Originations

Zacks Equity Research, Chicago, announced Oct. 29 that Liberty Property Trust, Malvern, Pa., had 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 real estate investment trust "paid a steep price" to get into the Washington, D.C. office market with its acquisition of Republic Property Trust for over $900 million. The acquisition will be dilutive to earnings over the next several quarters, the research firm said. "We expect rental rates to remain flat through 2008, as the company has assets in office markets that still have high vacancies," Zacks said. "The company has a large development pipeline that is only 41% pre-leased, which poses a real risk if the economy softens in 2008." Zacks can be found online at http://www.zacks.com, and Liberty Property Trust can be found at http://www.libertyproperty.com.

Matt T. Weaver, a former president of Capital Mortgage of South Florida, has announced the formation of The Finance Group Worldwide in Boca Raton, Fla., as a specialist in mortgages and other lending for shopping centers, restaurants, and multi-unit buildings.Mr. Weaver, who will be the president of the new company, is partnering with Athan "Tom" Prakas, president/broker of The Prakas Group Inc. restaurant and commercial brokerage firm. The Finance Group will provide commercial and Small Business Administration loans, equity financing, and noncollateralized restaurant financing. It can be found on the Web at http://www.financegroupworldwide.com.

The decline in single-family home sales should hit bottom in the first quarter of 2008 after completing a 40% drop since the end of the 2003-2005 housing boom, according to economists at the National Association of Home Builders.Despite a projection that sales will begin to move upward slowly in the second quarter, NAHB chief economist David Seiders is forecasting that 2008 home sales will be off 5.6% from this year's pace. "Home sales should bottom out by the end of the first quarter of 2008, and I have starts up in the third quarter of next year, assuming the inventory overhang stabilizes," Mr. Seiders said at the NAHB's construction forecast conference. The association is forecasting that new-home sales will drop by 21.2% this year, to 828,000, and by another 5.6% in 2008, to 781,000 -- which is on par with sales in the late 1990s. The association can be found online at http://www.nahb.com.

Stanley O'Neal, executive chairman and chief executive of Merrill Lynch & Co. -- once a huge financier of subprime firms -- is expected to resign from the Wall Street firm as early as Monday.According to combined news reports, Laurence Fink of Black Rock Financial, which is 49% owned by Merrill, is being interviewed about replacing Mr. O'Neal. Back in the 1980s, while at First Boston, Mr. Fink was an important player in the mortgage-backed securities market. Merrill has long been a financier of mortgage companies but became an aggressive player in banking subprime firms when Mr. O'Neal took over the reins of the company six years ago. Merrill recently took a stunning $7.9 billion writedown on subprime and collateralized debt obligation assets in the third quarter, 75% more than it had forecast just a few weeks earlier. Merrill posted a net loss of $2.3 billion and hinted that more writedowns are to come.

"The fraudsters are the vampires" many homeowners have to fear because they "suck the blood from our communities," says Alicia Shepard, founder of the Georgia Real Estate Fraud Prevention and Awareness Coalition.Speaking in Savannah, Ga., at the Southeast Mortgage Brokers Conference sponsored by the Georgia Association of Mortgage Brokers, Ms. Shepard said legal efforts to prosecute those who commit fraud have had mixed results. In her former neighborhood of Moorings IV in the Atlanta area, while there have been some arrests and convictions, the overall lack of successful prosecutions has destroyed neighborhood morale and unity, she said. Gwinett County authorities told Ms. Shepard and her family that the county could not protect them anymore, and she recounted incidents of abuse to her pets and property. As a result, her family had to leave what she termed their "dream home." Ms. Shepard said even upscale communities in the area, such as Wolf's Creek, while successful in many efforts to combat mortgage fraud, still have scars.

Six classes from Ownit Mortgage Loan Trust series 2005-2 have been downgraded by Fitch Ratings as a result of changes in the rating agency's subprime loss forecasting assumptions.The downgrades were as follows: class M-6, from A-plus to BBB; class B-1, from A to BB-plus; class B-2, from A-minus to BB-minus; class B-3, from BBB-plus to B; class B-4, from BBB-plus to CC/DR2; and class B-5, from BBB to CC/DR3. Fitch also affirmed the ratings on six other classes in the deal. The revised assumptions in Fitch's subprime loss model "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 said.

Meanwhile, three classes from Bear Stearns Asset Backed Securities 2005-AQ1 mortgage pass-through certificates were downgraded by Fitch Ratings as a result of changes in the rating agency's subprime loss forecasting assumptions.The downgrades were as follows: class M-6, from BBB-minus to BB-plus; class M-7, from BB-plus to BB-minus; and class M-8, from BB to B-plus. Fitch also affirmed the ratings on six other classes in the deal. The revised assumptions in Fitch's subprime loss model "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 said.

The U.S. mortgage insurance operations of Genworth Financial Inc., Richmond, Va., were profitable in the third quarter, unlike those of its industry peers.Genworth's U.S. mortgage insurance business had net operating income of $39 million, down from $53 million a year earlier. Flow insurance sales increased 91% over those of a year earlier, while bulk sales increased from $1.2 billion a year earlier to $2.8 billion. Genworth's international mortgage insurance business saw its net operating income increase from $81 billion in the third quarter of 2006 to $110 billion for the most recent period. Genworth's overall net operating income (which is not a measure used under generally accepted accounting principles) totaled $368 million ($0.83 per share) for the third quarter, compared with $297 million ($0.63 per share) a year earlier. As for Genworth's mortgage insurance peers, MGIC and Triad posted corporate losses; PMI revealed that it will take a loss; and Old Republic (which does business as Republic Mortgage Insurance Co.) had operating losses in its mortgage guaranty and title insurance segments. Genworth can be found online at http://www.genworth.com.

The number of vacant single-family homes for sale rose 1.8% in the third quarter, according to a government report, signaling that inventory buildup has at least stabilized for now.The Census Bureau reported that vacant homes for sale rose from 2.04 million in the second quarter to 2.07 million in the third quarter. Earlier this year, economists at the National Association of Home Builders were alarmed that the number of vacant homes on the market jumped to 2.18 million in the first quarter, up nearly 600,000 units in one year. This jump indicated not only deteriorating market conditions, but the dumping of properties by investors and speculators -- making it more difficult for builders to address their inventory problems. NAHB chief economist David Seiders said the inventory overhang is still quite heavy. "There has been some improvement, but the big run-up is still with us," he added. The Census Bureau report also shows that the homeownership rate was unchanged at 68.2% in the third quarter, although down from 69.0% a year earlier. Meanwhile, the homeownership rate for blacks rose to 46.7% in the third quarter from 46.3% in the second quarter, while the homeownership rate for Hispanics edged up slightly to 50.1%.

Two million households with adjustable-rate subprime mortgages could end up in foreclosure by the end of 2009 and lose $71 billion of their housing wealth, according to a Joint Economic Committee report that breaks down the impact of foreclosures on each state."The Bush administration needs to take off its ideological handcuffs and act quickly to save financially strapped families from drowning in a tidal wave of subprime foreclosures," JEC Chairman Charles E. Schumer, D-N.Y., said in releasing the report. The report estimates foreclosure losses by state, including projections that neighboring homeowners will see the value of their homes decline by $32 billion. The congressional report covers subprime foreclosures from the beginning of 2007 to the end of 2009 and assumes that house prices will decline sharply. The Bush administration estimates that foreclosures will not exceed 500,000, Sen. Schumer said, adding, "That is much too low."

Bank of America unveiled a plan Thursday to close its wholesale mortgage division, leaving it with just one production channel in residential finance: retail.Among lenders that table-fund through loan brokers, BoA ranked 10th in the second quarter but first among retailers, according to exclusive figures compiled by National Mortgage News and the Quarterly Data Report. As part of the move, 700 positions will be eliminated. In 2001 BoA exited the correspondent channel entirely and liquidated its subprime origination business. "We're proud of our record in wholesale," said Floyd Robinson, president of the bank's consumer real estate group, but he added that the bank would rather focus its resources only on retail, where it believes it has a competitive advantage -- namely, 6,000 branches. (For the full story, see the Oct. 29 issue of NMN.)

Countrywide Financial Corp. on Friday morning posted a stunning $1.2 billion loss in the third quarter -- the largest loss in its history -- but predicted a return to profitability in the fourth quarter and next year.The company also revealed that it moved $12 billion of nonagency loans and securities onto the balance sheet of its bank, into a "held-for-investment" account. In a statement, Countrywide chairman and chief executive Angelo Mozilo blamed the loss on the mortgage market's nonprime liquidity crisis, noting that it was forced to revalue its mortgage holdings downward and pay more to third parties for credit protection. The Calabasas, Calif.-based company said it lost $1 billion by selling mortgage assets at a discount or marking down their value. Its servicing business was a major source of income in the quarter, posting operating earnings of $764 million, a 47% rise from that of a year earlier. But its loan production unit lost $1.3 billion in the third quarter. Countrywide funded $94.6 billion in loans during the quarter, a 19% drop from the level of a year earlier. The company can be found online at http://www.countrywide.com.

Class M-11 of Mortgage Asset Securitization Transactions Asset Back Securities Trust series 2004-HE1 has been downgraded from BBB-minus to BB by Fitch Ratings.Fitch also affirmed the ratings on 12 other classes in the transaction. The downgrade resulted from a deterioration in the relationship between credit enhancement and expected losses, the rating agency said. The collateral for the deal consists primarily of fixed- and adjustable-rate, first- and second-lien subprime mortgage loans.

The average 30-year fixed mortgage rate fell from 6.40% to 6.33% for the seven-day period ended Oct. 25, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate fell from 6.08% to 5.99%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages declined from 6.11% to 6.03%, and the average rate for one-year Treasury-indexed ARMs decreased from 5.76% to 5.66%, Freddie Mac reported. Fees and points averaged 0.5 of a point for 30-year fixed-rate mortgages and hybrid ARMs and 0.6 of a point for 15-year fixed-rate mortgages and one-year ARMs. "Market concerns about slower economic growth over the next few months allowed mortgage rates to drift lower from last week," said Frank Nothaft, Freddie Mac's chief economist. "How much of a drag the housing slump will be on the economy remains unknown." A year ago, the average 30-year and 15-year fixed rates were 6.40% and 6.10%, respectively, and the average hybrid and one-year ARM rates were 6.14% and 5.60%, Freddie Mac said. Freddie can be found online at http://www.freddiemac.com.

Triad Guaranty, Winston-Salem, N.C., has reported a net loss of $31.8 million in the third quarter, blaming its problems on the "rapid deterioration" of the nation's housing market.A year earlier, Triad earned $19.4 million. According to the Quarterly Data Report, the publicly traded Triad is the smallest of the nation's seven mortgage insurers, in terms of both policies in force and new policies written. Company president and chief executive officer Mark K. Tonnesen said the quarter "marked an escalation of the market changes that began earlier this year. Our portfolio experienced significant pressures on the heels of the liquidity issues that affected the availability of mortgage lending." The company said one of its near-term goals will be to invest in "areas of loss mitigation." Triad can be found online at http://www.triadguaranty.com.

Benchmark Bank, Dallas, has formed a new mortgage subsidiary, Affiliated Mortgage Co., West Monroe, La., that will originate loans through the correspondent channel.AMC has acquired the assets and retained the staff of the Freedom Mortgage correspondent division. Benchmark said AMC president Bill Taylor has been in the mortgage business in Monroe, La., since 1982, and AMC's senior management has over 150 years of combined mortgage experience in a correspondent lending environment. "We have a 25-year proven track record in the correspondent business, with an emphasis on purchasing high-quality agency loans," said Dan Hastings, senior vice-president and national sales manager of AMC. "With the recent changes and consolidation going on in our industry, the timing could not be better for Affiliated Mortgage to enter the correspondent business." Benchmark Bank can be found online at https://www.benchmarkbankonline.com/home.

The safe-harbor provisions to protect securitizers from liability in a House predatory-lending bill would create "more stringent" underwriting standards for subprime mortgages than banking regulators currently require, according to the comptroller of the currency.Comptroller John Dugan told a House panel that the bill (H.R. 3915) establishes "brighter and stricter" rules for subprime lending than the federal regulators have issued for banks and would restrict the supply of subprime credit. To qualify for the safe harbor, subprime loans must meet an ability-to-repay standard, income must be documented, debt-to-income ratios cannot exceed 50%, and the loan must be underwritten to the fully indexed rate, including insurance and taxes. The Mortgage Bankers Association is urging House Financial Services Committee Chairman Barney Frank, D-Mass., to provide more flexibility. "We strongly recommend that Congress carefully consider the potential impact of these safe harbors before hard-wiring them into the law," MBA senior vice president Kurt Pfotenhauer testified.

New-home sales rose 4.8% in September after the government's sales numbers were revised downward by 60,000 for August and 69,000 for July.The U.S. Census Bureau reported that sales of new single-family homes rose from a seasonally adjusted annual rate of 735,000 in August to 770,000 in September. (Last month, the Census Bureau reported that new-home sales totaled 795,000 in August.) Despite the downward revisions and aggressive price cutting, builders still have an 8.3-month supply of unsold homes on their hands. And the number of completed new homes on the market remains at or above 180,000 for the eighth consecutive month. The Census Bureau, an agency of the Commerce Department, can be found online at http://www.doc.gov.

Fitch also downgraded four classes from First Franklin Mortgage Loan Trust series 2005-FFH2 as a result of changes in the rating agency's subprime loss forecasting assumptions.The downgrades were as follows: class M-8, from BBB to BBB-minus; class M-9, from BBB-minus to BB-plus; class B-1, from BB-plus to B; and class B-2, from BB to C/DR5. Fitch also affirmed the ratings on eight other classes in the deal. The revised assumptions in Fitch's subprime loss model "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 said.

Twenty classes from five First Franklin Mortgage Loan Trust transactions issued in 2002, 2003, and 2004 have been downgraded by Fitch Ratings.Fitch also placed three of the downgraded classes on Rating Watch Negative, removed three classes from Rating Watch Negative, and affirmed the ratings on 13 other classes in the deals. The downgrades were attributed to a deterioration in the relationship of credit enhancement to loss expectations. The collateral consists primarily of fixed- and adjustable-rate first-lien and fixed-rate second-lien subprime mortgage loans. Fitch can be found on the Web at http://www.fitchratings.com.