Originations

The credit performance of subprime mortgage-backed securities issued in 2007 is no better than that of the subprime MBS issued in 2006, according to a Friedman Billings Ramsey report that challenges the assumption that lenders became more conservative in their underwriting earlier this year."We find scant evidence that the risk characteristics of subprime loans originated in 2007 differ significantly from those of subprime loans originated in 2006 and 2005. Therefore, we cannot conclude that lenders have reversed" their liberal underwriting criteria, FBR managing director Michael Youngblood said. The default rate on adjustable-rate subprime MBS issued in 2007 jumped 44% in August, rising from 2.80% in July to 4.04%. This is higher than the average 3.05% default rate for subprime MBS issued in previous years at the same age. "We note that the leading mortgage banking company in the United States, Countrywide Financial Corp., did not fully revise its underwriting criteria for subprime mortgage loans until August 15, 2007," the FBR report says.

Former Hanover Capital managing director George Ostendorf has launched a new firm to invest in distressed and illiquid mortgages.Mr. Ostendorf began working on the formation of American Mortgage Capital Group LLC earlier this year, right after he resigned from the Chicago-based Hanover. For now, AMCG will focus on buying first liens secured by residential properties. The distressed loan market could swell to more than $100 billion as the subprime crisis results in record foreclosures over the next year. AMCG is headquartered in Bannockburn, Ill.

Bear, Stearns & Co. has cut 310 mortgage jobs in a consolidation of its lending businesses that it expects ultimately to streamline third-party originators' contacts with the company and provide TPOs with a wider range of products.Under the reorganization, Bear Stearns Residential Mortgage and Encore Credit will be combined into a single unit under the name Bear Stearns Residential Mortgage Corp. After an unspecified transition period, the company -- in keeping with industry trends -- plans to offer third-party originators single points of contact for its full loan product line and to expand its product line to include government and government-sponsored loans.

Goldman Sachs & Co. is exploring the possibility of buying Litton Loan Servicing, Houston, the nation's 12th-largest servicer of subprime mortgages, according to industry sources.As of MortgageWire's deadline, a spokesman for Goldman declined to comment. Litton is a unit of Credit-Based Asset Servicing & Securitization LLC, New York, a specialty servicer. C-BASS, in turn, is owned by mortgage insurers MGIC Investment Corp. and Radian Group, which in August wrote down their investments in C-BASS by more than $1 billion after the company was the subject of margin calls. Observers note that a sale of Litton would not necessarily include C-BASS or what's left of Fieldstone Mortgage, Columbia, Md., a nonprime lender that C-BASS purchased earlier this year.

Four certificates from two subprime deals originated in 2003 by Ameriquest Mortgage Co. have been downgraded by Moody's Investors Service.In addition, 26 certificates from 13 subprime deals originated in 2002 and 2003 by Ameriquest and Argent Mortgage Co. (the retail and wholesale mortgage loan originators, respectively, of ACC Capital Holdings) have been placed on review for possible downgrade. The downgrades were as follows: Ameriquest Mortgage Securities Inc., series 2003-7, class M-4, from Baa2 to Ba2; series 2003-7, class M-5, from Ba1 to Caa1; series 2003-AR2, class M-3, from Ba1 to Caa1; and series 2003-AR2, class M-4, from Ba3 to Ca. The negative rating actions were based on an analysis of the credit enhancement levels provided by excess spread, overcollateralization, and subordinate classes relative to the expected loss, Moody's said. Moody's can be found online at http://www.moodys.com.

Cohen & Steers Inc., New York, has announced the deletion of Archstone-Smith Trust, a real estate investment trust based in Englewood, Colo., from its Realty Majors Portfolio Index and its Global Realty Majors Portfolio Index.Archstone is expected to be acquired by an entity jointly controlled by Tishman Speyer Real Estate Venture VII and Lehman Brothers Holdings on Oct. 5. Once the acquisition is complete, it will be replaced in the Realty Majors index by BRE Properties Inc., a multifamily REIT, and in the Global Realty Majors index by Essex Property Trust Inc., another multifamily REIT, Cohen & Steers said. The company also announced that CFS Retail Property Trust, an owner and developer of retail properties in Australia, and Aeon Mall Co. Ltd., a developer and manager of shopping centers in Japan, will be added to the Global Realty Majors index on Oct. 5, and Centro Properties Group and Beni Stabili SpA will be deleted. Cohen & Steers can be found online at http://www.cohenandsteers.com, and Archstone can be found at http://www.archstonesmith.com.

MFA Mortgage Investments Inc., New York, has announced the pricing of 7 million shares of MFA common stock at $7.90 per share.Net proceeds are expected to total approximately $52.3 million. The company said it has granted the underwriters an option to buy up to 1.05 million additional shares to cover any overallotments. UBS Investment Bank, Deutsche Bank Securities, and JMP Securities are the joint book-running managers for the offering. MFA, a real estate investment trust that invests in hybrid and adjustable-rate mortgage-backed securities, can be found online at http://www.mfa-reit.com.

Michael Pralle has joined J.E. Robert Cos., McLean, Va., as president and chief operating officer.Mr. Pralle will be responsible for driving the strategic growth of JER and managing the company's operations, as the company continues to expand its global investment platform, JER said. JER sources, underwrites, and manages real estate equity and debt investments in the United States, Europe, and some emerging markets. Mr. Pralle was most recently president and chief executive officer of GE Real Estate, managing a global portfolio of assets. His career at GE spanned 18 years. "Michael's network of relationships in the U.S., Europe, Latin America and Asia will be of invaluable importance as we continue to strategically grow our business," said Joseph E. Robert Jr., chairman and CEO of J.E. Robert.

Leading mortgage originator and industry trainer Greg Frost will now originate loans for First Houston Mortgage, Houston.He will maintain his position as president and chief executive of Albuquerque, N.M.-based Frost Mortgage, and his company will now originate loans for First Houston. He has a 9% market share in Albuquerque, and the company will retain its name for marketing purposes. Most recently, Frost Mortgage had been affiliated with the now-bankrupt First Magnus Mortgage, Tucson, Ariz. Mr. Frost is also vice president of new product development for LoanToolbox.com. "At this time of market instability, I wanted to go with a lender that has a great reputation," Mr. Frost said. "First Houston has the processes and technology that complements our own. For example, they have a truly paperless system, a wide variety of lending products, and a conversion support level that simplifies the way we do business." First Houston Mortgage can be found online at http://www.firsthouston.com.

The Market Composite Index, an overall measure of mortgage applications, fell from 654.2 to 636.7 on a seasonally and holiday-adjusted basis during the week ended Sept. 28, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 2.9% on the week but were up 0.4% from the level recorded a year earlier. The Purchase Index fell from 418.8 to 411.4 on a seasonally adjusted basis, while the Refinance Index declined from 2026.5 to 1950.4. Refinancings represented 46.0% of total applications, down from 46.4% the previous week, while adjustable-rate mortgages accounted for 13.8%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.38% to 6.32%, and points (including the origination fee) fell from 1.15 to 1.08 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Dalton Investments LLC, a Los Angeles-based investment management firm, has announced that it is offering a new distressed-mortgage strategy under which defaulted loans are bought at significant discounts from mortgage servicing companies and restructured.The strategy will provide affordable monthly payments for homeowners and a residential mortgage- and real estate-backed investment vehicle for Dalton's investors, the firm said. The new strategy, a joint venture with Beach Front Property Management Inc., Long Beach, Calif., will be managed by Steven D. Persky, Dalton's co-founder and chief executive officer, and Kyle Kazan, president of Beach Front Property. "This new strategy will combine Dalton's expertise in distressed debt and Beach Front Property Management's experience in buying and restructuring troubled real estate assets," Mr. Persky said. "The subprime market is just beginning to unwind, and we expect defaults and foreclosures to skyrocket over the next six to 12 months." Dalton can be found online at http://www.daltoninvestments.com.

Deloitte & Touche LLP has notified the Radian Group Inc., Philadelphia, that it has declined to stand for appointment as its independent auditor for the 2007 audit.The accounting firm was expected to end its relationship with Radian after the filing of the third-quarter 10-Q form because of an anticipated acquisition by MGIC Investment Corp. Deloitte will still work on the third-quarter filing and end the relationship shortly after that. In an 8-K filing, Radian said there were no reportable events and no disagreements between it and Deloitte on any matter of accounting principles or practices. A report from Friedman Billings Ramsey on the announcement said a new auditor could "take a more conservative stance on balance sheet valuations, leading to more aggressive write-downs in book value." The announcement caused Radian's stock to drop. As of 11 a.m. Oct. 3, Radian was trading at $23.63, down $2.36 on the day. Radian can be found online at http://www.radian.biz.

Department of Housing and Urban Development officials are finding that non-FHA-approved mortgage brokers are charging "exorbitant" fees on Federal Housing Administration loans in possible violation of HUD rules."We are seeing exorbitant fees," HUD officer Mark Ross told a Mortgage Bankers Association conference, adding that HUD officials are reviewing the matter. Mr. Ross also reported that some FHA direct-endorsement lenders are soliciting nonapproved broker business with misleading advertisements implying that the broker can take the application or close the loan. "That is not allowed," he said. In addition, HUD has seen a "flurry" of applications for direct lending branches that are supposed to be used as call centers or Internet portals to solicit and take mortgage applications directly from borrowers. But some FHA direct-endorsement lenders are using the direct lending branches to solicit loans from nonapproved brokers throughout country. "That wasn't the intent," Mr. Ross said.

The Federal Deposit Insurance Corp. is beginning to field inquiries from potential buyers looking at Market Street Mortgage, Clearwater, Fla., a subsidiary of the failed NetBank Inc. of Atlanta.In the spring, Market Street Mortgage was actually looking at buying other lenders, investment banking sources said. But in the summer, when it appeared that its bank parent would fail, the company began searching for new owners. According to the Mortgage Industry Directory, a SourceMedia publication, MSM funded $3.1 billion last year, ranking 96th nationwide. At deadline time, an FDIC spokesman had not returned a telephone call regarding MSM. One adviser said, "I think the company will be sold in chunks." The lender does not own a servicing portfolio. Market Street can be found online at http://www.marketstreetmortgage.com.

Fannie Mae has already identified 1,800 ZIP codes where house prices have declined, and it expects appraisals to accurately reflect those market realities, according to Fannie vice president Hope Evans."Sadly, we are seeing a lot of these appraisals with no mention whatsoever about the declining market," Ms. Evans told a Mortgage Bankers Association quality assurance conference. Fannie's automated underwriting system flags appraisals in those ZIP codes. "It is very important that you react to this message. Fannie is looking to see if there is additional field work in the file," she said. The Fannie vice president stressed that lenders need to have a "heightened awareness" that house prices declines have become more "pervasive" over the past year and are no longer just in pockets or isolated areas. She also said Fannie Mae is "working very actively on producing" an exclusionary list that identifies fraudsters. Freddie Mac currently has an exclusionary list that it shares with industry partners.

Federally chartered mortgage giant Fannie Mae said it is not pursuing an acquisition of C-BASS LLC and its "scratch-and-dent" servicing affiliate, Litton Loan Servicing.When asked by MortgageWire whether Fannie Mae, in the past, had been pursuing the companies, the spokesman declined to comment. A source told MW that Fannie, during the summer, was exploring the possibility of buying C-BASS and Litton. It was well known in the marketplace that their owners, MGIC Investment Corp. and Radian Corp. -- two publicly traded mortgage insurers -- were exploring a sale. Goldman Sachs has been mentioned as a bidder for the pair. (Goldman declined to comment.) C-BASS, which is based in New York, was hit by margin calls in July, forcing its two mortgage insurance company owners to write down its value by more than $1 billion. According to the Quarterly Data Report, Litton ranks 12th among subprime servicers, with $46 billion in receivables. Fannie Mae can be found online at http://www.fanniemae.com.

Countrywide Financial Corp. could take a $4 billion hit on its loan inventory in the third quarter, according to a new research report issued by Morgan Stanley & Co.Morgan analyst Ken Posner is predicting that the Calabasas, Calif.-based mortgage banker could post a net loss as large as $2.4 billion in the third quarter. Countrywide's capital markets group held $56 billion in assets at the end of the second quarter. Morgan says up to 60% of those assets might be considered "risky" and that mark-to-market writedowns could range from just under $1 billion to $4 billion. Mr. Posner has an "equal-weight" rating on the stock and says he believes it has "enough cash and cash flow to operate and repay financial obligations through 2008." Countrywide can be found online at http://www.countrywide.com.

House and Senate Democratic leaders are urging the Bush administration to act more forcefully in addressing the "foreclosure crisis," and they are threatening to pass a measure to temporarily raise the caps on Fannie Mae's and Freddie Mac's portfolios if the administration does not take such action quickly.Fannie and Freddie could provide more liquidity to the mortgage market and help subprime borrowers refinance to save their homes, said Sen. Charles E. Schumer, D-N.Y., adding that he is prepared to press the Senate to pass a bill that would remove the caps on the government-sponsored enterprises for one year. House Financial Services Committee Chairman Barney Frank, D-Mass., said he would support the Schumer bill if it clears the Senate. Democratic leaders are also calling on the administration to appoint a czar to oversee its response to the foreclosure crisis and to press servicers and lenders to modify loans for distressed homeowners.

Six certificates from two deals backed by WMC subprime loans have been placed on review for possible downgrade by Moody's Investors Service.The affected securities were as follows: MASTR Asset Backed Securities Trust 2003-WMC2, classes M-5 and M-6; and Morgan Stanley ABS Capital I Inc. Trust 2004-WMC3, classes M-6, B-1, B-2, and B-3. In addition, Moody's placed one certificate from another deal backed by WMC subprime loans, Soundview Home Loan Trust 2004-WMC1, on review for possible upgrade. The actions are based on the analysis of the credit enhancement provided by subordination, overcollateralization, and excess spread relative to the expected loss, Moody's said.

Thirty-four certificates from eight deals issued by CDC Mortgage Capital Trust in 2001, 2002, and 2003 and two deals issued by IXIS Real Estate Capital Trust in 2005 have been placed on review for possible downgrade by Moody's Investors Service.The affected transactions were as follows: CDC Mortgage Capital Trust series 2001-HE1, 2002-HE1, 2002-HE2, 2002-HE3, 2003-HE1, 2003-HE2, 2003-HE3, and 2003-HE4; and IXIS Real Estate Capital Trust series 2005-HE1 and 2005-HE2. The negative rating actions on the eight CDC Mortgage deals were attributed to "very low" pool factors. "The stepping down and continuous losses have left them with thin credit enhancement levels and made them more vulnerable to pool deterioration in the tail end of a deal's life," Moody's said. The actions on the IXIS deals were based on insufficient credit enhancement in view of "the high pipelines for both deals," the rating agency said. All the transactions are backed by first- and second-lien fixed- and adjustable-rate subprime mortgage loans. Moody's can be found online at http://www.moodys.com.