Originations

Navidec Financial Services Inc., Denver, has announced the formation of a wholesale mortgage lending company for correspondent mortgage banks in the West. The new company, Jaguar Investment Group LLC, was formed by Navidec affiliate Northsight Inc. in conjunction with Jaguar Group LLC. Each will contribute $400,000 in capital in exchange for 50% membership interests in the company, Navidec said. "We are seeing one of the greatest dislocations in U.S. residential real estate history," said Navidec president John McKowen. "That dislocation has created illiquidity for financial institutions and correspondingly exceptional values for homebuyers and real estate investors."

The Market Composite Index, an overall measure of mortgage applications, fell from 822.8 to 665.1 on a seasonally adjusted basis during the week ended Feb. 22, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. On an unadjusted basis, applications decreased 25.8% on the week but were up 5.1% from the level recorded a year earlier. The Purchase Index rose from 357.6 to 358.2 on a seasonally adjusted basis, while the Refinance Index plunged from 3533.8 to 2458.9. Refinancings represented 52.0% of total applications, down from 61.7% the previous week, while adjustable-rate mortgages accounted for 15.0, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 6.09% to 6.27%, and points (including the origination fee) rose from 1.10 to 1.15 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Single-family loan originations by commercial banks and savings banks fell 8.5% in the fourth quarter to $253.1 billion, and the entire decline occurred in the wholesale channel, according to Federal Deposit Insurance Corp. call report data. Wholesale originations of one- to four-family loans totaled $161.8 billion in the fourth quarter, down from $179.6 billion in the third quarter. In the second quarter of last year, when Wall Street was still buying subprime and alternative-A loans, wholesale originations totaled $236.3 billion. Meanwhile, retail originations by the 688 reporting banks edged up slightly to $91.3 billion in the fourth quarter. The FDIC data also show that banks sold $262.7 billion in single-family loans in the fourth quarter. Only commercial banks and FDIC-supervised savings banks with at least $1 billion in assets, or smaller banks with at least $10 million in originations over the past the two quarters, are required to report origination data to the FDIC.

Risks to the economy "remain to the downside" despite inflationary pressures, Federal Reserve Chairman Ben S. Bernanke said Wednesday in a semiannual report to Congress that was widely interpreted as indicating monetary officials may cut rates again. "The risks include the possibilities that the housing market or labor market may deteriorate more than is currently anticipated and that credit conditions may tighten substantially further," he said. Mr. Bernanke also indicated that the Fed is carefully eyeing the risks posed by the dangerous combination of increased inflation and economic weakness in its monetary policy considerations.

An estimated 40% of outstanding subprime mortgage loans could go into default over the next three years based on current economic assumptions, according to Michael Bykhovsky, president of Applied Analytics, San Francisco. With an estimated loss severity in the range of 50%, that could lead to $200 billion in additional losses related to defaults on subprime home loans. During a press briefing sponsored by Fidelity National Information Services (the parent of Applied Analytics) at the Mortgage Bankers Association's National Mortgage Servicing Conference, Mr. Bykhovsky said there are an estimated $1 trillion of subprime home loans outstanding. He said he is skeptical of the prospects for term modifications that are being proposed as part of an effort to support subprime borrowers. "It will help, but not hugely," Mr. Bykhovsky said. "A lot of subprime loans will default anyway." Based on assumptions that include two more years of housing price declines, Applied Analytics projects that default rates may not start to trend downward until 2011. That dire outlook reflects the impact of declining home values on outstanding subprime mortgage loans, Mr. Bykhovsky said.

Fannie Mae has reported a $3.6 billion loss for the fourth quarter and a $2.1 billion loss for 2007, recognizing for the first time a loss on its subprime and alternative-A private-label securities totaling $1.35 billion. The unrealized losses on the $41.4 billion in subprime private-label securities and $32.5 billion in alt-A private-label securities totaled $3.3 billion, the government-sponsored enterprise said in its 2007 annual financial report. Fannie increased its loan loss reserves by $2 billion, and the GSE became more pessimistic in its housing market outlook. The company said it expects house prices to decline 5%-7% this year and projected that its credit loss ratio will be 11-15 basis points. Fannie reported that its single-family guarantee fee income rose 19% in 2007 to $5.1 billion, up from $4.3 billion the previous year, which reflected higher demand for loan guarantees and higher fees. "While we are pleased that demand for our mortgage guaranty businesses has surged as we respond to the market's urgent need for liquidity and stability, this positive trend has been far outweighed by the negative financial impacts of rising defaults, falling house prices, and extraordinary disruptions in the credit markets," Fannie president and chief executive Daniel Mudd said. The GSE can be found online at http://www.fanniemae.com.

Any lenders (not just mortgage brokers) who receive a fee from another lender in the origination process will have to disclose their total compensation on the new standardized good-faith estimate developed by HUD as part of its Real Estate Settlement Procedures Act proposal. An "exclusive agent of the lender who is not an employee of the lender, but who renders origination services in a table funded or intermediary transaction, would be subject to the mortgage broker disclosure requirement set forth in the proposed rule," according to a copy of the RESPA proposal obtained by MortgageWire. The Department of Housing and Urban Development is expected to publish the proposed rule soon. The narrative in the proposal describes how HUD continued to consumer-test and make changes to the four-page GFE so that consumers can identify the lowest-cost loan without being confused by yield-spread premiums, which are called ''an adjusted origination charge" on the front page. "HUD is now convinced that by making these changes, any disadvantage to brokers is virtually eliminated," the agency said. The RESPA proposal allows lenders to use "average cost pricing and discounts" in listing the cost of third-party settlement services on the GFE, subject to a 10% tolerance.

Seventy-eight tranches from 20 chiefly subprime mortgage-backed securities deals issued by Terwin Mortgage Trust from 2003 through 2005 have been downgraded by Moody's Investors Service. Moody's also placed 10 additional tranches on review for possible downgrade. The downgrades were attributed mainly to weak performance in the underlying collateral pool, though many of the deals "have only experienced deterioration in performance at the tail end of the collateral pool, with pool factors near or below 10%," the rating agency said. "Additionally, the vast majority of these tranches have experienced diminished credit support as a result of passing performance triggers in prior periods." The collateral consists primarily of first- or second-lien subprime residential mortgage loans. Moody's can be found online at http://www.moodys.com.

More than 100 additional classes of first-lien subprime mortgage pass-through certificates were downgraded by Fitch Ratings on Feb. 25 as a result of changes to its subprime loss forecasting assumptions. Fitch also affirmed the ratings on classes with outstanding balances of $1.6 billion. The securities affected by the latest downgrades were 128 classes from 10 Ameriquest deals. 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 on the Web at http://www.fitchratings.com.

Citing commercial real estate concerns, the analyst blog of Zacks.com is warning investors to avoid the stocks of banks such as Citigroup, Wachovia, National City, Keycorp, and Washington Mutual. "Commercial real estate is about to follow residential real estate into the tank, and banks will have to write off many of the commercial mortgages they hold as well," the blog cautioned. Investors should "[s]tay far away" from the stocks of such banks. "The bank write-off game is not even close to being over," the blog declares. Chicago-based Zacks Equity Research can be found on the Web at http://www.zacks.com.

Nationwide Health Properties and Pacific Medical Buildings are acquiring a portfolio of 28 medical office buildings for up to $2 billion over a period of three years. The Newport Beach, Calif.-based Nationwide Health Properties, a real estate investment trust, said the transaction provides it with "a major presence in the medical office sector." The acquisitions are expected to add over two million square feet of medical office space to the NHP portfolio. The REIT said it expects to finance an acquisition of 16 properties closing in 2008 with a combination of $201 million in assumed debt, at 5.9%; at least $100 million in partnership units; and the remainder from a $305 million sale of properties. The partnership acquired seven properties for $120 million in the fourth quarter of 2007, NHP reported.

A number of major players in the mortgage insurance industry, especially the stand-alone companies, need to raise substantial amounts of capital or risk downgrades of their insurer financial strength ratings, according to Fitch Ratings. Only two mortgage insurers, Genworth Mortgage Insurance Co. and United Guaranty Residential Insurance Co. (part of American International Group), had their IFS ratings affirmed (at AA and AA-plus, respectively) and their rating outlook held at stable. Fitch placed the IFS and long-term issuer ratings of MGIC Investment Corp., the PMI Group, and Radian Group Inc. on Rating Watch Negative. Unless they raise capital, MGIC and Radian could have their IFS ratings cut by one notch and PMI by two notches, the rating agency said. The fourth stand-alone MI, Triad Guaranty Insurance Co., is already on Rating Watch Negative. Triad has an IFS rating of AA-minus, and Fitch said it believes the company's capital is well below the level needed to maintain it. Unless more capital is raised, Fitch may lower Triad's ratings below the A level, the rating agency said. Fitch took no action on Republic Mortgage Insurance Corp.'s AA IFS rating and negative rating outlook. RMIC benefits from being a subsidiary of Old Republic International Corp., Fitch said.

Federally insured banks and thrifts have reported earnings of $5.8 billion for the fourth quarter, an 84% drop from those of a year earlier, as turmoil in the credit and mortgage markets produced large trading loses, record-high loss provisions, and the largest increase in noncurrent one- to four-family loans in 17 years, according to the Federal Deposit Insurance Corp. Noncurrent loans (90 days or more past due) rose by $26.9 billion, or 32.5%, in the fourth quarter, and residential and commercial real estate loans accounted for more than 80% of the increase. Noncurrent one- to four-family loans grew by $11.1 billion, or 31.7%, in the fourth quarter, and chargeoffs were up $1.3 billion, or 144%. The percentage of noncurrent one- to four-family loans rose from 1.57% in the third quarter to 2.06% in the fourth quarter -- the highest level in 17 years. Meanwhile, noncurrent construction and development loans increased by $8.4 billion, or 73.2%, in the fourth quarter. The FDIC is keeping a close eye on housing, CRE, credit card, and small business loan portfolios. "All of these are showing signs of stress, as weakness in the housing market continues," FDIC Chairman Sheila Bair said.

House prices fell by 9.1% in 2007 and by 2.1% in December, according to the Standard & Poor's/Case-Shiller housing price index, which tracks home sales in 20 metropolitan statistical areas. "Wherever you look, things look bleak, with 17 of the 20 metro areas reporting annual declines and the remaining three reporting flat or moderate growth rates," said Robert Shiller, chief economist at MacroMarkets LLC. Charlotte, N.C., reported a 2.3% annual price increase, while prices are up 1.2% in Portland, Ore., and 0.5% in Seattle. Separately, the Office of Federal Housing Enterprise Oversight reported that house prices fell 0.3% in 2007 and by 1.3% in the fourth quarter, using only purchase mortgage data provided by Fannie Mae and Freddie Mac. The price stability reflected in the GSE data "may reflect, in part, the greater stability in the prime, conforming mortgage market," OFHEO said.

Standard & Poor's has announced rating actions on several monoline bond insurers following additional stress tests related to their domestic subprime mortgage exposure. Lowered were certain ratings related to Financial Guaranty Insurance Co., XL Capital Assurance Inc., and XL Financial Assurance Ltd. Other ratings, including some of MBIA's and Ambac's, were affirmed.

Fannie Mae and Freddie Mac may stop accepting appraisals ordered by mortgage brokers by Sept. 1 as part of a settlement the two secondary-market agencies are negotiating with New York Attorney General Andrew Cuomo. In selling loans to Fannie and Freddie, lenders would have to certify in representations and warranties that they did not rely on appraisals provided by the brokers. "This could, in effect, require lenders to always secure their own appraisal of any property purchased through a broker," according to an outline of the "talking points" obtained by MortgageWire. The talking points also show that the AG wants mortgage lenders to curtail their use of in-house appraisers or subsidiary appraisal firms. The settlement talks stem from the New York AG's lawsuit against First American's appraisal unit, which allegedly provided inflated appraisals to one of Fannie's and Freddie's large customers. The New York AG's office could not be reached for comment by deadline time.

Class P of JP Morgan Commercial Mortgage 2003-PM1 has been downgraded from B-minus to CCC by Fitch Ratings. Fitch also affirmed the ratings on 19 other classes in the transaction. The downgrade was due to the transfer of four loans to special servicing, the rating agency said. Three of the four loans are secured by multifamily properties in Houston and Fort Worth, Texas. the fourth is secured by a multifamily property in Springfield, Ill.

Class M-5 of CBA Commercial Mortgage Pass-Through Certificates series 2006-1 has been downgraded from Ba2 to B1 by Moody's Investors Service and placed on review for possible further downgrade. Moody's also placed classes M-2, M-3, and M-4 on review for possible downgrade and affirmed the ratings on three other classes in the transaction. The certificates are collateralized by 239 mortgage loans. The downgrade was attributed to the high percentage of loans (13.1%) in special servicing and projected losses from those loans.

Class H of Credit Suisse First Boston Mortgage Securities Corp. commercial mortgage pass-through certificates, series 1998-C2, has been downgraded from B3 to Caa1 by Moody's Investors Service. Moody's also affirmed the ratings on nine other classes in the transaction. The certificates are collateralized by 186 mortgage loans, including one shadow-rated loan, a conduit component, and a credit tenant lease component. The downgrade was due to projected losses from the specially serviced loans and dispersion of loan-to-value ratios, the rating agency said. Loans with a Moody's LTV in excess of 100% increased from 25.9% to 39.5% of the pool since the last review, Moody's reported.

Three classes of LB-UBS Commercial Mortgage Trust commercial mortgage pass-through certificates, series 2000-C4, have been downgraded by Moody's Investors Service. The downgrades were as follows: class L, from B1 to B2; class M, from B3 to Caa2; and class N, from Caa1 to Ca. Moody's also upgraded two classes and affirmed the ratings of nine classes in the transaction. The certificates are collateralized by 136 mortgage loans ranging in size from less than 1.0% to 10.6% of the pool. The downgrades were attributed to realized and estimated losses from specially serviced loans and increased dispersion in loan-to-value ratios.