Originations

IndyMac Bancorp, Pasadena, Calif., is slashing nearly one-quarter of its workforce in an effort to "right-size our costs and implement process changes to make our new production model profitable," according to an e-mail sent by chief executive Michael Perry to company employees. The cut of 2,403 people comes on top of a cut of nearly 1,600 people through a voluntary resignation and severance program last September. The most recent cuts include a 27% reduction in the number of staff from outsourced and temporary vendors, mainly in India. Mr. Perry noted that while he had said in an Oct. 12 e-mail that there would be no further reductions unless the mortgage market continued to tumble, the fact is that it has. "The reality is that since Oct. 12 conditions have gotten worse in our industry. The private secondary market remains virtually frozen, and the market suffered another setback in November, as the GSEs reported large losses and indicated that they are capital-constrained, with the result that they had to further tighten their own guidelines." IndyMac said it now expects to originate just $43 billion in volume in 2008, compared with $78 billion in 2007. As a result of another product menu change because of secondary market conditions, its pipeline fell from $10.7 billion at the end of November to $7.7 billion as of Dec. 31, 2007.

JPMorgan Chase took a $1.3 billion writedown on the value of its subprime positions in the fourth quarter, including marks against its collateralized debt obligation portfolio. JPM -- which has been relatively unscathed by the subprime crisis (up until now) -- said it increased its loan loss allowances by $395 million in the quarter because of anticipated mark downs on high loan-to-value mortgages, including home equity loans. Even though JPM wrote down the value of its subprime CDOs, its mortgage banking division had net income of $332 million, it said. Its mortgage business was helped, in part, by a $499 million upward adjustment in the value of its mortgage servicing rights. Overall, the bank/investment bank earned $124 million in the quarter, an 88% drop from the same period last year.

Thirty-seven certificates from 14 mortgage-backed securitizations issued by AMSI and ARSI have been downgraded by Moody's Investors Service. Moody's also placed 12 certificates from the deals on review for possible downgrade. The negative rating actions were based on an analysis of the credit enhancement levels provided by excess spread, overcollateralization, and subordinate classes relative to stressed estimates of future losses, Moody's said. The AMSI and ARSI transactions were backed by loans originated by Ameriquest Mortgage Co. and Argent Mortgage Co., respectively. The rating agency can be found online at http://www.moodys.com.

LaSalle Hotel Properties, Bethesda, Md., has announced that commitments to its senior unsecured bank facility have been increased from $300 million to $450 million. The additional commitments came from seven banks, LaSalle said. The co-lead arrangers of the facility were Bank of Montreal and Bank of America. LaSalle, a real estate investment trust, can be found online at http://www.lasallehotels.com.

Arizona Land Income Corp., a Phoenix-based real estate investment trust, has announced shareholder approval of its reincorporation in Maryland under the name Pacific Office Properties Trust Inc. The REIT's shareholders also approved its acquisition of the West Coast office building portfolio of The Shidler Group, the company said. Pacific Office Properties will adopt Shidler's institutional joint-venture initiatives, which focus on acquiring, owning, and operating value-added and core commercial real estate in partnership with institutional co-investors, the REIT said.

Western Alliance Bancorporation, Las Vegas, has announced plans to write down its subprime mortgage-backed securities from $9.5 million to $4.9 million for the fourth quarter, but said the charge is expected to be offset. The offset will come from mark-to-market valuation benefits under Statement of Financial Accounting Standards No. 159, the company said. Western Alliance also announced that its earnings per share are expected to decline from $0.35 in the third quarter to $0.09 in the fourth quarter, primarily as a result of an increase in its loan loss provision to $13.9 million. The company can be found online at http://www.westernalliancebancorp.com.

The Federal Home Loan Bank of San Francisco has received a regulatory waiver to start making grants of up to $25,000 to help low- and moderate-income homeowners refinance out of nontraditional and subprime mortgages and into a fixed-rate 30-year mortgage. FHLBank member banks and thrifts have to put up $2 for every $1 in grant money to participate in the new affordable housing pilot program. The $2 match is to ensure that members take a loss when the principal amount of an underwater mortgage is written down to meet a 97% loan-to-value ratio requirement for the new mortgage. In approving the grant program, Federal Housing Finance Board members stressed that they want the pilot program to provide sustainable mortgages for the borrowers who cannot afford the resets on their current adjustable mortgages. And they don't want the program used to "bail out" lenders that made bad loans. Other FHLBanks are expected to seek similar waivers, and the Finance Board plans to issue an interim rule for public comment.

One million securitized subprime mortgage loans were 90 days or more past due, in foreclosure, or real estate owned as of Oct. 31, according to the latest credit performance report by Friedman Billings Ramsey Investment Management. Subprime defaults have jumped from 9.1% in October 2006 to 19.4% in the space of 12 months -- raising the number of subprime foreclosures to 417,800. The foreclosure rate was 7.8% in October. FBRIM managing director Michael Youngblood said he expects the default rate to go higher as resets on adjustable-rate subprime mortgages kick in this year. So far, defaults have been driven by lax underwriting standards and, more recently, by declining house prices and weakening labor markets. FBRIM researchers used a database of 5.18 million subprime loans in compiling the October credit performance report on nonagency securitized mortgages.

NovaStar Financial Inc., Kansas City, Mo., may have taken one step closer to the end of the line, as the company shuts its retail mortgage brokering business. In a Securities and Exchange Commission filing, NovaStar said it could no longer meet minimum licensing requirements because of the net worth and financial condition of the company. It is firing 170 employees, leaving it with just 30 to handle its mortgage portfolio management operations. NovaStar said it will take a charge of $1.3 million to $1.8 million as a result, most of which should be booked in the first quarter. Separately, NovaStar announced that its common and preferred stock listings on the New York Stock Exchange would be suspended prior to the opening of the market on Jan. 17. An appeal by the company of the original delisting notice in October was denied based on NovaStar's termination of its real estate investment trust status and its failure to qualify for original listing as a corporation. As of Jan. 17, NovaStar will trade on the pink sheets. The company can be found online at http://www.novastarmortgage.com.

Citigroup has reported a $9.8 billion loss for the fourth quarter after taking a $17.4 billion writedown on subprime mortgage assets and reducing its subprime exposure from $54.6 billion in the third quarter to $37.3 billion. Citigroup executives cited the writedowns and losses on U.S. mortgage and consumer loans as the primary reason for the poor performance. They also say they expect continued deterioration in mortgage and consumer loan performance this year and have valued their remaining subprime assets (including $29.3 billion in collateralized debt obligations) based on the assumption that house prices will decline 6.5% -7.0% in 2008 and 2009. The giant international banking company also announced plans to raise more capital (see item below), and it is reducing its dividend by 40% to 32 cents. In response to the earnings report, Fitch Ratings announced that its rating outlook for Citigroup will remain negative "until profitability is restored, exposure to topical areas is further reduced, and asset quality stabilizes." The company can be found online at http://www.citi.com.

Seven classes of J.P. Morgan Chase Commercial Mortgage Securities Trust commercial mortgage pass-through certificates, series 2007-FL1, have been placed on review for possible downgrade by Moody's Investors Service. The negative rating actions were taken against the affected classes -- RS-1, RS-2, RS-3, RS-4, RS-5, RS-6, and RS-7 -- due to a recent decline in the cash flow of the Resorts International portfolio, Moody's said. The nonpooled classes are secured by the trust junior portion of the Resorts International portfolio loan.

Single-family originations will decline by 16% in 2008 and drop below $2 trillion for the first time since 2000, according to the Mortgage Bankers Association. Originations will total $1.94 trillion in 2008, down from $2.37 trillion last year, as home sales continue to decline into the third quarter and refinancing activity remains sluggish, the association is forecasting. "We do not expect a large pickup in refi activity," MBA chief economist Doug Duncan said, despite expectations that the Federal Reserve will continue to cut interest rates. Mr. Duncan pointed out that refinancings will be constrained due to tighter lending standards, declining house prices, and larger-than-normal spreads between Treasury and mortgage rates. Nevertheless, refinancing will make up 51% of originations this year, compared with 50% in 2007, the trade group predicts. The MBA chief economist also noted that banks are running up against their capital limits as they write down the value of their mortgage assets. "Fortunately, the banking system entered the current credit crunch well capitalized, so the danger of a sharp and widespread contraction of credit availability does not seem imminent," he said. The MBA can be found online at http://www.mortgagebankers.org.

The ratings of Countrywide Financial Corp. have been placed on Rating Watch Positive by Fitch Ratings following the announcement of Countrywide's proposed acquisition by Bank of America Corp., while BoA's ratings have been affirmed and left with a negative rating outlook. Fitch said the transaction poses "significant challenges" to BoA, while enabling it to "achieve a key strategic goal" in the longer term. "The most significant challenge will be resolving credit issues related to CFC's stressed mortgage lending operations," the rating agency said. "While CFC has ceased nonprime lending activities, it retains a large volume of subprime, alt-A and high-value loan-to-value home equity loans on its books." Fitch can be found online at http://www.fitchratings.com.

Countrywide Financial Corp. chairman, chief executive, and founder Angelo Mozilo is entitled to a severance package of about $112 million if he leaves the company, according to a report put out by Equilar, an executive compensation company. Last week Bank of America agreed to buy the nation's largest lender and servicer for $4 billion. To date, no mention has been made about Mr. Mozilo's role with a Countrywide-owned BoA. His Countrywide employment contract stipulates that his reign as CEO will end in 2009, but he would remain as a nonexecutive chairman. If BoA decides not to keep him on as CEO, or he chooses to retire, his severance package would kick in. Basing its information on a year-old proxy statement, Equilar says Mr. Mozilo is entitled to a severance package of $88 million plus retirement benefits of $24 million. At deadline time, Countrywide could not be reached for comment. Over the past few yeas Mr. Mozilo has sold well over $300 million worth of Countrywide stock, converting options into cash. His stock sales are the subject of an investigation by the Securities and Exchange Commission. In past interviews he has maintained that all his stock sales were disclosed and done according to SEC rules.

The city of Cleveland has sued 21 lenders and Wall Street firms involved in the subprime mortgage market, seeking monetary damages under a "public nuisance law." The litigation is the latest in a series of municipal actions targeting lenders. The Cleveland lawsuit alleges that the lenders "financed and cultivated" the subprime market, leading to a foreclosure crisis that has proved costly for the city. Bank of America, Citigroup, Deutsche Bank, J.P. Morgan Chase, Merrill Lynch, Bear Stearns, Ameriquest, Washington Mutual, Countrywide Financial Corp., Morgan Stanley, Wells Fargo, Fremont General Corp., GMAC-RFC, Goldman Sachs, Greenwich Capital Markets, HSBC Holdings, IndyMac Bancorp, Lehman Brothers, NovaStar Financial, and Option One Mortgage were all named as defendants in the lawsuit.

Merrill Lynch & Co. may take additional writedowns of up to $15 billion on its collateralized debt obligations and subprime investments when it announces earnings this week, according to various analyst reports. Merrill, which is slated to announce earnings Jan. 17, would not comment on the reports. (In the third quarter, it took a $7.9 billion hit on CDOs and subprime assets.) According to a note put out by Sandler O'Neill, many "wild cards" exist for Merrill. "Estimating CDO/subprime writedowns is quite subjective given the range of marks we have seen from peers," said Sandler. "Our current estimate of $10 billion represents an estimated markdown to $0.40 on the dollar from [Merrill's] starting exposure levels. While this markdown is arguably quite aggressive, certain peers have been even more aggressive in putting these issues behind them. For example, we estimate that Morgan Stanley marked its exposure in the range of $0.25 on the dollar." Sandler said if Merrill takes a $15 billion charge in the fourth quarter, "this would represent a net writedown to approximately $0.22 on the dollar."

Friedman Billings Ramsey pulled the plug Friday on its subprime production division, First NLC Financial Services of Deerfield Beach, Fla., closing the company and letting most of its workers go. One executive there told MortgageWire that, "We were told today that that's it. Everyone is laid off." The executive, requesting anonymity, said First NLC was owned by FBR and Sun Capital Partners, a private investment firm that has offices in Boca Raton, Fla.; New York; London; and Tokyo. The company, he said, was only originating Fannie Mae loans of late. Asked why First NLC was closed, he said: "We couldn't sell our loans."

Merrill Lynch & Co. may take additional writedowns of up to $15 billion on its collateralized debt obligations and subprime investments when it announces earnings next week, according to various analyst reports. Merrill, which is slated to announce earnings Jan. 17, would not comment on the reports. (In the third quarter, it took a $7.9 billion hit on CDOs and subprime assets.) According to a note put out by Sandler O'Neill, many "wild cards" exist for Merrill. "Estimating CDO/subprime writedowns is quite subjective given the range of marks we have seen from peers," said Sandler. "Our current estimate of $10 billion represents an estimated markdown to $0.40 on the dollar from [Merrill's] starting exposure levels. While this markdown is arguably quite aggressive, certain peers have been even more aggressive in putting these issues behind them. For example, we estimate that Morgan Stanley marked its exposure in the range of $0.25 on the dollar." Sandler said if Merrill takes a $15 billion charge in the fourth quarter, "this would represent a net writedown to approximately $0.22 on the dollar."

Friedman Billings Ramsey pulled the plug Friday on its subprime production division, First NLC Financial Services of Deerfield Beach, Fla., closing the company and letting most of its workers go. One executive there told MortgageWire that, "We were told today that that's it. Everyone is laid off." The executive, requesting anonymity, said First NLC was owned by FBR and Sun Capital Partners, a private investment firm that has offices in Boca Raton, Fla.; New York; London; and Tokyo. The company, he said, was only originating Fannie Mae loans of late. Asked why First NLC was closed, he said: "We couldn't sell our loans."

The PMI Group, Walnut Creek, Calif., has been tagged the "Bear of the Day" for Jan. 11 by Zacks Equity Research, Chicago. Zacks said it is maintaining its sell rating on the company due to our concerns about continued weakness in the housing and mortgage markets. PMI had a third-quarter net loss of $1.04 per share because of increases in paid claims, loss adjustment expenses, and additions to its loan loss reserves. Higher losses for PMI are expected when the company reports its fourth-quarter results because "the deterioration in the housing market was worse than earlier projected," Zacks said. The research firm can be found online at http://www.zacks.com.