Originations

USAA Real Estate Co., San Antonio, has announced the conclusion of fundraising for its US Industrial REIT II fund after raising $450 million in equity commitments, $50 more than originally planned. USAA said the commitments came from 10 institutional investors, including domestic pension funds, insurance companies, and other fund investors. The real estate investment trust fund invests in high-quality bulk distribution properties located in major markets around the United States, the company said. USAA can be found on the Web at http://www.usaarealco.com.

Rutgers Investment Group Inc., a subsidiary of FirstPlus Financial Group, Irving, Texas, has announced an outsourcing agreement with HomeLoanAdvisors.com to provide mortgage processing and fulfillment services. Jack Roubinek, chief executive officer at Rutgers, said the pact allows both firms to do what they do best. "HomeLoanAdvisors.com manages the client contact, while we at Rutgers take care of the back-office work, pulling the whole package together for the borrower," he said. The companies can be found on the Web at http://www.firstplusgroup.com and http://www.homeloanadvisors.com.

JPMorgan Chase & Co. is talking to Washington Mutual about possibly buying the nation's largest thrift, according to industry sources. One source close to WaMu said, "there's a lot of suits walking around the hallways" at the lender's headquarters in Seattle. The JPMorgan-WaMu rumors are not new. In years past the two parties have engaged in sale talks, investment bankers said. Among residential lenders, Chase Home Finance ranks third and WaMu sixth, according to the Quarterly Data Report. Both depositories do not comment on market rumors. WaMu has a market cap of $13 billion based on Friday's share price.

After surging on deal rumors Thursday, Countrywide's stock declined Friday morning after details of its acquisition by Bank of America were released. In the all-stock transaction, Bank of America will be paying the equivalent of $7.16 per share based on BoA's share price at the time the deal was announced. That was below Countrywide's closing price of $7.75 on Jan. 10, which represented a 51% increase in value on the day. In Friday morning trading, Countrywide's shares declined to $6.52 shortly after noon, a 16% drop on the day, as the market digested details of the transaction.

Once Bank of America swallows the mortgage operation of Countrywide Financial Corp., the brand name "Countrywide Home Loans" will survive, according to an internal e-mail message sent to Countrywide employees. However, on Friday questions were being raised about who will manage the new mortgage unit. Sources told MortgageWire that Countrywide executives expect to be in charge of the combined lending/servicing operation, leaving BoA mortgage chief Floyd Robinson out in the cold. At deadline time, neither institution was discussing the merger. The email, obtained by MW notes: "Bank of America has indicated that it intends to retain core elements of our operating platform, including our technology and management expertise."

The Bank of America's acquisition of Countrywide could leave mortgage brokers out in the cold. Last fall, BoA said it was closing its wholesale operations in this channel, citing a desire to concentrate on its retail businesses. Yet Countrywide is the nation's largest wholesaler, with third-quarter volume of $15.27 billion. It is also the largest correspondent purchaser, with volume of $44.35 billion for the third quarter, according to the Quarterly Data Report. But once the acquisition is completed, will BoA keep the third-party channel open? That is the big question, said David Olson of Wholesale Access, Columbia, Md. BoA is not fond of the wholesale channel. But the deal was structured, possibly with the encouragement of the federal government, to provide an orderly transition for the marketplace, he said. Mr. Olson said his guess is that BoA will keep the Countrywide channel going for awhile. But will there still be a Countrywide wholesale channel a year from now? "Probably not," Mr. Olson said.

Bank of America Corp. confirmed Friday that it has agreed to buy Countrywide Financial Corp. for $4 billion in stock, a deal that rescues the ailing Countrywide and makes BoA the largest residential lender in the United States, with a market share of almost 24%. Once their mortgage operations are combined, BoA/Countrywide will service $1.9 trillion worth of home loans, giving it a 21% share in that business. The boards of both companies have approved the sale, which is expected to close in the third quarter. Countrywide is a thrift, BoA a commercial bank. In a statement, BoA said the new company will not originate subprime loans. Back in August BoA bought a small stake in Countrywide, paying $2 billion for it. Now it is buying the entire company for $4 billion. The sale comes after a tumultuous week for Countrywide, a company that is almost 40 years old. Early in the week, bankruptcy rumors sent Countrywide's stock reeling to just $4.43, compared with a 52-week high of $45. The statement issued by BoA does not address the fate of Countrywide's founder, chairman, and chief executive, Angelo Mozilo. Mr. Mozilo, 70, was expected to retire at year's end.

Just a day after its stock fell dramatically on credit concerns, Countrywide Financial Corp.'s share price rose 51% Thursday on rumors of a deal with Bank of America. Countrywide's common stock closed at $7.75 on Jan. 10, up $2.63 on the day. The stock had been mired near the low end of its 52-week range ($4.43 to $45.26) on fears that liquidity problems and credit costs could push the firm toward bankruptcy. Countrywide's recovery on Thursday helped boost other mortgage-related stocks as well. IndyMac Bancorp saw its share price rise 23%, and Washington Mutual's shares were up 15% on the day.

Bank of America, Charlotte, N.C., is reportedly talking to Countrywide Financial Corp., Calabasas, Calif., about buying all or part of the company, according to industry sources and a report by The Wall Street Journal. If the two merge their residential loan operations, the resulting entity would have a 23.7% market share among originators, potentially swamping the competition, according to figures compiled by National Mortgage News and the Quarterly Data Report. Among servicers, the combined market share would be 21.3%. The news of a sale comes two days after rumors about a possible bankruptcy filing by Countrywide sent the firm's stock price reeling. (Countrywide denied that it was in danger of failing.) At deadline time, Countrywide and BoA officials could not be reached for comment. Countrywide is set to report its fourth-quarter earnings on Jan. 29. (For more details, see the Jan. 14 issue of NMN.)

A.M. Best Co., Oldwick, N.J., has affirmed the financial strength and issuer credit ratings of GMAC Insurance Group and its members and revised the outlook from stable to negative. The revised outlook reflects concerns about the financial pressures being experienced by GMACI's ultimate parent, GMAC LLC, and their possible financial and operational effects on GMACI, the credit rating organization said. "The challenges at GMAC are driven by the continuing risks associated with its mortgage lending subsidiary, Residential Capital LLC ... in the volatile housing and mortgage sector, which has weakened GMAC's capitalization, liquidity and profitability," A.M. Best said. GMACI's financial strength rating stands at A-minus, and the issuer credit ratings of the company and its 16 property-and-casualty members is a-minus, A.M. Best said. The company can be found online at http://www.ambest.com.

Financial Freedom, Irvine, Calif., has announced the addition of two new Home Equity Conversion Mortgage LIBOR margin options to its line of reverse mortgage products. The interest rate for the new products, HECM Monthly LIBOR 75 and HECM Monthly LIBOR 85, is based on the one-month London interbank offered rate index plus the margin. (Financial Freedom launched the industry's first LIBOR-indexed HECM in October 2007.) The new options will enable borrowers "to realize a somewhat higher cash benefit, a larger monthly payment and, in some cases, a reduced origination fee at an interest cost that is slightly higher than the HECM Monthly LIBOR 65, but, based on historical index values, is lower than the industry-dominant [constant maturity Treasury]-based HECM product," said Michelle Minier, chief executive officer of Financial Freedom. The company, a subsidiary of IndyMac Bank FSB, can be found online at http://www.financialfreedom.com.

Huntington Bancshares Inc., Columbus, Ohio, has announced that it expects to report a net loss of $239 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. Huntington said it will make a $406 million provision for credit losses related to the restructuring of loans to Franklin. It also reported, among other items, an expected $18 million reduction in net interest income and $64 million of market-related losses attributable partly to the hedging of mortgage servicing rights. "Though a negative this quarter, [the Franklin loans'] successful restructuring, we believe, addresses fully the current and anticipated financial performance issues associated with this relationship," said Thomas E. Hoaglin, chairman, president, and chief executive officer of Huntington. Earnings were also hurt by "continued weakness in commercial real estate markets," he said. The company can be found online at http://www.huntington.com.

Homebuilders need to take "a disciplined approach" to managing inventory assets to weather the storms in the housing market, according to Standard & Poor's Equity Research. Homebuilders who have "wisely managed" their land acquisitions, maintained ample liquidity, and "leveraged their operating scale advantages" will be in the best position, S&P said in a new report titled "U.S. Homebuilder Industry Shaken by Asset Impairments." Ken Leon, an S&P homebuilder analyst, said price declines and decreased orders and deliveries have affected the value of homebuilders' inventory. "While 2007 saw a very high level of writedowns, particularly in the third quarter, we believe the overall trend among homebuilders could continue at a heightened pace and be more widespread," Mr. Leon said. The company can be found online at http://www.equityresearch.standardandpoors.com.

The city of Baltimore has filed a fair-lending lawsuit against Wells Fargo Bank NA, contending that the San Francisco-based bank's subprime lending practices have led to high foreclosure rates in minority neighborhoods and cost the city millions of dollars in expenses and lost revenues. The city alleges that Wells Fargo targets African-American neighborhoods with high-cost loans, resulting in an 8.2% foreclosure rate, compared with a 2.1% foreclosure rate in predominantly white neighborhoods. "Wells Fargo has caused these foreclosures by targeting Baltimore's African-American neighborhoods for irresponsible and abusive subprime lending practices designed to maximize short-term profits for the bank," Mayor Sheila Dixon said. A Wells Fargo spokesman said its loan pricing is based on risk. "Race is not a factor in our pricing," he said. City attorneys are asking a U.S. district court to enjoin Wells Fargo from engaging in certain lending practices and to award compensatory and punitive damages. The city has retained Relman & Dane, a civil rights law firm in Washington, to work on the case.

Zacks Equity Research, Chicago, announced Jan. 9 that Highwoods Properties Inc., a real estate investment trust based in Raleigh, N.C., has been designated its "Bear of the Day," a stock expected to underperform the markets over the next three to six months. Zacks said the commercial REIT "continues to dispose of underperforming assets and focus on development," but that its shares are still rated a Sell. "Many of the company's Southeastern and Midwest markets still have high vacancies, which will make continued rent growth difficult," Zacks said. "In addition, the latest employment report was not encouraging, and we think this will get worse in the coming months." Zacks can be found online at http://www.zacks.com, and Highwoods can be found at http://www.highwoods.com.

West Coast Bancorp, Lake Oswego, Ore., has announced that it will record a $30 million pretax provision for credit losses in the fourth quarter, including $27.8 million related to expected losses in the company's two-step residential construction loan portfolio. The company said it expects to take a loss of $0.46-0.50 per share for the quarter. Under the two-step program, discontinued in October, the bank made initial construction financing loans to individuals, while the secondary, or "take-out," financing usually came from third parties. The company can be found on the Web at http://www.wcb.com.

An index that tracks pending home sales posted a 2.6% decline in November from an upwardly revised October reading and stood 19.2% below the level recorded a year earlier, according to the National Association of Realtors. The Pending Home Sales Index is based on sale contracts signed each month. The November reading was 87.6, down from 108.4 a year earlier. "On the one hand, we have a pent-up demand from the four million jobs added to our economy over the past two years of sales decline," said NAR chief economist Lawrence Yun. "On the other, consumers continue to wait for additional signs of market stabilization.... A meaningful recovery in existing-home sales could occur as early as this spring, or it may be further delayed toward late 2008." The NAR can be found online at http://www.realtor.org.

Ballard Spahr Andrews & Ingersoll LLP, a Philadelphia-based law firm, has announced the formation of a multidisciplinary Subprime Lending Team. The group will provide legal support to clients regarding the litigation, government action, and business problems sparked by the subprime mortgage crisis, the law firm said. "As the subprime crisis grows, it's clear that the effects will be felt across several disciplines and throughout the country," said Henry E. Hockeimer Jr., a partner in Ballard's litigation department and a member of the subprime team. "The specific legal disciplines affected happen to be areas of real strength for Ballard: consumer finance, real estate, securities, commercial litigation, and white collar are all areas where the firm has great depth and experience." The law firm can be found online at http://www.ballardspahr.com.

Fast-tracking loan modifications and freezing the interest rate on adjustable-rate subprime mortgages will not jeopardize the accounting and tax status of the mortgage-backed securities, according to an opinion by the Securities and Exchange Commission chief accountant. SEC chief accountant's opinion gives the green light for servicers to implement the fast-track loan modification framework endorsed by the Treasury Department, the Hope Now Alliance, and the American Securitization Forum. ASF deputy executive director Tom Deutsch welcomed the SEC's guidance. "It is imperative for subprime mortgage servicers to have confidence that implementing the fast-track loan modification segment of the ASF framework will not alter the accounting treatment of securitization trusts." SEC chief accountant Conrad Hewitt said in a letter that the vast majority of subprime loan modifications are expected to begin in early 2008. "The Office of Chief Accountant believes this is an appropriate interim step at this time to address this issue given the complexity and lack of specific guidance on the accounting and disclosure for these types of modifications." Mr. Hewitt noted, however, that the letter is not an opinion on the legality of modifying subprime mortgages.

The Market Composite Index, an overall measure of mortgage applications, surged from 533.9 to 706.0 on a seasonally adjusted basis during the holiday-shortened week ended Jan. 4 as mortgage rates fell, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. On an unadjusted basis, applications increased 81.1% on the week and were up 8.7% from the level recorded a year earlier. The Purchase Index rose from 360.8 to 414.0 on a seasonally adjusted basis, while the Refinance Index surged from 1620.9 to 2494.2. Refinancings represented 57.7% of total applications, up from 50.9% 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 plunged from 6.05% to 5.73%, and points (including the origination fee) rose from 1.05 to 1.10 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.