Originations

The House has passed a 15-year extension of the federal government's terrorism insurance program that expands the lines of insurance that insurers will be required to offer their clients.The bill adds group life insurance to the lines of insurance for which terrorism coverage must be made available. It also expands insurance coverage for nuclear, biological, chemical, and radiological acts of terrorism. "This legislation is essential to the continued growth and development of American cities and to provide needed protections for those who work, live, and invest in downtown areas," said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee. White House officials have indicated that the president will veto the bill. But many financial services and real estate groups, including the Mortgage Bankers Association, support the bill (H.R. 2761), which extends the Terrorism Risk Insurance Act. "We remain committed to working with the Congress and the administration on this very important legislation," MBA chairman-elect Kieran Quinn said.

BRE Properties Inc., San Francisco, has announced the closing of a $750 million unsecured revolving line of credit with a group of 18 lenders.The real estate investment trust said the new five-year facility bears an interest rate (based on current debt ratings) of 47.5 basis points above the London interbank offered rate. The joint lead arrangers of the LOC were Wachovia Capital Markets LLC and RBS Securities Corp. The REIT, which specializes in developing, acquiring, and managing apartments in the Western states, can be found online at http://www.breproperties.com.

The CME Group, formed by the merger of the Chicago Mercantile Exchange and the Chicago Board of Trade, has announced that S&P/GRA Commercial Real Estate Indices futures and options contracts will begin trading on the exchange on Oct. 28.The exchange said 10 quarterly cash-settled contracts based on property type and geography will be available, including a national composite index; indices on retail, office, apartment, and warehouse properties; and regional indices covering the Desert Mountain West, the Mid-Atlantic South, the Northeast, the Midwest, and the Pacific West. The exchange can be found online at http://www.cmegroup.com.

The Market Composite Index, an overall measure of mortgage applications, rose from 657.4 to 673.2 on a seasonally and holiday-adjusted basis during the week ended Sept. 14, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications increased 26.6% on the week and were up 12.8% from the level recorded a year earlier. The Purchase Index rose from 448.0 to 452.0 on a seasonally adjusted basis, while the Refinance Index climbed from 1876.6 to 1962.0. Refinancings represented 43.5% of total applications, up from 42.1% the previous week, while adjustable-rate mortgages accounted for 12.6%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 6.25% to 6.29%, and points (including the origination fee) rose from 1.00 to 1.02 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

The Department of Housing and Urban Development says Fannie Mae and Freddie Mac met or exceeded their affordable housing goals for 2006 even though Freddie missed one of the home purchase subgoals by a tiny fraction.The government-sponsored enterprise purchased 179,145 mortgages that qualified for the special affordable home purchase subgoal, but "missed by 634 loans," Freddie said in its annual affordable housing report to HUD. Freddie Mac's report also shows that its purchases of asset-backed securities accounted for 32.5% of single-family units qualifying for the low- and moderate-income housing goal, and its purchases of commercial mortgage-backed securities accounted for 56.4% of the qualifying multifamily units. Fannie noted that it started purchasing CMBS in 2006, but did not discuss its ABS purchases.

The wrangling between Accredited Home Lenders Holding Co., San Diego, and Lone Star Fund V (U.S.) LP, Dallas, has ended with an agreement to a revised deal for the nonprime mortgage lender.Lone Star will now pay $11.75 cash per share for Accredited, instead of the $15.10 called for in the original transaction agreement and the $8.50 Lone Star had offered (and Accredited rejected) several weeks ago. That offer came after Accredited had sued Lone Star in an attempt to force it to stick to the original terms of the transaction. The revised deal settles that lawsuit. Lone Star has put $295 million into escrow to fund payment in the deal. In addition, it has agreed to provide $49 million in financing to Accredited; approximately $34 million of it will be used to extinguish debt owed by Accredited, and the rest will provide additional liquidity for the mortgage lender. At 11 a.m. on Sept. 19, Accredited's shares were trading at $11.55 per share, up $1.77 from the previous close.

The Office of Federal Housing Enterprise Oversight says it will allow Fannie Mae and Freddie Mac added "flexibility" in managing their mortgage portfolios to assist troubled subprime borrowers, but that it would not be "prudent" to make major changes because the companies are not done fixing their accounting systems.OFHEO's reluctance to increase the government-sponsored enterprises' ability to portfolio loans in a greater amount met with immediate criticism from some top elected officials. OFHEO's added flexibility would allow the GSEs to increase their on-balance-sheet holdings by about 2% -- but over a shorter time frame. Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., called the 2% figure "pretty timid," saying that at least 5% is needed. Sen. Charles E. Schumer, D-N.Y., wants a 10% increase. OFHEO said its changes will allow Fannie and Freddie "to purchase or securitize, over the next six months, up to $20 billion or more of subprime mortgages."

Federal Reserve action to cut its discount and target federal funds rates 50 basis points may help restore confidence and liquidity in the commercial real estate market, according to Steve McCarthy, managing director at Buchanan Street Partners.At a commercial real estate investment and finance conference in New York sponsored by RealShare, he noted that the market is in a transitional period and said he expects commercial real estate capitalization rates to move up about 100 bps in the next year. Glenn Whitmore, senior managing director at Holliday Fenoglio Fowler, noted that a number of funds have hit their lending allocations for the year and said there will be a slowdown until people get a sense of where the market is going. Life companies and portfolio lenders remain very active, though, given that "when spreads are high on [commercial mortgage-backed securities], that's when you pounce," he said. Clifford Booth, president of Westmount Realty Capital, said he has seen a 5%-10% adjustment in pricing on average.

The Federal Open Market Committee of the Federal Reserve Board has cut the discount and target federal funds rates by 50 basis points each, citing "the tightening of credit conditions" and its "potential to intensify the housing correction and to restrain economic growth more generally."Developments since the Fed committee's last meeting "have increased the uncertainty surrounding the economic outlook," it said, adding that it plans to "continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth." The Fed can be found on the Web at http://www.federalreserve.gov.

By a 20-1 vote, the Senate Banking Committee has approved a Federal Housing Administration reform bill that would lower the FHA downpayment requirement to 1.5% and raise the FHA loan limit to $417,000 in high-cost areas.Reforming the FHA is going to be a "big help" in dealing with the mortgage crisis, committee Chairman Christopher J. Dodd said after the mark-up of the bill. The chairman also thanked several senators for not offering government-sponsored enterprise amendments during the mark-up session that would raise Fannie Mae's and Freddie Mac's loan limits and the caps on their mortgage portfolios. The chairman told reporters he plans to mark up a GSE reform bill this fall and will "resist" any GSE amendments when the FHA bill goes to the Senate floor. The FHA reform is silent on the issue of FHA risk-based mortgage insurance premiums. But Sens. Dodd and Wayne Allard, R-Colo., raised concerns about Department of Housing and Urban Development moves to issue a risk-based premium proposal. "HUD seems to feel they have the authority to move forward on their own," Sen. Allard said. "At the very least, I think they need to consult with the Congress and seek out our consent."

The House has passed a Federal Housing Administration reform bill by a 348-72 vote that raises the FHA loan limit to over $700,000 in high-cost areas and allows the FHA to reach more subprime borrowers by charging risk-based premiums.FHA Commissioner Brian Montgomery welcomed the House action despite concerns that the House bill (H.R. 1852) raises the FHA loan limits too high. The Bush administration proposed raising the FHA loan limit from $362,790 to the $417,000 conforming-loan limit in high-cost areas. But the House approved a bipartisan amendment by voice vote that raises the maximum FHA loan limit to 175% of the conforming loan limit, or $730,000, to address problems in the jumbo loan market. Commissioner Montgomery noted that the administration strongly opposes such a loan limit hike but said he expects the Senate bill to be more compatible with the administration's position. "We look forward to seeing what the Senate does, and we will try to work out those differences in conference committee," Mr. Montgomery told reporters.

Single-family housing starts fell 7.1% in August following a 7.0% decline in July as deepening problems in the mortgage market, slowing sales, and a huge inventory of unsold new and previously owned homes forced builders to pull back.The U.S. Census Bureau reported that single-family housing starts declined from a seasonally adjusted annual rate of 1.06 million in July to 988,000 in August. Single-family starts are off by 27% since August of last year. (In August 2005, builders started construction on 1.7 million new single-families.) In August, 22,000 construction workers lost their jobs. Since September 2006, construction employment has fallen by 96,000, according to the latest government employment report.

The collapse in U.S. home prices over the next few years could be the worst since the Great Depression, with trillions of dollars in home equity evaporating, according to Robert Shiller, a Yale economist who helped create a much-watched home price index.In testimony before the House/Senate Joint Economic Committee, Mr. Shiller said the nation's housing stock is valued at $28 trillion. He estimated that values have already fallen 6.5% from their peak and stand to lose another 7%-13% by next summer. "This amounts to a real loss of home value on the order of trillions of dollars by August 2008," he said, adding that "home price recessions tend to last years." Mr. Shiller, co-founder of MacroMarkets LLC, helped develop the Case-Shiller Home Price Index.

Commercial real estate recorded a 2.1% rate of return in June on a national basis, for a 12-month rate of return of 6.6%, according to the S&P/GRA Commercial Real Estate Indices.Standard & Poor's said the regional breakdowns showed the top CRE performance in the Desert Mountain West, which recorded an 8.6% 12-month return. "While year-over-year returns at the national level stabilized at 6.6% in June, ... some areas are showing some real diminishing annual returns, most notably the apartment sector and the Desert Mountain West and Mid Atlantic South regions," said David Blitzer, managing director and chairman of S&P's Index Committee. The indices showed a negative-3.5% 12-month rate of return for the apartment sector. The indices can be found online at http://www.spcrex.standardandpoors.com.

The Chicago metropolitan area led the nation in high-cost loans in 2006, according to an analysis of federal data by The Chicago Reporter, a bimonthly publication focused on race- and poverty-related issues.The analysis was based on Home Mortgage Disclosure Act data recently released by the Federal Financial Institutions Examination Council. The Chicago-Naperville-Joliet metro area ranked highest in the nation with 88,315 high-cost loans last year, the Reporter said. "High-cost loans have become a national problem, and if you want to understand more about high-cost loans, the first place you should look is Chicago," said Alden Loury, senior editor of the publication. "For three years running, Chicago has led the nation in high-cost loans." Ranking just behind Chicago were the metro areas of Los Angeles-Long Beach-Glendale, Riverside-San Bernardino-Ontario (Calif.), Phoenix, and Washington, D.C., according to the Reporter. The publication can be found online at http://www.chicagoreporter.com, and the FFIEC, which sets uniform standards for the examination of financial institutions by federal regulators, can be found at http://www.ffiec.gov.

Nearly 244,000 foreclosure filings were reported nationwide in August, up 36% from the level recorded in July and up 115% from that of a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif.The nation's foreclosure rate stood at one foreclosure filing for every 510 households, the company said in its August 2007 U.S. Foreclosure Market Report. (Foreclosure filings include default notices, auction sale notices, and bank repossessions.) "The jump in foreclosure filings this month might be the beginning of the next wave of increased foreclosure activity, as a large number of subprime adjustable-rate loans are beginning to reset now," said James J. Saccacio, chief executive officer of RealtyTrac. "Another significant factor in the increased level of foreclosure activity is that the number of REO filings (bank repossessions) is increasing dramatically, which means that a greater percentage of homes entering foreclosure are going back to the banks." The company said Nevada, California, and Florida recorded the highest foreclosure rates in August. The company can be found online at http://www.realtytrac.com.

The Federal Housing Administration would be able to charge risk-based premiums based on a borrower's credit score and downpayment under a proposed rule the Department of Housing and Urban Development will publish soon in the Federal Register.The FHA mortgage insurance program currently charges a 150-basis-point upfront premium and a 50-bp annual premium for most borrowers. Under the proposal, which is being issued for a 30-day comment period, the FHA can charge a maximum upfront premium of 2.25% and a 55-bp annual premium for loans with only 3% down. With these limits, the FHA could provide mortgage insurance for borrowers with credit scores above 499. Discounted premiums would be available for first-time homebuyers who complete pre-purchase homeownership counseling. Creditworthy borrowers with credit scores above 679 and 10% down would pay only a 75-bp upfront premium and a 50-bp annual premium. HUD plans to establish this RBP system if Congress does not pass an FHA bill by Jan. 1.

Lehman Brothers Holdings Inc. has announced that its year-over-year net income fell 3% to $887 million in the fiscal quarter ended Aug. 31, citing "very substantial valuation reductions" for mortgages and other assets hurt by the current liquidity crunch.The Wall Street firm said the valuation concerns were most significant "on leveraged loan commitments and residential mortgage-related positions." Lehman has been partially offsetting these valuation declines with hedging and gains in other areas such as investment management, investment banking, equities, and non-U.S. revenues, as well as previously disclosed cost-cutting in the mortgage area. The company can be found online at http://www.lehman.com.

Associated Estates Realty Corp., a real estate investment trust based in Richmond Heights, Ohio, has announced plans to exit the affordable housing business.The multifamily REIT said it manages for third-party owners 30 affordable properties in Ohio, Pennsylvania, and Florida under the Low Income Housing Tax Credit, Section 8, and Section 202 provisions of federal law. It also owns or partially owns 12 Section 8 affordable properties, which have been put up for sale. The company also announced that it expects to incur approximately $200,000 in severance costs in connection with the elimination of certain positions at its corporate office. The REIT said the owner of 23 of the 30 managed properties has indicated its intention to manage those properties, and the remaining managed properties will be transitioned to other managers over the next three to six months. Associated can be found online at http://www.aecrealty.com.

National City Corp. says its mortgage business could lose up to $160 million in the third quarter, according to a new filing with the Securities and Exchange Commission.The bank had previously estimated losses of between $130 million and $160 million due to its mortgage problems but is now confirming that the hit will be "around the high end of the range." In the filing, the Cleveland-based bank said risk "remains elevated in the $1.7 billion First Franklin second lien portfolio and in certain discrete home construction and investment real estate projects." Earlier this year, NatCity sold its subprime division, First Franklin Financial Corp., San Jose, Calif., to Merrill Lynch but retained some of First Franklin's second-lien production on the bank's balance sheet. NatCity can be found on the Web at http://www.nationalcity.com.