Originations

MBIA Inc., whose credit guarantees stand behind billions of dollars in subprime mortgage bonds, posted a $2.3 billion loss in the fourth quarter, blaming the problem partly on the performance of second liens and "CDO squared" transactions. In the fourth quarter alone, it marked down the value of insured credit derivatives by $3.4 billion, saying the move resulted "from wider spreads for CMBS and RMBS collateral" and downgrades related to bonds held in collateralized debt obligation structures. CDOs include tranches of subprime asset-backed securities. MBIA also announced that it has moved to shore up its capital, selling $500 million in common stock to investment fund Warburg Pincus Inc. If MBIA's credit ratings slip, holders of CDO and ABS bonds it insures may be forced to take writedowns on those securities.

United Dominion Realty, Denver, is selling 25,684 apartment units in 86 communities for a total of $1.7 billion to a joint venture of DRA Advisors, a New York investment adviser, and Steven D. Bell & Co, a Greensboro, N.C.-based management company. After the transaction closes, the real estate investment trust expects to receive $1.5 billion in cash and a note for $200 million, bearing a fixed interest rate of 7.5%. The multifamily REIT will own 40,183 units in 146 communities after the sale goes through. "This transaction captures the disparity in value between private and public markets, and focuses the company in locations demonstrating high rent growth, strong job growth, and low single-family home affordability," said Thomas W. Toomey, UDR's president and chief executive officer. He added that the proceeds would be invested in share repurchases, debt paydown, new acquisitions, and development programs.

Most senior real estate executives believe that industry fundamentals are solid and that overseas growth will partially offset the softening of the domestic market, according to a new report by The Real Estate Roundtable and FPL Advisory Group. "Leading the Enterprise 2008," released at the Roundtable's 2008 State of the Industry Meeting in Washington, indicates that 69% of nearly 200 surveyed executives are forecasting revenue increases this year and 71% expect profitability to increase. "While we're seeing a more cautious approach to enterprise management in 2008, new opportunities are opening up due to industry globalization, which presents new areas of investment for U.S. capital while also attracting foreign equity capital to our shores," said William J. Ferguson, co-chairman of FPL and the author of the report. The report can be found at http://www.fpladvisorygroup.com.

UBS has warned that it may take a net loss for the year, due in part to estimated losses on U.S. mortgage-related positions totaling $14 billion. The Swiss investment bank, which has dual headquarters in Zurich and Basel, said $12 billion of the losses were on positions related to the U.S. subprime mortgage market. The other $2 billion in losses were on other positions related to the U.S. residential mortgage market.

The Market Composite Index, an overall measure of mortgage applications, increased from 981.5 to 1054.9 on a seasonally adjusted basis during the week ended Jan. 25 as the Refinance Index exceeded 5000, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. On an unadjusted basis, applications increased 10.5% on the week and were up 70.7% from the level recorded a year earlier. The Purchase Index fell from 439.9 to 362.0 on a seasonally adjusted basis, while the Refinance Index climbed from 4178.2 to 5103.6. Refinancings represented 73.0% of total applications, up from 66.0% the previous week, while adjustable-rate mortgages accounted for 8.6%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 5.49% to 5.60%, and points (including the origination fee) fell from 1.07 to 1.06 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Financial institutions filed a record 15,000 suspicious activity reports (including instances of mortgage fraud) with the Federal Bureau of Investigation in the first fiscal quarter of this year. If the pace keeps up, more than 60,000 SARs will be filed, outstripping 2007, when 46,717 reports hit the system. In a briefing on Jan. 29, FBI officials said the agency has 14 major "corporate fraud" investigations under way involving mortgage or related companies. The focus, officials said, was on subprime firms, their accounting and lending practices, and insider trading. The agency did not specify any cases, but it is well known that the collapse of New Century Financial Corp. of Irvine, Calif., is the subject of a major probe. As previously reported, the Securities and Exchange Commission is investigating the failure of several subprime firms, focusing on -- among other things -- their investment bankers, including Bear Stearns, Merrill Lynch, and Morgan Stanley.

Fitch Ratings has downgraded BankUnited Financial Corp.'s long-term issuer default, senior debt, and individual ratings, and revised the company's rating outlook to negative. The rating agency said the Coral Gables, Fla.-based financial institution has seen rapid credit deterioration because of a sharp rise in nonperforming assets to levels beyond what Fitch had expected. BankUnited had a fiscal first-quarter loss of $25.5 million. "Asset quality has been hampered by the rise in delinquencies within its option ARM portfolio, particularly loans with 2006 vintages," Fitch said. "The worsening asset quality metrics prompted the company to boost provisions by $65 million to $117.7 million for the period, compared to $58.6 million the previous quarter." As for the negative outlook, Fitch said the weak housing market could put further pressure on BankUnited's earnings and asset quality. BankUnited is downsizing its wholesale mortgage production platform.

The trustees of the G REIT Liquidating Trust have announced that G REIT Inc., Santa Ana, Calif., has transferred its remaining assets to the trustees in accordance with its liquidation plan. The trustees -- Gary H. Hunt, W. Brand Inlow, Edward A. Johnson, D. Fleet Wallace, and Gary T. Wescombe -- said the real estate investment trust has filed a form with the Securities and Exchange Commission to terminate the registration of its common stock. Under the terms of the Liquidating Trust, each stockholder automatically became the holder of one unit of beneficial interest in the Liquidating Trust for each share of G REIT common stock held. All outstanding shares of G REIT are deemed canceled.

First-time homebuyers with low downpayments still have choices despite the tightening mortgage market, according to Susan M. Wachter, professor of real estate and finance at the University of Pennsylvania's Wharton School. With support from Genworth Financial Inc., Professor Wachter released her fourth-quarter 2007 U.S. Mortgage Payment Index, which evaluates mortgage products to see which ones offer the best value. The index shows that borrowers and lenders opted for safer mortgages in the latter part of 2007, with adjustable-rate mortgage applications dropping 39.6% from January 2007 to January 2008 while applications for fixed-rate loans rose 60.1%. "I am concerned that the wipeout of subprime lending may have a long-term negative impact on the credit market," Ms. Wachter said. "From an economic perspective, we need to find ways to keep the market moving, and first-time buyers are an important part of the equation. There are responsible ways to get these borrowers into homes, and they include traditional home financing, such as fixed-rate mortgages backed by private or government mortgage insurance." The index can be found online at http://www.genworth.com/mortgageinfo.

Servicers of commercial mortgage-backed securities are facing challenges in the current less-than-liquid environment, according to Fitch Ratings. The rating agency said servicers now face more inquiries from investors. Other challenges include increased bidding competition for fewer securitizations and the need to add more staff, redeploy staff, or create specialized groups to deal with new concerns. In the case of special servicers, they will not be able to easily get rid of real-estate-owned assets because of decreased liquidity and may end up taking more losses, Fitch said. "Although there is still capital in the real estate market, the profile of the buyers has changed, and individual real estate investors are less likely to be able to purchase property because their financing options are limited," said Stephanie Petosa, a Fitch managing director. Institutional investors and opportunistic funds are likely to be more active. One positive fallout from this environment is that fewer loans are defeasing or prepaying, which is good for the stability of master servicers' portfolios, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

The Core Mortgage Risk Index increased 9.0% in the first quarter, reflecting the pressures of rising delinquency and foreclosure rates, flat or declining price appreciation, and slower job growth, according to First American CoreLogic, Sacramento, Calif. Among the largest 100 markets in the country, CoreLogic said the five with the highest risk are: Bakersfield, Calif.; Stockton, Calif.; Fresno, Calif.; Warren-Troy-Farmington Hills, Mich.; and Grand Rapids-Wyoming, Mich. "While Michigan markets overall are not as highly ranked as they were in the past, it is not because the risk has declined or even stabilized, but rather that California markets are deteriorating at a faster rate," the company reported. CoreLogic, a provider of mortgage risk assessment and fraud prevention systems, can be found on the Web at http://www.corelogic.com.

House prices declined 2.1% in November, and prices were down 7.7% on a year-over-year basis, according to the Standard & Poor's/Case-Shiller housing price index, which covers 20 metropolitan statistical areas. "We reached another grim milestone in the housing market in November," said Robert Shiller, chief economist at MacroMarkets LLC. Fourteen of the 20 MSAs recorded their largest monthly decline on record in November. And every MSA has now posted three consecutive monthly declines, he said. The S&P/Case-Shiller HPI shows Miami is the "weakest market," with a 15% annual decline in house prices, followed by San Diego (down 13.4%), Las Vegas (down 13.2%), and Detroit (down 13.0%). Charlotte, N.C., Portland, Ore., and Seattle are the only MSAs still experiencing price appreciation, according to the index.

Problems in the housing market and a slowing economy have pushed the homeownership rate down to 67.8% -- the lowest rate since the first quarter of 2002. The Census Bureau reported that the homeownership rate declined from 68.2% in the third quarter to 67.8% in the fourth quarter. During the housing boom, the homeownership rate peaked at 69.2% (in the second quarter of 2004). The homeownership rate for blacks rose from 46.7% in the third quarter to 47.7% in the fourth quarter, while the rate for Hispanics fell below 50%, to 48.5%. The Census Bureau report also shows that a large inventory of vacant homes that weighed on real estate markets last year will continue to put downward pressure on house prices in 2008. The number of vacant single-family homes for sale rose 6.5% to 2.18 million in the fourth quarter. There were 2.1 million unsold vacant homes on the market in the fourth quarter of 2006.

More than 2.2 million foreclosure filings were reported nationwide in 2007, up 75% from the level recorded in 2006, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif. In December, 215,749 foreclosure filings were reported, up 97% from the total of a year earlier, the company said in its 2007 U.S. Foreclosure Market Report. (Foreclosure filings include default notices, auction sale notices, and bank repossessions.) "The year ended with a monthly increase of 7% in December, making it the fifth straight month with more than 200,000 foreclosure filings reported and giving the fourth quarter the highest quarterly total we've seen since we began issuing our report in January 2005," said James J. Saccacio, chief executive officer of RealtyTrac. RealtyTrac said Nevada, Florida, and Michigan recorded the highest foreclosure rates in 2007. The company can be found online at http://www.realtytrac.com.

Bank of America chairman and chief executive Kenneth Lewis said the bank's planned acquisition of Countrywide Financial Corp. "is a go" after Countrywide released earnings Tuesday morning. Speaking at a Citigroup investors conference, Mr. Lewis said Countrywide's fourth-quarter financial results, which revealed higher credit costs and a loss, were in line with Bank of America's due diligence and offering price. "At this point, everything is a go for completing this transaction," Mr. Lewis said. He also said Countrywide's year-end results showed improvement in its underlying mortgage business. BoA can be found on the Web at http://www.bankofamerica.com.

Countrywide Financial Corp., Calabasas, Calif., has completely abandoned using commercial paper borrowings to fund its operations and is relying instead on hefty advances from the Federal Home Loan Bank System, according to its fourth-quarter earnings release. A year ago, Countrywide had $7.7 billion in outstanding asset-backed commercial paper and another $6.7 billion in unsecured CP, for a total of $14.4 billion. It now has zero in those categories, according to its earnings statement. At Dec. 31, 2007, it had $47 billion in outstanding advances from the FHLBank system, an increase of 69% in 12 months. The company can be found on the Web at http://www.countrywide.com.

After predicting that it would earn money in the fourth quarter, Countrywide Financial Corp. posted a $422 million loss for the period. Over the past six months, the nation's largest lender/servicer has lost $1.6 billion. It also reported fourth-quarter loan production of just $61 billion, a 48% decline from the level recorded a year earlier. The company originated just $65 million in subprime loans, compared with $9.1 billion a year ago. It set aside $924 million for credit losses in the fourth quarter, compared with $937 million in the third quarter. It also took an impairment charge of $831 million tied to what it called "retained interests" in prime-quality, junior-lien home equity securitizations. Countrywide's servicing business lost $198 million (pretax) in the fourth quarter, and the firm wrote down the value of its $1.46 trillion mortgage servicing portfolio by $1.6 billion. The publicly traded lender is slated for sale to Bank of America. In a statement, Countrywide chairman and chief executive Angelo Mozilo blamed the company's performance on "further credit deterioration across the industry and continued illiquidity in the secondary mortgage markets." For the year, Countrywide lost $704 million, its first annual net loss in more than 30 years.

Huntington Bancshares, Columbus, Ohio, has been designated the "Bear of the Day" for Jan. 28 by Zacks Equity Research, Chicago. The Bear of the Day is a stock expected to underperform the markets over the next three to six months. "Digestion of the Sky Financial merger has weighed on the share price in the current quarter, with the potential for negative implications over the next several quarters, as the Franklin relationship that was inherited with this acquisition mostly contributed to the loss," Zacks said. The research firm noted the weaknesses in the housing and credit environment and said they "are expected to overhang the market in 2008." Zacks can be found online at http://www.zacks.com, and Huntington can be found at http://www.huntington.com.

Foreign investors have identified New York City and Washington as their top two cities for real estate investments, according to the latest annual survey by the Association of Foreign Investors in Real Estate. The Washington-based AFIRE also reported that "one of the significant findings" this year is that investors have more confidence in China, considering that for the second time in three years China has been voted the country offering the best chance for capital appreciation, after the United States. Five of the respondents' top 10 cities are in Asia. London, the top-rated city for 2006, is down to No. 2 in the current survey. Singapore is up to sixth place, from 24th in 2006. Sydney, Australia, and Hong Kong are also up significantly. The United States has also been voted the most stable and secure country for real estate investments, with 56% of the votes. In terms of property sectors, retail properties are seen as the best bet.

Florida Bank Group Inc., Tampa, Fla., has created a new mortgage banking unit, Florida Bank Mortgage. The company has hired Randy Freese to lead its residential mortgage efforts. "In response to the recent developments in the mortgage origination market, we believe that community banks are well positioned to expand into this market by virtue of the relationship of trust we enjoy with our customers," Mr. Freese said. Florida Bank Mortgage will offer mortgage services statewide in Florida.