Originations

Commercial real estate recorded a 0.6% rate of return in July on a national basis, for a 12-month rate of return of 6.4%, according to the S&P/GRA Commercial Real Estate Indices.Standard & Poor's said the regional breakdowns showed the top CRE performance in the Pacific West, which recorded a 10.4% 12-month return. "In the property sector, solid double-digit returns are being made, with the exception of apartments, while annual returns on all regions but the Mid-Atlantic South are positive," said David Blitzer, managing director and chairman of S&P's Index Committee. "Even with these positive returns, however, the trend suggests a deceleration in the annual returns." The indices showed a negative-1.2% 12-month rate of return for the office sector. The indices can be found online at http://www.spcrex.standardandpoors.com.

New leaders are replacing founders at many real estate investment trusts, and this represents a negative for investors, says Moody's Investors Service in a new report on REIT corporate governance.Of 20 leading REITs studied for the report, 15 had replaced founding chief executive officers over the past 10 years, a majority of them with professional managers rather than family members, Moody's said. The rating agency said it generally views family control of a REIT as a credit positive because it "leads to conservative financial policies and decision-making that takes in a longer-term perspective." But there are signs that founding families are more open to new strategies or are chafing under the demands of remaining a publicly traded company. "[T]his change in perspective is a negative for bondholders: selling out typically means higher leverage and an investor base with a short-term investment horizon," says Moody's associate analyst Constantine Nestoras. "Going private, even when the family remains involved, means higher leverage, less transparency, and less investment in core controls." Moody's can be found online at http://www.moodys.com.

The Market Composite Index, an overall measure of mortgage applications, rose from 656.3 to 656.5 on a seasonally adjusted basis during the week ended Oct. 19, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications increased 11.2% on the week and were up 11.5% from the level recorded a year earlier. The Purchase Index fell from 429.1 to 415.9 on a seasonally adjusted basis, while the Refinance Index climbed from 1980.9 to 2059.3. Refinancings represented 47.0% of total applications, up from 45.3% the previous week, while adjustable-rate mortgages accounted for 14.2%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.40% to 6.21%, and points (including the origination fee) rose from 1.04 to 1.13 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Personal computer giant Dell Inc. has cut off credit to a small mortgage banking firm in New Jersey, citing what it calls "the overall creditworthiness of the mortgage lending industry."Fred Catelli provided MortgageWire with a copy of a letter sent to him by Dell Financial Services, the financing arm of the computer firm. Mr. Catelli, who runs a small net-branch mortgage firm called Diamond Mortgage Services, told MortgageWire that, "We had a $35,000 credit limit with them. We had it for years." He said his firm currently owes Dell nothing. He said when Dell Financial sent him a letter about cutting off credit, he called Dell in disbelief. "They confirmed that they have suspended issuing credit to all companies listed by Dunn and Bradstreet as a mortgage company," he told MW. At deadline time, a Dell spokesman could not be reached for comment. (See the actual Dell letter by visiting: http://www.nationalmortgagenews.com/documents/dell2diamond.html.)

Meanwhile, National City Corp. saw its third-quarter net income slide by 80% because of writedowns and higher delinquencies on its residential mortgage business.The company reported third-quarter net income of $106 million, compared with $526 million a year earlier. The earnings release came a day after NatCity said it was shutting its correspondent residential unit but will remain a retail and wholesale lender (see item above). "Our third-quarter results were clearly affected by the unprecedented disruption and weakness in the mortgage and housing markets," said NatCity president and chief executive Peter Raskind. He noted that the bank has restructured its mortgage business, merging its National Home Equity unit into National City Mortgage. It has also severely curtailed the origination of non-agency-eligible mortgages. "Loans held for sale have been written down to estimated market prices, and in certain cases, moved to portfolio," Mr. Raskind said.

National City Corp., Cleveland, shut down its correspondent lending business Tuesday evening, citing challenging market conditions, but said it remains dedicated to serving mortgage customers through its retail and wholesale channels.The company stopped taking registrations at 5 p.m. Oct. 23 and said it would honor commitments and previously granted approvals in the pipeline. It said it would also complete the processing of the defunct channel's pending registrations and the locked pipeline of remaining correspondent loans. The company can be found on the Web at http://www.nationalcitymortgage.com.

The Department of Housing and Urban Development is preparing to issue an "alert" soon that warns Federal Housing Administration lenders about paying "excessive" fees to non-FHA-approved mortgage brokers."We are concerned [that] consumers are being charged excessive fees," a HUD spokesman said. He said HUD is planning to warn FHA lenders soon that these fees could be "duplicative." While non-approved brokers can refer clients to FHA lenders, they are not allowed to take FHA applications or originate FHA loans. Nevertheless, FHA lenders are soliciting non-approved brokers to bring them customers and loans to process. HUD investigators have found that some lenders are charging borrowers points and paying $4,000 to $5,000 to the brokers. The National Association of Mortgage Brokers said it condemns this practice, which circumvents the FHA's approval process for originators. "This loophole needs to be closed as part of FHA reform" legislation, NAMB president George Hanzimanolis said.

Wall Street giant Merrill Lynch & Co. took a stunning $7.9 billion writedown on subprime and collateralized debt obligation assets in the third quarter -- 75% more than it forecast just a few weeks ago.Announcing its earnings before the market opened on Wednesday, Merrill -- at one time a major financer of subprime mortgage firms -- hinted that more writedowns are to come. "We expect market conditions for subprime mortgage-related assets to continue to be uncertain, and we are working to resolve the remaining impact from our positions," said company chairman and chief executive Stan O'Neal. Even though Merrill took $7.9 billion in mortgage/CDO writedowns, its overall loss for the quarter was a more modest -- but still awful -- $2.3 billion. Merrill said its fixed-income (mortgage) revenues were a negative-$5.6 billion in the quarter. This includes trading positions, warehouse lines, and other businesses tied to the asset-backed market. In February National Mortgage News broke the news that Merrill was conducting margin calls on several nondepository subprime clients, eventually driving some of those mortgage firms into bankruptcy. Merrill Lynch can be found online at http://www.ml.com.

September sales of existing homes fell 19% from the level recorded a year earlier to 5.04 million units as the median home price slid 4.2%, according to figures released by the National Association of Realtors.It was the slowest sales pace in nearly a decade. The number was so bad that it prompted RBS Greenwich Capital analyst Stephen Stanley to write: "We have mentally 'written off' the existing-home sales figures for the next month or two and are far more interested in whether home sales stabilize or even rally once the markets allow for a more normal lending situation." NAR senior economist Lawrence Yun called the decline "understandable," but noted that, "The good news is that mortgage availability has markedly improved in recent weeks with interest rates on jumbo loans falling, and more people are applying for safer and conforming [Federal Housing Administration] mortgage products." The NAR can be found online at http://www.realtor.org.

Fitch also downgraded three classes from Securitized Asset Backed Receivables series 2005-FR3 as a result of changes in the rating agency's subprime loss forecasting assumptions.The downgrades were as follows: class B-2, from A-minus to BBB-plus (and placed on Rating Watch Negative); class B-3, from BBB-plus to BB-plus; and class B-4, from BBB-minus to B-plus. Fitch also placed classes M-3 and B-1 on Rating Watch Negative and affirmed the ratings on three 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.

Eleven classes of Securitized Asset Backed Receivables mortgage pass-through certificates have been downgraded by Fitch Ratings. The downgrades came in SABR series 2004-DO1 and series 2004-NC3. Fitch also placed two of the downgraded classes on Rating Watch Negative and affirmed the ratings on three classes in the deals. The downgrades were attributed to the release of overcollateralization and principal payments to the subordinate classes, which have put pressure on the capital structure for both series. The collateral consists primarily of first-lien subprime mortgage loans.

The residential servicer ratings of Option One Mortgage Corp. have been downgraded by Fitch Ratings, and they remain on Rating Watch Negative.Option One's residential primary servicer rating for subprime products was downgraded from RPS1 to RPS2-plus, and its residential primary special servicer rating was downgraded from RSS1 to RSS2-plus. Fitch said the actions reflect the corporate rating of Option One's parent, Block Financial Corp, and its ultimate parent, H&R Block Inc., whose senior debt was recently downgraded to A-minus and placed on Rating Watch Negative. The rating actions also reflect the effect on Option One's servicing platform of decreased loan originations, changes in credit lines, and uncertainties regarding the sale of the servicing platform to Cerberus Capital Management LP, the rating agency said. The Rating Watch placement indicates that further downgrades are possible, depending on the outcome of the proposed sale. Fitch said the actions were also based on the operational challenges facing Option One in the subprime market. Fitch rates residential servicers on a scale of 1 to 5, with 1 being the highest rating.

National Health Investors Inc., a Murfreesboro, Tenn.-based provider of financing for health care real estate, has announced a decision by the special committee of independent directors evaluating its strategic options to cease negotiations involving a possible sale of the company.NHI said it has also terminated the engagement of The Blackstone Group LP as its financial adviser and dissolved the special committee. "The special committee believes that the current credit market makes it disadvantageous for any sale of the entire company as a reasonable valuation at this time," NHI said. The company can be found online at http://www.nhinvestors.com.

Even as the overall CMBS delinquency rate fell in September, multifamily overdue rates rose for the third month in a row, according to Fitch Ratings.Multifamily delinquencies rose 10.4% in September, but the increase was due to 20 newly delinquent loans totaling $78.7 million, Fitch said. "Multifamily loan performance has suffered in areas with stressed economic conditions," said Fitch director Michelle Bayard. "Slowed employment growth combined with housing price depreciation creates declines in population that erode demand for multifamily rental housing." The overall CMBS delinquency rate fell by 1 basis point in September, to 0.29%, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

Unrated commercial real estate loans represent a growing proportion of U.S. CRE collateralized debt obligations, and the key to promoting transparency in such transactions is "consistent, enhanced, ongoing loan-level reporting," Derivative Fitch says in a new report."By providing more standardized information, asset managers can increase the transparency and, consequently, the liquidity of their transactions," said Fitch senior director Karen Trebach. In the report, Fitch describes the information it requests from asset managers and explains the value of each report. Enhanced reporting provides early warning signals to alert asset managers when to step in to modify a loan or pursue other remedies, the rating agency said. One advantage of a CRE CDO structure over commercial mortgage-backed securities REMIC structures is that the CDO "allows asset managers more flexibility to modify loan terms even prior to an actual default," Fitch said. The rating agency can be found online at http://www.derivativefitch.com.

The Department of Housing and Urban Development has given the green light to the recent request by AmeriDream Inc., Gaithersburg, Md., to prolong its ability to provide downpayment assistance until Feb. 29, 2008."We are pleased to reach an amicable agreement with HUD in our common mission to serve low- and moderate-income homebuyers," said AmeriDream president Ann Ashburn. The new deadline does not include other DPA providers, who are required under a HUD rule to stop their seller-funded DPA operations by Oct. 31. "HUD will recognize all applications that have a signed sales contract prior to the effective date, according to its congressional testimony," the DPA reported. Moreover, the affordable housing nonprofit said, "This agreement will facilitate litigation on an orderly schedule and provide the court with ample time to consider the merits of this important dispute." AmeriDream can be found online at http://www.ameridream.org.

The National Association of Mortgage Brokers is hoping to find some middle ground with House Democrats on a provision in a newly introduced predatory-lending bill that would ban "incentive" payments to originators, including yield-spread premiums that are a broker's main source of compensation."I understand their intent is aimed at incentive payments," NAMB executive vice president Roy DeLoach said, where a securitizer pays an additional premium for certain types of loans. The NAMB agrees that incentive payments should be banned. "We want to clarify that an origination fee can be paid by the lender to the brokers," Mr. DeLoach said. Otherwise, the mortgage brokers will be forced to oppose the bill introduced on Oct. 22 by Reps. Barney Frank, D-Mass., Brad Miller, D-N.C., and Mel Watt, D-N.C. "The indirect compensation mortgage brokers receive from lenders is a defendable fee that actually lowers closing costs to consumers," NAMB president George Hanzimanolis said. The NAMB can be found on the Web at http://www.namb.org.

Countrywide Financial Corp., Calabasas, Calif., has unveiled a $16 billion effort to help ailing mortgage customers -- subprime and prime alike -- to refinance out of loans that are either delinquent or run the risk of going bad over the next 15 months.As a share of subprime loans Countrywide services, the effort represents 13% of its A-minus to D portfolio, according to the Quarterly Data Report. The company, which is scheduled to report earnings on Oct. 26, said it hopes to refinance $10 billion in subprime loans (52,000 Countrywide customers), offering its clients a Federal Housing Administration or Fannie Mae/Freddie Mac loan. Additionally, it hopes to refinance $4 billion in prime and subprime loans where the borrower is current but unable to refinance or might have difficultly making the payment once the loan rate resets. On $2.2 billion in subprime loans where the borrower is actually delinquent because of a recent reset, Countrywide said it will implement what it calls a "simplified loan modification process" that reduces the interest rate. National Mortgage News recently reported that nonprofits ACORN and the National Training Information Center are increasingly finding it difficult to work with the loss mitigation staff of Countrywide. The company has a 20% delinquency rate on its subprime portfolio. It can be found online at http://www.countrywide.com.

Moody's Investors Service also issued a flood of negative rating actions Oct. 19, downgrading over 30 classes of mortgage-backed securities and placing over 50 MBS classes on review for possible downgrade.Among the securities affected by the downgrades were: 16 classes of Nomura Asset Acceptance Corp. Alternative Loan Trust certificates; 11 classes of Merrill Lynch Mortgage Investors Trust certificates; and six classes of Morgan Stanley Mortgage Loan Trust certificates. Among those placed under review were: 13 classes issued by Structured Asset Investment Loan Trust; and 11 classes issued by Credit Suisse. The rating actions were attributed to an analysis of the credit enhancement provided by subordination, overcollateralization, and excess spread relative to expected losses. Moody's can be found online at http://www.moodys.com.

Fitch Ratings also issued a flurry of additional downgrades Oct. 19, involving 55 classes of subprime mortgage-backed securities and seven classes of other MBS.Fitch also placed 10 classes of subprime MBS on Rating Watch Negative and affirmed the ratings on 91 such classes, as well as nine other classes of MBS. Among the securities affected by the downgrades were: 20 classes from six issues of Ameriquest Mortgage Securities Inc. mortgage pass-through certificates; eight classes from two issues of Asset Backed Funding Corp. mortgage pass-throughs; five classes from two issues by Credit-Based Asset Servicing and Securitization LLC; five classes from two issues of CDC Mortgage Capital Trust mortgage pass-throughs; four classes of Residential Asset Securities Corp. mortgage pass-throughs; and four classes of Countrywide Asset-Backed Securitization mortgage pass-throughs. The rating actions were attributed to a deterioration in the relationship between credit enhancement and loss expectations.