from BB to B-plus, class H, from B to CCC/DR1, and class J, from B-minus to CCC/DR5; and series 2004-C1, class H, from B to B-minus/DR1, and class J, from B-minus to CCC/DR5. Fitch also affirmed the ratings on 14 classes in the two transactions. The downgrades were based on expected losses in specially serviced assets, the rating agency said. The mortgage loans collateralizing the deal consist of two notes: an A note, or senior component (which is not included in the trust's mortgage assets), and a B note, which consists of subordinate interests in the first-mortgage loans, according to Fitch.

Fitch Ratings has downgraded 12 classes of notes from three collateralized debt obligations backed partly by subprime residential mortgage-backed securities. The affected securities are: six classes issued by Coronado CDO Ltd.; three classes issued by Blue Heron Funding VI Ltd.; and three classes issued by Blue Heron Funding VII Ltd. Fitch attributed the downgrades to "significant collateral deterioration" in the portfolios' subprime RMBS and, in some cases, alternative-A RMBS and structured finance CDOs with underlying exposure to subprime RMBS.

The Issuer Default Rating of Sovran Self Storage, a real estate investment trust based in Buffalo, N.Y., has been placed on Rating Watch Negative by Fitch Ratings. Sovran's IDR, and that of its affiliate Sovran Acquisition LP, stand at BBB-minus, Fitch said. The rating agency attributed the rating watch placement to a decrease in liquidity and near-term debt maturities.

Washington Mutual has been tagged as the "Bear of the Day" for May 7 by Zacks Equity Research, Chicago. Zacks noted that WaMu had a first-quarter net loss of $1.40 per share, which it termed "abysmal." The loss, which significantly exceeded estimates by Zacks and many Wall Street analysts, "was driven by the elevated level of provisioning ($43.5 billion) during the quarter," Zacks said. Despite a rating outlook boost from negative to stable by Moody's investors Service, Zacks said it remains bearish on WaMu's stock because of a "significant reduction" in its dividends and its restructuring of certain major business operations. The research firm can be found online at http://www.zacks.com.

Municipal Mortgage & Equity LLC, Baltimore, has announced the closing of $175 million of capital commitments and participating debt to the South Africa Workforce Housing Fund of MuniMae's International Housing Solutions affiliate. The fund invests in rental and for-sale housing for low- and moderate-income families in South Africa. MuniMae said IHS expects the fund to total $240 million within several months. "We began IHS in order to bring our expertise in financing affordable housing projects to countries around the world," said Michael L. Falcone, MuniMae's chief executive officer. MuniMae can be found on the Web at http://www.munimae.com.

U.S. homeowners' perceptions about the value of their homes remained unrealistically bullish in the first quarter, as nearly three-quarters said they believed the value had increased or held steady over the previous year, according to a recent Zillow survey. Zillow.com, an online real estate community based in Seattle, said 72% of the homeowners surveyed expressed such a view despite the fact that 75% of U.S. homes had declined in value over the previous year. "While we assume there's a fair bit of owner denial reflected in these results, we also believe a large portion of the population simply isn't paying close attention to their housing market because they're not currently looking to sell or finance," said Stan Humphries, vice president of data and analytics at Zillow.com. "But even among those who say they're planning home-related activities this year, confidence appears strong despite continuing declines." The survey was conducted by Harris Interactive. Zillow can be found online at http://www.zillow.com.

The commercial/multifamily originations market grew 19% in 2007, with mortgage bankers closing $507.7 billion in commercial/multifamily loans, according to the Mortgage Bankers Association. Most property types and investor groups recorded increases, led by loans for office buildings and loans intended for commercial mortgage-backed securities, collateralized debt obligations, and other asset-backed security conduits, the MBA reported. Conduits, the largest single investor group, were responsible for $225.2 billion, or 44% of the closed loan volume. Office buildings were the dominant property type, representing $140.7 billion, or 28% of the lending total. Among major investor groups, Freddie Mac recorded the greatest percentage increase in volume in 2007, followed by Fannie Mae; CMBS, CDO, and other ABS conduits; real estate investment trusts; and life insurance companies.

The Market Composite Index, an overall measure of mortgage applications, rose from 567.0 to 655.4 on a seasonally adjusted basis during the week ended May 2, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. On an unadjusted basis, applications increased 15.9% on the week and were down 4.4% from the level recorded a year earlier. The Purchase Index rose from 340.1 to 381.3 on a seasonally adjusted basis, while the Refinance Index climbed from 1905.2 to 2273.8. Refinancings represented 47.1% of total applications, up from 45.7% the previous week, while adjustable-rate mortgages accounted for 6.8%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.01% to 5.91%, and points (including the origination fee) decreased from 1.26 to 1.12 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Cantor Fitzgerald LP, New York, has announced the formation of Cantor Real Estate LLC and named Andrew N. Stark to lead the group. Cantor said it plans to create a real estate fund focused chiefly on opportunistic investments in various sectors, including dislocated assets. Mr. Stark, who will be executive managing director of Cantor RE, was previously president of the Northeast and mid-Atlantic regions of WCI Communities Inc. after starting his career as a real estate attorney at Lord Day & Lord, Barrett Smith. Cantor can be found on the Web at http://www.cantor.com.

Five classes of notes from Taberna Europe CDO I PLC, a collateralized debt obligation backed partly by commercial mortgage-related securities and the debt of real estate investment trusts, have been downgraded by Fitch Ratings. The downgrades were as follows: class A2, from AAA to AA; class B, from AA to A-minus; class C, from A to BBB-minus; class D, from BBB to B; and class E, from BB to B-minus. Fitch also removed the notes from Rating Watch Negative and affirmed the triple-A rating on the class A1 notes. The rating agency noted that it had placed the notes on Rating Watch in February, citing "moderate credit deterioration" of the collateral and the effect on junior classes of the portfolio's shortened weighted average life. "Proposed remedial actions have not been executed," Fitch said in explaining the downgrades. The collateral consists of senior and subordinated debentures issued by subsidiaries of REITs and real estate operating companies, as well as commercial mortgage-backed securities and commercial mortgage B-notes.

Mortgage Consumer Advocates Inc., a Houston-based nonprofit organization, has unveiled a mortgage consumer advocacy website aimed at educating consumers on the mortgage industry and home loan finance. The website, MortgageChampions.org, will help borrowers evaluate major loan products by offering a list of pros and cons and qualifying guidelines for each product, MCA said. The group also offers the MCA Consumer Protection Plan, under which consumers supply MCA with their initial loan disclosure documents for review by a representative to check for signs of fraud or "gross overcharging," MCA said. The new website can be found at http://www.mortgagechampions.org.

The New Hampshire Community Loan Fund and the Corporation for Enterprise Development have announced the formation of ROC USA, an organization aimed at helping residents of manufactured housing on rented land become homeowners. Resident ownership occurs when owners of manufactured homes form a membership association to purchase their community when it becomes available for sale. "In the United States, roughly 35% of owners of manufactured homes live in communities (or 'parks') where they rent the lot their home sits on," the organizations said. "Unlike other homeowners, whose home is their most important financial asset, homes on rented land depreciate over time." ROC USA, which has received more than $8 million in investments from Fannie Mae, the Ford Foundation, and other sources, is the national expansion of a program that has been operated by the New Hampshire Community Loan Fund since 1984. The organizations can be found online at http://www.rocusa.org, http://www.theloanfund.org, and http://www.cfed.org.

Fitch Ratings has moved all its ratings on Countrywide Financial Corp., Calabasas, Calif., from Rating Watch Positive to Rating Watch Evolving. Fitch said the action stems from further disclosures about Bank of America's planned treatment of Countrywide debt after its proposed acquisition. The rating agency said it believes the acquisition will be completed, but that the rating action reflects "uncertainty over the transaction's final structure." Fitch can be found on the Web at http://www.fitchratings.com.

New York City-based FGIC Corp., the parent of troubled Financial Guaranty Insurance Co., has reported the receipt of a "significant number of indications of interest" from its request for proposals to enhance its capital position. FGIC said it will discuss those proposals with the potential investors over the next several weeks, with definitive proposals to be submitted when the due-diligence process is completed. "We are encouraged to see the high degree of interest that has been expressed in FGIC," FGIC said in a statement. "We plan to work expeditiously to finalize a transaction that is in the best interests of all of our constituents, including our policyholders." The PMI Group, Walnut Creek, Calif., has owned a 42% stake in FGIC since the end of 2003. Lately that stake has been a drag on PMI's earnings. FGIC had a $1.89 billion net loss for the fourth quarter, which resulted in an after-tax loss of $776.1 million for PMI.