Originations

Seven subprime certificates from Meritage Mortgage Loan Trust 2004-1 and 2004-2 have been placed under review for possible downgrade by Moody's Investors Service.The affected classes are as follows: series 2004-1, classes M-4, M-5, M-6, M-7, and M-8; and series 2004-2, classes M-9 and M-10. The rating actions were taken because "credit enhancement provided by subordination, overcollateralization, and excess spread for each deal is low compared to the projected pipeline losses of the underlying pool," Moody's said. Both transactions are backed by first- and second-lien fixed- and adjustable-rate subprime mortgage loans originated by Meritage Mortgage Corp.

Citing heightened concerns about the inclusion of construction loans in commercial real estate collateral debt obligations, Derivative Fitch has announced a refinement of its methodology to quantify market risks for such loans.The heightened concerns stem from the current liquidity problems in the U.S. mortgage market, the rating agency said. "The chief areas of focus remain pre-leasing, barriers to entry, absorption, tenant quality, sponsor expertise, the strength and the overall quality of the market, and the remaining time to complete the project," said David Harrison, a Fitch senior director. "However, the new analytical approach provides a means to better differentiate and quantify the relevant risks." Derivative Fitch said it pays "particularly close attention" to cost overruns in assessing a construction loan's default probability. The rating agency, a subsidiary of Fitch Inc., can be found online at http://www.derivativefitch.com.

Standard & Poor's has announced changes to the S&P MidCap 400 and REIT Composite indices.Duke Realty Corp., a constituent of S&P's REIT Composite Index, will replace AG Edwards Inc. in the S&P MidCap 400 after the close of trading on Sept. 28 because Edwards is being acquired by Wachovia Corp. Duke is an Indianapolis-based real estate investment trust that provides leasing, property, asset management, and other tenant-related services. In addition, Cogdell Spencer Inc. will replace Republic Property Trust in the S&P REIT Composite Index after the close of trading on a date to be announced because Republic is being acquired by Liberty Property Trust. Cogdell, based in Charlotte, N.C., owns specialty properties for the medical profession in the southeastern United States. S&P can be found online at http://www.standardandpoors.com.

Capstead Mortgage Corp., a Dallas-based real estate investment trust, has priced a public offering of 10 million shares of common stock at $9.75 per share.The company said the net proceeds of the offering will be used to finance the purchase of additional adjustable-rate mortgage agency securities and for general corporate purposes. Bear, Stearns & Co., Keefe, Bruyette & Woods Inc., and JMP Securities LLC are the joint book-running managers of the offering. The underwriters have been granted an option to buy up to an additional 1.5 million shares to cover any overallotments. The REIT can be found online at http://www.capstead.com.

The average 30-year fixed mortgage rate rose from 6.34% to 6.42% for the seven-day period ended Sept. 27, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose from 5.98% to 6.09%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages declined from 6.21% to 6.15%, and the average rate for one-year Treasury-indexed ARMs decreased from 5.65% to 5.60%, Freddie Mac reported. Fees and points averaged 0.5 of a point for fixed-rate mortgages and hybrid ARMs, and 0.6 of a point for one-year ARMs. "Consistent with the direction of 10-year Treasury securities, average rates on 30-year fixed-rate mortgages drifted up in the past week to levels close to those at the beginning of the month," said Frank Nothaft, Freddie Mac's chief economist. "Also tracking short-term Treasury notes, average rates on one-year adjustable-rate mortgages dropped by 5 hundredths of a percent. Though it is the fourth consecutive eek rates on ARMs have declined, the share of mortgage applications for ARMs has been trending down, and last week reached its lowest level since March 2003, according to the Mortgage Bankers Association." A year ago, the average 30-year and 15-year fixed rates were 6.31% and 5.98%, respectively, and the average hybrid and one-year ARM rates were 6.00% and 5.47%, Freddie Mac said. Freddie can be found online at http://www.freddiemac.com.

New-home sales fell 8.3% in August as the growing problems in credit and mortgage markets turned buyers away despite price cutting by builders to reduce their inventories.The U.S. Census Bureau reported that sales of new single-family homes fell from a seasonally adjusted annual rate of 867,000 in July to 795,000 in August -- down 21.1% from that of a year ago. Wells Fargo & Co. senior economist Scott Anderson pointed out that homebuilders are finally getting serious about price cutting and said he sees it spilling over to the existing-home market very shortly. On previously owned homes, "we are looking for about a 10% decline from peak to trough," he said. Price cutting on new homes will be "more severe than that," he added. As the credit crunch evolves, the Wells Fargo vice president said he is concerned that mortgage lenders will tighten further if price declines intensify. "They will have to reserve against [possible credit losses], and they will be more cautious," he said.

The Independent Community Bankers of America has announced that community banks nationwide will review mortgage documents and discuss financing options with homebuyers as part of the ICBA National Community Bank Mortgage Week, Nov. 5-9.Community banks will focus especially on assisting borrowers who have mortgages with terms they don't understand or who have adjustable-rate mortgages that are about to reset and need to discuss refinancing options, the ICBA said. "There is a lot of confusion about mortgages and homebuying right now," said ICBA chairman James P. Ghiglieri Jr., president of Alpha Financial Group Inc., Toluca, Ill. "Community banks want to help clear up some of that confusion." The association can be found on the Web at http://www.icba.org.

Zacks Equity Research, Chicago, has declared Cleveland-based National City Corp., the parent company of National City Mortgage, its "Bear of the Day" for Sept. 26.National City recently projected that its after-tax mortgage banking loss is likely to be in the neighborhood of $160 million in the third quarter, Zacks noted. NatCity's nonperforming assets rose 20% in the first two months of the quarter and its net chargeoffs climbed 36%, the research firm said. "Our new six-month target price of $23 per share (down by $8 per share) implies a negative return of about 9% during the period," Zacks said. "We are thus downgrading our recommendation on the shares of NCC from Hold to Sell." Zacks said the Bear of the Day is a stock expected to underperform the markets over the next three to six months. The research firm can be found online at http://www.zacks.com, and NatCity can be found at http://www.nationalcity.com.

Traditional 30-year fixed-rate mortgages have survived "the so-called 'mortgage meltdown'," and homebuyers are flocking to them, according to Susan M. Wachter, professor of real estate and finance at the University of Pennsylvania's Wharton School.With support from Genworth Financial Inc., Professor Wachter released her third-quarter 2007 U.S. Mortgage Payment Index, which evaluates mortgage products to see which ones offer the best value. The index shows that borrowers and lenders opted for safer mortgages in the first half, with adjustable-rate mortgage applications dropping 46.9% from September 2006 to September 2007 while applications for fixed-rate loans rose 30.2%. "It's encouraging to see that consumers have not been scared off by the 'credit crunch' and 'mortgage meltdown' talk, and are returning to secure, tried-and-true home financing," Ms. Wachter said. "This trend emerged in the first half of 2007, and I expect it to continue as homebuyers become more informed about their mortgage options and lenders rein in risky products." The index can be found online at http://www.genworth.com/mortgageinfo.

The Market Composite Index, an overall measure of mortgage applications, fell from 673.2 to 654.2 on a seasonally and holiday-adjusted basis during the week ended Sept. 21, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 3.3% on the week but were up 15.4% from the level recorded a year earlier. The Purchase Index fell from 452.0 to 418.8 on a seasonally adjusted basis, while the Refinance Index climbed from 1962.0 to 2026.5. Refinancings represented 46.4% of total applications, up from 43.5% the previous week, while adjustable-rate mortgages accounted for 12.2%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 6.29% to 6.38%, and points (including the origination fee) rose from 1.02 to 1.15 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Mortgage lenders and servicers are not restructuring loans for troubled homeowners, according to the Center for Responsible Lending and a bankruptcy judge, who urged Congress to amend the bankruptcy code to prevent unnecessary foreclosures.Marilyn Morgan, a bankruptcy judge in Northern California, said she sees too many foreclosures and has not heard of a "single meaningful workout with a home lender." CRL executive Eric Stein told a House Judiciary panel that servicers fear being sued by investors if they restructure mortgages. Amending the bankruptcy code to allow restructurings by judges would "remove the fear" so that servicers can voluntarily modify loans. Steve Bartlett, president of the Financial Services Roundtable, testified that the industry has adopted principles that encourage loan modifications, and "we should expect more and more homeowners with subprime mortgages to get needed relief."

Gerald J. Ford, the former chairman and chief executive of Golden State Bancorp Inc., has told Fremont General Corp., Santa Monica, Calif., that he does not want to invest in the company under the terms of an agreement reached in May.The announcement comes amid rumors that Fremont is having trouble selling its $20 billion subprime servicing portfolio. Mr. Ford leads an investor group that agreed to put $80 million into Fremont, in exchange for a possible 20% stake. Mr. Ford was slated to become chairman of Fremont and its subsidiary, Fremont Investment & Loan. In a statement, Fremont said that while it did not agree with the factual positions taken by Mr. Ford, it is in discussions with him over revising the terms of the transaction. The convertible preferred stock the investor group was to acquire had a conversion price of $8.66 per share. Before the deal was announced on May 21, Fremont was trading in the area of $7; in the following days it went as high as $13.06 per share. Shortly before 11 a.m. Sept. 26, the day of the announcement, Fremont's stock was down $1.03 (over 20%) from the previous day's close to $4.10 per share.

Liberty Property Trust, a real estate investment trust based in Malvern, Pa., has priced a $300 million offering of 6.625%, 10-year senior unsecured notes.The company said the notes were priced to yield 6.71%. Proceeds will be used to pay down debt under the company's unsecured credit line and for general corporate purposes. Liberty, which specializes in office and industrial properties, can be found online at http://www.libertyproperty.com.

Hospitality Properties Trust, Newton, Mass., has priced an offering of $350 million of 6.70% unsecured senior notes due 2018.The joint book-running managers of the offering were Wachovia Securities, Morgan Stanley, and UBS Investment Bank. Hospitality Properties, a real estate investment trust that specializes in hotels, can be found on the Internet at http://www.hptreit.com.

The long-term issuer default ratings of R&G Mortgage, San Juan, Puerto Rico, and its parent company, R&G Financial Corp., have been downgraded from CCC to BB-minus by Fitch Ratings and placed on Rating Watch Negative.In addition, the long-term IDR of R-G Premier Bank has been downgraded from BB-minus to B and placed on Rating Watch Negative. Fitch pointed to R&G's recent news release "detailing uncertainties regarding relationships with certain government agencies and [government-sponsored enterprises], along with uncertainties related to the near-term renewal of two credit facilities." Moreover, the company "indicated the need to take mortgage impairment charges and provisions for construction loans" in the third quarter, Fitch said. In addition, audited financial statements have still not been released, and "financial metrics" presented in regulatory filings for the first half "compare unfavorably" to those of other financial institutions in the BB rating range, Fitch said.

The National Association of Mortgage Professionals Inc. has launched a free Mortgage M Helpline to assist the public with mortgage-related fears.The helpline "offers an educated and ethical individual that will attempt to answer any and all of the caller's questions," the NAMP said, adding that no one who calls will be solicited for mortgage financing. The Mortgage M Helpline can be reached at (888) 680-NAMP (6267). The organization can be found on the Web at http://www.namp.org.

First American LoanPerformance, San Francisco, has announced the introduction of the TrueStandings Home Price Index, which it calls "the most comprehensive source of real estate price trends" for mortgage professionals.TrueStandings HPI incorporates more than 30 years of repeat sales transactions representing more than 45 million observations from a property information database owned by LoanPerformance's parent company, First American CoreLogic. The index provides monthly home price indices and median sales prices covering all states and the District of Columbia, 7,373 ZIP codes, and 640 counties, the company said. "TrueStandings HPI is produced monthly with only a five-week lag after month end, giving clients a more timely and accurate view of trends, as compared to quarterly indices," said Dan Feshbach, president and chief executive officer of First American LoanPerformance. "With roughly double the geographic coverage and more price tiers than its competitors, TrueStandings HPI leads the market in analytical breadth and precision." The company can be found online at http://www.loanperformance.com.

Lone Star Fund V (U.S.) LP, Dallas, has once again extended the tender offer deadline for its proposed acquisition of Accredited Home Lenders Holding Co., San Diego.The new deadline is 12 midnight on Oct. 5. While previous extensions had been made, this is the first extension offered since Lone Star and Accredited revised the price of the deal. As of Sept. 21, 19.15 million shares, or 76.22%, of Accredited's common stock had been tendered. The revised terms of the deal dropped the price from $15.10 per share to $11.75. On Sept. 24, Accredited closed at $11.68 per share. Accredited can be found online at http://www.accredhome.com.

Freddie Mac added more than $12 billion in mortgage assets to its investment portfolio in August, while its issuance of guaranteed mortgage-backed securities fell slightly to the lowest level since December.At the end of August, Freddie's retained portfolio totaled $732.2 billion. Freddie's regulator recently raised its portfolio cap to $735.0 billion and $742.4 billion for the third and fourth quarters, respectively. The Office of Federal Housing Enterprise Oversight raised the cap, allowing Freddie greater flexibility in helping troubled subprime borrowers refinance their loans. Freddie's monthly activity report showed very little sales activity in its investment portfolio, which included $374.6 billion in Freddie-guaranteed MBS and $239.0 billion in private-label MBS. Portfolio liquidations are running at $12 billion to $15 billion a month. The secondary-market agency also reported the issuance of $35.3 billion in guaranteed MBS and structured securities in August, down slightly from $35.5 billion in July. Freddie Mac can be found online at http://www.freddiemac.com.

An affiliate of H&R Block, the publicly traded parent of subprime giant Option One Mortgage, has tapped a $250 million credit facility, citing deteriorating conditions in the commercial paper market.The loan is the responsibility of Block Financial Group, a subsidiary of H&R Block. The tax preparation giant is trying to sell the Irvine, Calif.-based Option One. In a new filing with the Securities and Exchange Commission, Block cites, as one of its risks, the uncertainty surrounding the sale. Hedge fund giant Cerberus Capital has agreed to buy Option One, but it recently threw its existing subprime unit, Aegis Mortgage, into bankruptcy. Option One can be found online at http://www.optiononemortgage.com.