Originations

Municipal Mortgage & Equity LLC, Baltimore, has announced the suspension of its quarterly dividend and a significant curtailment of its business activities in order to conserve capital. MuniMae said credit market conditions have affected not only some of its assets but also the willingness of certain businesses to participate in MuniMae's activities as equity investors, lenders, or otherwise. "The combination of reduced investor interest and reduced liquidity resulting from these circumstances has led the company to significantly curtail its business activities," the company said. "MuniMae continues, however, to invest in and operate certain businesses, including origination of loans for sale to Fannie Mae and Freddie Mac, activities related to renewable energy generation, and certain new business initiatives." The company can be found online at http://www.munimae.com.

Home values fell 1.6% in the first quarter, dropping to a level 7.7% below that of a year earlier and posting "the most significant year-over-year decline in the past 12 years," according to Zillow.com, an online real estate community based in Seattle. Zillow's quarterly national home value report found that median home values stood at a Zindex level of $213,000, the lowest since the second quarter of 2005. "Home values in most markets continued to slide in the first quarter, falling back to levels we saw three to four years ago, which has left more homeowners than ever 'underwater' on their mortgages," said Stan Humphries, Zillow's vice president of data and analytics. ".... The magnitude of annualized declines has been increasing during each of the last five quarters, which is a strong indication that home values still have further to fall, so we expect it's going to get worse before it gets better." Zillow can be found online at http://www.zillow.com.

A Federal Reserve Board survey has found that banks continue to tighten their underwriting standards on prime mortgages and home equity lines of credit even as demand for these loan products has weakened. About 60% of senior loan officers indicated they had tightened their lending standards on prime mortgages over the past three months, according to the April survey. In a January survey, 55% of respondents reported tightening. The April survey also shows that 70% of respondents tightened their standards on HELOC applicants. In response to "special questions," 50% of loan officers reported tightening terms on existing HELOCs over the past six months, mainly due to declines in house prices. "Large majorities of respondents also cited increased defaults of material obligations under loan agreements, as well as significant changes in borrowers' financial circumstances, as additional reasons for tightening terms on existing HELOCs," the Fed said.

Federal Reserve Board Chairman Ben S. Bernanke came very close to endorsing a bill the House of Representatives is scheduled to vote on this week that would allow the Federal Housing Administration to refinance borrowers with "underwater" mortgages. The widespread decline in house prices requires lenders and servicers to develop new and flexible strategies to prevent foreclosures, the Fed chairman said in an address to the Columbia Business School. "[T]he best solution may be a writedown of principal or other permanent modification of the loan by the servicers, perhaps combined with a refinancing by the FHA or another lender," he said. The House Financial Services Committee approved an FHA refinancing bill (H.R. 5830) by a 46-21 vote May 1 that offers investors/servicers an option to refinance an underwater mortgage into an FHA-insured loan if they agree to write down the loan amount to 85% of the current appraised value. "It's in everyone's interest" to prevent avoidable foreclosures, Mr. Bernanke said, because of the "spillover effects" rising foreclosures can have on the financial markets and broader economy.

The chairman-elect of the Mortgage Bankers Association has taken Fannie Mae and Freddie Mac to task for "penalizing future borrowers" for the past sins of granting financing to previous borrowers who weren't nearly as deserving. David Kittle, the president of Principle Wholesale Lending, Louisville, Ky., who takes the MBA's reins in October, questioned the need for the government-sponsored enterprises to charge higher fees for loans with smaller downpayments, borrowers with FICO scores between 650 and 680, or on houses located in so-called declining markets. Speaking to reporters at the MBA's National Secondary Market Conference in Boston, Mr. Kittle said, "We're making better loans today than we ever have. So if we're underwriting better, what's the need for the fees?" The MBA officer said the fees are adding $750 to the cost of every $100,000 borrowed, so borrowers who care about cash are opting for loans insured by the Federal Housing Administration. "A FICO score of 660 with 10% down is a good loan, but they've pushed that entire market to the FHA," he said of the GSEs.

With Congress in crisis mode, the Mortgage Bankers Association is calling on lawmakers to take care of "unfinished business" by addressing policy issues that have, in some cases, lingered for years. Issuing a 10-point "Agenda to Stabilize the Housing Market," the MBA said at its National Secondary Market Conference in Boston that lawmakers need to step back from their "crisis mentality" and focus on basic policies to steady the mortgage market, help distressed borrowers, and ensure that today's problems don't recur. "We're saying to Congress to be very careful, and don't overreact," MBA senior vice president Steve O'Connor said at a press briefing. The MBA's 10-point plan includes some well-worn items, such as modernizing the Federal Housing Administration and reforming the regulatory structure governing Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. But it also backs away from its previous stance that only mortgage brokers should be licensed. Now, the MBA says that with the exception of those who work directly for federally regulated institutions, all individual single-family loan originators should be licensed. "We support the licensing of all people, including direct lenders," said David Kittle, the MBA's chairman-elect. "We've come off that exception." The MBA can be found online at http://www.mortgagebankers.org.

National statistics that show deeply declining house prices are driven by only a few states, the Mortgage Bankers Association's top economist has warned. Because the numbers are heavily weighted by sales in California and Florida, house price figures as reported by the Case-Shiller and OFHEO indices are "not representative of the entire country," acting chief economist Jay Brinkman said at the MBA's National Secondary Market Conference in Boston. Mr. Brinkman pointed out that the states that registered the biggest jump in prices in the first part of the decade are those that have also recorded the greatest declines. Moreover, prices in "most states" are still at the highest levels ever recorded, he added. The economist said most price declines are driven largely by the needs of builders, investors, and recent buyers of houses erected since 2000 to sell houses. "It's the newer neighborhoods that are driving prices," he said. "Prices in established neighborhoods are holding their own" because the owners don't have to sell. Mr. Brinkman said one drag on housing sales will be the fact that many first-time buyers in their 30s will not be available because they bought in their 20s. But he also said this negative could be offset, depending on how soon renters believe the for-sale sector has hit bottom. "If there is an error" in housing forecasts, he said, "it's in how many renters will perceive the market has reached the bottom and become buyers."

The performance of closed-end second-lien mortgages has devolved to the point where they are "basically a writeoff," according to Standard & Poor's managing director Susan Barnes. Speaking at the Mortgage Bankers Association's National Secondary Market Conference in Boston, Ms. Barnes said closed-end seconds are "performing horribly" but that home equity lines of credit are "better" because they are typically originated by banks, which have stronger relationships with borrowers. S&P recently stopped rating seconds, saying it might resume at some point if it were able to get a sense that the asset class's performance had become predictable again. The rating agency can be found online at http://www.standardandpoors.com.

Fannie Mae has reported a $2.2 billion loss for the first quarter, down from a $3.6 billion loss in the fourth quarter, and said it plans to raise $6 billion in additional capital through offerings of common and preferred stock. The mortgage giant said its also plans to introduce a refinancing option for "underwater" borrowers that allows borrowers with Fannie-owned loans to refinance up to 120% of the property's current value. Fannie Mae's net revenue rose by $700 million in the first quarter to $3.8 billion, but that was offset by fair-value losses and $3.2 billion in credit-related expenses. The government-sponsored enterprise said 43% of its credit losses stem from its $310.5 billion alternative-A mortgage loan portfolio. Fannie also recognized a $1.1 billion loss on its investments in private-label securities backed by alt-A and subprime mortgages. Separately, the Office of Federal Housing Enterprise Oversight has agreed to lower Fannie's capital surplus requirement from 20% to 15% as a result of the stock offering. The regulator also lifted a 2006 consent order Fannie signed in 2006. The GSE can be found online at http://www.fanniemae.com.

Fifty additional classes of subprime mortgage-backed securities were downgraded by Fitch Ratings on May 2. Fitch also affirmed the ratings on classes with outstanding balances of more than $1.3 billion. The securities affected by the latest downgrades were: 22 classes from eight issues by Merrill Lynch Mortgage Investors; 15 classes from 10 issues by Asset Backed Funding Corp.; eight classes from three issues by Specialty Underwriting and Residential Finance; and five classes from four issues by Countrywide (CWABS).

Fitch Ratings has downgraded 91 classes of notes from 17 collateralized debt obligations backed partly by subprime residential mortgage-backed securities. Among the affected securities are: 10 classes of notes issued by Duke Funding High Grade III Ltd.; eight classes issued by Monterey CDO Ltd./LLC; eight classes issued by Dalton CDO Ltd.; eight classes issued by Orient Point CDO Ltd.; seven classes issued by Kleros Preferred Funding II Ltd.; six classes issued by ABS CDO II Ltd./LLC; six classes issued by Bernoulli High Grade CDO I Ltd./Inc.; six classes issued by Broderick CDO 1 Ltd.; six classes issued by Ipswich Street CDO Ltd./LLC; six classes issued by Fort Sheridan ABS CDO Ltd.; five classes issued by Duke Funding X CDO Ltd./Corp.; four classes issued by C-BASS CBO XIV Ltd.; three classes issued by Benazzi CDO 2005-1 Ltd.; three classes issued by TORO ABS CDO I Ltd.; one class issued by Salisbury International Investments Ltd.; and one class issued by Marathon Structured Funding I LLC. Fitch attributed the downgrades to "significant collateral deterioration" in the portfolios' subprime RMBS and, in most cases, alternative-A RMBS and structured finance CDOs with underlying exposure to subprime RMBS. the rating agency can be found online at http://www.fitchratings.com.

RMR Advisors Inc., Newton, Mass., has announced the launch of its first open-end mutual fund, RMR Real Estate Securities Fund. The new fund will seek total return through capital appreciation and current income from investments in real estate securities. It will normally invest at least 80% of its total assets in common and preferred stocks of real estate investment trusts, RMR said. The company can be found on the Web at http://www.rmrfunds.com.

WSFS Bank, a subsidiary of WSFS Financial Corp., Wilmington, Del., has acquired a majority interest in 1st Reverse Mortgage Financial Services LLC, a Westmont, Ill.-based reverse mortgage wholesaler. "In addition to WSFS's long history and extensive experience with the reverse mortgage business, this acquisition is the right investment in the right industry at the right time, especially as baby boomers need more choices to finance their retirements," said Mark A. Turner, WSFS's president and chief executive. "1st Reverse has been making loans for more than a year now and, to reach its significant potential, will need the investment and resources that WSFS can provide. As with many new initiatives, we expect modest start-up losses in the first year, but believe the revenue and profit opportunities of providing this product are great." 1st Reverse will retain its name, headquarters, and its management team will remain in place.

ShoreBank is having problems originating affordable mortgages with private mortgage insurance that meet Fannie Mae's and Freddie Mac's tighter underwriting standards, according to Ellen Seidman, an executive vice president at the Chicago bank. "That is a serious problem because we have to portfolio the loans," Ms. Seidman told a Community Reinvestment Act conference sponsored by the Consumer Bankers Association. "It is virtually impossible to get mortgage insurance" for borrowers with a credit score under 620, "and it is very expensive between 620 and 680," she said. Ms. Seidman is also a director at the New America Foundation. Michael Shea, executive director of the Association of Community Organizations for Reform Now, noted that the only loans available in many communities are Federal Housing Administration loans. He is particularly critical of Fannie's and Freddie's policies of requiring higher downpayments in markets with declining house prices. "If that is not redlining, I don't know what is," Mr. Shea said.

A new research report by Friedman Billings Ramsey predicts that if Bank of America moves forward with its purchase of Countrywide Financial Corp., it may face $30 billion in loan writedowns once the deal closes. FBR's advice to BoA is to "completely walk away" from the deal. Late last week BoA filed an amended S-4 with the Securities and Exchange Commission, noting that there is no assurance that any of Countrywide's debt will be redeemed, assumed, or guaranteed. The filing prompted Standard & Poor's to downgrade Countrywide's debt to junk status, from BBB-plus/A-2 to BB-plus/B. (Roughly 25% of Countrywide's subprime servicing portfolio is delinquent.) FBR also says it believes that BoA will soon renegotiate the purchase price down to $2 or less per share from $7. Countrywide's spokesman could not be reached for comment by MortgageWire's deadline.

ProLogis, a Denver-based real estate investment trust, has priced a public offering of $500 million of 2.625% convertible senior notes due 2038 at 99% of par. The company also announced the pricing of $600 million of fixed-rate senior notes at 99.766% of par. Goldman Sachs & Co., Banc of America Securities LLC, and Morgan Stanley & Co. were the joint book-running managers for the offering of convertible senior notes, and Citigroup Global Markets Inc., Goldman Sachs, and RBS Greenwich Capital were the managers for the fixed-rate senior note offering. The REIT can be found online at http://www.prologis.com.

Class M of Morgan Stanley Capital I Inc. series 2005 XLF commercial mortgage pass-through certificates has been downgraded from BBB-minus to BB-plus by Fitch Ratings and removed from Rating Watch Negative. Fitch also affirmed the ratings on seven other classes in the transaction. The downgrade was based on "continued uncertainty regarding leasing" in connection with the Dominion Tower loan, the rating agency said. Dominion Tower is an office building in Pittsburgh that is only 42% occupied, Fitch said.

Fitch Ratings has downgraded 10 classes of notes and preference shares from two collateralized debt obligations backed partly by mortgage-backed securities. The affected securities are four classes of notes and one class of preference shares issued by Enhanced Mortgage Backed Securities Fund III Ltd., and four classes of notes and one class of preference shares issued by Enhanced Mortgage Backed Securities Fund IV Ltd. Both are mortgage market value CDOs. Fitch attributed the downgrades to "significant" declines in the net asset values of the CDOs, putting them "closer to hitting the class C and class D trigger levels." If the triggers are breached, the transactions "would be forced to sell assets, which would result in the realization of further losses," the rating agency said.

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 four classes of notes issued by Robeco High Grade CDO I Ltd.; four classes issued by C-BASS CBO XV Ltd.; and four classes issued by C-BASS CBO XVI Ltd. All three transactions are static cash flow CDOs. All the downgraded classes were removed from Rating Watch Negative. Fitch attributed the downgrades to "significant collateral deterioration" in the portfolios, especially subprime RMBS, alternative-A RMBS, and -- in two of the three CDOs -- structured finance CDOs with underlying exposure to subprime RMBS.

More than 150 additional classes of subprime mortgage-backed securities were downgraded by Fitch Ratings on May 1. Fitch also affirmed the ratings on classes with outstanding balances of approximately $7.5 billion. The securities affected by the latest downgrades were: 38 classes from 18 issues by Ameriquest Mortgage Securities Inc.; 37 classes from six issues by Park Place Securities Inc.; 36 classes from 17 issues by Residential Asset Securities Corp.; 24 classes from seven issues by Ace Securities Corp.; and 17 classes from nine issues by Argent Securities Inc.