Originations

Due to a data input error, a recent item published by MortgageWire misstated payment-option ARM production in the third quarter. The corrected figures are as follows: mortgage bankers funded just $26.1 billion worth of payment-option adjustable-rate mortgages in the third quarter, a 73% decline from the level recorded a year earlier, according to statistics compiled by National Mortgage News and the Alternative Products Quarterly Data Report. Compared with volume in the previous quarter, option ARM production fell 47%. Every single lender answering the survey reported a double-digit percentage decline in fundings, ranging from 33% to 99%.

Seven certificates issued by Merrill Lynch Mortgage Investors Inc. and Specialty Underwriting and Residential Finance Trust in 2003 and 2004 have been downgraded by Moody's Investors Service.The downgrades were as follows: Merrill Lynch series 2003-BC4, class B-1, from Baa1 to Baa3, class B-2, from Baa2 to Ba2, and class B-3, from Baa3 to Ca; SURF series 2004-BC1, class B-1, from Baa2 to Ba2, and class B-2, from Baa3 to Caa2; and SURF series 2004-BC2, class B-1, from Baa2 to B1, and class B-2, from Baa3 to Ca. Stepping down and "continuous losses" have left the deals with thin credit enhancement levels and made tranches at the bottom of the capital structure more vulnerable to pool deterioration, Moody's said. The transactions are backed by first- and second-lien subprime mortgage loans.

Eleven classes of mortgage pass-through certificates from four Ace Securities Corp. subprime transactions have been downgraded by Fitch Ratings.The downgrades came in series 2002-HE2, series 2004-HE1, series 2004-HS1, and series 2004-OP1. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses.

Eighteen classes of mortgage-backed securities from three issuers were downgraded by Fitch Ratings on Dec. 27 as a result of changes to its subprime loss forecasting assumptions.Fitch also placed 15 classes on Rating Watch Negative and affirmed the ratings on classes with outstanding balances of more than $2.6 billion. The securities affected by the latest downgrades were: nine classes of HASCO mortgage pass-through certificates; five classes of Soundview Home Equity Loan Trust asset-backed certificates; and four classes of Ace mortgage pass-throughs. The rating actions were attributed to changes in Fitch's subprime loss forecasting assumptions that "better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness." Fitch can be found online at http://www.fitchratings.com.

Thirty-one certificates from transactions issued in 2004 and backed by Fremont-originated subprime mortgage and home equity loans have been downgraded by Moody's Investors Service.In addition, Moody's upgraded 17 certificates and confirmed the ratings of five certificates from the numerous transactions. The certificates were downgraded "because the reduction in overcollateralization due to stepdown and higher loss severity at the tail end of the deals' life have made the bottom tranches more vulnerable to further pool deterioration," the rating agency said. Moody's can be found on the Web at http://www.moodys.com.

Moving toward its goal of becoming an alternative asset management company, Centerline Holding Co., a New York-based multifamily lender, has securitized a $2.8 billion affordable housing bond portfolio with Freddie Mac.The company has also reported a $131 million equity investment commitment from an affiliate of Related Cos. "Centerline's goals are to increase assets under management and to create greater earnings power," said Marc Schnitzer, chief executive officer and president of Centerline. "With Related's investment, we have the resources to achieve our goals." He also said he expects that "greater liquidity will enable us to capitalize on opportunities arising from the volatility in the capital markets." The Freddie Mac securitization is backed by about 59,000 affordable multifamily properties in 31 states. Centerline is retaining a "B-piece" interest in the portfolio and will be its primary and special servicer. Centerline can be found online at http://www.centerline.com.

Platinum Bancshares Inc., Rolling Meadows, Ill., has announced the signing of a common stock purchase agreement with Taylor, Bean & Whitaker Mortgage Corp. under which TB&W will acquire a controlling interest in Platinum.The terms of the deal were not disclosed. William Giambrone, chairman and chief executive officer of Platinum, said TB&W is "one of the premier national players" in the prime residential mortgage market. The transaction will allow Platinum to diversify its products and services, he said. TB&W is based in Ocala, Fla.

Deutsche Bank, a top-ranked issuer of subprime mortgage-backed securities, will conduct a top-to-bottom review of its entire mortgage business in the first quarter, according to officials at the company.A spokeswoman for the bank confirmed that a review will soon be under way, adding that, "there may be a reallocation of assets." Like many Wall Street firms, Deutsche Bank has both an active trading desk and a warehouse lending group that caters to the nonprime sector, a business that is in the throes of a historic correction. Deutsche Bank's trading desk is overseen by Michael Commaroto, who is listed in Securities and Exchange Commission documents as president of Deutsche Mortgage Securities. In 2006 Deutsche Bank purchased Chapel Funding Corp., Lake Forest, Calif., a privately held nonprime lender. It also acquired the publicly traded MortgageIT Holdings Inc., New York, the nation's 21st-largest lender, for $429 million. Deutsche Bank can be found online at http://www.deutsche-bank.com.

Allegations that Washington Mutual's appraisal practices may have led to inflated property values have prompted the Office of Thrift Supervision to start a review of WaMu and the appraisal practices of other thrifts, according to an OTS spokeswoman."I don't know if it would be fair to say we are singling [WaMu] out," said Barbara Shycoff, the OTS's external affairs director. The OTS decided it is a "good time" to look at WaMu and other thrifts to make sure that "we are comfortable with the practices out there," she said. The Seattle-based thrift maintains that the allegations of pressuring appraisers -- first raised by New York Attorney General Andrew Cuomo in November -- are without merit. "After spending a month and a half investigating these allegations, we can say with confidence that there has been no systematic effort by WaMu to inflate home appraisals," the company said in a recent statement. WaMu also disclosed in the Dec. 21 statement that the Securities and Exchange Commission and the OTS are reviewing its appraisal practices.

New-homes sales fell by 9% in November to the lowest level in 12 years, but slumping sales are not expected to bottom out before the middle of next year.The U.S. Census Bureau reported that sales of new single-family homes fell from a seasonally adjusted annual rate of 711,000 in October to 647,000 in November. But Mark Vitner, a senior economist at Wachovia Corp., warned that the data are "very suspect" at this time of year. Last November, it appeared that sales were bottoming out because of mild weather. This November, bad weather in the Midwest is being blamed for half of the drop in sales. But the only "good news" in this report, he said, is that builders are reducing their inventories of unsold homes, which are down 12% from the peak in July 2006. "We will likely see sales continue to fall all through the year, but the biggest percentage declines and the biggest outright decline will be over by the middle of the year," Mr. Vitner said. So far, new-home sales have declined by 47.7% since November 2005.

Two classes of Renaissance Home Equity Loan Trust series 2002-2 have been downgraded by Fitch Ratings.Class M2 was downgraded from BBB-plus to BBB and placed on Rating Watch Negative, and class B was downgraded from B to CC/DR3. The negative rating actions were attributed to deterioration in the relationship between credit enhancement and loss expectations. The collateral for the transaction consists of first- and second-lien subprime mortgage loans.

Three classes of Chase Funding subprime mortgage pass-through certificates have been downgraded by Fitch Ratings.The downgrades were as follows: series 2001-4 group 2, class IIM-1, from AA to A-plus, and class IIM-2, from A to BBB-plus; and series 2002-3 group 1, class IB, from A-minus to BBB (and placed on Rating Watch Negative). Fitch also placed class IIB of series 2003-6 group 2 on Rating Watch Negative and affirmed the ratings on 35 other classes from 10 Chase subprime deals. The negative rating actions were attributed to deterioration in the relationship between credit enhancement and loss expectations. The collateral consists of subprime loans secured by first- and second-lien mortgages or deeds of trust.

Five classes from three issues of Long Beach Mortgage Loan Trust residential mortgage-backed securities have been downgraded by Fitch Ratings.The downgrades were as follows: series 2003-1, class M-3, from BB-minus to B-minus/DR1; series 2003-3, class M-3, from BB to B, and class M-4, from B to CC/DR3; and series 2004-5, class M-6, from BBB to BB-plus (and placed on Rating Watch Negative), and class M-7, from BBB-minus to B (and placed on Rating Watch Negative). The negative rating actions were attributed to continued deterioration in the relationship between credit enhancement and loss expectations. The collateral consists of subprime loans secured by first- and second-lien mortgages or deeds of trust.

Eight classes from six collateralized debt obligations insured by MBIA Inc. and consisting partly of mortgage-backed securities have been placed on Rating Watch Negative by Fitch Ratings.The ratings of the CDOs are supported by a financial guaranty provided by MBIA Insurance Corp., a subsidiary of MBIA, whose triple-A insurer financial strength rating was recently placed on Rating Watch Negative by Fitch because of exposure to subprime residential MBS. The affected notes are as follows: Endurance CLO I Ltd, class A; Mulberry Street CDO Ltd., class A-1A; Mulberry Street CDO II Ltd., classes A-1A, A-1B, and A-1W; Oceanview CBO I Ltd., class A-1A; Shyppco Finance Co. LLC, class A-2A; and Z-1 CDO 1996 Ltd. (previously Cigna CBO 1996-1 Ltd.), class A-2.

Citing recent rating actions on four financial guaranty insurance companies and their subsidiaries, Fitch Ratings has placed over 200 residential mortgage-backed securities insured by the companies on Rating Watch Negative.Fitch placed the AAA Insurer Financial Strength ratings of Security Capital Assurance Ltd., MBIA Inc., FGIC Corp., Ambac Assurance Corp., and their subsidiaries on Rating Watch Negative following updated assessments of the monoline insurance companies' exposure to RMBS, structured finance collateralized debt obligations backed by subprime mortgage collateral, and CDO-squared transactions. The affected RMBS classes include 19 insured by SCA, 87 insured by MBIA, 36 insured by FGIC, and 64 insured by Ambac. Fitch said the securities will remain on Rating Watch Negative while it conducts a review to determine which classes will be able to maintain their AAA ratings based on subordination, overcollateralization, or additional forms of credit enhancement that are not dependent on the guaranties. The rating agency can be found online at http://www.fitchratings.com.

Over 50% of the subprime 2/28 adjustable-rate mortgages in foreclosure in July were less than two years old and had not yet gone through an upward reset of the interest rate, according to a report sponsored by the Milken Institute.The report by James Barth and three other researchers at the Santa Monica, Calif.-based economic think tank indicates that 57% of 2/28 ARMs and 87% of 3/27 ARMs in foreclosure never went through a reset. And they argue that subprime mortgage foreclosures are going to be a problem because house prices are not rising and subprime borrowers are having trouble refinancing their loans. "Without home price increases, hybrid loans will surely exacerbate the foreclosure problem if interest rates reset upward, but they are not the basic cause of it," the report says. Mr. Barth is a senior fellow at the Milken Institute and Lowder Eminent Scholar in Finance at Auburn University.

The Market Composite Index, an overall measure of mortgage applications, fell from 653.8 to 603.8 on a seasonally adjusted basis during the week ended Dec. 21, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 8.2% on the week but were up 9.9% from the level recorded a year earlier. The Purchase Index fell from 422.2 to 394.5 on a seasonally adjusted basis, while the Refinance Index declined from 2093.6 to 1915.3. Refinancings represented 53.0% of total applications, down from 53.2% the previous week, while adjustable-rate mortgages accounted for 10.4%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.18% to 6.10%, and points (including the origination fee) fell from 1.12 to 1.05, for loans with 80% loan-to-value ratios, the association reported.

The average 30-year fixed mortgage rate rose from 6.14% to 6.17% over the seven-day period ended Dec. 27, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate held steady at 5.79%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages was also unchanged, at 5.90%, and the average rate for one-year Treasury-indexed ARMs rose from 5.51% to 5.53%, Freddie Mac reported. Fees and points averaged 0.5 of a point for fixed-rate mortgages and hybrid ARMs and 0.7 of a point for one-year ARMs. "Stronger consumer spending and an increase in the core price deflator in November caused long-term bond yields to inch up over the end of last week and beginning of this week, with mortgage rates following," said Frank Nothaft, Freddie Mac's chief economist. "Offsetting some of the increase, however, was a decline in November's index of leading economic indicators and a weak manufacturing report in Philadelphia for December." A year ago, the average 30-year and 15-year fixed rates were 6.18% and 5.93%, respectively, and the average hybrid and one-year ARM rates were 5.98% and 5.47%, Freddie Mac said. Freddie can be found online at http://www.freddiemac.com.

Countrywide Financial Corp. and the Association of Community Organizations for Reform Now have entered into discussions to develop a "blueprint" for foreclosure prevention that they expect to release in early January."Countrywide and ACORN anticipate final release of the groundbreaking provisions of the home retention initiative soon after the New Year," says a joint release. The discussions are mainly focused on helping subprime borrowers who have shown an ability and willingness to make their payments. But the parties are also looking at different products, including payment-option adjustable-rate mortgages. "We see actually more borrowers getting into trouble with payment-option ARMs than we are seeing with hybrid ARMs at this point," said Michael Shea, executive director for ACORN Housing Corp. He noted that Countrywide does not have a systematic approach yet for helping option ARM borrowers. "That is one of the things we are talking to them about," Mr. Shea said. Countrywide, based in Calabasas, Calif., can be found online at http://www.countrywide.com, and ACORN can be found at http://acorn.org.

House prices declined 1.4% in October and were down 6.1% on a year-over-year basis, according to the Standard & Poor's/Case-Shiller housing price index that covers 20 metropolitan statistical areas.Eleven of the 20 MSAs recorded their largest monthly decline since January 2000, according to Robert Shiller, chief economist at MacroMarkets LLC. "No matter how you look at these data, it is obvious that the current state of the single-family housing market remains grim," Mr. Shiller said. Only three MSAs -- Charlotte, N.C. (4.3%), Seattle (3.3%), and Portland, Ore. (1.9%) -- continued to experience price appreciation since October 2006. "Atlanta and Dallas finally entered into negative territory with declines of 0.7% and 0.1%," the Case-Shiller report says. Meanwhile, Miami posted a 12.4% decline in prices, the highest of the 20 MSAs, and surpassed Tampa, Fla., for the first time. Prices in Tampa had declined by 11.8% over the previous 12 months.