Originations

Fannie Mae -- reacting to the requests of seller/servicers -- has asked its regulator for permission to increase its on-balance-sheet holdings in order to provide liquidity to the secondary mortgage market, sources have told MortgageWire.At deadline time, representatives of Fannie Mae and the Office of Federal Housing Enterprise Oversight declined to comment. Fannie, which is struggling to get current on its financial reporting, has been operating under portfolio caps since late 2005. The cap is currently set at $720 billion. With Wall Street conduits shutting down or tightening loan standards, conforming lenders that play in the nonprime market cannot sell their loans in the secondary market. (At deadline time, the bank-owned National City Home Equity, a unit of National City, told its loan brokers that it would suspend the taking of new applications, according to sources.) Fannie Mae can be found online at http://www.fanniemae.com.

Seven classes of notes issued by ACA ABS 2003-1 Ltd. and ACA ABS 2003-2 Ltd. have been downgraded by Fitch Ratings as a result of deterioration in subprime residential mortgage-backed securities.The downgrades were as follows: series 2003-1, class C, from A-plus to BBB, and class D, from BBB to B-plus and removed from Rating Watch Negative; and series 2003-2, class A-2, from AA to A, class A-3, from A to BBB-minus, class B-F, from BBB to B-plus and removed from Rating Watch Negative, class B-V, from BBB to B-plus and removed from Rating Watch Negative, and class C, from BB to B and removed from Rating Watch Negative. Fitch also affirmed the ratings on eight classes in the two deals. Citing "the significant collateral deterioration" in the portfolios, especially of subprime RMBS, Fitch said they contain a significant exposure to subprime closed-end second lien RMBS assets, including underperforming 2006 vintage bonds. Since the beginning of 2007, approximately 20% of the portfolio assets have been downgraded, and approximately 10% are on Rating Watch Negative, Fitch said. The majority of the actions have occurred in the last three months, driven by credit deterioration in subprime RMBS bonds from the 2005 and 2006 vintages, including subprime closed-end second lien RMBS bonds, the rating agency said.

More than 90 classes of subprime residential mortgage-backed securities with outstanding balances totaling over $1.25 billion were downgraded by Fitch Ratings on Aug. 3.Fitch also affirmed the ratings on classes with outstanding balances of more than $10.5 billion. Among the downgrades were the following mortgage pass-through certificates: 28 classes from three issues of HSI Asset Securitization Corp.; 15 classes from three issues of Mortgage Asset Securitization Transactions Asset Back Securities Trust; 15 classes from two Citigroup issues; and 12 classes from three issues of Asset Backed Securities Corp. The rating actions were based on changes to Fitch's subprime loss forecasting assumptions, which "better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness," the rating agency said. Fitch reported that as of the end of the day on Aug. 3, it had downgraded 389 such classes (from subprime RMBS deals placed Under Analysis on July 12) with an outstanding balance of $7 billion, and affirmed the ratings on 721 classes with an outstanding balance of $58 billion. Fitch can be found online at http://www.fitchratings.com.

The availability of debt funding for multifamily properties went down significantly in July, according to the National Multi Housing Council's multifamily industry survey.The multifamily industry trade association reported that its debt-financing index dropped from 54 in April to 26 in July. According to the Washington-based NMHC, this may be a low point for the index unless lenders continue to restrict credit further. "While debt financing conditions took a turn for the worse, equity capital remains abundant," said Mark Obrinsky, the association's chief economist. "If current conditions remain in place, highly leveraged private buyers may lose their place to REITs and institutional investors who rely more heavily on equity financing." The survey was conducted July 23-30, with a respondent pool comprising 80 chief executive officers and other senior executives in the multifamily industry nationwide who also serve on the NMHC's board of directors or advisory committee. The council can be found online at http://www.nmhc.org.

The credit performance of alternative-A loans is expected to tumble over the winter, with the default rate hitting 4% by the end of next May, up 45% from the current default rate, according to a Friedman Billings Ramsey report.The default rate on alt-A mortgages stood at 2.69% this past May after rising for 24 consecutive months. The FBR report says the performance of alt-A loans, which have higher credit scores than subprime loans, will "worsen relatively much more in the year ahead" than subprime and prime loans that are placed in private-label securities. "As the negative news about the mortgage and corporate debt markets became a tsunami last week, we updated our econometric models, and offer the following forecasts of the default rates of prime, Alt-A and subprime loans through May 2008," the Aug. 3 FBR report says. The default rate on "subprime loans should rise to 14.57%" in May 2008 from 12.4% in May of this year, while the default rate on "prime loans should rise to 0.53%" in May 2008 from 0.37% currently, according to the FBR researchers. (The default rate includes loans that are 90 days or more past due, in foreclosure, or real estate owned.)

Two bond market associations are urging the Federal Reserve Board to be careful in writing new rules to stop abusive subprime lending practices and to ensure that any violations of its Home Ownership and Equity Protection Act regulation do not trigger assignee liability for mortgage investors."At a minimum, we request that, in any proposed and final regulations under Section 129, the Board explicitly confirm that violations of new substantive regulations may not be asserted against an assignee (unless the related loan is a high cost loan)," says a joint comment letter by the American Securitization Forum and the Securities Industry and Financial Markets Association. (The vast majority of subprime mortgages are not "high-cost loans" as defined by HOEPA.) The ASF and SIFMA also urge the Fed to concentrate on improving mortgage disclosures as the best way to protect consumers, as opposed to restricting prepayment penalties or requiring escrow accounts on subprime loans. "In our view, the Board should focus its efforts on preventing unfair and deceptive lending practices in connection with HOEPA loans through creating uniform mortgage disclosures for borrowers, and not prohibiting products or features that are not inherently unfair or deceptive."

NovaStar Mortgage, a top-15-ranked subprime lender, sent a notice to its brokers Aug. 3 telling them that it will suspend wholesale production until Aug. 7, industry sources have told MortgageWire.A copy of the e-mail message was sent to MW but could not be confirmed. NovaStar's spokesman could not be reached for comment by deadline time. Based in Kansas City, Mo., NovaStar is the nation's 14th-largest subprime lender, according to the Quarterly Data Report. The e-mail message says that come Aug. 7, the suspension will be "reevaluated."

Fears of a worsening credit crunch triggered a sell-off in the stock market Friday that took a heavier toll on mortgage stocks than on the market as a whole.The Dow Jones industrial average fell 281 points, or 2.1%, on the day, but 16 of the 18 mortgage stocks tracked by MortgageWire declined by higher percentages. NetBank, an online bank, and Radian Group, a mortgage insurer, led the downturn among these mortgage stocks, as NetBank's share price fell $0.05, or 18.5%, and Radian's fell $3.75, or 14.2%. Other mortgage stocks that fell more than 5% on the day were Franklin Bank, down 10.7%; LandAmerica Financial, down 9.6%; Doral Financial, down 9.1%; Triad Guaranty, down 8.8%; PMI Mortgage, down 7.7%; Delta Financial, down 7.0%; Countrywide Financial Corp., down 6.6%; IndyMac Bancorp, down 6.6%; Washington Mutual Inc., down 6.6%; and Kaufman & Broad, down 5.4%. News reports attributed the stock plunge to remarks by Bear Stearns officials saying that the mortgage-related credit crunch has led to the worst conditions in the fixed-income markets in more than two decades (see item above). As of around 1 p.m. Monday, the Dow was up by more than 90 points.

Bear Stearns co-president and co-chief operating officer Warren Spector resigned Aug. 5 in the wake of a costly collapse of two Bear-sponsored hedge funds that invested in risky subprime-related assets.The two funds -- once valued at more than $40 billion -- filed for bankruptcy protection early last week. Bear told investors in the funds that one was worthless, and the other had lost 90% of its value. The two funds were housed in an asset management group that Mr. Spector oversaw. Alan Schwartz, who had been Bear Stearns' other co-president and co-COO, was named sole president. "In light of the recent events concerning [Bear Stearns Asset Management's] High Grade and Enhanced Leverage funds, we have determined to make changes in our leadership structure," Bear chairman and chief executive James Cayne said. "I have every confidence in this team to continue Bear Stearns' 84-year legacy of success and profitable growth." Spector, 49, had spent his entire career at Bear Stearns since joining the firm as a trader in 1983. Bear Stearns can be found at http://www.bearstearns.com.

American Home Mortgage Investment Corp., Melville, N.Y., has filed a petition under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware.As part of its filing, the firm received $50 million of debtor-in-possession financing from an affiliate of WL Ross & Co. To lead the Chapter 11 process, American Home has hired Kroll Zolfo Cooper and its chairman, Stephen Cooper, a specialist in troubled business situations. In its statement, American Home said the filing gives it the opportunity to achieve the best possible value for its creditors as well as permit an orderly wind-down of the real estate investment trust. However, it later added that any sale of its remaining assets is unlikely to be sufficient to pay its creditors in full. American Home shut down its mortgage production operations on Aug. 1, but it is maintaining its thrift and servicing businesses. Milestone Advisors LLC is American Home's adviser, and Young Conaway Stargatt & Taylor LLP is its legal counsel for the bankruptcy. The mortgage REIT can be found online at http://www.americanhm.com.

When American Home Mortgage Investment Corp. filed for bankruptcy protection Monday (see item below), it listed debts of more than $100 million and a long list of unsecured creditors, including many of the nation's top investment banking firms.According to a court petition, the now-defunct lender owes money to Bank of America, Bear Stearns, Citigroup, Countrywide Capital, Deutsche Bank, J.P. Morgan Chase, and Nomura Securities, to name a few. The petition, however, does not specify dollar amounts, listing the amount of the claim as "unliquidated." However, earlier public filings by the Melville, N.Y.-based company show that its biggest warehouse lenders include: Bear Stearns ($2 billion in credit lines), UBS Securities ($2 billion), Calyon Credit ($1.5 billion), and Bank of America ($1.3 billion).

More than 100 classes of subprime residential mortgage-backed securities with outstanding balances totaling over $3 billion were downgraded by Fitch Ratings on Aug. 2.Fitch also affirmed the ratings on classes with outstanding balances of more than $20 billion. Among the downgrades were: 47 classes from 10 issues of Morgan Stanley mortgage pass-through certificates; 46 classes from nine issues of J.P. Morgan Mortgage Acquisition Corp. asset-backed mortgage pass-through certificates; 20 classes from three ACE Securities mortgage pass-through certificates; and 19 classes from three issues of Societe Generale mortgage pass-through certificates. The rating actions were based on changes to Fitch's subprime loss forecasting assumptions, which "better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness," the rating agency said. Fitch reported that as of the end of the day on Aug. 2, it had downgraded 291 such classes with an outstanding balance of $5 billion and affirmed the ratings on 526 classes with an outstanding balance of $46 billion.

The Office of Thrift Supervision is seeking public comment on what approach it should take in issuing a regulation that addresses "unfair and deceptive" subprime lending practices.The 22-page advance notice of proposed rulemaking contains a list of "targeted practices," such as loan flipping and overages that the OTS might prohibit as part of a regulation on unfair and deceptive acts and practices (UDAP). The OTS also points out that the regulation could take a principles-based approach or prohibit specific practices (as the North Carolina predatory-lending law does). "The ANPR reviews OTS legal authority for issuing a UDAP regulation and discusses various approaches that the agency could take, either individually or in conjunction with other initiatives, in issuing a regulation," the agency said. The OTS is issuing the proposal for a 90-day comment period. OTS Director John Reich directed his staff to draft the UDAP proposal after concluding that Congress wants the regulators to exercise all their authorities to stop abusive lending practices.

Federal Reserve Board nominees Elizabeth Duke and Larry Klane said they support the Fed's efforts to draft a rule that would provide better consumer protections for subprime borrowers and ban certain unfair lending practices."If confirmed, I will put my full energy" into using "all the arrows in the regulatory quiver to protect consumers under the Home Ownership and Equity Protection Act," Mr. Klane told the Senate Banking Committee during a confirmation hearing. The Fed is expected to issue a proposed HOEPA rule before the end of the year. Ms. Duke is a Virginia community banker, and Mr. Klane is a top executive at the credit company Capital One, which has a mortgage subsidiary that makes prime and alternative-A loans. President Bush nominated the two bankers to fill two vacancies on the Federal Reserve Board. The Fed can be found online at http://www.federalreserve.gov.

Wachovia has ceased funding alternative-A credit mortgages through brokers.The decision was made Aug. 2, according to a company spokesman. Other companies have also recently begun growing wary of the product niche, among them Wells Fargo (see item above). Wachovia can be found on the Web at http://www.wachovia.com.

Wells Fargo has decided to make "day to day decisions" on the pricing and availability of third-party-originated alternative-A credit loans in response to a dampening in demand for the product in the capital markets."These loans currently are perceived to carry more risk," Wells said in a statement. The company defines alt-A loans as those that "may include less than full documentation and other factors that tie to property type, debt ratio and credit scores." Wells Fargo can be found on the Web at http://www.wellsfargo.com.

Fieldstone Mortgage, Columbia, Md., has ceased funding residential loans and taking new applications in the wake of margin calls at its parent company, C-BASS, a specialty servicer based in New York.An e-mail message sent to employees says that "no loans will be closed from August 1 forward unless there was an unconditional commitment to fund issued by July 31." A spokeswoman for C-BASS confirmed that Fieldstone has suspended originations but noted that certain loans will be funded "on a limited basis." Fieldstone was recently purchased by C-BASS, which is controlled by MGIC Investment Corp. and Radian. Earlier in the week, C-BASS -- which controls the nation's 10th-largest subprime servicer, Litton Mortgage -- revealed that it has been the subject of margin calls. In the wake of the margin calls, MGIC and Radian wrote down their interest in C-BASS by $1 billion. C-BASS is for sale. Fieldstone can be found online at http://www.fieldstonemortgage.com.

Meanwhile, in the wake of the growing subprime liquidity crisis, Countrywide Financial Corp. issued a statement Aug. 2 to reassure the market about the "continuing adequacy" of its liquidity and financial strength."Countrywide has longstanding and time-tested funding liquidity contingency planning," said Eric P. Sieracki, chief financial officer. "These planning protocols were designed to encompass a wide variety of conditions, including recent secondary-market volatility.... We place major emphasis on the adequacy, reliability and diversity of our funding sources. It is important to note that short-term liquidity is used exclusively to fund our highest-credit-quality, most-liquid assets." Mr. Sieracki said there have been no disruptions in financing the company's daily operations, including the placement of commercial paper.

Countrywide Home Loans, Calabasas, Calif., is reviewing its practice of providing warehouse lines of credit to correspondent mortgage banking firms that also sell loans to the company, industry sources have told MortgageWire.One source close to Countrywide said it has made "cash calls" on certain lenders that it has done business with. Countrywide spokesman Rick Simon did not return a telephone call and an e-mail message about the matter by deadline time. Countrywide is by far the nation's largest correspondent buyer of mortgages, according to the Quarterly Data Report. As a practice, Countrywide does not disclose its warehouse commitments to National Mortgage News, which surveys the warehouse community on a quarterly basis. The company can be found online at http://www.countrywide.com.

Mortgage companies have cut their payrolls by nearly 46,000 employees since October, including 7,400 full-time positions in June, as the slowdown in mortgage originations, particularly subprime loans, is forcing a retrenchment.The U.S. Bureau of Labor Statistics reported that employment in the mortgage banker/broker sector fell from 466,200 in May to 458,800 in June. The industry has experienced a 9.1% cutback in the work force since October, when industry employment stood at a 12-month high of 504,700. BLS data are generally good at indicating trends, but slow to react to major changes in the mortgage industry. During the boon years, the BLS data showed that industry employment rose very gradually. But the turmoil in the subprime market could cause significant downdrafts in the months ahead. The BLS can be found online at http://stats.bls.gov.