Originations

Goldman Sachs & Co. has filed a $5 million unsecured claim in bankruptcy court against the now-defunct First NLC Financial Services, Deerfield Beach, Fla., a subprime lender owned by Friedman Billings Ramsey. According to First NLC's filing in West Palm Beach, Fla., Goldman is the largest unsecured creditor of the company. Others that are owed money include HSBC Mortgage Services ($3 million), Deutsche Bank ($2 million), and U.S. Bank Corp. ($1 million). Most of the claims are tied to "representations and warranties" on loan buybacks. The filing lists 20 unsecured creditors that are owed roughly $16 million. Some include former employees trying to collect on severance benefits. According to the Mortgage Industry Directory, a SourceMedia publication, First NLC was once a top-30-ranked subprime funder.

The Market Composite Index, an overall measure of mortgage applications, increased from 906.4 to 981.5 on a seasonally adjusted basis during the week ended Jan. 18 as the Refinance Index surged past 4000, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. On an unadjusted basis, applications increased 11.0% on the week and were up 63.7% from the level recorded a year earlier. The Purchase Index fell from 461.2 to 439.9 on a seasonally adjusted basis, while the Refinance Index climbed from 3575.5 to 4178.2. Refinancings represented 66.0% of total applications, up from 62.7% the previous week, while adjustable-rate mortgages accounted for 9.3%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 5.62% to 5.49%, and points (including the origination fee) rose from 0.94 to 1.07 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

American General Finance has agreed to pay $1.49 billion to Popular Inc. -- a 3% premium -- for most of its subprime loan portfolio. A spokesman for the San Juan, Puerto Rico-based Popular told MortgageWire that most of the loans are subprime in nature and carry fixed rates. "It's a good deal for us and it's a good deal for them," he said. "We get cash and are exiting the market." He added that the loans are "well documented." The mortgages were funded by the bank's Equity One consumer finance division, a company Popular has owned since 1991. The New York-based AGF will also take control of 24 Equity One branches, all of which are located in the continental United States. AGF is a subsidiary of American International Group, an insurance conglomerate.

MGIC Investment Corp., Milwaukee, is projecting incurred losses for the fourth quarter of around $1.3 billion. This is more than double what Friedman, Billings, Ramsey analysts Steve Stelmach and Paul Miller Jr. had previously estimated, the pair say in a new report. MGIC blamed a continued deterioration in cure rates, leading to a higher percentage of loans that became claims. In addition, average claim size continues to increase. For 2008, MGIC is projecting paid losses in the area of $1.8 billion to $2.0 billion. The company said it decided during the fourth quarter to stop writing bulk business insuring loans in Wall Street securitizations. In their report, the FBR analysts forecast that MGIC will have a tangible book value of $2.6 billion by year-end 2008, down from $4.5 billion at the end of the first quarter of 2007. "This will bring MGIC uncomfortably close to breaching its minimum net worth requirement of $2.0 billion," the analysts said. "As a result, we view rating agency risk as growing, as well as the need for a potential capital raise. Also, we do not view other MIs as immune from the troubles seen at MGIC and would expect the group to trade lower in sympathy." MGIC can be found on the Internet at http://www.mgic.com.

Fitch Ratings has removed 87 residential mortgage-backed securities insured by MBIA Inc. from Rating Watch Negative. The action followed Fitch's recent affirmation of the AAA Insurer Financial Strength ratings of MBIA and its subsidiaries. The IFS rating of the financial guaranty insurance company, and the related RMBS ratings, had been placed on Rating Watch Negative following assessments of the company's exposure to RMBS and collateralized debt obligations backed by subprime mortgage collateral.

The issuer default rating and senior unsecured note rating of Hovnanian Enterprises Inc., a homebuilder based in Red Bank, N.J., have been downgraded from BB-minus to B-minus/RR4 by Fitch Ratings. In addition, the homebuilder has been placed on Rating Watch Negative. Fitch said the downgrades reflect the U.S. housing environment, expected trends in Hovnanian's operating margins, and deterioration in its credit metrics. The rating watch placement reflects the company's "exposure to liquidity risk given ongoing negotiations with its bank group regarding modifications to its revolving credit agreement," Fitch said. In addition to the other downgrades, Hovnanian's senior subordinated notes were downgraded from B to CCC/RR6, and its preferred stock was downgraded from B-minus to CCC-minus/RR6. (The Recovery Ratings indicate the recovery prospects for holders of securities.) The rating agency can be found online at http://www.fitchratings.com.

Citing worries about subprime mortgages, Fitch Ratings has downgraded the insurer financial strength rating of Security Benefit Life Insurance Co., Topeka, Kan., and is keeping it on Rating Watch Negative. Fitch said the downgrade stems from Security Benefit's acquisition of Rydex Investments, specifically from concerns about the financing of the transaction and its effect on Security Benefit's balance sheet fundamentals. Fitch said it was maintaining the negative watch status based on Security Benefit's exposure to subprime mortgages through its investment in mortgage-backed securities. "The company's surplus exposure to subprime-related investments is significantly above average for the life insurance industry, and Fitch believes that deteriorating conditions in the mortgage market and the economy as a whole could further impair the quality of Security Benefit's portfolio of asset-backed securities," the rating agency said.

Commercial real estate prices fell 0.2% on a monthly basis in November, based on indices maintained by Moody's Investors Service. It was the second decline in the last three months, which the rating agency said could be an indicator that prices in the sector have peaked and could be heading for a downturn. "Price series often stumble along at the top, leveling off before experiencing a more consistent downward trajectory," said Sally Gordon, a Moody's senior vice president. Standard & Poor's also reported that its S&P/GRA commercial real estate indices showed 12-month returns of 4.9% for October, representing a decelerating return from the growth reported in past months. "On a national scale, annual returns continue to decelerate," S&P said. The office sector was the best performer for the period, with 12-month returns of 10.8% (down from 13% for September). The multifamily sector was the worst-performing sector, with a negative-0.5% return (an improvement from negative-2.7% for September). Some "pockets of strength" were seen in some regions -- the Desert Mountain West, the mid-Atlantic South, and the Northeast. But even these regions were "significantly below their recent double-digit growth rates," S&P said.

Federal Reserve rate cuts and the passage of a stimulus package could provide insurance against a recession, particularly if falling house prices spark a major pullback in consumer spending, according to the American Bankers Association's economic advisory committee. "We may be looking at an unprecedented drop in home prices," said Peter Hooper, chief economist at Deutsche Bank Securities. The consensus of the nine economists on the advisory committee is that there will be a "double-digit decline" in house prices as measured by the Standard & Poor's/Case-Shiller housing price index, and prices will not stop falling until 2009. The consensus says there is a 45% chance of a recession this year. They expect that unemployment will rise to 5.3% and the Federal Reserve will cut the target federal funds rate by 100 basis points to 3.25% by midyear. All nine economists say they expect the performance of mortgage and other consumer loans to deteriorate further over the next six months.

National City Corp., Cleveland, has reported a fourth-quarter loss of $333 million ($0.53 per share), compared with net income of $842 million ($1.36 per share) a year earlier. NatCity reported a loss of $149 million for the quarter in its loans-held-for-sale portfolio due to problems in the secondary market, which resulted in additional fair-value writedowns on those loans. It has now stopped origination of all products other than agency-eligible products and shifted certain non-agency-eligible mortgage loans and home equity loans from its held-for-sale portfolio to its balance sheet portfolio. NatCity also took a charge of $181 million ($0.26 per share) for goodwill impairment related to the mortgage business. For the year, NatCity earned $314 million ($0.51 per share), down from income of $2.3 billion ($3.77 per share) in 2006.

Wachovia Corp. is taking a 25% loss on the sale of California homes financed by payment-option ARMs, and the banking company has seen the performance of those negatively amortizing loans deteriorate over the past few quarters. The Charlotte, N.C.-based bank reported a $1 billion increase in nonperforming option adjustable-rate mortgages as the percentage of loans 90 days or more past due in its $120 billion portfolio rose from 1.47% in the third quarter to 2.31% in the fourth quarter. Wachovia took a $93 million chargeoff against the portfolio. But company executives say they expect the option ARM business to remain profitable, despite rising chargeoffs and real-estate-owned sales. The banking company reported a 98% drop in earnings to $51 million in the fourth quarter compared with the level of a year earlier, mainly due to chargeoffs and provisioning relating to its residential and commercial mortgage portfolios. "Lower earnings largely reflect the effect of continued disruption in the capital markets, which resulted in net valuation losses of $1.7 billion as well as a provision for credit losses of $1.5 billion, which exceeded net chargeoffs by $1.0 billion," the bank said.

Fannie Mae and Freddie Mac could write down the value of their subprime and alternative-A securities by as much as $16 billion, according to a new report issued by Credit Suisse. CS analyst Moshe Orenbuch estimates that Freddie's charge could be as high as $11 billion, Fannie's $5 billion. Mr. Orenbuch said the government-sponsored enterprises, through September, have recognized "minimal impairments" on their roughly $230 billion in subprime and alt-A holdings. Both GSEs declined to comment on the CS report. Fannie and Freddie are scheduled to release fourth-quarter earnings at the end of February, but have not yet specified an exact date.

Bank of America chief executive Kenneth Lewis said Tuesday morning that he expects the company's purchase of the troubled Countrywide Financial Corp. to close some time in the second half of this year. There has been speculation that BoA might back out of the deal, which sent Countrywide's share price reeling on Jan. 18. Meanwhile, on Tuesday the treasurer of the Service Employees International Union sent a letter to Federal Reserve Chairman Ben S. Bernanke and elected officials that oversee the mortgage industry, asking them to carefully review the transaction. "While the short-term appeal of this acquisition may be tempting, the long-term implications of bank industry consolidation on this scale raise serious policy and regulatory questions that need to be answered now," wrote SEIU treasurer Anna Burger. The union has 1.9 million members.

Bank of America -- which a few weeks ago agreed to buy Countrywide Financial Corp. -- took a $5.28 billion charge on its collateralized debt obligation holdings in the fourth quarter. BoA saw its earnings plunge by 94% in the period to just $268 million. Over the past few days, investment bankers have speculated that BoA could back out of the Countrywide deal entirely, or at the very least ask for a reduction on the $4 billion purchase price. In trading early Tuesday morning, BoA's share price was down 6%, Countrywide's 13%. Bank of America can be found online at http://www.bankofamerica.com.

The Federal Reserve on Tuesday morning cut its key lending rate by 75 basis points to 3.50% in reaction to a rout in global stock markets as well as a "softening" jobs market in the United States and a "deepening" housing contraction. The cut in the target federal funds rate also came on the heels of dismal fourth-quarter earnings reports by Bank of America and Wachovia showing that credit losses and provisioning cut earnings by more than 90% compared with the levels of a year earlier. "While strains in the short-term funding markets have eased somewhat, broader financial conditions have continued to deteriorate and credit has tightened further for some businesses and households," the Fed's monetary policy committee said in explaining the sudden rate cut. "Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in the labor markets." The Fed committee is scheduled to meet Jan. 30, and Fed watchers had been expecting a 50-bp cut based on Fed Chairman Ben S. Bernanke's comments that he will act aggressively to keep the U.S. economy growing. However, fears that the U.S. economy is already in recession swept Asian and European markets on Monday and Tuesday and sent stock prices sharply lower. This prompted the Fed to take quicker and more decisive action before the U.S. stock markets opened.

Fitch Ratings has placed all its ratings on Santa Ana, Calif.-based First American Corp. and its title insurance subsidiaries on Rating Watch Negative because the company expects to post a fourth-quarter loss of up to $50 million. Moreover, the title insurance segment's results will be affected by further adverse reserve development, the rating agency said. Fitch said it is likely to lower First American's ratings by one notch following a review of the full-year results when they are formally released. The proposed split at First American means the title business would not be negatively affected by higher leverage from future acquisitions by the information services segment. But the current rating action is related to below-expectations performance in the title business.

Countrywide Financial Corp., Calabasas, Calif., has reported that it provided workout options that helped over 80,000 borrowers keep their homes in 2007, up to 69% of which were loan modifications. Ninety percent of all workout efforts resulted in foreclosure prevention, Countrywide said. Besides modifications, the next most popular measures were long-term repayment plans, special forbearance, and partial claims. "Home retention efforts in the second half of the year increased 148% compared to the first six months, and we anticipate helping even a greater number of borrowers in 2008," said Steve Bailey, Countrywide's senior managing director of loan administration. Countrywide designed a $16 billion foreclosure prevention assistance initiative that was made possible through increased staff combined with outreach and investor support efforts, especially during the fourth quarter. The company can be found online at http://www.countrywide.com.

CB Richard Ellis Group Inc., Los Angeles, has announced the addition of a HUD/FHA-insured multifamily and health care mortgage lending capability to the Multi-Housing Group within its capital markets business. Ron Halpern, managing director of the Multi-Housing Group, will spearhead the Department of Housing and Urban Development/Federal Housing Authority initiative. He will be joined by industry veterans Jayne Hulbert, who will lead the production efforts, and Thom Cooley, who will serve as chief underwriter for FHA and assist in the expansion of the new capability. "This new initiative will significantly strengthen CBRE's Capital Markets platform, enabling us to offer our clients the full range of HUD/FHA-insured mortgages for new construction, substantial rehabilitation, refinancing, or acquisition loans on apartments, senior housing, and health care facilities," Mr. Halpern said.

Merrill Lynch's new CEO John Thain told employees this week that if he could sell its subprime division, First Franklin Financial Corp., for what the company paid for it a year ago he would do it in an instant, one FFFC employee has told MortgageWire. The FFFC employee, requesting anonymity, said the Merrill-owned unit has seen its loan production just about dry up. Mr. Thain held a conference call with Merrill employees -- including FFFC workers -- this past week. As reported by National Mortgage News, Merrill has considered selling FFFC, but the market for nondepository subprime wholesalers is virtually nonexistent. (Merrill paid $1.3 billion for the lender and two affiliates last February.) The FFFC employee said that during the conference call, one worker told Mr. Thain that all the lender's account executives are "starving" because few loans are getting funded. At deadline time, a Merrill spokesman had not responded to a telephone call and e-mail message about the intra-company conference call.

Raising the Fannie Mae and Freddie Mac loan limit to $625,000 as part of a stimulus package could help 140,000 to 210,000 families escape foreclosure, increase home sales, and boost economic activity by $42 billion, according to the National Association of Realtors. "We believe that any stimulus package must address housing issues and increasing the conforming loan limits for these two government-sponsored enterprises," NAR president Dick Gaylord said. Congress and the Bush administration are trying to put together a $100-150 billion stimulus package that features mainly tax rebates for consumers and accelerated writeoffs for businesses. President Bush called for quick passage of a Federal Housing Administration reform bill on Friday in discussing his approach to a stimulus package. But he did not mention the GSEs. The Realtors want the GSE loan limit raised from $417,000 to $625,000 to address the lack of liquidity and the high interest rates in the jumbo mortgage market. "This is the quickest way to help the hurting housing market," Mr. Gaylord said.