Originations

The National Association of Home Builders has frozen all political contributions out of frustration with what it deems feeble efforts by the Bush administration and Congress to stabilize the housing market and stimulate homebuying. "More needs to be done to jump-start housing and ensure the economy does not fall into recession," NAHB president Brian Catalde said. "This action [to cease all NAHB Build-Pac contributions] will remain in effect until further notice." Congress recently rebuffed the builders' request to include a tax credit for homebuyers in the recently passed economic stimulus bill. "We need something powerful to stimulate homebuying," NAHB chief economist David Seiders said, particularly for buyers of new homes and inventory. "We've got to get this inventory knocked down or the chances of getting a housing recovery are really tenuous," he said at the builders' annual convention in Orlando, Fla. Mr. Seiders voiced optimism that the housing market will stabilize later this year, which would help the credit markets and the overall economy. But he warned that all bets are off if housing prices continue to drop. "We already have an unprecedented decline in house values," he said.

Standard & Poor's has announced that Home Properties Inc., a real estate investment trust based in Rochester, N.Y., will replace Kellwood Co. in S&P's SmallCap 600 Index. S&P said the move, scheduled to occur after the close of trading on Feb. 12, was prompted by the pending acquisition of Kellwood by a private equity firm. Home Properties, an apartment REIT, will be added to the index's Residential REITs sub-industry index.

The issuer default rating, senior unsecured debt rating, and certain other ratings of The First American Corp. have been downgraded by Fitch Ratings, which cited in part the results of the company's title insurance business. The company's IDR was downgraded from A-minus to BBB-plus, and the debt rating was downgraded from BBB-plus to BBB. Fitch pointed to First American's announcement that it expects an after-tax loss of $50 million or less in the fourth quarter and that its title insurance segment's results would be hurt by "further adverse reserve development." Fitch said the ratings have been removed from Rating Watch Negative (where they were placed after First American announced a plan to spin off its information services unit), but they have been assigned a negative rating outlook. The company had previously held one of the highest stand-alone IFS ratings among title insurance companies rated by Fitch. The rating agency said the downgrade "incorporates the underperformance of expectations and better aligns the company with peers."

In what could be seen as bad news for the reverse mortgage market, seniors lost a cumulative $25 billion in home equity in the third quarter, according to the Reverse Mortgage Market Index, which declined overall to 203.5 from 204.8. Americans age 62 and over held $4.25 trillion of home equity in the third quarter, which was still above the $4.21 trillion held in the third quarter of 2006. The combined value of homes owned by seniors declined by $10 billion to $5.08 trillion, compared with $4.97 trillion a year earlier, the National Reverse Mortgage Lenders Association reported. "While the index, not surprisingly, reflects a quarterly decline in home values and equity across most parts of the country, reverse mortgages remain as popular as ever," said Peter Bell, president of NRMLA, which publishes the RMMI in conjunction with the Hollister Group LLC. The organizations can be found online at http://www.nrmlaonline.org and http://www.hollisterllc.com.

Meanwhile, American International Group issued a statement Feb. 12 declaring its belief that unrealized mark-to-market losses on the AIG Financial Products Corp. super-senior credit default swap portfolio are not "indicative" of losses AIGFP may realize. "Based upon its most current analyses, AIG believes that any losses AIGFP may realize over time as a result of meeting its obligations under these derivatives will not be material to AIG," AIG said. The announcement came one day after AIG made a Securities and Exchange Commission filing related to a finding by its independent auditors involving a material weakness in its internal controls (see above item).

The issuer default rating, holding company ratings, and subsidiary debt ratings of American International Group Inc. have been placed on Rating Watch Negative by Fitch Ratings, partly as a result of what it calls AIG's "relatively large exposure" to turmoil in the U.S. mortgage market. Fitch said the actions followed an acknowledgement by New York-based AIG in a Feb. 11 filing with the Securities and Exchange Commission that its independent auditor believes the company had "a material weakness in internal controls" as of Dec. 31 related to the valuation of AIG Financial Products Corp.'s super-senior credit derivative portfolio. "Fitch believes the area of AIG most exposed to further deterioration in this market is the credit derivative portfolio within AIG FP, with its large net notional exposure of $505 billion at Sept. 30, 2007," the rating agency said. "Included in this total is $62.4 billion of collateralized debt obligations backed by structured finance collateral, mainly subprime U.S. residential mortgage-backed securities." Fitch can be found online at http://www.fitchratings.com.

GMH Communities Trust, a Newtown Square, Pa.-based real estate investment trust, is being sold in two parts to two different investors for a total payout of about $9.61 per GMH share. This is about 72% higher than the closing price of GMH stock of $5.59 on Feb. 11. A U.S. subsidiary of the United Kingdom-based Balfour Beatty is buying the multifamily REIT's military housing division for $350 million in cash, resulting in payment of about $4.08 per GMH share and unit, although GMH said the price is subject to change. This part of the sale is not subject to shareholder approval and is expected to close in the second quarter. Once it closes, the REIT's 64 student housing properties, as well as interests in eight joint venture properties, are being acquired by Austin, Texas-based American Campus Communities, a student housing REIT, for a total payment of about $1.4 billion, including the assumption of about $963 million in debt. GMH shareholders will be paid about $5.53 per share in the transaction. ACC has formed a joint venture with Fidelity Real Estate Group and will transfer 15 of the acquired properties to the venture, ACC reported. In addition, KeyBank NA is providing a $200 million term loan for the acquisition. ACC said it sees the acquisition as an opportunity to enter 41 new markets.

A couple of billion dollars in largely mortgage-related writedowns during the fourth quarter contributed to a year-to-year decline in quarterly profit at Credit Suisse, Zurich, but the Wall Street firm's corporate parent is doing well relative to its peers. The company earned about $1.2 billion on a net basis in the fourth quarter, which is a 72% drop from earnings in the fourth quarter of 2006 and a 49% decline if discontinued operations are removed from the equation. "Our focus on risk management enabled us to perform relatively well, limiting losses and exposures in investment banking related to the subprime mortgage market," the company said.

Lenders and community activists aren't the only ones worried about an avalanche of foreclosures -- so are the nation's homebuilders, who fear that an abnormal jump in repossessions could force even further price cuts and delay the housing recovery. The National Association of Home Builders believes the market will hit bottom sometime this summer, and that its members will start building more and more houses in the third and fourth quarters. The NAHB's forecast is for single-family starts to fall to 600,000 annually in the second quarter, about half of what the business was producing in 2004. But it expects starts to inch up to 640,000 in the third quarter and 690,000 in the fourth quarter. Based on demographics alone, the NAHB says builders could be starting two million houses a year by 2011. But if a big chunk of the 1.4 million 2/28 loans that are due to reset this year go into foreclosure, all bets are off, NAHB economist Gopal Ahluwaliah told the group's annual convention in Orlando, Fla. "That's the wild card," he said. "If that happens, it will really slow down the recovery." The economist said that "if it wasn't for subprime, the [housing] market would have rebounded long ago."

Builders in many parts of the country are seeing increased traffic, according to a monthly survey by the National Association of Home Builders. "It's the first time in six months that traffic has improved," NAHB's chief researcher, Gopal Ahluwaliah, said at the group's annual convention in Orlando, Fla. "Previously, it's been dead, slow." In an industry that's hungry for good news, the survey, which will be released soon, is "a very positive indication," the economist said. But at the same time, he cautioned about reading too much into the findings. "One month is not a trend, so we don't want to be too quick to jump to any conclusions," Mr. Ahluwaliah said. "Next month, we could be flat on our face." In addition, increased traffic has not necessarily resulted in increased sales. Many of the visitors are "tire kickers" who are looking to see what kind of deals they can make as builders continue to cut prices. "You've got to leave a little blood on the table," said builder Thomas Paparrone, who said traffic is up in his southern New Jersey market. One place where traffic is still down is California. John Orr, who builds in the northern part of the state, said traffic in January was at the lowest level since 1995.

Six of the nation's largest servicers -- which control nearly 60% of the $9 trillion residential receivables market -- have agreed to participate in a new Bush administration plan to freeze foreclosures for at least 30 days. Dubbed "Project Lifeline," the program affects both subprime and prime borrowers who are in danger of losing their homes. (The effort was actually created by the servicers, but with the blessing of the Treasury Department.) The servicers in charge of these delinquent loans -- including Countrywide Financial, Wells Fargo, Citigroup, and others -- will contact homeowners who are more than 90 days late, freeze the foreclosure process, and then try to work out a solution for the borrower. According to the Quarterly Data Report, the nationwide foreclosure rate on subprime loans is almost 8%.

Class 2B-1 of Irwin Home Equity Loan Trust mortgage pass-through certificates, series 2005-B group 2, has been downgraded from BB-plus to BB by Fitch Ratings. Fitch also affirmed the ratings on 21 classes from three Irwin transactions. The downgrade was attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral consists primarily of subprime mortgage loans.

Eight classes of First Franklin 2006-FFA mortgage pass-through certificates have been downgraded by Fitch Ratings. The downgrades were as follows: class A1, from BBB-minus to CCC/DR2; class A2, from BBB-minus to CCC/DR2; class A3, from A-minus to CC; class A4, from BBB-minus to CCC/DR4; class M1, from BB to C/DR6; class M2, from BB-minus to C/DR6; class M3, from B-plus to C/DR6; and class M4, from B to C/DR6. Fitch said the downgrades were based on changes to its subprime loss forecasting assumptions that it says "better capture the deteriorating performance of pools from 2007, 2006, and late 2005 with regard to continued poor loan performance and home price weakness."

Mortgage insurance companies will be affected "negatively in the years ahead" by continued weakness in the mortgage markets, especially with the poor performance of loans to subprime and alternative-A borrowers, according to a commentary from Fitch Ratings. Specifically, Fitch cites concerns about the book of business for loans originated between 2005 and 2007. "[A] greater percentage of these delinquent borrowers will end up in foreclosure in the years ahead, which will translate into higher claims and losses over this time period," the rating agency said. "Negative net income will have a significant impact on the MIs' ability to internally build their capital bases over the next few years, which is of particular concern given the likely costs and/or challenges to raising external capital in this depressed market environment." While all the MIs Fitch rates have been affected by the poor mortgage market, Fitch noted that the extent of the trouble varies by company, "as each insurer has differing levels of exposure to product sectors (i.e., prime, subprime, reduced documentation, alt-A, or negative amortization), have participated in certain business segments to varying degrees, and have different organizational structures, with some benefiting from diversified parent companies or from MI operations based in international markets."

Countrywide Financial Corp., Calabasas, Calif., and a consumer advocacy group, the Association of Community Organizations for Reform Now, have reached a deal to help delinquent subprime borrowers retain their homes and avoid foreclosure. Countrywide and ACORN are formalizing workout programs for all types of subprime loans, not just hybrid adjustable-rate mortgages. The agreement also extends to borrowers in all stages of delinquency, reaching borrowers not covered by Countrywide's previous $16 billion home retention initiative or by the Hope Now alliance program. "Countrywide is eager to work with borrowers, whether they are facing rate resets or some other type of financial difficulty," said Michael Gross, managing director of loan administration for Countrywide. The company can be found online at http://www.countrywide.com.

The downturn in the housing market and tighter availability of credit is having a positive impact on the multifamily industry, according to the National Multi Housing Council's first-quarter survey of executives. "While the 'shadow' rental market (unsold houses and condos that have left the for-sale market to enter the rental market) may attract some apartment renters (and potential renters), thus far, the lowest homeownership rate in five and a half years seems to have increased demand for apartment residences," said Mark Obrinsky, chief economist, NMHC. The Washington-based apartment industry trade group also reports that debt financing for apartment financing is more readily available, with an index measuring this rising from 17 in the prior quarter to 45 in the current quarter. Tightened underwriting standards and the "still-frozen" commercial mortgage-backed securities market have impacted debt financing availability.

The Mortgage Bankers Association has promoted John Mechem to senior director of public affairs. In this capacity, Mr. Mechem will be responsible for developing and implementing MBA public affairs campaigns, serving as a primary spokesperson for the association and acting as a liaison between MBA and other industry communications representatives. "John's strategic vision and excellent communications skills have made him an invaluable asset to the MBA," said Jonathan Kempner, MBA's president and chief executive officer. "As the mortgage industry continues to evolve, we are very fortunate to have John communicating on behalf of MBA and our members." Mr. Mechem joined MBA in 2006 from the American Forest & Paper Association after serving as director of communications. He has over 12 years of experience in public and legislative affairs. His background includes serving as press secretary for Sen. Jim Bunning, R-Ky., and previously as deputy press secretary for Sen. Mitch McConnell, R-Ky. He began his career as a legislative assistant for Rep. Jay Kim, R-Calif.

In the fourth quarter of 2007, 81% of Freddie Mac-owned loans that were refinanced resulted in new mortgages with loan amounts that were at least 5% higher than the original mortgage balances, according to Freddie Mac's quarterly refinance review. The revised share for the third quarter of 2007 was 86%. "Home-value declines coupled with tougher underwriting standards at many lenders contributed to a decline in the amount of home equity cashed out as part of a conventional loan refinance during the fourth quarter," said Frank Nothaft, Freddie Mac vice president and chief economist. "At the same time, rates on jumbo mortgages for prime borrowers became relatively much more expensive compared to conforming rates, averaging 7.1% for 30-year fixed-rate loans in December, about a full percentage point above rates on a comparable conforming product. These higher rates on jumbo loans put a damper on refinance activity and reduced the overall volume of originations." He said families refinancing in the Midwest were less likely to engage in cash-out activity compared to the rest of the nation. In the Midwest last year, 76% of borrowers who refinanced their prime, conventional mortgage also cashed out some home equity, compared with 86% of borrowers in the Northeast and 87% of refinancers in the South and West.

Freddie Mac is looking to be a player in the commercial mortgage securitization niche by pooling together multifamily loans and securitizing them through a dealer. Mike May, Freddie Mac's senior vice president, multifamily sourcing, told MortgageWire that the GSE sees the current market disruption as a good opportunity to get into this business. The plan is for Freddie Mac to aggregate the loans, buying them from its network of lenders, and either hold on to or securitize the senior pieces of the loans, while securitizing the "B" pieces through a dealer. If the senior pieces were to be securitized, they would carry the Freddie Mac label.

Congress has passed the economic stimulus bill that temporarily raises the loan limits for Fannie Mae, Freddie Mac and the Federal Housing Administration in high-cost areas to provide needed liquidity in the jumbo mortgage market. The Senate backed the stimulus bill by an 81-16 vote on Thursday after expanding the tax rebate to seniors and disabled veterans. The House approved the changes later that night by a 380-34 vote. President Bush said he will sign the bill. As passed, the GSE and FHA loan limits go up to 125% of median homes prices with a cap of $729,750. This authority expires Dec. 31. However, Fannie and Freddie can purchase existing jumbos originated after June 30, 2007, which should help lenders that have not been able to sell jumbos since the secondary market for these higher balance loans dried up last summer.