Originations

Twenty-two tranches from four subprime deals issued by Structured Asset Investment Loan Trust in 2004 and 2005 have been downgraded by Moody's Investors Service. The downgrades were based on an "analysis of the credit enhancement provided by subordination, overcollateralization and excess spread relative to expected losses," Moody's said. The transactions are backed primarily by first-lien, fixed- and adjustable-rate subprime mortgage loans.

Sixty-three tranches from 17 mortgage-backed securities deals issued by Bear Stearns have been downgraded by Moody's Investors Service. One tranche was placed on review for possible further downgrade. The downgrades were attributed to "an increasing proportion" of severely delinquent loans. "The timing of losses coupled with the passing of stepdown triggers for most of the transactions has caused the protection available to the subordinated bonds to be diminished," Moody's said. The collateral consists primarily of first-lien subprime mortgage loans, the rating agency said.

Moody's Investors Service is seeking market comment on five proposed enhancements to the securitization process for U.S. residential mortgage-backed securities. The specific enhancements are stronger representations and warranties, independent third-party pre-securitization review of underlying mortgages, standardized post-securitization forensic review, expanded loan-level data reporting of initial mortgage pool and ongoing loan performance, and more-comprehensive originator assessments. "Based on Moody's assessment of factors that have lead to recent underperformance of subprime and alt-A mortgage securitizations, Moody's believes that implementation of these enhancements will materially improve performance of future mortgage securitizations," the rating agency said. Moody's said the deadline for comments on the move is April 11. The rating agency can be found online at http://www.moodys.com.

A.M. Best Co., Oldwick, N.J., has announced the launch of Best's Title & Mortgage Guaranty Center, a Web portal that provides access to information generated by the company on title insurance and the mortgage guaranty industry. Content available on the site includes Best's ratings of title insurers, links to Best's rating methodology documents and relevant industry research, and news stories related to the title industry from A.M. Best's news publications. Best's Title & Mortgage Guaranty Center can be found on the Web at http://www.ambest.com/title.

Harry R. Kraatz has been appointed to the newly created post of chief restructuring officer at Shearson Financial Network Inc., a Las Vegas-based mortgage broker that has temporarily discontinued all operations. Shearson said Mr. Kraatz has been retained to oversee the management and reorganization of the company's business, including a restructuring of its balance sheet and the implementation of a revised strategic plan. The company said it is considering options that may include modifications to its business plan and the sale or licensing of certain assets. The move was attributed to the "severe restriction" of credit facilities in the mortgage banking industry due to the collapse of the subprime market.

High loan limits for Federal Housing Administration reverse mortgages could help refinance seniors out of subprime loans and enable them to stay in their homes free from monthly mortgage payments, according to the National Reverse Mortgage Lenders Association. "A significant proportion of subprime loans have been made to older homeowners," said NRMLA president Peter Bell. "As they look to refinance out of those onerous loans, a HECM should be an option for them." (The FHA's reverse mortgage is called a home equity conversion mortgage.) The FHA reform bill, currently stalled in conference, raises the HECM loan limit to $417,000 nationwide. But there are discussions about raising the FHA loan limit for single-family loans higher, and NRMLA wants HECMs included. The trade group also has reopened negotiations with AARP, a lobbying group for older Americans, on HECM origination fees. Last year the two parties agreed to reduce the 2% HECM fee to 1.5%, and it was written into the FHA reform bill. But the credit markets have changed since then, and NRMLA says it wants an adjustment because it is no longer profitable to make HECMs if the property value is less than $250,000. "We are in negotiations," Mr. Bell said.

Although the comment period isn't over until April, the Federal Reserve Board is already working with other federal and state regulators to enforce the Fed's proposed new rule to combat abusive lending practices. "It is not too early to emphasize that the effectiveness of the final rule will depend critically on effective enforcement," said Fed Governor Randall Kroszner at the National Association of Hispanic Real Estate Professionals' annual legislative conference in Washington. The Fed's initiative will apply to all mortgage lenders, not just federally supervised banks. And in that regard, the central bank is leading a pilot project with other agencies to conduct compliance reviews of nondepository lenders and "other industry participants." The "expansive scope" of the proposal is essential, and enforcement is key, Mr. Kroszner said. Whatever shape the final rule takes, if it is not enforced, it will not be effective, he said.

Senior management at New Century Financial Corp. "largely rejected or ignored" staff recommendations to tighten credit standards in 2004, which evidentially lead to a "tsunami of impaired and defaulted mortgages" and the subprime lender's bankruptcy, according to a court-appointed investigator. "The increasingly risky nature of New Century's loan originations created a ticking time bomb that detonated in 2007," according to 550-page report filed in a U.S. Bankruptcy Court by investigator Michael Missal. The Irvine, Calif.-based company was the second-largest subprime lender when it filed for bankruptcy in April 2007. The examiner found numerous accounting problems and faulted KPMG, New Century's independent auditor, for allowing the publicly traded company to reduce its repurchase reserve in 2006 when it was being "flooded with repurchase claims" from investors. "New Century understated its repurchase reserve by as much as 1000% in the third quarter of 2006, reported a profit of $63.5 million ...when it should have reported a loss," the Missal report says. A KPMG spokesman said the firm "strongly" disagrees with the report's conclusions. A New Century representative said the submission of the report will allow the bankruptcy process to continue, and "we can take the next steps of confirming the liquidation plan."

Class B-7 of DLJ Commercial Mortgage Corp. mortgage pass-through certificates, series 1999-CG3, has been downgraded from B-minus to CCC/DR2 by Fitch Ratings. In addition, Fitch lowered the distressed recovery rating on class B-8 from DR5 to DR6 and affirmed the ratings on 13 other classes in the deal. The downgrade was due to an increase in losses and expected losses that will affect the class "severely," the rating agency said.

Seven classes of notes issued by Oxford Street Finance Ltd., a collateralized debt obligation that consists partly of subprime mortgage-backed securities, have been downgraded and placed on Rating Watch Negative by Fitch Ratings. The downgrades were as follows: class B, from AA-plus to A; class C, from AA to BBB; class D, from AA-minus to BB; class E, from A to CCC; class F, from A-minus to CC; class G, from BBB to CC; and class H, from BB-plus to CC. Classes A1 and A2 were also placed on Rating Watch Negative. The negative rating actions were attributed primarily to "the negative credit rating migration within the [asset-backed securities] portion of the underlying collateral." The ABS exposure consists of subprime residential MBS from 2005 to 2007. The synthetic CDO references a 2.0 billion euro diversified portfolio of primarily investment-grade corporate bonds in addition to the ABS, Fitch said.

Thanks largely to the weak U.S. dollar, the prospects are good for solid performance this year by the U.S. hospitality sector, according to the 2008 U.S. Lodging Report by Ernst & Young LLP. International tourists are looking to the United States as a "prime vacation spot" and are spending more money, the company reported. "The continued weakness of the dollar is producing multiple beneficial effects on the U.S. hotel market, which is likely to continue for the foreseeable future and which may pull the sector through current recessionary pressures," said Michael Fishbin, U.S. director of hospitality and leisure at Ernst & Young. The company can be found online at http://www.ey.com.

First American eAppraiseIT, Poway, Calif., has announced the introduction of a valuation tool that it says offers quick, low-cost, accurate values for credit decisions, loss mitigation, portfolio analysis, and quality assurance. The standard Data Assist report verifies a property's legal address and ownership and includes three closed-sale comparables from the subject property's market area, the company said. Data Assist with Listings offers the same information, plus three current listings that are similar to the subject property. "Many lenders are now looking for more alternatives [to automated valuation models]," said Michael Fosser, senior vice president of business development for eAppraiseIT. "Data Assist can provide a high level of confidence without adding significant cost or delay to these transactions." The company can be found online at http://www.eappraiseit.com.

New-homes sales fell 1.8% in February -- the fourth consecutive monthly decline -- and builders will be hawking a large inventory of newly built houses as the spring homebuying season begins. The U.S. Census Bureau reported that sales of new single-family homes fell from a seasonally adjusted annual rate of 601,000 in January to 590,000 in February -- down 30% from the level recorded in February 2007. The January number was revised upward by 13,000 sales -- which is some good news. However, builders still have a 9.8-month supply of unsold homes on their hands, and the economists at the National Association of Home Builders don't expect to see a jump in sales this year. The NAHB's latest forecast projects that sales will remain at a 603,000 seasonally adjusted annual rate in 2008 -- going up to 714,000 in 2009. The Census Bureau, an agency of the Commerce Department, can be found online at http://www.doc.gov.

MGIC Investment Corp., Milwaukee, is selling 37.34 million shares of its common stock in a public offering priced at $11.25 per share. The price, announced before the markets opened on March 25, is $2.05 below the $13.30 at which MGIC's common stock closed the day before. In a Securities and Exchange Commission filing, Curt S. Culver, chairman and chief executive of MGIC, said he would purchase 25,000 shares from the offering. MGIC will receive gross proceeds of $420 million, compared with the $350 million the company said it was hoping for in its original March 18 announcement. The underwriters of the offering have an option to purchase an additional 5.6 million shares at the $11.25 price. MGIC has also agreed to sell $325 million of 9% convertible junior subordinated debentures due 2063. MGIC is selling the debentures in a private placement transaction. MGIC can be found on the Web at http://www.mgic.com.

A coalition of reverse mortgage counseling agencies and experts on caring for the elderly has announced the formation of the National Housing Counseling Association. The NHCA will support 501(c)(3) housing counseling agencies approved by the Department of Housing and Urban Development in the delivery of reverse mortgage counseling services, the organization said. "With the near exhaustion of available HUD funds for [Home Equity Conversion Mortgage] counseling, and the delay in HUD's borrower pay regulation, many counseling agencies are being forced to cut back on counseling services," said NHCA spokesman Chuck Stanley. "NHCA has developed an industrywide approach to accessing additional grant funds without the perceived conflict of interest associated with direct contributions by individual reverse mortgage lenders."

A.M. Best Co., a credit rating agency headquartered in Oldwick, N.J., has downgraded Ogden, Utah-based Great Western Insurance Co.'s financial strength ratings from B-plus-plus to B-plus and its issuer credit rating from bbb-plus to bbb-minus because of problem investments in collateralized debt obligations. Its outlook has been revised from positive to stable. Great Western took a loss in 2007 because of the impairment of some of its CDOs. Best says it is worried about a possible negative impact from the company's remaining CDOs. "With continuing concerns over a weakened credit market and significant deterioration in the subprime mortgage loan market in the United States, A.M. Best notes that Great Western's balance sheet will remain under financial pressure, as additional CDOs may be impaired going forward," the rating agency said. "As a result, Great Western's capital and surplus position could decline further and could lead to additional pressure on the company's risk-adjusted capitalization relative to its insurance and investment profile."

The decline in house prices continued to accelerate in January, as prices fell to a level that was down 10.7% nationally over the previous 12 months, according to Standard & Poor's/Case-Shiller housing price index, which tracks home sales in 20 metropolitan statistical areas. The December report indicated that house prices declined by 9.1% in 2007, and it appears that the biggest declines are occurring in lower-priced homes that likely were financed with subprime loans. "This is the first national decline in house prices," Professor Karl Case said, adding that the "subprime phenomenon" is an important contributing factor. Lower-tier homes (priced at less than $157,248) in 15 of 17 cities posted the largest percentage increase in house prices since 2000, the Wellesley College economics professor said. But the lower-priced homes also have seen the greatest decline in prices since the peak. "It will clearly take those markets a long time to recover," Mr. Case said during a conference call. Separately, the Office of Federal Housing Enterprise Oversight reported that home prices fell 1.1% in January on a seasonally adjusted basis. "For the 12 months ending in January, U.S. house prices fell 3%," OFHEO said.

HCP Inc., a real estate investment trust based in Long Beach, Calif., will replace Commerce Bancorp Inc. in the S&P 500 Index after the close of trading on March 31, Standard & Poor's has announced. S&P said the reason for the change is that Commerce Bancorp is being acquired by The Toronto-Dominion Bank. S&P can be found online at http://www.standardandpoors.com.

The formation of Capital Markets Investment Group, a group of commercial real estate professionals specializing in the sale and acquisition of office investment properties throughout the Western United States, has been announced. CMIG said its brokers average over 20 years of experience in the commercial real estate industry. "Membership in CMIG allows brokers to strategically align with the nation's top office investment professionals regardless of their association with a particular firm," said David Tilton, a CMIG member and senior managing director of Fredrick Ross Co. in Denver. CMIG can be found online at http://www.cmig1.com.

In response to reports of abusive lending practices in the reverse mortgage arena, an Atlanta-based lender has instituted procedures to protect seniors from taking on loans that are unsuitable for their personal situations. Under Generation Mortgage's policies, products that are designed for long-term wealth accumulation for young adults or that impose surrender or withdrawal charges -- deferred annuities, for example, or long-term certificates of deposit -- are considered inappropriate. "We have an obligation to lead our industry on this important issue," said CEO Joe Morris. "Our new policy will ensure that, as in the past, no Generation customer will buy inappropriate financial products with the proceeds of his or her loan." Products that remain potentially suitable under Generation's policies are those that address the needs and risks seniors face, such as provisions for lifetime income and long-term care needs. Immediate annuities and long-term care insurance, properly designed and purchased, address these needs and risks and remain suitable choices for some seniors, the company said.