Originations

The Market Composite Index, an overall measure of mortgage applications, rose from 636.7 to 652.0 on a seasonally adjusted basis during the week ended Oct. 5, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications increased 2.4% on the week and were up 8.6% from the level recorded a year earlier. The Purchase Index rose from 411.4 to 420.2 on a seasonally adjusted basis, while the Refinance Index climbed from 1950.4 to 2003.2. Refinancings represented 46.2% of total applications, up from 46.0% the previous week, while adjustable-rate mortgages accounted for 13.6%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 6.32% to 6.40%, and points (including the origination fee) fell from 1.08 to 1.00 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Downey Financial Corp., Newport Beach, Calif., citing a "continued weakening in the housing market," says it will take a charge of $82 million in the third quarter to cover credit losses on its mortgage business.It is forecasting an "operating loss" of $23 million for the quarter when it reports earnings on Oct. 17. According to the Quarterly Data Report, Downey ranked 43rd among all residential lenders in the second quarter. The thrift is just the latest in a long line of publicly traded lenders pre-announcing bad earnings news for the third quarter. "The continued weakening and uncertainty relative to the housing market, coupled with the third-quarter disruption in the secondary mortgage markets, unfavorably impacted our borrowers and the value of their loan collateral," said company chief executive Daniel D. Rosenthal. "This has been particularly true in certain geographic areas such as the greater Sacramento and Stockton areas of Northern California and San Diego County."

Santa Cruz Mortgage of California closed its doors this week after being in business for about 26 years.Executives at the company could not be reached for comment by MortgageWire's deadline. A few of its branches have already been picked up by BWC Mortgage of Walnut Creek, Calif. No production information was available on either company.

Sales of existing single-family homes are expected to drop by nearly 11% this year, according to a newly revised forecast by the National Association of Realtors.One month ago, NAR economists projected that problems in the housing and mortgage markets would crimp sales of previously owned homes by 8.6%. Now the Realtors see sales falling to 5.78 million this year, down from 6.48 million in 2006. However, the NAR says it expects house prices to slip by only 1.3% this year. An earlier forecast showed a 1.7% decline. NAR senior economist Lawrence Yun noted that the pricing on jumbo mortgages has improved over the past month and that Federal Housing Administrations loans are "helping to fill the subprime vacuum." The NAR can be found online at http://www.realtor.org.

Mortgage bankers lost an average of $50 on every loan they produced in 2006, compared with profits of $258 per loan in 2005, according to the Mortgage Bankers Association's annual cost study."Production profits began to slip in 2004, and we see a continuation of this trend in 2006," said Marina Walsh, a senior director in MBA's research and economics department. "Despite some companies' best efforts to boost production revenues through the origination of higher-yielding mortgage products, several factors worked against the industry as a whole -- the negative yield curve which increased the cost of funds, lower sales productivity and higher per-loan sales and fulfillment costs, particularly personnel-related costs. Servicing profits in 2006 partially offset production losses, but even these profits declined from 2005 levels due to mortgage servicing hedge losses." Production revenues increased, but so did production operating expenses, which were up 17%. The net cost to originate increased to $2,476 per loan in 2006, compared with $2,049 per loan in 2005. On the servicing side, per-loan financial profits averaged $58 in 2006, down from $104 in 2005.

Three classes of Lehman Brothers Floating Rate Commercial Mortgage Trust commercial mortgage pass-through certificates, series 2006-CCL C2, have been downgraded by Moody's Investors Service.The downgrades were as follows: class K, from Baa1 to Baa3; class L, from Baa2 to Ba2; and class M, from Ba2 to B2. In addition, Moody's upgraded four classes and affirmed the ratings on eight other classes in the deal. The downgrades were attributed to the poor performance of the following loans: The Crossings at Otay Ranch, Chula Vista, Calif.; Walker Square & River Bend, Charlottesville, Va.; Avalon at Seven Hills, Henderson, Nev.; and Village Oaks, Tampa, Fla. (The trust contains transitional assets that are being converted for sale as condominiums.) The poorly performing loans are located in "soft condominium markets" and are performing below expectations, the rating agency said.

Over 50 additional classes of net interest margin notes from five issuers have been downgraded by Fitch Ratings as a result of the performance of the NIM securities and changes to the rating agency's subprime loss forecasting assumptions.Fitch also affirmed the ratings on more than 20 NIM classes, and placed 11 classes on Rating Watch Negative. Among the NIM securities affected by the latest downgrades are 27 classes from 10 Greenwich Capital Soundview deals and 19 classes from eight First Franklin deals. The rating actions were attributed to the pay-down performance of the NIM securities compared with initial projections, as well as 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."

Ashford Hospitality Trust Inc., Dallas, has been added to the Standard & Poor's REIT Composite Index, according to the real estate investment trust.The company said it was added to the index after the close of trading on Oct. 5. The REIT can be found on the Web at http://www.ahtreit.com.

The issuer default rating of First Horizon National Corp., Memphis, has been downgraded from A to A-minus by Fitch Ratings, which cited factors that included continued earnings pressure in First Horizon's mortgage business.Fitch also downgraded the company's subordinated debt rating from A-minus to BBB-plus and affirmed its short-term IDR at F1. The outlook was revised from negative to stable. The rating agency said the downgrade of First Horizon's long-term IDR "reflects sustained underperformance versus the 'A' rated peer average and expectation for continued earnings pressure, particularly in mortgage business." The affirmation of the short-term IDR was attributed to the company's "comfortable liquidity and funding situation as well as sound liquidity policies/planning." Fitch said First Horizon has "zero subprime first-mortgage exposure in its loan or securities portfolio" as well as "limited subprime home equity exposure concentrated in its core Tennessee market only." Subprime mortgage originations have been discontinued. First Horizon can be found online at http://www.firsthorizon.com, and Fitch can be found at http://www.fitchratings.com.

MoneyNowUSA.com, an online loan service based in Scottsdale, Ariz., has announced the introduction of a subprime personal loan to help borrowers catch up on mortgage payments.The new product will allow borrowers to take out unsecured four-year loans for up to $15,000 at annual percentage rates ranging from 5% to 20%. "Flexible underwriting allows consumers with bad credit to get cash even if they are currently behind on their housing payments," MoneyNowUSA.com said. The company can be found on the Web at http://www.moneynowusa.com.

VantageScore, Experian's most recently developed credit scoring model, provides lenders with a "more refined segmentation" of the subprime consumer segment than other models, according to the Costa Mesa, Calif.-based provider of information services.Many credit scoring methodologies group subprime consumers into one category, Experian said, but VantageScore allows lenders "to identify pockets of relatively low-risk consumers" within that category. A recent Experian study found that 20% of subprime consumers could be reclassified into lower-risk categories by using VantageScore, the company said. "By providing a more holistic view and a finer definition of the data in the credit profile, VantageScore allows credit grantors to make more precise and predictive lending decisions," said Kerry Williams, group president of credit services and decision analytics at Experian. VantageScore was jointly developed by Experian, Equifax, and TransUnion. Experian can be found online at http://www.experian.com.

A former Texas area executive of Market Street Mortgage Corp., a subsidiary of the failed NetBank, has entered into a divisional joint venture arrangement with Primary Residential Mortgage Inc., Salt Lake City.The deal allows Mark Cady, a regional vice president at Market Street, to purchase his territory in Texas and save the jobs of 80 former Market Street employees. The Texas operation will be known as Flagstone Lending Group and have offices in Houston (its headquarters), Dallas, San Antonio, Austin, and McAllen. The arrangement between PRMI and Flagstone allows those offices to continue accepting applications and funding new loans. In 2006, Mr. Cady's region closed an average of approximately $25 million per month. Prior to joining Market Street, he was chairman and chief executive of Memorial Park Mortgage Ltd. and divisional vice president of CTX Mortgage Co.

MortgageHub, a provider of Web-based systems for the servicing, wholesale, retail, and construction channels, has launched a Construction Lending Services Division.The main construction service offerings of the division -- which the company termed the only all-inclusive, scalable outsourced solution for construction lenders -- include origination fulfillment options such as underwriting and project review, draw administration, and fund control. "In order to complete multifaceted construction lending processes, many lenders currently use fragmented and complex solutions, including manual work-arounds and multiple third-party providers that can result in overall increased costs and portfolio risk," said Robert Imperato, president of MortgageHub Construction Lending Services. "Our One-Call Resolution introduces an entirely new concept to the industry -- offering one point of contact for accessing comprehensive, cost-effective construction lending services that are customized for each client." The company, a subsidiary of ISGN Technologies, can be found online at http://www.mortgagehub.com.

First Line Data Inc., a Boulder, Colo.-based provider of business intelligence for mortgage lenders, has announced enhancements to its Counter-Fraud Review reports, including address verification.Called CMRA Checkpoint, the new address feature will indicate whether a submitted address is actually a Certified Mail Receiving Agency. "With mortgage companies downsizing, the potential exists for mortgage brokers to be working out of virtual offices instead of an actual physical location," said Nancy Cowley, First Line Data's vice president of national sales. "CMRA Checkpoint will help lenders determine if their applicant is housed in an actual office." Another enhancement allows HUD NeighborhoodWatch to be included in reports on broker, correspondent, and warehouse line-of-credit applicants. This indicates whether the subject company is listed with the Department of Housing and Urban Development as a lender, and if so, the number of originations, default and claims totals, and Credit Watch status. The company can be found online at http://www.firstlinedata.com.

Mayer Brown, a global law firm based in Chicago, has announced the formation of a Subprime Lending Response Team to help clients deal with issues related to the nosedive in the subprime mortgage market.Noting that the subprime mortgage swoon is "reverberating worldwide," with rising regulatory scrutiny in the United States and Europe, the firm said it has "assembled an interdisciplinary team of lawyers from our offices in the U.S., the U.K., and Germany whose practices include securitization, banking, real estate, securities, and litigation." Mayer Brown touted its expertise in the international securitization and collateralized debt obligation markets, financial services regulation, and financial restructuring and bankruptcy. "The Subprime Lending Response Team will enhance the firm's recognized position as the leading legal adviser in these markets by also offering dispute management and regulatory services to clients facing the increased risks of litigation and regulatory inquiry," the firm declared. The law firm can be found online at http://www.mayerbrown.com.

The acquisition of Denver-based Archstone-Smith by a joint venture of Tishman Speyer Real Estate and Lehman Brothers, which will take Archstone-Smith out of the publicly traded space, has been completed.After the transaction's originally scheduled closing was delayed, and in the difficult credit environment, there was market speculation about whether the transaction would close. Fannie Mae and Freddie Mac were also involved in financing the approximately $22.2 billion acquisition, which includes the assumption of the real estate investment trust's debt outstanding. In addition to equity input from Tishman Speyer and Lehman Brothers, financing was also obtained from Banc of America Strategic Ventures and Barclays Bank, Archstone-Smith reported. The multifamily REIT's shareholders are to receive $60.75 per share. R. Scot Sellers, chief executive officer of the REIT, will remain CEO of the new entity. The Archstone-Smith portfolio includes 359 communities, with 87,667 units, located on the East and West coasts. Fannie Mae was involved in the purchase of a $7.1 billion credit facility, secured by 105 properties that are a part of the deal, and Freddie Mac's input was in the form of a $1.8 billion structured transaction backed by 47 properties. Archstone-Smith can be found online at http://www.archstonesmith.com.

Lone Star Fund V (U.S.) LP, Dallas, is on the verge of closing the acquisition of Accredited Home Lenders Holding Co., San Diego.Late on Oct. 7, Lone Star issued a news release saying the conditions for the tender offer had been satisfied. At the close of business on Oct. 5, which was the latest extended deadline for the tender offer, nearly 24 million Accredited shares, over 95% of the outstanding shares of the company, had been tendered. The release said Lone Star expects to accept and pay for all tendered shares no later than Oct. 11. Lone Star will pay $11.75 in cash per share. It originally offered to pay $15.10 per share, but as the mortgage market crisis battered industry stocks it balked at paying that price. After Accredited initiated a lawsuit, Lone Star made an offer of $8.50 per share. The $11.75 price was reached in settling the lawsuit.

Mortgage lender Sovereign Bancorp, Philadelphia, says it expects to take $70 million worth of charges on home equity loans and warehouse lines of credit when it reports third-quarter earnings next week.In a statement, the company said it will take a $50 million charge tied to its remaining correspondent home equity portfolio. The thrift exited the correspondent home equity business in early 2006. In the first quarter of this year it sold $3.3 billion in correspondent home equity loans, but kept certain mortgages that it could not sell. Sovereign said it would take a $20 million charge on warehouse lines of credit made to now-defunct subprime lenders. Sovereign ranked 51st among all mortgage lenders in the second quarter, funding $950 million in loans, according to the Quarterly Data Report, a MortgageWire affiliate. It is scheduled to release third-quarter earnings on Oct. 17. Sovereign can be found online at http://www.sovereignbank.com.

The default rate on subprime mortgage loans hit a record high of 14.65% in July, up from the record 13.44% in the previous month, as foreclosures also set a record, according to a Friedman Billings Ramsey report.The subprime foreclosure rate rose 40 basis points in July to 5.77%. During the last major upheaval in the subprime market, the default rate hit a high of 13.42% in August 1997 and foreclosures hit a high of 5.19% that same month. The default rate on alternative-A loans also moved up in July to 3.34% from 3.0% in June. "The default rates on alt-A and subprime loans deteriorated sharply in July from June, as they did in June from May, ending six months of gradual erosion," FBR managing director Michael Youngblood said. FBR can be found online at http://www.fbr.com.

Congress is considering legislation to raise the loan limits for Fannie Mae, Freddie Mac, and the Federal Housing Administration, which could give the government-sponsored enterprises and the FHA a large share of the jumbo mortgage market, according to banking expert Karen Shaw Petrou."Atop this is talk from Treasury that the GSEs could also go beyond their current charter to rely on self-insurance for high-risk mortgages," she told a group of general counsels from large banks. Treasury Secretary Henry Paulson recently suggested that the mortgage insurance requirements on Fannie Mae and Freddie Mac could be relaxed to facilitate refinancings of subprime borrowers with little or no equity in their homes. "I think lenders and securitizers are looking at legislation that would put the federal government -- directly through the FHA and indirectly through the GSEs -- into every segment of the mortgage market from the highest-risk subprime loans to jumbo, prime-quality loans," she said. Ms. Petrou is the managing partner of Federal Financial Analytics in Washington.