Originations

Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., said Friday that he plans to move "aggressively" to pass Federal Housing Administration reform legislation when Congress returns in September so that the FHA can help more subprime borrowers refinance into safer and more affordable mortgages.During a conference call with reporters, the committee chairman also applauded the Federal Reserve's actions to calm the financial markets (see item below). But he was highly critical of the Office of Federal Housing Enterprise Oversight's decision to block Fannie Mae and Freddie Mac from providing liquidity in the mortgage markets. The Democratic presidential candidate called on President Bush to show "leadership" in dealing with the "mortgage crisis" by lifting the caps on Fannie's and Freddie's portfolios. Sen. Dodd noted that he is considering legislation to address abusive lending practices (such as prepayment penalties) and the regulation of mortgage brokers. "Strong legislation may be necessary," he said. He also plans to hold hearings to examine the role the credit rating agencies played in the subprime debacle.

Sen. Charles E. Schumer, D-N.Y., says he will introduce emergency legislation to raise the caps on Fannie Mae's and Freddie Mac's portfolios if the Bush administration does not act soon.The Office of Federal Housing Enterprise Oversight recently rejected a request by Fannie Mae to lift the cap on its portfolio -- preventing the government-sponsored enterprise from providing liquidity for the subprime market. Sen. Schumer warned that the problems in the subprime sector are spilling over into the broader mortgage market and that the administration should act now. "We cannot afford a 'wait-and-see' approach when it comes to a credit crisis that threatens to derail our economy," the Senate Banking Committee member said. He said he plans to introduce his bill, if necessary, as soon as Congress returns from its August recess after Labor Day.

Class M6 of Meritage Mortgage Loan Trust series 2003-1 has been placed on review for possible downgrade by Moody's Investors Service.The rating action was attributed to credit enhancement levels that may be low given the projected losses on the underlying pools. "Overcollateralization has declined due to losses and the transaction has stepped down, causing the subordinated certificates to start receiving their share of unscheduled prepayments," Moody's said. "In addition, the severity of loss on liquidated loans has begun to increase." The transaction is backed primarily by first-lien adjustable- and fixed-rate subprime mortgage loans originated by Meritage Mortgage Corp.

Forty-one certificates from 13 securitizations issued by First Franklin Mortgage Loan Trust have been placed on review for possible downgrade by Moody's Investors Service.In addition, three classes were placed on review for possible upgrade. "The actions are based on the analysis of the credit enhancement provided by subordination, overcollateralization, and excess spread relative to the expected loss," Moody's said. The collateral consists primarily of first-lien, subprime fixed- and adjustable-rate mortgage loans (except for one transaction backed by closed-end second-lien mortgage loans).

Four tranches from three Merrill Lynch Mortgage Investors Inc. deals issued in 2003 have been downgraded by Moody's Investors Service.The downgrades were as follows: series 2003-WMC1, class B-1, from Baa2 to B1, and class B-2, from Baa3 to Caa1; series 2003-WMC2, class B-2, from Baa2 to B1; and series 2003-WMC3, class B-3, from Baa3 to Ba1. Moody's also confirmed the rating on one Merrill certificate. The downgrades were attributed to credit enhancement levels that are low given the projected losses on the underlying pools. "The pools of mortgages have seen losses in recent months and future loss could cause a more significant erosion of the overcollateralizaton," the rating agency said. The transactions consist of subprime first-lien adjustable- and fixed-rate mortgage loans. Moody's can be found online at http://www.moodys.com.

DBRS, a Toronto-based rating agency, has downgraded 63 classes of residential mortgage-backed securities from 21 RMBS transactions.DBRS also placed five other classes under review with negative implications, and upgraded one class. The negative rating actions were based on an increase in the pipeline of 90-day-plus delinquencies relative to the available credit enhancement, the rating agency said.

Home price trends are improving in metropolitan areas, but existing-home sales in the second quarter were below those of a year earlier in most states, according to the latest quarterly survey by the National Association of Realtors.In the second quarter, 97 of 149 metropolitan statistical areas showed year-over-year increases in median single-family resale prices, while 50 recorded price declines and two were unchanged. The national median single-family resale price stood at $223,800 in the second quarter, down from $227,100 a year earlier. "Although home prices are relatively flat, more metro areas are showing price gains with general improvement since bottoming out in the fourth quarter of 2006," said NAR senior economist Lawrence Yun. "Recent mortgage disruptions will hold back sales temporarily, but the fundamental momentum clearly suggests stabilizing price trends in many local markets." However, Andrew Jakabovics, associate director of the Economic Mobility Program at the Center for American Progress, argues that the picture is not so promising. "When we factor in inflation since last year, only 53 metro areas saw gains in house prices, significantly less than the 97 markets touted by the NAR's press release," said Mr. Jakabovics. ".... [T]he odds are good that the gains that have been made in some markets will be whittled away in the release of July's new-construction and existing-home sales data later this month."

The average 30-year fixed mortgage rate rose from 6.59% to 6.62% for the seven-day period ended Aug. 16, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose from 6.25% to 6.30%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages climbed from 6.33% to 6.35%, and the average rate for one-year Treasury-indexed ARMs rose from 5.65% to 5.67%, Freddie Mac reported. Fees and points averaged 0.4 of a point for 30-year fixed-rate mortgages, 0.5 of a point for 15-year fixed-rate mortgages and hybrid ARMs, and 0.6 of a point for one-year ARMs. "Interest rates on prime conforming fixed-rate mortgages ticked up a little in the past week, in line with 10-year Treasury rate movements and retracing part of last week's decline," said Frank Nothaft, Freddie Mac's chief economist. "Problems in the nonprime mortgage market where funds are expensive and hard to get have not affected the prime conforming market." A year ago, the average 30-year and 15-year fixed rates were 6.52% and 6.20%, respectively, and the average hybrid and one-year ARM rates were 6.18% and 5.65%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

Fannie Mae reported 2006 earnings of $4.1 billion, down from $6.3 billion in the prior year, due to a 41% drop in net interest income and a 22% drop in the profitability of its single-family business.The mortgage giant said net income from the single-family business fell to $2.04 billion last year, despite an increase in revenues. Fannie attributed the drop-off in profitability to a $308 million increase in losses on single-family guaranty contracts, a $533 million increase in administrative costs, a $123 million increase in loan loss reserves, and a $218 million increase in foreclosure expenses. "We anticipate the losses we incur at inception of guaranty contracts will more than double in 2007 compared to 2006, primarily as a result of the decline in home prices, as well as continued investment in loans that support the company's housing goals," the government-sponsored enterprise said. Fannie executives also affirmed that the publicly traded company will file its 2007 annual report by the end of February 2008, which would be in compliance with the Securities and Exchange Commission's filing deadline. The GSE can be found online at http://www.fanniemae.com.

Problems in the mortgage market are creating more headwinds for homebuyers, and a monthly survey indicates that builders are not anticipating a pick-up in sales anytime soon.The National Association of Home Builders/Wells Fargo Housing Market Index fell two points in August to 22 -- its lowest level since January 1991, when the index stood at 20. "There is no question that problems in the subprime mortgage sector have spilled over to other components of the housing finance, including alt-A and jumbo markets, delaying a revival of the single-family housing market," said NAHB chief economist David Seiders. But Mr. Seiders acknowledged that the government-related part of the mortgage market, where Fannie Mae, Freddie Mac, and the Federal Housing Administration operate, is "functioning well."

Single-family housing starts fell 7.3% in July as builders are becoming more cautious in the face of tough credit conditions, slowing consumer demand and offering little hope of any improvement for the rest of the year.The U.S. Census Bureau reported that single-family housing starts declined from a seasonally adjusted annual rate of 1.15 million in June to 1.07 million in July. Single-family starts are off by 25% since July 2006, and National Association of Home Builders economists are forecasting starts will be off by a 32% annual rate by the end of the third quarter. "We now expect home sales to trail downward over the balance of the year, and we are not looking for a sustained improvement in housing starts until the second half of 2008," NAHB chief economist David Seiders said in an Aug. 16 report. Single-family starts will be down to 1995 levels by mid-2008 -- off 41% from the peak of 1.81 million in January 2006, according to "The Seiders Report."

Countrywide Financial Corp. saw its share price plunge Wednesday to a four-year low ($19.25) after a Merrill Lynch analyst told clients that if enough "financial pressure is placed" on the nation's largest lender it may file for bankruptcy protection.At deadline time, Countrywide chairman and chief executive Angelo Mozilo was in meetings and could not be reached for comment. Rumors also began anew that it might be talking to potential suitors, including Bank of America. Meanwhile, sources told MortgageWire that CFC was contemplating exiting the correspondent loan market where it is, by far, the largest player. The Merrill report notes that Countrywide, which owns a depository, has $185 billion in credit facilities available to the company but that the lines of credit can be "terminated or changed meaningfully." Merrill downgraded the stock to "sell" from a "buy." Though Countrywide's shares traded as low as $19.25 on Wednesday, the price recovered to $20.84, down 15% on the day.

The beleaguered Countrywide Home Loans, Calabasas, Calif., is expected to shift its production into mostly GSE and government-backed loans as the secondary market's liquidity crisis worsens, according to a new report issued by Credit Suisse.Countrywide is not only the nation's largest overall residential funder, but the biggest subprime originator as well, according to National Mortgage News. In the subprime sector, it has a market share of 8.87%. The Credit Suisse report says the lender will shift "its origination mix towards predominantly [government-sponsored enterprise] eligible paper, which solidifies its ability to sell its production. Clearly, origination volumes should decline dramatically in the present environment." CS analyst Moshe Orenbuch notes that Countrywide has now tapped an $11.5 billion credit facility, 70% of which has an existing term greater than four years. He writes that the short-term financing market "has virtually shut down." In response to Countrywide's liquidity problems, Fitch Ratings downgraded the company's long-term issuer default rating from A to BBB-plus, citing "the unprecedented disruption in the capital markets." Moody's Investors Service downgraded the senior debt ratings of Countrywide and its parent company, Countrywide Financial Corp., from A3 to Baa3 and the rating on deposits of Countrywide Bank FSB from A2 to Baa1.

First Magnus Financial, Tucson, Ariz., the nation's 22nd-largest residential lender -- and a top-ranked wholesaler -- stopped funding loans Wednesday night, blaming its problems on what it calls the "collapse of the secondary mortgage market."In a statement sent to brokers, the nondepository said it "will not fund any future mortgage loans, and is no longer accepting any mortgage loan applications or funding any mortgage loans previously originated and not yet funded. We explored all options before taking this action, but were left with no viable alternative." In the first quarter, the privately held mortgage banker funded $6.59 billion, a 33% increase from the level recorded a year earlier. Thursday morning its executives could not be reached for comment. First Magnus can be found online at http://www.firstmagnus.com.

Three classes of notes issued by E*Trade ABS CDO I Ltd/LLC have been downgraded by Fitch Ratings and removed from Rating Watch Negative.The downgrades were as follows: class B, from BBB to B/DR1; class C-1, from CC/DR3 to C/DR6; and class C-2, from CC/DR3 to C/DR6. Fitch also affirmed the rating on one other class in the deal. E*Trade I is a static cash flow collateralized debt obligation backed by collateral consisting of asset-backed securities, residential mortgage-backed securities, commercial mortgage-backed securities, and other CDOs. The downgrades were attributed to collateral deterioration and decreased credit enhancement. The securities were placed on Rating Watch Negative on July 12 due to the negative credit migration of subprime RMBS assets.

Standard & Poor's Ratings Services has placed its BB-minus corporate credit and senior unsecured debt ratings on Beazer Homes USA Inc. on CreditWatch with negative implications, citing the company's delay of its third-quarter 10-Q filing.Beazer attributed the delay to "the discovery (by independent counsel and accountants retained by Beazer's audit committee) of possible inappropriate accounting for overaccruing certain reserves and accrued liabilities related primarily to land development and home construction costs," S&P reported. The rating agency said the CreditWatch placements "also consider the additional pressure and distractions Beazer's management faces on a number of nonoperational fronts, including separate pending investigations by the SEC and the U.S. Attorney's Office in the Western District of North Carolina, during a very challenging period for all homebuilders." S&P can be found online at http://www.standardandpoors.com.

Fitch Ratings has downgraded from BBB-plus to BBB the issuer default rating of Pulte Homes Inc., as well as the company's senior unsecured debt and unsecured bank credit facility ratings.The Rating Outlook is Negative. "The downgrade reflects the continued difficult U.S. housing environment, negative trends in operating margins, and current deterioration in credit metrics," Fitch said. In the most recent quarter, Pulte took $749 million in impairments and land-related charges, and as of June 30 had total on-balance-sheet land-related charges of $1.24 billion since the beginning of 2006, or roughly 17.2% of total shareholders' equity, according to the rating agency. The negative outlook for Pulte reflects the "more challenging outlook" for homebuilders, expected near-term deterioration in credit metrics, pressures from mortgage credit tightening, and continued high cancellation rates (which add to speculative inventory totals), Fitch said. The rating agency can be found online at http://www.fitchratings.com.

The Market Composite Index, an overall measure of mortgage applications, rose from 656.5 to 678.7 on a seasonally adjusted basis during the week ended Aug. 10, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications increased 2.7% on the week and were up 20.6% from the level recorded a year earlier. The Purchase Index rose from 447.4 to 464.9 on a seasonally adjusted basis, while the Refinance Index climbed from 1881.1 to 1929.6. Refinancings represented 39.9% of total applications, unchanged from the level of the previous week, while adjustable-rate mortgages accounted for 21.0%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 6.41% to 6.45%, and points (including the origination fee) fell from 1.62 to 1.54 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Bay Finance Co., a Webster, Mass.-based mortgage subsidiary of The Commerce Group Inc., has announced that it will stop writing mortgage loans, effective immediately.The company said it intends to retain its loan portfolio, valued at approximately $20 million, which will continue to be serviced out of its Webster office. "Over the last year, we have made a concerted effort to focus our energy and resources on our core property and casualty insurance business," said Gerald Fels, president, chief executive, and chairman of the board of the Commerce Group. "Having taken this action, we are now clearly focused on our personal lines insurance business and our ancillary small commercial insurance business." Bay Finance said it will process all pending loan applications.

Regions Financial Corp., Birmingham, Ala., has decided to close its warehouse lending unit, a company spokesman confirmed Aug. 14.He said mortgage bankers that borrow from the division were sent letters last Friday. "We're trying to find lenders for those customers," he added. The group has outstanding lines of about $350 million. Roughly 30 employees are affected by the move. The bank is trying to place those workers in other jobs at Regions.