Originations

Lone Star Fund V (U.S.) LP, Dallas, denies it is in breach of its obligations to purchase Accredited Home Lenders Holding Co., San Diego.The company has made a formal legal filing in response to Accredited's lawsuit of Aug. 13 seeking to force Lone Star to complete the tender offer for the nonprime wholesaler. In its counterclaim, Lone Star said Accredited has suffered a material adverse effect and has materially breached other obligations and that Lone Star is entitled to terminate the merger agreement. Lone Star claims Accredited's only contractual remedy is the payment of a reverse break-up fee of $12 million. Meanwhile Accredited has agreed to trade $1 billion of loans under a 90-day purchase agreement with an unnamed investor at an advance rate comparable to the advance rates it receives from its warehouse lenders. The initial settlement of an approximately $500 million pool occurred on Aug. 17. Accredited at its discretion can repurchase of all the traded loans through mid-November 2007 at a premium to the advance rate. "If the market improves to a rational level, our intention is to repurchase these quality loans by mid-November and sell or securitize them," said Accredited chairman and chief executive James Konrath. The deal takes away Accredited's exposure to margin calls on these loans.

Hammered by the mortgage market's liquidity crisis, Countrywide Financial Corp., Calabasas, Calif., cut 500 jobs at its Full Spectrum subprime division this week, according to industry sources.At press time, the company could not be reached for comment. One mortgage executive close to Countrywide described the secondary market for subprime loans as being "pretty close to being shutdown." Countrywide -- which last week suspended production of non-conforming loans -- ranked first among subprime funders in the first and second quarters, according to the Quarterly Data Report.

Credit card giant Capital One shocked the market Monday afternoon, closing GreenPoint Mortgage, Novato, Calif. -- the nation's seven largest originator of alternative-A credit mortgages -- completely.In total, 31 offices in 19 states will be shuttered, resulting in job losses for 1,900. Capital One of McLean, Va., bought GreenPoint and its parent, North Fork Bank, in December. The shutdown of GreenPoint -- a pioneer in nonconforming mortgages -- will cost it $860 million in related charges. In a statement the bank said, "Current conditions in the secondary mortgage markets create significant near-term profitability challenges, given the company's 'originate and sell' business model. Further, recent and continuing developments in the mortgage markets reduce the long- term outlook for profitability in the business, as the company expects markets for prime, nonconforming mortgage products are likely to remain challenged for the foreseeable future." The company also had cited secondary market woes in an earlier wave of GreenPoint layoffs. Besides being a top ranked alt-A funder, GreenPoint also ranked 20 overall, according to figures compiled by the Quarterly Data Report.

Offshore business process outsourcer WNS (Holdings) Ltd. has lowered its earnings guidance citing the recent mortgage market volatility that shut down one of its business partners, wholesaler First Magnus Financial Corp.First Magnus is stopping "substantially all work" with WNS and as a result WNS said its net income before tax for the fiscal year ending March 31, 2008 is expected to be "about $26 million lower than previously estimated." The company also said that, "In subsequent years the loss of First Magnus Financial Corp. and other mortgage businesses is expected to result in our revenue less repair payments being lower by approximately $20 million per annum and the net income before tax being lower by approximately $4 million per annum." Since the company lowered its guidance, its stock has been trading in a lower range roughly between $18 and $20 a share as compared to about $20 to $22 previously. The company can be found on the Web at http://www.wnsgs.com.

Thornburg Mortgage Inc. has sold $20.4 billon or 35.5% of its portfolio of highly rated jumbo mortgage securities at a loss in an effort to ride out the market's liquidity squeeze and resume lending again.The publicly traded real estate investment trust will realize a $930 million loss as a result of the mortgage sales that involved assets with the lowest yields that were trading at negative spreads. It was "painful," Thornburg president and chief operating officer Larry Goldstone said during an interview on TV-CNBC. "But essentially, we just solved the repricing risk of our portfolio over the course of the last week." The sales helped the Santa Fe, NM, mortgage REIT raise cash and reduce its funding needs. Now it is planning to reopen its loan lock desk and resume normal lending operations over the next two weeks. "Going forward, we can be somewhat optimistic," Mr. Goldstone said.

House Financial Services Committee chairman Barney Frank, D-Mass., has scheduled a Sept. 5 hearing on the crisis in the mortgage and credit markets and the implications for consumers and the economy.Top Treasury Department and Federal Reserve Board officials are scheduled to testify first. Mortgage banking industry and other market participants will testify on a second panel. The committee did not release a witness list in announcing the hearing.

Originator Amstar Mortgage Corp., Houston, has laid off most of the staff at its corporate headquarters and its parent company said it will eventually divest the company to concentrate on more profitable ventures.In a statement, the company blamed large lenders that owe Amstar Mortgage substantial money but are now in or will need to seek bankruptcy protection. The statement also said Amstar is speaking with an unnamed company about managing its branches so service can be maintained. Amstar Mortgage has 116 branches, was licensed in 31 states and originated over $1 billion in loans a year.

Class N of Credit Suisse First Boston's commercial mortgage pass-through certificates series 2005-CND2 has been downgraded from BB-minus to B-minus by Fitch Ratings, and classes L and M have been placed on Rating Watch Negative.In addition, Fitch affirmed the ratings on 16 other classes in the deal. The negative rating actions were attributed to concerns about fees resulting from the transfer to special servicing of the largest loan, Manhattan House (58%), as well as concerns about the transaction's remaining loans. "The Manhattan House loan has been transferred to special servicing due to an unresolved buyout dispute between the partners as well as resident-initiated litigation," Fitch reported. "There have been no sales or contracts signed for any of the units." The loan is secured by a 583-unit multifamily rental building on the Upper East Side of Manhattan.

Meanwhile, Standard & Poor's Ratings Services has affirmed the ratings on Residential Capital, including its BBB-minus/A-3 counterparty credit rating, but the outlook has been revised from stable to negative."The outlook revision considers our concern regarding pressure on future general operating performance at the company," said S&P credit analyst John K. Bartko. "ResCap's recent actions have served to maintain adequate funding and liquidity; however, lower production levels, reduced margins from changes in asset mix to higher quality and hence lower-yielding assets, and the likely increased funding costs will combine to increase pressure on overall financial performance." ResCap has already reduced nonprime lending to "nominal levels," S&P said. "Clearly, these tactical/strategic reactions to the current marketplace will have negative consequences for ResCap in the near to intermediate term," the rating agency said.

Fitch Ratings has downgraded the long-term issuer default rating on Minneapolis-based Residential Capital LLC from BBB to BB-plus and placed it on Rating Watch Negative.Fitch also downgraded ResCap's short-term IDR from F2 to B and placed it on Rating Watch Negative. The actions (which also included the previously reported downgrade of Countrywide Financial Corp.'s IDR, and the placement of IndyMac Bancorporation's ratings on Rating Watch Negative) were attributed to "the unprecedented disruption in the capital markets, which has severely reduced liquidity for mortgage-centric entities." The rating agency said the actions stemmed primarily from reduced liquidity, but that "other factors such as weakening operating performance and deteriorating asset quality beyond Fitch's expectations" were also considerations. ResCap is the parent company of GMAC Residential. Fitch can be found online at http://www.fitchratings.com.

Moody's Investors Service has announced downgrades on 691 vintage 2006 securities (with original face value of $19.4 billion) backed by subprime closed-end second lien mortgage loans.Moody's said the Aug. 16 rating actions affect securities representing 76% of the dollar volume and 84% of the securities rated by Moody's in 2006 that were backed by subprime closed-end second-lien loans. An additional 14 classes were placed on review for possible downgrade. "The actions reflect the extremely poor performance of closed-end second-lien subprime mortgage loans securitized in 2006," the rating agency said. "These loans are defaulting at a rate materially higher than original expectations. Aggressive underwriting combined with prolonged, slowing home price appreciation has caused significant loan performance deterioration and is the primary factor in the negative rating actions."

National City Corp., Cleveland, has announced that it is integrating its National Home Equity business unit into National City Mortgage Co. to streamline the parent company's mortgage operations amid the turmoil in the mortgage markets.As part of the integration, certain National Home Equity account executives and sales managers will join National City Mortgage's wholesale division, NatCity said. An unspecified number of other sales and support positions will be eliminated, the company said. National Home Equity suspended approvals of new home equity loans and lines of credit on Aug. 6 "as conditions tightened in secondary mortgage markets," the parent company said, adding that NatCity Mortgage will resume home equity originations "as market conditions warrant." The mortgage company can be found on the Web at http://www.nationalcitymortgage.com.

Bear Stearns -- a top Wall Street player in the nonprime mortgage market -- laid off 240 employees in its residential home loans group on Thursday, including 100 at Encore Credit, its California-based wholesale division.Shabi Asghar, president of Encore, remains with the company. (Bear bought Encore earlier this year.) Bear also closed two mortgage operations centers: one in Glen Allen, Va., and another in King of Prussia, Pa. Sources say Bear Stearns is continuing to fund nonprime loans, but at greatly reduced volumes. No changes have been made at its conduit, which buys closed loans.

Standard & Poor's Ratings Services has downgraded the counterparty credit rating of Countrywide Financial Corp. from A/A-1 to A-/A-2, while affirming its A/A-1 counterparty credit ratings on Countrywide Bank FSB and Countrywide Home Loans Inc..All ratings are on CreditWatch Negative. The downgrade reflects "the incremental liquidity and earnings stress, as well as our notching criteria and the fact that new debtholders will become subordinate to the operating company's debtholders as the company finalizes its restructuring phase," said S&P credit analyst Victoria Wagner. The affirmations reflect the "strong capital and credit profile" of Countrywide Bank and CHL's ongoing integration into the bank, which S&P said should improve its funding and liquidity profile. The dislocation of the mortgage capital markets has accelerated the integration, so that the bank will now be the primary source of earnings and hold the majority of the consolidated assets, S&P said. S&P can be found online at http://www.standardandpoors.com.

Nervous depositors rushed to pull money out of Countrywide's thrift unit on Thursday, according to a report in the Los Angeles Times.The newspaper did not offer any withdrawal figures, but described the scene at some of Countrywide's branches as something that has not been witnessed since the nation's savings-and-loan crisis of the mid-1980s. The newspaper reported that one depositor who pulled money out was Bill Ashmore, president of Impac Mortgage, an alternative-A lender that competes against Countrywide. (Impac itself is having financial difficulties.) Mr. Ashmore withdrew $500,000 from Countrywide Bank and transferred it to an account at Bank of America.

Shares of Countrywide Financial Corp. rallied about 10% on Friday after the Federal Reserve cut a key interest rate early in the day.Meanwhile, a new analyst report on Countrywide by Morgan Stanley predicts that the nation's largest lender likely "will work out a cash flow positive plan in this challenging environment by migrating mortgage production" to its thrift unit. On Wednesday a Merrill Lynch report called Countrywide's stock a "sell," suggesting that the company could file for bankruptcy protection if the secondary market's liquidity crisis worsens. On Friday morning the Fed slashed the discount rate (the rate it charges banks for loans) to 5.75% from 6.25%, making cheaper financing available to any depository that needs cash. (See story above.)

A bankruptcy filing by Countrywide Financial Corp., Calabasas, Calif., would cause a "psychological impact to the world financial markets [that] would be significant," says National Association of Mortgage Brokers legislative chairman Joe Falk.Speaking at a news conference held by the California Association of Mortgage Brokers at its annual convention in Long Beach, Calif., Mr. Falk maintained that, given Countrywide's market share, there would be a short-term disruption to the marketplace until others picked up the slack. (The issue arose after a Merrill Lynch analyst told clients that if enough financial pressure were placed on Countrywide, it might file for bankruptcy protection.) Ed Smith, the CAMB's vice president of government affairs, added that the failure of any company, not just Countrywide, would put more homeowners in peril and take away their options. CAMB past president John Marcell noted that Countrywide's correspondent channel is the secondary-market outlet for a large number of small and midsize mortgage banks, arguing that if that channel went away it could have a domino effect.

The California Association of Mortgage Brokers has come up with several proposals that it says represent solutions to the current mortgage market crisis for consumers.Speaking at a news conference at the group's annual convention in Long Beach, Calif., Ed Smith, its vice president of government affairs, said the CAMB urges servicers to offer flexible repayment strategies for borrowers facing default and foreclosure, calling it an "extremely important issue for homeowners in California." The CAMB repeated its past call for Congress to declare California to be a "high-cost" state for homeownership. (Right now the only two states with that designation are Alaska and Hawaii.) The group also called on Wall Street to develop lending programs and products attractive to investors and accessible to borrowers. "As has been the case throughout history, markets fluctuate but they always recover," CAMB president Pete Ogilvie said. "CAMB stands ready to work collaboratively with regulators and other stakeholders to stimulate a strong rebound."

To calm financial markets, the Federal Reserve Board has unexpectedly cut the discount rate it charges banks and thrifts for emergency funding by 50 basis points, to 5.75%, and extended the loan terms to 30 days, with the added provision that these credits are renewable.The central bank also made it clear that the depository institutions can use home mortgages and related assets as collateral for these short-term loans. "These changes are designed to provide depositories with greater assurance about the cost and availability of funding," the Federal Reserve said. The Fed's monetary policy committee also issued a statement that lays the groundwork for a future cut in the federal funds rate, which could benefit homeowners who are facing resets on their adjustable-rate mortgages. In acknowledging that financial market conditions have "deteriorated," the committee said, "it is prepared to act as needed to mitigate the adverse effects on the economy arising from disruptions in financial markets."

Subprime lender NovaStar Financial on Friday suspended wholesale production once again and cut 37% of its work force as the secondary market for all nonprime loans continued its severe downturn.Among subprime wholesalers, NovaStar ranks 17th, according to National Mortgage News and the Quarterly Data Report. In total, 500 workers lost their jobs. "This reduction in force includes stepping back temporarily from pursuing new loans in the wholesale market, a decision we are also seeing among some of our peer companies," company president Lance Anderson said in a statement. "For now, we believe this is the right thing to do economically. Our retail channel will be the dominant source of new loans in the coming months." A few weeks ago, the publicly traded real estate investment trust suspended production for a few days but then started up again.