Originations

One hundred and eight additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on April 15 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed nine classes on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of more than $4.6 billion. The pass-through securities affected by the latest downgrades were: 96 classes from 13 issues by Structured Asset Investment Loan; and 12 classes from two issues by Popular. The rating actions were attributed to changes to Fitch's subprime loss forecasting assumptions that "better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness." Fitch can be found online at http://www.fitchratings.com.

Hudson City Bancorp, Paramus, N.J., has been tagged the "Bear of the Day" for April 16 by Chicago-based Zacks Equity Research, which cited mortgage-related concerns. "With current industry overhangs for mortgage lending, we take some exception to the company's significant use of purchased mortgages given credit and capital metric trends at this time," Zacks said. The research firm said it is maintaining its sell rating on the company, projecting a total return of negative-14.3% for the company's stock over the next six months. The research firm can be found online at http://www.zacks.com.

The Canyon-Johnson Urban Fund, a partnership of Canyon Capital Realty Advisors and former basketball star Earvin "Magic" Johnson, have announced the closing of a $1 billion real estate development fund. The fund, Canyon-Johnson Urban Fund III, will focus on the acquisition, development, redevelopment, and repositioning of real estate in "densely populated, ethnically diverse neighborhoods with strong market fundamentals for retail and housing," Canyon-Johnson said. The fund received commitments from public and private pension funds, endowments, foundations, and investment companies. "In addition to meeting its financial bottom-line investment objectives, CJUF III will seek to provide and foster economic opportunities for underserved residents of the urban neighborhoods in which it invests and to enhance the environment by pursuing [Leadership in Energy and Environmental Design] certifications and supporting transit-oriented housing that helps to reduce traffic and accompanying admissions," the partnership said. CJUF can be found online at http://www.cjuf.com.

JPMorgan Chase & Co., New York, has reported net income of $2.4 billion ($0.68) per share for the first quarter 2008, down 50% from $4.8 billion ($1.34 per share) a year earlier, a nosedive linked to mortgage-related writedowns. Its investment bank lost $87 million for the quarter because of writedowns totaling $2.6 billion, including $1.2 billion of writedowns attributable to prime, alternative-A, and subprime mortgages. From the mortgage banking business itself, the company said it had net income of $132 million, up from $84 million one year earlier. Mortgage loan originations totaled $47.1 billion, up 30% from the volume a year earlier. Changes in the value of its mortgage servicing rights asset totaled negative-$425 million, compared with negative-$378 million in the first quarter of 2007. But it reported servicing revenue of $175 million, down from $204 million last year. JPMorgan Chase had $149 million in net chargeoffs of subprime loans, compared with $20 million in the previous year. The provision for credit losses totaled $2.5 billion for the quarter, including an increase of $1.1 billion in the allowance related to home equity loans and $417 million for subprime loans. Home equity net chargeoffs for the quarter totaled $447 million, compared with $68 million a year earlier.

Hammered by rising residential loan delinquencies, Washington Mutual, the nation's sixth-largest originator, lost $1.14 billion in the first quarter, compared with a profit of $784 million in the same period a year ago. Over the past six months it has lost $2.3 billion. The Seattle-based WaMu, also the nation's largest thrift, is exiting the wholesale/broker channel and stopped funding subprime several months ago. A group of investors anchored by TPG Capital of Texas recently agreed to pump $7 billion of capital into WaMu by purchasing shares in the struggling company. In the first quarter it set aside $907 million to cover what it calls "increasing" subprime delinquencies. In the fourth quarter the provision was $511 million. WaMu originated just $13.77 billion of home loans in the first quarter, a stunning 66% decline from the volume in the first quarter of 2007.

Wells Fargo & Co. -- which is poised to unseat Countrywide Home Loans as the nation's largest residential lender -- posted a $2 billion profit in the first quarter on record revenue of $10.6 billion. It originated $61 billion in single-family loans during the quarter, a 7% gain from the volume of a year earlier. Its servicing portfolio increased to $1.53 trillion, up 10% from March of last year. The banking giant's strong performance came despite a 16% sequential increase in its portfolio of nonperforming loans. At the end of March, the San Francisco-based Wells had $4.5 billion in NPLs, including $658 million worth of foreclosed and repossessed real estate and auto loans. It had $314 million of first-lien residential mortgages that were 90 days or more past due and another $228 million in late second-lien mortgages. A year ago it held $223 million in late firsts and seconds. Wells is also the largest player in the FHA/VA market. At March 31, it was saddled with $578 million of insured Ginnie Mae repurchases.

The Office of Thrift Supervision has come up with an "elegant" way to avoid moral hazard and provide an incentive for investors to write down a loan and for second-lien holders to participate in Federal Housing Administration refinancings of troubled subprime mortgages, according to Sen. Bob Corker, R-Tenn. OTS Deputy Director Scott Polakoff told a Senate panel that "negative equity certificates" could be used to balance the interests of homeowners, investors, and second-lien holders. "It seems worthy to explore the possibility that some second-mortgage holders could also share to some degree in the negative equity certificate as an incentive to subordinate their position in a refinance opportunity," Mr. Polakoff said. Sen. Corker said the certificates would avoid the moral hazard involved when a borrower "takes advantage of the program, does a quick sale, and benefits from the writedown." Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., welcomed the OTS suggestion and indicated that he might use it in refining his FHA refinancing bill. "To get the investor to step up and take that haircut, I think you've got to have a proper incentive in there," Sen. Dodd said.

Single-unit housing starts fell to a 17-year low of 680,000 in March as worries about the overall economy continued to take their toll on the market. Compared with those of a year earlier, starts were down a stunning 48%. The month-to-month decline was 7%. Multifamily starts (five units or more) totaled 247,000 during the month, a 25% decline from those of February but flat compared with those of March 2007. The figures were compiled by the U.S. Census Bureau and Department of Housing and Urban Development. "While builders continue to report improvements in traffic through their model homes compared with late last year, this activity has not translated to actual sales," said David Seiders, chief economist for the National Association of Home Builders.

Fifteen classes of subprime mortgage pass-through certificates issued by Carrington Mortgage Loan Trust have been downgraded by Fitch Ratings as a result of changes to the rating agency's subprime loss forecasting assumptions. Fitch also affirmed the ratings on classes with outstanding balances of $1.8 billion. The rating actions were attributed to changes to Fitch's subprime loss forecasting assumptions that "better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness." Fitch can be found online at http://www.fitchratings.com.

NYSE Regulation Inc., the regulatory arm of the New York Stock Exchange, has announced that it will suspend trading in the common stock of Fremont General Corp., Brea, Calif., before the start of trading on April 17. At the same time, trading is also being suspended in Fremont General Financing I's trust preferred securities. Fremont's common stock had fallen below the NYSE's continued-listing standard with an average closing price of less than $1 over a period of 30 consecutive trading days. NYSE Regulation also considered the "abnormally low" price of Fremont's common stock, which closed at $0.45 on April 11, with a resultant common market capitalization of $35.8 million. Fremont said the common stock and trust preferred securities would trade on the pink sheets starting April 17. The delisting news came one day after Fremont entered into a deal to sell the assets of Fremont Investment & Loan to CapitalSource Inc., Chevy Chase, Md. In late morning trading on April 15, Fremont's stock stood at $0.32 per share, down $0.22 on the day. Fremont can be found online at http://www.fremontgeneral.com.

Urdang Capital Management, a real estate investment manager based in Plymouth Meeting, Pa., has announced the closing of the Urdang Value-Added Fund II LP after raising $463 million in equity. Richard Ferst, the company's president and chief operating officer, said the fund will target mainly office, retail, multifamily, and industrial properties with capitalizations ranging from $20 million to $75 million. "To date, the fund has acquired eight properties with an aggregate capitalization of $400 million," he said. Urdang is a unit of Bank of New York Mellon, which can be found on the Web at http://www.bnymellon.com.

The Congressional Budget Office estimates that several hundred thousand borrowers could benefit over the next few years from an expanded FHA Secure program and that it would encourage lenders/servicers to restructure more loans. Without federal involvement, restructurings will be "rare" and unlikely to involve any significant writedown of principal that would leave the borrower with positive equity, the CBO says in a paper that explores policy options for stabilizing the housing and financial markets. "Although Federal Reserve chairman Ben Bernanke has urged loan servicers to consider reducing the principal on outstanding loans, voluntary reductions are likely to be rare," the paper says. The Federal Housing Administration is implementing changes to its FHA Secure program to help more delinquent adjustable-rate subprime borrowers refinance into FHA-insured loans. The CBO admits that FHA Secure has its drawbacks and that lenders could receive a "windfall" on loans they should restructure on their own. "Despite that, lenders will be more willing to restructure more mortgages with federal subsidies than without them," CBO says.

FGIC Corp., the New York-based parent of Financial Guaranty Insurance Co., is in negotiations with potential investors about "strategic alternatives" for the troubled financial guaranty unit. The company disclosed that raising capital for a new triple-A rated insurer dedicated exclusively to the global public finance business is one of the options being explored. The new company would also assume FGIC's public finance and international infrastructure business. The PMI Group, Walnut Creek, Calif., owns 42% of FGIC. "With a high-quality and diversified portfolio, coupled with a focused business strategy, the new company would have a unique platform to deliver superior value to its clients and investors in the securities it insures," an FGIC spokesman said in a statement. "Other alternatives include, but are not limited to, the sale of all or part of the company, and a bulk reinsurance transaction on all or parts of FGIC's in-force business to a third party." FGIC's statement also said the alternatives are consistent with the goals of New York state insurance regulators in regard to the company and its policyholders.

Wachovia Corp., Charlotte, N.C., has reported a net loss available to common stockholders of $393 million ($0.20 per share) for the first quarter, citing the decline in the housing market as one of the reasons and announcing a reduced quarterly dividend. Ken Thompson, Wachovia's chief executive officer, said the company has "substantially increased" its reserves and cut the dividend to $0.375 per share. "The precipitous decline in housing market conditions and unprecedented changes in consumer behavior prompted us to update our credit reserve modeling and rely less heavily on historical trends to forecast losses," he said. The company recorded a provision for credit losses of $2.8 billion in the quarter, which it said exceeded net chargeoffs by $2.1 billion. The provision "largely reflected more severe deterioration in the residential housing market, particularly in specific markets in California and Florida, as well as the result of the refinements to the credit reserve model for the payment-option product," Wachovia said. The company's home equity lending was 41% lower than the volume in the first quarter of 2007, "reflecting implementation of tightened credit standards," Wachovia said. The company's exposure to the housing market stems largely from its acquisition of Golden West Financial Corp., a Oakland, Calif.-based thrift, in 2006. Its net loss compared with net earnings of $2.30 billion ($1.20 per share) a year earlier. Wachovia can be found online at http://www.wachovia.com.

Ninety-three additional classes of subprime mortgage pass-through certificates were downgraded by Fitch Ratings on April 11 as a result of changes to its subprime loss forecasting assumptions. Fitch also placed 11 classes on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of more than $3.2 billion. The pass-through securities affected by the latest downgrades were: 31 classes from four issues by HSBC Home Equity; 22 classes from three issues by Saxon Asset Securities Trust; 22 classes from three issues by Fremont Home Loan Trust; 13 classes from three issues by Merrill Lynch Mortgage Investors; and five classes from one issue by Specialty Underwriting and Residential Finance Trust. The rating actions were attributed to changes to Fitch's subprime loss forecasting assumptions that "better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness." Fitch can be found online at http://www.fitchratings.com.

CapitalSource Inc., Chevy Chase, Md., is acquiring the deposits, the assets, and the branch locations of Fremont Investment & Loan, the industrial bank subsidiary of Fremont General Corp., Brea, Calif. However, rather than acquiring FIL itself, CapitalSource is filing an application with the California Department of Financial Institutions and the Federal Deposit Insurance Corp. to create a de novo state-chartered industrial bank. CapitalSource said it is paying a 2% premium on the deposits and a 3% discount on FIL's participation interests in commercial real estate loans. It will also pay Fremont $58 million in cash. The sale, which does not include Fremont's loan servicing operation or residential mortgage assets, allows Fremont to comply with a Supervisory Prompt Corrective Action Directive issued by the FDIC. "We have long sought deposit funding as a way to further diversify and strengthen our funding platform.... Forming the new bank and acquiring branches with $5.6 billion in deposits will enhance CapitalSource's liquidity profile, increase our profitability, and improve our capital efficiency," said Thomas A. Fink, CapitalSource chief financial officer. "Our business plan envisions the sale of approximately $2.5 billion of CapitalSource loans to the new bank, making this transaction immediately accretive."

Nearly half of all loan workouts on subprime mortgages in January and February involved loan modifications, according to the latest update by Hope Now servicers. The new data show that servicers modified 81,885 subprime mortgages in the first two months of the year, compared with 90,420 subprime borrowers who ended up in repayment plans. Only 30% of troubled prime borrowers got a loan modification that included a reduction in their mortgage payments. Federal regulators have been pressing servicers to modify subprime adjustable-rate mortgages by freezing the interest rate at the starter rate. Hope Now also reported that 60,000, or 43%, of 2/28 and 3/27 subprime ARMs that were scheduled to reset in January and February had been paid off. These loans were "paid in full through refinancing or sale," the Hope Now update says.

Triad Guaranty Inc., Winston-Salem, N.C., has issued a statement assuring the market that it is still writing new mortgage insurance business and is pursuing negotiations to create a new mortgage insurance company. Mark K. Tonnesen, Triad's president and chief executive officer, said the company is still a qualified mortgage insurer with Fannie Mae and Freddie Mac, which he said are "supporting" the company. "This is an important step" in a transaction that Triad hopes to complete by the end of the quarter, he said. "If the transaction is completed, we would put our existing insurance operations into a voluntary run-off, and a newly capitalized mortgage insurer, which would be a separate company from Triad Guaranty Inc., would be created." The company can be found online at http://www.triadguaranty.com.

Clayton Holdings Inc., a due diligence and surveillance provider based in Shelton, Conn., has announced its entry into a merger agreement with an affiliate of a fund managed by Greenfield Partners LLC, a private equity firm. Under the agreement, the affiliate will acquire all outstanding common shares of Clayton for $6 per share (approximately $134 million) plus the repayment of $23.8 million of debt, the company said. The purchase price represents a premium of approximately 24% over Clayton's closing price on April 11. Investment funds affiliated with TA Associates, which own approximately 37% of Clayton's outstanding common stock, have agreed to vote in favor of the transaction, Clayton said. "For our clients and employees, the transaction will strengthen our balance sheet and allow us to continue to invest in European operations and in the development of products and services that will deliver the greater transparency and predictive solutions that the market will require," said Frank Filipps, chairman and chief executive officer of Clayton Holdings. Clayton can be found on the Web at http://www.clayton.com.

Eight-five classes of subprime mortgage pass-through certificates from 11 transactions issued by First Franklin Mortgage Loan Trust have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions. Fitch also placed five First Franklin classes on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of $2.3 billion. The rating actions were attributed to changes in Fitch's subprime loss forecasting assumptions that "better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness." The rating agency can be found online at http://www.fitchratings.com.