Originations

Although he doesn't see the housing sector reaching rock bottom for another year or so, economist David Wyss gave a surprisingly upbeat presentation while keynoting SourceMedia's Mortgage Outlook 2008 conference in New York on Friday.Mr. Wyss, chief economist at Standard & Poor's, pointed out that the current downturn isn't much different from previous ones. The problem is that most mortgage and housing market participants have been enjoying an upward swing for so long that they don't remember what a downturn looks like, he said. The economist also stressed that the issue of housing price bubbles is not just a U.S. phenomenon. "Bubbles are everywhere," he said, and they are being driven by low mortgage rates just as in America. Mr. Wyss says he expects housing starts to reach their floor by next spring, and prices, after dropping by a total of 11%, to hit bottom by this time next year. While recovery is still a year away, he added, "most of the damage has already been done."

Class B-3 of Credit Based Asset Servicing and Securitization LLC series 2002-CB5 has been downgraded from B-plus to B and removed from Rating Watch Negative by Fitch Ratings.Fitch also placed class B-4 of C-BASS series 2004-CB8 on Rating Watch Negative and affirmed the ratings on 11 other classes in the two deals. The negative rating actions were attributed to a deterioration in the relationship between credit enhancement and expected losses. The collateral consists primarily of first-lien subprime mortgage loans.

Seven classes of mortgage-backed securities from two issuers have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions.Fitch also placed one class on Rating Watch Negative, removed one from Rating Watch Negative, and affirmed the ratings on classes with outstanding balances of about $2 billion. The securities affected by the latest downgrades were six classes from two Asset-Backed Securities Corp. transactions and one class from a Credit Based Asset Servicing and Securitization LLC deal. The rating actions were attributed to changes to 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."

The sales of existing single-family detached homes in California were down 40.2% in October from the level recorded a year earlier, according to the California Association of Realtors.The seasonally adjusted annualized rate of closed-escrow resales totaled 265,030 in October, down from the 443,320-unit rate recorded in October 2006, CAR reported. The median price of an existing single-family detached home in California totaled $497,110 in October, down 9.9% from a revised $552,020 a year earlier, the association said. "Financing issues have dogged entry-level buyers since early 2007, but they spilled over into the middle and upper-tier markets in the last few months," said CAR president William E. Brown. "The decline in sales at the upper end of the market contributed to a significant decline in the statewide median price as even well-qualified borrowers had difficulty securing financing." CAR can be found online at http://www.car.org.

The average 30-year fixed mortgage rate fell from 6.20% to 6.10% over the seven-day period ended Nov. 29, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate fell from 5.83% to 5.73%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages declined from 5.88% to 5.86%, and the average rate for one-year Treasury-indexed ARMs rose from 5.42% to 5.43%, 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. "Interest rates for U.S. Treasury securities have been drifting lower this month over market concerns that the housing slump and stress in the credit markets could slow future economic growth," said Frank Nothaft, Freddie Mac's chief economist. "As a result, interest rates for fixed-rate mortgages had room to slip lower this week." A year ago, the average 30-year and 15-year fixed rates were 6.14% and 5.87%, respectively, and the average hybrid and one-year ARM rates were 5.95% and 5.46%, Freddie Mac said. Freddie can be found online at http://www.freddiemac.com.

A "glut" of unsold homes is putting downward pressure on prices and construction, while mortgage delinquencies have "increased significantly" in many areas, according to the Federal Reserve Board's Beige Book."Most districts pointed to further increase in inventory of available homes, with the earlier tightening of credit conditions for mortgage lending continuing to create barriers for some buyers," says the Fed's survey of economic conditions in the 12 Federal Reserve districts. The November survey also noted that local contacts generally don't expect a pickup in home construction until well into next year at the earliest. Meanwhile, "residential mortgage lending continued its downward slide," the Beige Book says.

House prices declined by 0.36% in the third quarter, but still managed to post a gain of 1.8% from the level recorded a year ago, according to a housing price index published by the Office of Federal Housing Enterprise Oversight.The quarterly decline is the first in 13 years, and the OFHEO report shows that 21 states experienced price declines in the third quarter. Seventeen of the 20 cities having the most depreciation are in Florida and California, and the other three are in Michigan. Thirteen cities in California had price declines of 5% or more. "Rising inventories of for-sale properties are clearly having material impact on home prices," said Patrick Lawler, OFHEO's chief economist. "Until those inventories shrink, that will be a great source of resistance to prices increases."

New-home sales rose 1.7% in October after the government revised the September sales number downward by 54,000 units.The U.S. Census Bureau reported that sales of new single-family homes rose from a seasonally adjusted annual rate of 716,000 in September to 728,000 in October. Last month the Census Bureau reported that September sales totaled 770,000. The bureau also trimmed the August number by 18,000 sales. Overall, new-home sales are down 23.5% nationally since October 2006, even though the Northeast has seen a 43.6% increase in sales. The West and the South have experienced a drop in sales of 37.3% and 25.0%, respectively, while the Midwest has seen an 11.7% decline. Meanwhile, the median sales price of a newly constructed home in October stood at $217,800, down from 238,400 in September.

Class B3 of Merrill Lynch Mortgage Investors series 2004-HE1 has been downgraded from BBB-minus to B and removed from Rating Watch Negative by Fitch Ratings.Fitch also placed class B2 of the series on Rating Watch Negative and affirmed the ratings on three other classes in the deal. The negative rating actions were based on a deterioration in the relationship between credit enhancement and loss expectations. The collateral consists of first- and second-lien subprime mortgage loans.

Three classes of Park Place subprime mortgage-backed securities have been downgraded by Fitch Ratings.The downgrades were as follows: series 2004-MHQ1, class M-10, from BB-plus to B (and removed from Rating Watch Negative); and series 2004-WHQ1, class M-9, from BBB-minus to BB-plus, and class M-10, from BB-plus to BB (and removed from Rating Watch Negative). Fitch also placed class M-8 of series 2004-MHQ1 and classes M-8 and M-9 of series 2004-WHQ2 on Rating Watch Negative and affirmed the ratings on 25 classes from the three issues. The negative rating actions were attributed to losses that have exceeded excess spread, causing deterioration in the amount of overcollateralization. The collateral consists of closed-end, first-lien subprime mortgage loans.

Three classes of Ameriquest-linked subprime mortgage-backed securities have been downgraded by Fitch Ratings.The downgrades were as follows: Argent series 2004-W3, class M-4, from BBB-minus to BB, and class M-5, from BB-plus to B (and placed on Rating Watch Negative); and Ameriquest series 2003-AR3, class M-6, from BBB-minus to BB (and placed on Rating Watch Negative). Fitch also affirmed the ratings on eight other classes in the two transactions. The negative rating actions were attributed to losses that have exceeded excess spread, causing deterioration in the amount of overcollateralization. The collateral consists of closed-end, first-lien subprime mortgage loans.

Five classes from two Credit Suisse First Boston Home Equity Asset Trust transactions have been downgraded by Fitch Ratings.The downgrades were as follows: series 2002-5, class M-2, from A to BBB, and class B-1, from B-plus to CCC/DR1; and series 2003-2, class M-2, from A-minus to BBB, class M-3, from BBB-minus to B, and class B-1, from B to CCC/DR1. Fitch also affirmed the ratings on three other classes in the two transactions. The downgrades were attributed to a deterioration in the relationship between credit enhancement and loss expectations. The collateral consists of first- and second-lien subprime mortgage loans.

Eighteen classes of mortgage-backed securities from several issuers have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions.Fitch also removed five classes from Rating Watch Negative and affirmed the ratings on classes with outstanding balances of over $1.7 billion. Among the securities affected by the latest downgrades were: 21 classes from four issues of Credit Suisse First Boston Home Equity Asset Trust transactions; 13 classes from three issues of Park Place Securities Inc. mortgage pass-through certificates; six classes from two issues of SACO mortgage pass-throughs; three classes from two issues of Ameriquest mortgage pass-throughs; and two classes from one issue of GS Mortgage Securities Corp mortgage pass-throughs. The rating actions were attributed to changes to 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." The rating agency can be found online at http://www.fitchratings.com.

The Market Composite Index, an overall measure of mortgage applications, fell from 681.7 to 652.5 on a seasonally and holiday-adjusted basis during the week ended Nov. 23, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 25.5% on the week but were up 24.6% from the level recorded a year earlier. The Purchase Index rose from 424.1 to 450.1 on a seasonally adjusted basis, while the Refinance Index declined from 2199.9 to 1862.9. Refinancings represented 45.8% of total applications, down from 50.3% the previous week, while adjustable-rate mortgages accounted for 14.6%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.18% to 6.09%, and points (including the origination fee) rose from 1.01 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.

Mortgage-related securities issuance to fell to $476.6 billion in the third quarter, down from $495.8 billion in the third quarter of 2006 and from $617.1 billion in the previous quarter, according to the Securities Industry and Financial Markets Association's Research Quarterly."The lower volumes are attributable to continuing housing market weakness and depressed non-agency market conditions, especially in the subprime sector," SIFMA said in the report. The nonconforming market did show some improvement during the quarter relative to August, but "continues to be beset by reduced liquidity and historically wide spreads to the agency market," according to the association. SIFMA can be found online at http://www.sifma.org.

A coalition of housing and community activists is calling on five Wall Street investment banks that "reaped" huge profits from funding and securitizing subprime loans to contribute their 2007 bonuses to a foreclosure prevention fund.The National Training and Information Center, the National Association for the Advancement of Colored People, and other groups contend that the investment banks pushed subprime lending to unsustainable levels and reaped tremendous profits and bonuses. The groups also are releasing a report that details Wall Street's involvement in the subprime debacle. "Wall Street must do the right thing and forgo their lavish bonus to help families stay in their homes," said NTIC board member Inez Killingsworth. "It's time they clean up their mess." As part of a "Save the American Dream" campaign, the groups are inviting Goldman Sachs, Merrill Lynch, Morgan Stanley, Lehman Brothers, and Bears Stearns to a summit to set up a foreclosure prevention fund.

Single-family mortgage loan originations by commercial banks and savings banks plummeted 50% in the third quarter, while thrift originations fell by only 5%.The Federal Deposit Insurance Corp. reported that 699 banks and savings banks originated 170.4 billion in one- to four-family loans in the third quarter, down from $345.9 billion in the second quarter. The Office of Thrift Supervision recently reported that thrifts originated $165.1 billion in one- to four-family mortgages in the third quarter, down 5% from the level recorded in the second quarter. Meanwhile, banks and thrifts maintained a high level of loan sales in to the secondary market. However, these FDIC-insured institutions reported a net loss of $139 million on loan sales in the third quarter -- the first quarterly loss since the FDIC started collecting the data seven years ago -- after reporting a $2 billion gain in the second quarter. FDIC-insured institutions increased their loan loss provisions in the third quarter as chargeoffs on residential mortgages rose to $676 million from $442 million in the second quarter. The chargeoff rate for 1-4s was 1.65% in the third quarter. Bank and thrift earnings for the third quarter totaled $28.7 billion, down 22% from those of the second quarter.

Sales of existing single-family homes were flat at 4.37 million units in October compared with those of the previous month, according to figures released by the National Association of Realtors.Compared with the level recorded a year earlier, sales were down 21%. According to a report issued by RBS Greenwich Capital: "In essence, home sales plunged in August and September, reflecting the washout in mortgage financing conditions, and the question is whether sales will stabilize at the new lower level or continue to plunge." Greenwich said it has been arguing for the past two months that home sales "could bottom out relatively soon (a 3-6 month time horizon), but we are not prepared to take much comfort from the smaller decline in October" compared with those of previous months. There is now a 10.5-month supply of existing homes for sale, the highest reading since 1985.

Wells Fargo & Co., San Francisco, has announced that it will take a $1.4 billion special provision in the fourth quarter for higher losses it now expects in certain indirect channels and that it will "further tighten" its home equity lending standards by no longer accepting business through those channels.The company said it will stop originating home equity loans through wholesalers in which the combined loan-to-value ratio of the first and second mortgages is 90% or higher, or where the second mortgage is not behind a Wells Fargo first mortgage. Wells Fargo also reiterated that it will no longer acquire home equity loans through correspondent relationships, and that $11.9 billion in loan portfolios already acquired through such channels will be placed in liquidating status. The company said the $1.4 billion special provision for the liquidating portfolio reflects higher expected losses stemming from further deterioration in the housing market outlook. "Given today's uniquely challenging environment, we believe that sharpening our focus on our better-performing and relationship-based home equity loans is in the best long-term interest of our company," said John Stumpf, Wells Fargo's president and chief executive. Wells Fargo can be found online at http://www.wellsfargo.com.

Three classes from two deals issued by Mortgage Asset Securitization Transactions Asset Back Securities Trust have been downgraded by Fitch Ratings.The downgrades were as follows: series 2002-OPT1, class M-6, from BB-minus to CCC/DR3; and series 2004-WMC1, class M-4, from BBB-plus to BB, and class M-5, from BBB to B. Fitch also affirmed the ratings on seven other classes in the two deals. The downgrades were attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral for the transactions consists primarily of first- and second-lien subprime mortgage loans.