Originations

Class L of the BALL 2006-BIX1 commercial mortgage-backed securitization has been placed on Rating Watch Negative by Fitch Ratings. The negative rating action was taken due to the transfer of the Bassett Place Mall loan to special servicing, Fitch reported. The loan, secured by a regional mall in El Paso, Texas, was transferred on Jan. 10 as a result of maturity default. "Although the loan has three one-year extension options, it did not meet the debt service coverage ratio criteria," the rating agency said.

Moody's Investors Service has downgraded the senior unsecured debt ratings of the New York-based Centro NP LLC (formerly New Plan Excel Realty Trust) from B1 to B3, citing additional liquidity and accounting issues at its corporate parent, Centro Properties Group, Melbourne, Australia. Centro's U.S. private placement noteholders are collectively owed $450 million, suggesting that "one or more events of default may have arisen under some or all of the notes," and the company has entered note extension agreements with these noteholders.

Fitch Ratings says it expects delinquencies on commercial mortgage-backed securities to double or triple this year, after closing 2007 at a low of 0.28%. This sort of rise would put CMBS delinquencies closer to the annual average CMBS default rate of 79 basis points, according to the rating agency. "Additional economic stress to property cash flows, declining defeasance volume, balloon defaults, and the decrease in new origination volume are likely to contribute to the increase in Fitch's loan delinquency index," said Michelle Bayard, a Fitch director. The multifamily sector ended 2007 with $427.8 million more in delinquent loans, with the highest concentrations of delinquencies seen in Texas (49.5%), Michigan (9.9%), and Tennessee (9.9%). The 2006, 2005, and 2004 vintages saw the highest concentration of delinquent multifamily loans, accounting for 55.4% of delinquencies. Moreover, the delinquencies in 2005 and 2006 occurred earlier than expected, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

The initial rate discount for prime 3/1 and 5/1 adjustable-rate mortgages, which had been about 1.8 percentage points, has "virtually disappeared," according to an annual Freddie Mac survey. "The survey, based on data collected between Dec. 17 and Dec. 21, found that starting rates for ARMs were close to or above rates a year earlier, even though the Federal Reserve had lowered its federal funds target from 5.25% to 4.25% over the time since Freddie Mac's previous survey," the government-sponsored enterprise said. Freddie Mac can be found on the Web at http://www.freddiemac.com.

Residential mortgage lending continued to contract from mid-November through December, according to the Federal Reserve Beige Book, but refinancing activity varied. The Chicago and Richmond Federal Reserve district banks reported "increased refinancing activity, but New York cited widespread declines in refinancing," the Beige Book says. The Fed's periodic report on economic activity also notes that home sales are "sluggish" in most bank districts and inventories of unsold homes remain at historically high levels. "Overall, contacts anticipate that housing markets will remain weak during the first part of 2008," it says. Meanwhile, commercial real estate activity "eased late in the year," demand for CRE loans was mixed, and credit standards have tightened in the past two months, according to the Fed report.

The CIT Group, New York, posted a net loss of $130.7 million ($0.69 per share) for the fourth quarter, primarily because of problems in its home lending business and its student lending business, says chairman and chief executive Jeffrey M. Peek. During the quarter, CIT recorded a $297 million increase in its reserves for credit losses, including a $250 million reserve for its held-for-investment home lending portfolio. This reduced its EPS by $0.96. In addition, CIT took a $42 million charge related to home lending receivables held for sale, which had the effect of reducing EPS by $0.14. It also had a pretax loss of $13 million ($0.04 per share) in home lending, excluding the above items, due to an impairment of retained interests on past off-balance-sheet securitizations.

Huntington Bancshares Inc., Columbus, Ohio, has reported a net loss of $239.3 million ($0.65 per share) for the fourth quarter, due largely to credit losses linked to Franklin Credit Management Corp., a specialist in servicing and resolving residential mortgage loans. A year earlier, Huntington reported earnings of $87.7 million ($0.37 per share). Huntington said it made a $405.8 million provision for credit losses in the fourth quarter related to the restructuring of loans to Franklin, along with $106.2 million for non-Franklin-related losses, much of which was attributed to continued weakness in commercial real estate markets. Thomas E. Hoaglin, chairman, president, and chief executive officer of Huntington, said the company "firmly" believes that the "reserves we have established and the positive cash flow coverage resulting from the restructuring address fully the current and anticipated financial performance issues associated with this relationship." The company can be found online at http://www.huntington.com.

The average 30-year fixed mortgage rate fell from 5.87% to 5.69% over the seven-day period ended Jan. 17, according to Freddie Mac's Primary Mortgage Market Survey. The average 15-year fixed mortgage rate fell from 5.43% to 5.21%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages declined from 5.63% to 5.40%, and the average rate for one-year Treasury-indexed ARMs decreased from 5.37% to 5.26%, Freddie Mac reported. Fees and points averaged 0.4 of a point for 15-year fixed-rate mortgages, 0.5 of a point for 30-year fixed-rate mortgages, and 0.6 of a point for ARMs. "The latest retail sales report indicated that shoppers scaled back spending in December, as retail sales declined by 0.4% from November's level," said Frank Nothaft, Freddie Mac's chief economist. "Particularly weak were sales of building materials, garden equipment, and supply stores, which fell by 2.9% from the previous month. The declines aggravated concerns about the well-being of the economy and exerted downward pressure on mortgage rates." A year ago, the average 30-year and 15-year fixed rates were 6.23% and 5.98%, respectively, and the average hybrid and one-year ARM rates were 6.04% and 5.51%, Freddie Mac said. Freddie can be found online at http://www.freddiemac.com.

The mortgage industry modified an estimated 54,000 home loans and established formal repayment plans involving another 183,000 borrowers during the third quarter, according to an analysis by the Mortgage Bankers Association. The MBA also estimates that foreclosure actions were started on 384,000 loans in the third quarter, though the MBA said that 63% of the foreclosure starts involved non-owner-occupied homes, borrowers who failed to respond to servicers' efforts to contact them, or borrowers who failed to perform on a repayment plan or loan modification that was already in place. Jay Brinkman, the MBA's vice president of research, said the number of loan modifications and repayment plans is likely to grow because of the industry's efforts to reach out to borrowers with subprime adjustable-rate mortgage loans. The MBA estimates are based on responses from servicers covering about 33 million home loans, or 62% of the total market. The MBA can be found online at http://www.mortgagebankers.org.

Subprime servicers are starting to provide data on their loan modification efforts to a working group of state attorneys general and banking regulators, according to New York Banking Superintendent Richard Neiman. The multistate working group, headed by Iowa Attorney General Tom Miller, began working with subprime servicers last summer to make sure distressed homeowners are getting the assistance they need to avoid foreclosure. However, Mr. Miller's group has been shut out of the loan modification efforts led by Treasury Secretary Henry Paulson and the Hope Now alliance of servicers. "I found it curious and disappointing that the Treasury's Hope Now alliance did not include a state government representative," Mr. Neiman told the Exchequer Club. "This omission could undermine the group's effectiveness, because it is missing the perspective from an important regulatory partner, which is the sole supervisor for a significant portion of the mortgage industry."

Federal Reserve Board Chairman Ben S. Bernanke says he expects that foreclosures on $1 trillion in subprime adjustable-rate mortgages will lead to at least $100 billion in losses, and it could go much higher. "So far, I see about $100 billion, but it certainly could be several multiples of that as we go forward and delinquency rates and foreclosure rates rise," the Fed chairman told the House Budget Committee. He noted that there are 5 million subprime ARMs, of which 20% are delinquent. The Fed chairman also testified that home prices are falling in many parts of the country. "The virtual shutdown of the subprime mortgage market and a widening of spreads on jumbo mortgage loans have further reduced the demand for housing, while foreclosures are adding to the already-elevated inventory of unsold homes," he said.

Single-family housing starts dropped 28.6% in 2007 compared with those of the previous year, including a 2.9% decline in construction activity during the final month of the year. The U.S. Census Bureau reported that single-family housing starts declined from a seasonally adjusted annual rate of 818,000 in November to 794,000 in December. The bureau revised the November number downward by 11,000 starts. The year-end numbers show that builders started construction on 1.05 million single-family homes in 2007, down from 1.47 million in 2006. The National Association of Home Builders forecast calls for another 23% decline in starts this year as builders struggle to sell off a historically high number of newly built and vacant homes. The government also reported that multifamily starts plunged 41% in December to 196,000 units. For the year, multifamily starts totaled 275,000, down only 6% from the level recorded in 2006.

Bond insurer Ambac Financial -- whose guarantee is behind billions of dollars in asset-backed bonds collateralized by subprime loans -- saw its stock plunge 60% in trading early Thursday after Moody's Investor Service said it is reviewing the company for a possible downgrade. The news comes on the heels of Ambac's recent announcement that it has an estimated $5.5 billion pretax loss on credit derivatives for the fourth quarter. In trading, Ambac's shares were down 62% to just $5 a share. In a statement regarding the possible downgrade, Ambac called it a "surprising" move on Moody's part, adding that "Management remains confident in Ambac's insured portfolio and will communicate further on these matters."

Lehman Brothers said Thursday that it is "suspending" the wholesale and correspondent origination arms of Aurora Loan Services, its nonprime mortgage banking subsidiary, shedding 1,300 workers in the process. Among residential funders, the Denver-based Aurora ranks 19th nationwide, according to the Quarterly Data Report, a National Mortgage News publication. Lehman said Aurora will continue to fund mortgages through its direct lending channel and retain its servicing business, which focuses mostly on alternative-A loans. It will close regional operation centers in Lake Forest, Calif.; Sunrise, Fla.; and Florham Park, N.J.

Merrill Lynch took a $9.8 billion loss for the fourth quarter -- and a $7.8 billion net loss ($8.6 billion from continuing operations) for all of 2007 -- due primarily to an $11.5 billion U.S. mortgage-related writedown in the last three months of the year that produced results far below analysts' estimates. In addition to the writedowns on the mortgage-related assets themselves, Merrill took credit valuation adjustments of $2.6 billion related to hedges with financial guarantors on collateralized debt obligations with mortgage exposure. Analysts at Sandler O'Neill Research said that, while the writedowns "were significant and larger than our expectations, we actually expect that some investors may be disappointed [that Merrill] did not take a larger writedown, given more aggressive actions at some of its competitors and in the wake of ... significant capital raises." The results may have implications for the company's remaining wholesale mortgage business. Merrill also announced the appointment of Noel B. Donohoe as co-chief risk officer. Mr. Donohoe was previously head of firmwide risk at Goldman Sachs from 1994 to 2005. Merrill Lynch can be found online at http://www.ml.com.

Three classes of GE Capital Commercial Mortgage Corp. commercial mortgage pass-through certificates have been downgraded by Fitch Ratings. The downgrades were as follows: class H, from B-plus to B; class I, from B-minus to CCC/DR2; and class J, from C/DR5 to C/DR6. Fitch also affirmed the ratings on eight other classes in the transaction. The downgrades were attributed to increased loss expectations on a specially serviced loan and potential future defaults. The specially serviced asset is collateralized by a 292-unit multifamily property in Dallas that is in foreclosure, the rating agency said.

The issuer default rating of Duke Realty Corp. has been downgraded from BBB-plus to BBB by Fitch Ratings due to a "sustained increase" in the company's leverage ratios. In addition, Duke's preferred shares have been downgraded from BBB to BBB-minus, and the ratings of Duke's operating partnership, Duke Realty LP, have been downgraded from BBB-plus to BBB. Fitch said it is especially concerned about "the deterioration of Duke's ratio of undepreciated unencumbered assets to unsecured debt in recent periods." Duke can be found on the Web at http://www.dukerealty.com.

Fitch Ratings has placed 188 tranches from 18 commercial mortgage-backed securities deals, representing $8.4 billion in total, on rating watch negative, following a review in its surveillance methodology. The New York credit rating agency said that this has been done since Fitch expects higher defaults and losses on CMBS going forward. The deals impacted include $928 million of commercial real estate collateralized debt obligations (CRE CDOs) that are already on rating watch negative. Of the bonds placed on watch, $3.2 billion represent tranches currently rated AAA. Susan Merrick, managing director and head of Fitch's U.S. CMBS group, noted, "Recent headline defaults such as Centro and MBS support Fitch's prediction for CMBS defaults at least doubling in 2008."

The Market Composite Index, an overall measure of mortgage applications, increased 28.4% from 706.0 to 906.4 on a seasonally adjusted basis as refinancing rose notably during the week ended Jan. 11, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. On an unadjusted basis, applications increased 64.8% from the previous holiday-shortened week, and were up 39% from the level recorded a year earlier. The Purchase Index rose from 414.0 to 461.2 on a seasonally adjusted basis, while the Refinance Index surged from 2494.2 to 3575.5. Refinancings represented 62.7% of total applications, up from 57.7% the previous week, while adjustable-rate mortgages accounted for 9.2%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 5.73% to 5.62%, and points (including the origination fee) fell from 1.10 to 0.94 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

The National Association of Home Builders and the Financial Services Roundtable have decided to put aside their differences and work toward the quick passage of a GSE reform bill that temporarily increases the conforming loan limit for Fannie Mae and Freddie Mac. The two trade groups have battled over legislation to strengthen regulatory oversight of the government-sponsored enterprises for many years. But now the two antagonists have agreed to support a House-passed GSE bill in an effort to bring liquidity to the jumbo market and complete action on comprehensive GSE reform. The House bill has a provision that increases the conforming loan limit from $417,000 to $625,000 in high cost areas and allows the GSEs to securitize those higher balance mortgages. Under the compromise, the increase would expire in two years "if the jumbo market returns to a normal spread between conforming and nonconforming mortgage rates." NAHB and the FSR Housing Policy Council executives also pledged to work with other banking and housing groups to get them on board. "We also hope the [Bush] administration will embrace this," NAHB executive vice president Jerry Howard said.