Originations

The incidence of overvaluation in the nation's housing market continued to decline in the second quarter, as the overall number of single-family housing units deemed to be overvalued declined from 16% to 14%, according to an analysis released by Global Insight Inc., Waltham, Mass.The quarterly housing valuation analysis, House Prices in America (which looked at the top 330 U.S. real estate markets), also found that the percentage of single-family asset value deemed to be overvalued fell from 28% in the first quarter to 25% in the second quarter. "Indeed, the price declines thus far can be seen as relatively mild given the dramatic fall in home sales," said Jeannine Cataldi, manager of Global Insight's Regional Real Estate Service. "But the evidence indicates that prices are slowly reverting to their historic relationship to economic fundamentals." The analysis is a joint effort of Global Insight and National City Corp., Cleveland. More information can be found online at http://www.globalinsight.com/housingvaluation and http://www.nationalcity.com/housevaluation.

Like banks and thrifts, Fannie Mae and Freddie Mac are now bound by federal underwriting guidelines when they purchase subprime mortgages and private-label securitizations backed by subprime loans, according to the Office of Federal Housing Enterprise Oversight.OFHEO Director James Lockhart said the two government-sponsored enterprises have completed their implementation of the subprime guidance that federal banking regulators issued on June 29. The guidance requires lenders to qualify borrowers at the fully indexed rate and restricts stated-income loans and risk-layering features. Meanwhile, Treasury Under Secretary Robert Steel told a congressional panel last week that he is urging the two GSEs to develop loan products that can help refinance troubled subprime borrowers. He cited studies indicating that a large number of borrowers ended up in subprime loans when they could have qualified for a prime mortgage. "In those cases, the GSEs could help," Mr. Steel told the House Financial Services Committee. A Fannie Mae spokesman said, "Conversations are occurring. So we will see where they go."

IndyMac Bancorp, the nation's eighth-largest funder of residential loans, said Sept. 7 that it will cut 10% of its staff in coming months -- roughly 1,000 workers -- as it prepares to lose money in the current quarter.In a statement, IndyMac chief executive Mike Perry predicted that the company's loan production will fall by one-half in the fourth quarter, "although we are experiencing some pricing power on new loans such that our margins are improving." The Pasadena, Calif.-based IndyMac recently transformed its production from mostly alternative-A loans to mostly loans eligible for securitizing by the government-sponsored enterprises. Mr. Perry blamed "illiquidity in the secondary markets" for IndyMac's woes. He said the company will report third-quarter earnings of break-even to a loss of 50 cents a share. IndyMac Bancorp is a holding company of a federally insured depository.

Countrywide Financial Corp., addressing what it calls "changing market conditions," said late Friday that it will lay off 10,000 to 12,000 workers over the next three months, or 20% of its work force.The story was broken by MortgageWire on Sept. 4. Countrywide also repeated that it will only originate loans that can be sold to Fannie Mae, Freddie Mac, or insured by Ginnie Mae. It also said that it hopes to migrate "almost all" of its residential production into its thrift affiliate by the end of September. In a recent interview with National Mortgage News, Countrywide founder, chairman, and chief executive Angelo Mozilo said the current liquidity crisis is one of the worst he has seen during his five decades in the business. The Calabasas, Calif.-based company can be found on the Web at http://www.countrywide.com.

Class M2 of Delta Funding Corp. 2000-2 has been downgraded from BBB-minus to B by Fitch Ratings.Fitch also affirmed the rating on one other class in the transaction. The downgrade was attributed to a deterioration in the relationship between credit enhancement and loss expectations. The underlying collateral for the transaction consists of fixed- and adjustable-rate subprime mortgage loans secured by first and second liens on residential properties.

Two classes of Salomon Brothers Mortgage Securities VII Inc. mortgage pass-through certificates, series 2002-WMC2, have been downgraded by Fitch Ratings.Class M-2 was downgraded from BBB-minus to B, and class M-3 was downgraded from BB to B. Fitch also affirmed the rating on one class in the deal. The downgrades reflect deterioration in the relationship between credit enhancement and expected losses, Fitch said. The collateral of the transaction consists of fixed- and adjustable-rate first- and second-lien mortgage loans extended to subprime borrowers.

Two classes of Credit Suisse First Boston Mortgage Securities Corp. commercial mortgage pass-through certificates, series 2001-CK3, have been downgraded by Moody's Investors Service.Class K was downgraded from B1 to B2, and class N was downgraded from Ca to C. In addition, Moody's upgraded four classes in the deal and affirmed the ratings of eight classes. The downgrades were attributed to realized losses and dispersion in loan-to-value ratios. Moody's said 29.7% of the conduit pool has an LTV greater than 100%, compared with 15.1% at the last review and 2.0% at securitization. Moody's can be found online at http://www.moodys.com.

Two classes of People's Choice Home Loan Securities Trust series 2004-1 have been downgraded by Fitch Ratings, and two others have been removed from Rating Watch Negative.Class M-7 was downgraded from BB to B, and class M-8 was downgraded from BB-minus to C/DR5. Classes M-3 and M-4 were removed from Rating Watch Negative. Fitch also affirmed the ratings on six classes in the deal. The downgrades were attributed to deterioration in the relationship between credit enhancement and loss expectations. The mortgage pool consists of 30-year subprime residential loans.

Three classes of notes and shares from Trainer Wortham First Republic CBO III Ltd., a collateralized bond obligation that consists mainly of residential mortgage-backed securities, have been downgraded by Fitch Ratings.The downgrades were as follows: class C notes, from A to A-minus; class D notes, from BBB to BB (and removed from Rating Watch Negative); and preference shares, from BB to B (and removed from Rating Watch Negative). Fitch also affirmed the ratings on three other classes of notes in the deal. The downgrades were attributed to credit deterioration and exposure to subprime RMBS.

Three classes of Aegis 2004-1 mortgage pass-through certificates have been downgraded by Fitch Ratings.The downgrades were as follows: class B1, from BBB-plus to BB (and removed from Rating Watch Negative); class B2, from BBB-minus to B; and class B3, from BB-minus to C/DR5. Fitch also affirmed the ratings on three other classes in the deal. The downgrades reflect deterioration in the relationship between credit enhancement and expected losses, Fitch said. The assets consist primarily of conventional residential mortgage loans, fully amortizing and balloon, extended to subprime borrowers.

Five classes from two Merrill Lynch Mortgage Investors Inc. subprime securitizations have been downgraded by Fitch Ratings.The downgrades were as follows: series 2003-OPT1, class B2, from BBB-plus to BB-plus, and class B3, from BBB-minus to B; and series 2003-WMC1, class M2, from AA-plus to AA-minus, class B1, from BB-minus to CCC/DR1, and class B2, from B to C/DR5. The rating agency also affirmed the ratings on 21 classes in four MLMI transactions. The downgrades were attributed to a deterioration in the relationship between credit enhancement and loss expectations.

Eight classes from two issues of Asset Backed Funding Corp. subprime mortgage pass-through certificates have been downgraded by Fitch Ratings, and two classes from two other issues have been placed on Rating Watch Negative.The downgrades were as follows: series 2003-OPT1, class M-5, from BBB-plus to BB-plus, and class M-6, from BBB to B; and series 2004-FF1, class M-1, from AA to AA-minus, class M-2, from A to BBB-plus, class M-3, from A-minus to BBB-minus, class M-4, from BBB-plus to BB-plus, class M-5, from BBB to BB, and class M-6, from BBB-minus to BB-minus. The securities placed on Rating Watch Negative were class M-5 of series 2003-AHL1 and class M-6 of series 2004-OPT3. Fitch also affirmed the ratings on 19 classes from the four ABFC securitizations. The negative rating actions reflect the deterioration of credit enhancement relative to expected losses, the rating agency said. The underlying collateral for the transactions consists of fixed- and adjustable-rate subprime mortgage loans secured by first and second liens.

Forty-nine more classes of subprime mortgage- and asset-backed securities have been downgraded by Fitch Ratings as a result of changes to its subprime loss forecasting assumptions.Fitch also affirmed the ratings on classes with outstanding balances of more than $8 billion. Among the securities affected by the latest downgrades were: 14 classes from two issues of IXIS mortgage pass-through certificates; 10 classes from three issues of Soundview Home Equity Loan Trust asset-backed certificates; seven classes from two issues of Citigroup Mortgage Loan Trust mortgage pass-through certificates; and seven classes from three issues of HSI Asset Securitization Corp. mortgage pass-through certificates. The rating actions were attributed to 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." Fitch can be found online at http://www.fitchratings.com.

While the total amount of primary new mortgage insurance written by members of the Mortgage Insurance Companies of America was down by over 13% in July, the dropoff in the traditional category was just $584 million.In July, a total of $26.6 billion of primary new insurance was written, down from $30.6 billion in June, the industry's best month of the year so far. July was the second-best month of the year in the traditional category, with $22.7 billion written, down from $23.3 billion in June. The bulk category fell from $7.3 billion in June to $3.8 billion in July. The number of applications received fell by 13% as well, from 207,050 in June to 180,561 in July. New pool risk written totaled $239.6 million, the most in this category all year, and a break in the pattern of production spikes in the last month of each quarter. The real bad news was in delinquencies, as the cure/default ratio fell to 53.4%, its lowest level of the year. There were 30,567 cures and 57,219 defaults. MICA can be found online at http://www.micanews.com.

Citing a survey showing that mortgage loans entering foreclosure have reached a 25-year high in California, the Center for Responsible Lending is taking California lawmakers to task for not responding to the subprime mortgage crisis.The Oakland, Calif.-based CRL pointed to the Mortgage Bankers Association's recently released delinquency survey for the second quarter, which indicated that the national delinquency rate for single-family home loans jumped to 5.12% in the second quarter and the number of loans entering foreclosure reached a record high. The MBA "failed to acknowledge the risky products and deterioration of lending practices in their own industry," the CRL said, criticizing brokers and lenders for promoting "risky products that maximized their profits" while "los[ing] sight of the basic fundamentals of lending." Unlike other states, California "has not acted to stem the foreclosures or tighten safeguards for borrowers," the organization said. The CRL said the state should provide emergency funding for housing counselors, bar prepayment penalties in subprime loans, and set lending standards that qualify borrowers based on the fully indexed interest rate and verified income. The group can be found online at http://responsiblelending.org.

Only $9 billion in subprime mortgage-backed securities were issued in August, and the credit enhancement on at least one adjustable-rate securitization exceeded 40%, according to a Friedman Billings Ramsay report."We observed credit enhancement of the AAA rated classes of an adjustable rate subprime RMBS, from a first tier issuer, as high as 41.25%," FBR managing director Michael Youngblood said. Credit enhancements were much lower when $42.1 billion in subprime residential MBS were issued in August 2006. "We believe that such lofty credit enhancement should lead to more conservative underwriting of non-agency mortgage loans and to equally lofty non-conforming mortgage rates, and both will curtail borrower demand and hence the volume of new mortgage loans and RMBS," the FBR researcher says in the report. FBR researchers recently reported that the default rate on subprime loans stood at 13.43% in June. They are now forecasting that defaults will rise to 16.11% by June 2008. (The default rate includes loans 90 days or more past due, in foreclosure and real estate owned.)

Capmark Financial Group, Horsham, Pa., has spun off its Realpoint unit into an independent company so as to better focus on its core commercial mortgage lending business.The independent company has been established by the Realpoint management team, Capmark reported. The terms of the deal were not disclosed. Realpoint is a provider of independent real estate securities and property market research, risk analytics, and valuation services. "The sale of Realpoint to the management team will enable Capmark to focus on its core businesses of investments, lending, and mortgage banking and servicing, while allowing Realpoint to independently grow its real estate research and technology platform," said Brian DiDonato, president of Capmark Investments. "Capmark intends to continue using Realpoint's market research suite of services." And Robert Dobilas, chief executive officer and president of Realpoint, said, "This is a great opportunity to expand Realpoint’s service offerings to meet the growing demands of our clients."

Keefe, Bruyette & Woods has cut its earnings estimates on mortgage insurer Triad Guaranty, citing the MI's loss of its largest customer to bankruptcy -- American Home Mortgage of Melville, N.Y.In a recent filing with the Securities and Exchange Commission, Triad said American Home was its largest customer in the first half, accounting for almost 34% of new insurance that it wrote. The nondepository lender closed its doors in August. About a week ago, Triad announced that it had borrowed $80 million under a revolving line of credit. After the company's stock swooned, company president Mark K. Tonnesen issued a statement saying, "The decision to draw down these funds was made by the board of directors at a regularly scheduled board meeting and not in response to any liquidity issues."

Sandler O'Neill has trimmed its price target on National City's stock, citing what it calls "ongoing uncertainty" in the Cleveland bank's residential mortgage business.The investment banking firm is maintaining its "hold" rating on the company but said the stock "will have a hard time advancing until mortgage noise is through the system and investors have a better sense" of its "earnings power." National City recently trimmed 800 positions at its National City Mortgage affiliate, which is based in Miamisburg, Ohio. According to the Quarterly Data Report, NatCity Mortgage ranks 12th nationwide among home mortgage funders.

Most mortgage fraud occurs during the application process, an FBI agent told attendees Sept. 6 at the New York Association of Mortgage Brokers' annual convention in Melville, N.Y.Therefore, "we need all of you to assist us" in combating the problem, Special Agent Charles F. Butruch said, because it is the mortgage broker who sees it first. Carolyn Mitchell, the president of Magnet Portfolio, added that mortgage brokers need to take a more aggressive approach to quality control in their own business. As the market changes, she said, participants need to be more vigilant and more aware of what fraud schemes are out there. Richard Harrison, an attorney with Westerman, Ball, Ederer, Miller & Sharfstein, warned that a huge push looking at appraisers, mortgage brokers, and fraud is likely to be coming soon from New York State Attorney General Andrew M. Cuomo. The New York Association of Mortgage Brokers can be found on the Web at http://www.nyamb.org.