Originations

Investment group Olivant, London, has dropped plans for a proposal related to the liquidity-strapped United Kingdom lender Northern Rock, Newcastle upon Tyne, apparently leaving investors led by the Virgin Group, London, as the most likely to end up partnering with the company. Olivant said Monday it has "decided not to submit a further proposal in relation to the stabilization, recapitalization and repositioning of Northern Rock," citing an inability to find a middle ground that would create value for its shareholders as well as meet the needs of the other parties involved. Northern Rock has been supported by government funds during the U.S. mortgage woe-sparked liquidity crisis and there have been questions about whether it will be able to remain a private company.

CBL & Associates Properties Inc., Chattanooga, Tenn., is revising its 2007 funds from operations guidance to a range of $3.09 to $3.11 per share as a result of an $18.5 million non-cash write down of marketable real estate securities related to a significant decline in fair value during the fourth quarter 2007. It also made a decision to delay the previously announced recognition of $7.0 million of fee income from an affiliate of Centro Properties Group due to its uncertainty and it is reducing its FFO by $0.05 per share related to other non-operating items. John N. Foy, vice chairman and chief financial officer, said, "Although we do not invest in securities for trading purposes, from time to time we have made investments in marketable real estate securities that we believed were not only attractive as stand-alone investments, but may also represent strategic investments. However, based on current market valuations, we determined that it was necessary to recognize the significant decline in value of these marketable securities in our results. It is important to note that these items, which include non-cash and one-time charges, do not reflect upon the performance of our properties. While the current operating environment is challenging, we are continuing to execute our business with a conservative approach and careful consideration of capital allocation."

The outlook for commercial real estate will be impacted by the performance of single-family housing, which is the largest drag on economic growth, according to Douglas Duncan, the Mortgage Bankers Association's chief economist. Delivering an economic outlook at the MBA's commercial real estate finance convention in Orlando, Mr. Duncan noted that there is a huge supply of inventory that has to be worked off for the single-family housing market to stabilize and he expects this to happen in the third quarter. If anything, "the risks are to the downside," with this process taking even longer. Only 5% of homeowners are having serious difficulties with their mortgage loan payments (a little over 6% of homeowners have subprime ARMs), and the credit crunch of last year was not so much a subprime issue as a leverage issue, according to him. The B&C loans found their way into different securitizations and collateralized debt obligations and this was what caused the problem. At another MBA panel session on the paradigm shift in the capital markets, panelists agreed that CDOs will not be back very soon, and when they do they will be in a simpler format and likely have more equity participation.

The Financial Accounting Standards Board has rejected a request by the Mortgage Bankers Association for relief from having to treat all loan modifications as troubled debt restructurings. As the secondary market seized up in last year, many mortgage bankers got caught with mortgages on their books that they couldn't sell. MBA claimed these lenders do not have the computer systems to project discounted cash flows on principal and interest, as required by FAS 114, to calculate loan impairment or losses. MBA suggested an alternative standard, FAS 5, which measures impairment based on the amount a principal the lender does not expect to recover. At a Jan. 30 meeting, FASB members noted that FAS 114 was designed to prevent lenders from avoiding losses on restructurings and they unanimously rejected MBA's request. "We are disappointed by the decision. But our members have accepted the decision and they are now working to enhance their computer systems to apply FAS 114 as necessary," MBA's accounting expert Alison Utermohlen said.

GMAC Financial Services posted a fourth quarter loss of $724 million, blaming its weak results on fallout from the "continued disruption in the mortgage, housing and capital markets." Residential Capital, a subsidiary of GMAC Financial Services, lost $921 million in the fourth quarter. Write-downs of credit residuals and mortgage-backed securities, higher funding costs, impairment of real estate assets and equity investments, and restructuring charges all took a bite out of ResCap in the fourth quarter. ResCap unloaded some $22 billion of securitized assets and related collateralized-debt obligations from its balance sheet during the fourth quarter. ResCap said that it eliminated 5,000 jobs, or 35% of its workforce, in 2007.

The Eleventh Federal Home Loan District Cost of Funds Index for December is 4.072%, a 10 basis points decline from November's 4.172%. The index is a weighted index calculation of the cost of mortgage funds for thrifts that belong to the Federal Home Loan Bank of San Francisco. Reversing the trend of the previous two years, COFI has declined by 32 basis points between last December and this one; in 2005 and 2006, the index increased by 110 basis points in both years. Out of the preceding 12 months, COFI increased in just three. In May, it rose by 7 bps; in August there was an 8 bps increase, followed by an increase of slightly over 2 bps in September. For comparative purposes, according to the Freddie Mac Primary Mortgage Market Survey, the one-year adjustable rate mortgage was at 5.45% in December 2006. It hit 5.71% in July, before trending down again to 5.50% in December 2007, a net increase of 5 bps during the year.

Freddie Mac purchased a record $44.7 billion in new multifamily business in 2007. "Despite a difficult market, 2007 was a good year for Freddie Mac's multifamily business," said Mike May, senior vice president for multifamily sourcing for Freddie Mac. "The mid-year exit of conduits from the market drove a significant increase in conventional loans to Freddie Mac at a time when we were managing some of the largest and most complex pool transaction in our history," he said. Freddie Mac can be found online at http://www.freddiemac.com.

Capital markets disruptions contributed to a 16% year-to-year drop in commercial and multifamily originations during the fourth quarter but fundamentals in the market remain strong, according to the Mortgage Bankers Association. The association said the decline occurred "across most property types and investor groups." Exceptions to this included the government-sponsored enterprises, which saw a 41% dollar volume increase compared to last year's fourth quarter; and hotel and healthcare property loans, which respectively saw 349% and 3% jumps in volume during the same period. "The increase in hotel originations was heavily influenced by large portfolio sales during the period," the association said.

Class L of Greenwich Capital Commercial Funding Corp. commercial mortgage pass-through certificates series 2006-FL4 has been placed on Rating Watch Negative by Fitch Ratings. The action was based on "the delinquency of the Greenwich Residential loan, the declining performance of the Mondrian Hotel, and the pending maturity of the Tides loan," Fitch said.

Fannie Mae has helped 68,000 subprime borrowers refinance through its HomeStay loan purchase program that was launched in April, and loan volumes are increasing every month, according to a Fannie Mae executive. "We have been able to put most borrowers into a fixed-rate loan," Fannie Mae vice president Jef Kinney said. And in most cases, the interest rate is lower than the teaser rate on their subprime adjustable-rate mortgage. So far, Fannie has purchased $13 billion HomeStay loans, up from $6 billion in September. Fannie Mae can be found on the Web at http://www.fanniemae.com.

Standard & Poor's Ratings Services has lowered its financial strength and issuer credit ratings on Financial Guaranty Insurance Co. from AAA to AA and placed various ratings on MBIA Insurance Corp., XL Capital Assurance Inc., and their related entities on CreditWatch with negative implications. The rating agency also downgraded its senior unsecured and issuer credit ratings on FGIC Corp. from AA to A and placed all FGIC ratings on CreditWatch with developing implications. S&P said the actions take into account its recently announced negative rating actions on thousands of residential mortgage-backed securities and collateralized debt obligations and are "the result of our most recent review of all the bond insurance companies' capital plans." The review is part of S&P's "ongoing assessment of the potential subprime-related losses that these bond insurers might incur and how they are managing their capital positions to handle the losses," the rating agency said. S&P can be found online at http://www.standardandpoors.com.

Moody's Investors Service has revised its expected loss assumptions for structured finance collateralized debt obligations holding 2006 vintage subprime residential mortgage-backed securities due to expectations that the performance of the latter asset class will continue to deteriorate. The rating agency said it would "apply the revised loss assumptions and revise specific CDO ratings within the coming weeks." Moody's can be found online at http://www.moodys.com.

Defaults on securitized subprime mortgage loans are accelerating and hit a new high of 21.3% in November, up 188 basis points from the level of the previous month, according to a report by Friedman Billings Ramsey Investment Management. The default rate on these nonagency loans has accelerated "briskly" since August, according to the Structured Finance Insights report, which indicates that the default rate on subprime mortgages has doubled since November 2006. FBRIM managing director Michael Youngblood attributes the rapidly deteriorating performance to falling house prices and weakening labor market conditions that are "characteristic" of a recession. The default rate on alternative-A loans rose 31 bps to 5.7% in November, up from 1.4% in November 2006. Meanwhile, the foreclosure rate on subprime mortgages stood at 8.6% in November and at 2.7% on alt-A mortgages.

The Federal Housing Administration will have to increase its standard mortgage insurance premiums, according to the President's 2009 fiscal year budget, unless Congress passes FHA reforms that allow the agency to charge risk-based premiums. Budget documents show that FHA is in trouble and expects to pay $8.4 billion in claims due to defaulted loans in FY 2008, up from $5.1 billion in FY 2007. The Office of Management and Budget estimates that FHA will pay $9.8 billion in claims in FY 2009. "Because of deteriorating market conditions, as well as adverse loan performance," FHA will use its authority to increase the upfront premium by 45 basis points to 1.95% and the annual premium by 2 bp to 52 bps. The President's budget also suggests that FHA should stop insuring mortgages with seller-financed downpayment assistance unless Congress wants to provide funding to cover the losses. FHA has tried to curtail the downpayment assistance programs run by nonprofit groups for years. But the courts and Congress have blocked the agency's efforts despite the high default rates on those loans. "The Budget proposes no new loan guarantees under this program; and provides no funding for its credit subsidy costs," the budget says.

Citigroup, decimated by billions of dollars in writedowns on subprime assets, has decided to sell or close its warehouse lending division, First Collateral Services of Concord, Calif., MortgageWire has learned. The company has contacted investment bankers about selling the operation, said a source, but so far no official offering book has been circulated. Citigroup did not make a public announcement on FCS but confirmed to MW that it will close the unit unless it finds a buyer. (For the full story see the Monday, February 4 issue of National Mortgage News.)

Digital Realty Trust Inc., San Francisco, has priced a public offering of 12 million shares of series D cumulative convertible preferred stock at $24.25 per share. The company said it intends to use the proceeds to repay borrowings under its revolving credit facility, to fund acquisitions and redevelopment activities, and for general corporate purposes. The underwriters have been granted an option to buy up to 1.8 million additional shares to cover any overallotments. The joint book-running managers of the offering are Citi and Credit Suisse Securities (USA) LLC.

InterBay Funding LLC, a small-balance commercial lender based in Fort Washington, Pa., has announced several Spanish-language marketing initiatives. An Internet page now offers loan program and process highlights, descriptions of eligible property types, and contact information. Sales and marketing guides are also available, as well as retail marketing materials such as flyers and brochures in Spanish, the company said. "We're eager to help brokers be as effective as possible in attracting the growing number of Hispanic small-balance borrowers and investors throughout the country," said Tom Brubaker, vice president of marketing for InterBay. "By providing brokers with Spanish-language marketing tools, InterBay can help them 'get in the game' more quickly, build awareness among borrowers, and achieve faster results -- and success -- for both the broker and the business owner." The Web content is located at http://www.interbay.com/sp.

Freddie Mac has announced that the company will release its fourth quarter and full-year 2007 financial results before the New York Stock Exchange opens on Feb. 28. The company said it will hold a conference call at 10 a.m. EST on that date to discuss the results. To listen to the call, domestic investors should call 1-800-230-1074, and international investors should call 1-612-288-0329, approximately 10 to 15 minutes before the start of the call. A spokesman for Freddie's rival Fannie Mae told MortgageWire that Fannie will release its 2007 results before the end of February. A live webcast of Freddie's call and related information will be available through its website at http://www.freddiemac.com/investors/webcasts.

Friendly Hills Bank, a community bank based in Whittier, Calif., has announced the establishment of a full-service construction loan department. The department will be headed by Fred O. Cartozian, who has more than 40 years of real estate and construction lending experience, the bank said. "Despite current economic conditions, our focus on relationship banking has provided us with continued opportunities to service strong and experienced developers on sound projects," said Jeffrey K. Ball, the bank's chief executive officer. Friendly Hills can be found on the Web at http://www.friendlyhillsbank.com.

Despite continued strength in new insurance written and continued growth in primary insurance in force, December was the worst month of the year in terms of the cure/default ratio and the number of defaults, according to data from the Mortgage Insurance Companies of America. After two weak months in the bulk insurance category, $25.8 billion of primary new insurance was written in December, up 6.7% from $24.2 billion in November. Traditional insurance written totaled $22.8 billion, down from $23.4 billion in November, while just under $3 billion of bulk insurance was written, up from $793 million. At the end of December 2006, $668.4 billion of primary insurance was in force; one year later, that has grown to $819.8 billion. The cure/default ratio fell from 60.8% in November to 54.1% in December, with 34,813 cures and 64,384 defaults. It is the second consecutive month in which defaults have topped 60,000. Back in March, there were just 42,362 defaults reported. All the private mortgage insurance companies except Radian report data to MICA.