Originations

An index that tracks pending home sales posted a 12% decline in July and dropped 16% from the level recorded a year earlier, a sign that the housing market is still weak.Created by the National Association of Realtors, the index is based on sale contracts signed each month. The July reading was 89.9. A year ago, the index stood at 107.1. "It's difficult to fully account for mortgage disruptions in the index, and our members are telling us some sales contracts aren't closing because mortgage commitments have been falling through at the last moment," NAR senior economist Lawrence Yun said. The NAR can be found online at http://www.realtor.org.

Treasury Under Secretary Robert Steel has cautioned a congressional panel that volatility in the credit and mortgage markets is "far from over," but said he expects economic growth to continue despite weakness in the housing sector.The under secretary also told the House Financial Services Committee that the president's Working Group on Financial Markets will be examining recent market events, including the impact of securitization and the role of the rating agencies in the credit and mortgage markets. "The Treasury Department will be releasing early next year a blueprint of structural reforms to make financial services industry regulation more effective, taking into account consumer and investor protections and the need to maintain U.S. capital market competitiveness," Mr. Steel said.

Two weeks after filing for bankruptcy protection, hard-money lender Quality Home Loans has been sold to hedge fund manager and entrepreneur Michael Klein for an undisclosed amount.Mr. Klein, according to a statement released by QHL, is a senior credit analyst at Pacificor LLC, a hedge fund. As part of the sale, QHL chief executive John Gaiser will resign, but remains as a consultant. Alim Kassam, a former investment banker at Lehman Brothers, was named to replace Mr. Gaiser. "I embrace the challenge that lies before me and am extremely excited about the opportunity that Quality has to aggregate market share at a time when the entire industry is redefining itself," Mr. Kassam said in a statement. Quality filed for bankruptcy protection on Aug. 21. The sale to Mr. Klein is subject to bankruptcy court approval.

MGIC Investment Corp., Milwaukee, and Radian Group Inc., Philadelphia, have terminated their merger agreement, the parties announced Sept. 5 in a joint statement.All outstanding lawsuits between the two companies are being dismissed, and neither made any payment to the other in connection with the termination of the deal. S.A. Ibrahim, chief executive of Radian, said, "[O]ur mutual decision to terminate the pending merger represents the best outcome for both companies under the circumstances." In a separate release issued by Radian, Mr. Ibrahim said Radian is "confident" that it can deliver on its strategic plan as a stand-alone company, and that "While there are significant credit challenges in today's mortgage market, we also believe that there are tremendous opportunities for our company in the mortgage insurance and financial guaranty markets, and our management team is moving aggressively to position Radian for future success." Investors, who drove down the stock prices of both companies following revelations of problems with their joint venture, C-BASS, responded to the news by pushing Radian's stock up nearly 9%, to $19.73, and MGIC's by over 2%, to $30.99, as of noon on Sept. 5.

Fifty-two classes from nine issues of SACO mortgage pass-through certificates totaling nearly $518 million 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 approximately $739 million. 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 on the Web at http://www.fitchratings.com.

The Eleventh Federal Home Loan District Cost of Funds Index declined by less than one basis point in July.According to the Federal Home Loan Bank of San Francisco, which calculates the weighted-average index, COFI fell from 4.283% in June to 4.277% in July. Because of the weighted-average feature, COFI tends to lag movements in other indices by three to six months. For comparative purposes, the monthly average for the one-year adjustable-rate mortgage reached 5.71% in July, its highest level since reaching 5.79% in July 2006, according to the Freddie Mac Primary Mortgage Market Survey. The survey showed mostly downward movement until December, when it hit 5.45%. There were a couple of small gains in the average rate in January and February, before declining one last time in March. However, the biggest rise in the average rate for the one-year ARM came in June, when it rose 16 bps to 5.68%. COFI peaked in December 2006 at 4.392% before beginning its current mostly downward movement.

The sudden drop-off in subprime and alternative-A lending from $700 billion in the first half of this year to $300 billion in the second half will be "very disruptive" for mortgage banks that relied on nonagency originations for the bulk of their profits, according to a Friedman Billings Ramsey report.The FBR report notes that lenders are quickly switching their production to loans that meet the requirements of the secondary-market agencies -- Fannie Mae and Freddie Mac -- since the secondary market for nonagency loans has "basically dried up." But selling loans to Fannie and Freddie is "not profitable today," FRB analyst Paul Miller says in the report. "We believe it will take two or three quarters before originators make the proper adjustments and profitability returns." FBR analysts are forecasting that nonagency originations in 2008 will total $500 billion, down from $1.9 trillion in 2006 -- a 75% decline over that two-year period. Meanwhile, agency originations will increase from $1.1 trillion in 2006 to $1.4 billion in 2007 and remain at that level in 2008, according to FBR's forecast. FBR can be found on the Web at http://www.fbr.com.

To augment its recently announced FHASecure program, the Department of Housing and Urban Development plans to take administrative action to implement a risked-based pricing system by Jan. 1 so the Federal Housing Administration can price its mortgage insurance premiums based on a borrower's risk profile, according to a senior HUD official.With risk-based pricing, the FHA would be able to help an additional 20,000 subprime borrowers refinance into new FHA-insured mortgages in fiscal year 2008 and help finance 120,000 new homebuyers who have fewer options due to the contraction in subprime lending, the official told reporters. The Bush administration still wants Congress to pass an FHA reform bill that would give the agency even more flexibility in setting premiums and downpayment requirements. HUD estimates that the FHA will refinance 101,000 subprime borrowers into FHA loans by the end of this fiscal year (Sept. 30) and the agency would probably refi another 160,000 subprime borrowers in fiscal 2008 without any changes to its program. With the FHASecure program (which allows the FHA to refinance delinquent borrowers and risk-based pricing), HUD expects that the FHA can help another 80,000 troubled borrowers avoid foreclosures. But it could do even more if Congress passes FHA reform. HUD officials also revealed that they plan to issue a Real Estate Settlement Procedures Act proposal in January aimed at improving disclosures of mortgage broker fees and settlement costs.

ComUnity Lending Inc., Morgan Hill, Calif., has announced a decision "to mitigate the risk of the market by reducing our volume and moving to the sidelines while we wait for sanity to return to the market."The company said it is planning "a short period of rest and restructuring, after which we will re-enter the business aggressively." ComUnity Lending said it will retain two production offices in California and core staff at its central support office in Morgan Hill. The company has moved all loans to the two California offices and will lock only through those offices. It hopes to close the loans now in its system that meet existing guidelines, ComUnity Lending said. "We will continue to accept new loans and locks through our two production units in California," the company said. "We will be working to close all loans from our other locations by Sept. 14."

The First American Corp., a provider of mortgage-related and other business information based in Santa Ana, Calif., has announced that it expects to slash its payroll by approximately 1,300 full-time equivalents in the third quarter.The company said the layoffs will be in addition to the approximately 600 FTEs eliminated in the second quarter and that, of the total, 1,400 will be in its title insurance and services business. The personnel reductions are expected to generate annualized cost savings of $108 million, of which $66 million is expected in the title segment, the company said. First American can be found online at http://www.firstam.com

The Markets & Banking business of New York-based Citigroup has purchased the wholesale mortgage origination business and mortgage servicing assets of ACC Capital Holdings, Orange, Calif.Citi acquired an option to buy those businesses in February as part of an agreement to provide working capital to ACH. The wholesale business operated under the name Argent Mortgage. The transaction was announced Aug. 31 and closed the next day. "Exercising our option to acquire the assets from ACH's wholesale origination and servicing business allows Citi to secure valuable and scalable platforms in a market undergoing significant change," said Jeffrey A. Perlowitz, head of global securitized markets in Citi's Fixed Income, Currencies and Commodities unit. "Through this acquisition, we gain important operational and pricing efficiencies and the ability to extend the high lending standards of our existing residential mortgage business from point of origination through securitization and servicing." Citi received $45 million in servicing rights from ACH in the transaction.

Subprime lender NovaStar Financial said Tuesday that it has canceled a previously announced stock offering that would have bolstered its liquidity, a decision that raises new doubts about its future.The Kansas City, Mo.-based real estate investment trust also cut its retail staff to 125 workers (from 400), closing 12 locations in the process. It said it will only fund retail loans on a "limited basis," acting as a broker in some cases. (It closed its wholesale unit about two weeks ago.) In a statement, company chief executive officer Scott Hartman said secondary-market conditions have "deteriorated substantially, so we are modifying our business model and further reducing costs for this difficult environment." The stock offering, which involved the sale of convertible preferred shares, would have raised $101 million. Its shares were trading down 17% at deadline time. The company can be found online at http://www.novastarmortgage.com.

Countrywide Financial Corp., is contemplating slashing its work force by 7,000 to 10,000 workers, according to industry officials close to the situation.If the job cuts become reality, it would be one of the largest layoffs in mortgage history -- outside of a bankruptcy filing. (The nation's largest lender employs about 60,000.) The company is also planning to take a multimillion-dollar writedown on its "held for sale" portfolio of mortgages, one source said. A company spokesman would not comment on specifics, but said the company has "always aligned its organization to best serve the needs of its customers and reflect the market and economic conditions in which we operate." He added that, "While as a matter of policy we don't comment on speculation, any changes to the Countrywide organization will reflect our ongoing strategy to align our business to the marketplace. The company's organizational strategy throughout this year has been consistent with that approach." Countrywide can be found online at http://www.countrywide.com.

Thirty more classes of mortgage-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 approximately $9 billion. The latest downgrades affect the following securities: 13 classes from two issues of Soundview Home Equity Loan Trust asset-backed certificates; nine classes from three issues of Asset Backed Securities Corp. mortgage pass-through certificates; and eight classes from three issues of J.P. Morgan 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."

Citing changes to its mortgage insurance capital model, Fitch Ratings has downgraded the long-term issuer and senior debt ratings of Triad Guaranty Inc. from AA to AA-minus and the insurer financial strength ratings of Triad Guaranty Insurance Corp. from A-plus to A-minus.Fitch recently enhanced its proprietary mortgage insurance capital model in light of the changing U.S. mortgage environment and corresponding changes to Fitch's residential mortgage-backed securities model. "Among the most significant changes to Fitch's MI model were a 20% increase to the frequency-of-foreclosure factors and an increase in the capital charge for illiquid assets to 100%," the rating agency said. Before the revisions, Fitch "believed Triad historically operated with sufficient capital to support the AA rating," the rating agency said. Fitch can be found online at http://www.fitchratings.com.

Thornburg Mortgage Inc., a lender based in Santa Fe, N.M., has priced 20.0 million shares of series F cumulative convertible redeemable preferred stock at $25 per share.The real estate investment trust said the dividend will be 10% or the quarterly dividend yield received by common shareholders, whichever is greater. The book-running manager of the offering is Friedman, Billings, Ramsey & Co. The REIT, which focuses on the jumbo segment of the adjustable-rate mortgage market, can be found online at http://www.thornburgmortgage.com.

The Federal Reserve Board is concerned that problems in the subprime and jumbo mortgage markets could lead to further weakening in the housing sector and consumer spending."Obviously, if current conditions persist in mortgage markets, the demand for homes could weaken further, with possible implications for the broader economy," Fed chairman Ben Bernanke told an economic symposium in Jackson Hole, Wyo. "We are following these developments closely." The Fed chairman noted that mortgage-backed securities investors are demanding stronger protections and better incentives for originators to underwrite prudently. "In recent months we have seen a reassessment of the problems of maintaining adequate monitoring and incentives in the lending process, with investors insisting on tighter underwriting standards and some large lenders pulling back from the use of brokers and other agents," Mr. Bernanke said. The Fed can be found online at http://www.federalreserve.gov.

House prices appreciated by only 0.1% in the second quarter, but rose at a 3.2% rate over the previous four quarters, which was still a 10-year low, according to a housing price index published by the Office of Federal Housing Enterprise Oversight."Prices in the second quarter of 2007 were 3.2% higher than they were in the same quarter of 2006, the lowest annual price change since the 1996-97 period," OFHEO said. OFHEO Director James Lockhart said the second quarter was marked by tighter credit policies, rising foreclosures, and weakening buyer demand. "Significant price declines appear localized in areas with weak economies or where price increases were dramatic during the housing boom," he said. OFHEO collects its pricing data from Fannie Mae and Freddie Mac, and it includes refinancings and home purchase transactions. OFHEO can be found at http://www.ofheo.gov.

Because of the liquidity crisis in the secondary market, residential loan production by Countrywide Financial Corp. -- the nation's largest lender -- will fall by 30% in the current quarter, according to a new report issued by Credit Suisse.Credit Suisse also predicts a further drop in fundings by Countrywide in the fourth quarter. CS analyst Moshe Orenbuch is forecasting $96 billion in originations by Countrywide in the third quarter and $72 billion in the fourth quarter. In the first and second quarters of this year, Countrywide originated $114 billion and $130 billion, respectively, according to the Quarterly Data Report, a National Mortgage News publication. Countrywide recently said it would originate only government-sponsored enterprise loans and mortgages insured by the Federal Housing Administration and guaranteed by the Department of Veterans Affairs. The company has exited the subprime market entirely. Bank of America recently invested $2 billion in Countrywide, gaining control of 15% of its shares. Countrywide can be found online at http://www.countrywide.com.

The McGraw-Hill Cos. replaced the head of its Standard & Poor's unit on Thursday as criticism continued to mount that S&P (and other rating agencies) did not closely scrutinize the underlying subprime loans in the bonds it rated.Leaving S&P as its president is Kathleen Corbet. She will be replaced by Deven Sharma. A spokesman for McGraw-Hill denied that Ms. Corbet's departure is tied to criticism faced by S&P on its subprime MBS ratings. (When mortgage lenders securitize subprime loans, they pay the rating agencies to review and grade the bonds.) One mortgage insurance executive told MortgageWire that the rating agencies "have a lot to explain for their role in the subprime crisis." He added: "If you were a rating agency and wanted the business of a certain subprime lender, would you give them a bad grade?" S&P can be found online at http://www.standardandpoors.com.