Originations

American Home Mortgage Investment Corp., Melville, N.Y., will close its doors on Friday and file for bankruptcy protection, MortgageWire has learned.Company chief executive Michael Strauss sent an e-mail message to employees Thursday afternoon saying "the market conditions in both the secondary mortgage market as well as the national real estate market have deteriorated to the point that our business is no longer viable. What this means for most of our employees is that Friday, August 2, 2007 will be your last day of employment." AHM is the nation's 10th-largest residential funder, according to the Quarterly Data Report. It was hurt by margin calls amid a horrific liquidity crisis in the nonprime sector. Sources said Fannie Mae and Freddie Mac are now exploring their options in regard to AHM, which is a conventional and alternative-A funder/servicer. (The government-sponsored enterprises, as a policy, do not comment on financial arrangements they have with their seller/servicers.)

Twenty-two classes from 10 second-lien subprime transactions issued in 2007 have been placed on review for possible downgrade by Moody's Investors Service.The rating actions affected deals issued by Ace Securities Corp. Home Equity Loan Trust, American Home Mortgage Investment Trust, Bear Stearns Mortgage Funding Trust, C-Bass Mortgage Loan Asset-Backed Certificates, Greenpoint Mortgage Funding Trust, Nomura Asset Acceptance Corp. Alternative Loan Trust, SACO I Trust, and Terwin Mortgage Trust. In a review of second-lien transactions rated in 2007, Moody's said it found that their projected pipeline losses had "significantly increased over the past few months, likely affecting the credit support for these certificates." The rating agency noted that it recently updated its methodology for rating closed-end second-lien transactions because of "the rapid velocity of early delinquencies and losses in closed-end second-lien subprime loans originated in 2006."

Despite the turmoil in the subprime mortgage market, the five largest U.S. investment banks reported strong quarterly earnings in the second quarter, according to Fitch Ratings.Fitch attributed the positive results to four factors: product diversity, hedging, growing geographic diversity, and capital sufficiency. "While mortgage exposure exists throughout investment banks' franchises, each firm says that fewer than 5% of total net revenues are attributable to subprime mortgage activities," said Leslie Bright, a Fitch senior director. "Since May, unusual levels of credit deterioration have been concentrated in the subprime space, impacting underwriting and primary trading markets. Contagion to the alt-A and prime sectors has greater possibility, as does fallout in the secondary market following pending rate resets of vintage mortgage pools."

In conjunction with its Aug. 1 rating actions, Fitch Ratings also announced that it is publishing detailed information on expected-loss forecasts and the losses each security can withstand."An expected remaining loss percentage is published for each transaction, and the loss percentage that causes each class to take a principal loss, referred to as the 'break loss' percentage, is also provided," Fitch said. In addition, the multiple of the break loss to the expected loss is provided as the loss coverage ratio. Fitch can be found on the Web at http://www.fitchratings.com.

One hundred fifty classes of subprime residential mortgage-backed securities with outstanding balances totaling $2.4 billion were downgraded by Fitch Ratings on Aug. 1.Fitch also affirmed the ratings on 232 classes with outstanding balances of $20 billion. The rating agency said the actions reflect changes in surveillance methodology for 2005 and 2006 vintage loans "designed to capture the rapid deterioration of subprime mortgage performance." Among the downgrades were: 78 classes from 11 issues of SABR mortgage pass-through certificates; 34 classes from five issues of Credit Suisse First Boston Home Equity Asset Trust mortgage pass-through certificates; and 18 classes from three issues of First Franklin Financial Corp. residential mortgage-backed certificates. "The rating actions are based on changes that Fitch has made to its subprime loss forecasting assumptions adopted after the analysis of the June 27 remittance data," the rating agency said. "The updated assumptions better capture the deteriorating performance of pools from 2006 and late 2005 with regard to continued poor loan performance and home price weakness."

The Eleventh Federal Home Loan District Cost of Funds Index stayed virtually steady in June, declining by a single basis point.The index, as calculated by the Federal Home Loan Bank of San Francisco, stood at 4.283% in June, compared with 4.293% in May, which saw a 7-bp rise in the index, the first in 2007. Midway through 2007, COFI is 11 bps below the 4.396% recorded for December. For comparative purposes, the Freddie Mac Primary Mortgage Market Survey indicates that the average rate for the one-year adjustable-rate mortgage increased in the same time frame by 23 bps. In December it stood at 5.45%; for June it was 5.68%. Freddie Mac has already released the July results, and in that month the rate increased by another 3 bps. Meanwhile the PMMS shows the average rate on the 30-year fixed-rate mortgage increasing by 52 bps.

Freddie Mac is raising its delivery fee on certain Home Possible mortgages, which are low-downpayment loans geared toward helping teachers, police, and firefighter become homeowners.Effective Nov. 1, the delivery fee on Home Possible mortgages with an 80-10-10 secondary financing structure will be increased by 100 basis points. This fee increase does not apply to Home Possible borrowers with incomes of 80% (or less) of the area median income. Noting that home price appreciation has slowed or declined and delinquency rates are rising, Freddie Mac said in a bulletin addressed to its seller/servicers that it has to ensure that its pricing reflects current market risks. "We believe this approach meets the dual needs of managing market risks while preserving vital opportunities for first-time homebuyers, low- and moderate-income borrowers, and borrowers purchasing homes in eligible disaster areas," the bulletin says.

The average 30-year fixed mortgage rate fell from 6.69% to 6.68% for the seven-day period ended Aug. 2, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate fell from 6.37% to 6.32%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages declined from 6.30% to 6.29%, and the average rate for one-year Treasury-indexed ARMs fell from 5.69% to 5.59%, Freddie Mac reported. Fees and points averaged 0.3 of a point for fixed-rate mortgages and 0.5 of a point for ARMs. "Market investors seeking safety from the subprime fallout bought Treasury securities, pushing bond yields down and allowing mortgage rates to drift a bit lower," said Frank Nothaft, Freddie Mac's chief economist. "Sales of new and existing homes fell in June, and prices continue to weaken, especially in the markets that had recorded the strongest gains over the past few years. There are early signs, however, that the market is stabilizing." A year ago, the average 30-year and 15-year fixed rates were 6.63% and 6.27%, respectively, and the average hybrid and one-year ARM rates were 6.27% and 5.69%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

The House Financial Services Committee has approved a 15-year extension of the federal government's terrorism insurance program along with changes to expand the coverage, which the Bush administration opposes.The bill to extend the Terrorism Risk Insurance Act would require insurance companies to offer coverage for nuclear, biological, chemical, and radiological acts of terrorism for the first time. The TRIA bill (H.R. 2761) also eliminates the distinction between foreign and domestic acts of terrorism. "We strongly oppose this bill," said Treasury Assistant Secretary David Nason. The administration, which wants the TRIA program to remain a temporary federal backstop for private insurers in case of major terrorist attack, would prefer a bill with a two-year extension and no expansion in coverage. Congress extended TRIA in 2005, and it expires at the end of this year.

Subprime lender First NLC Financial Services, Boca Raton, Fla., laid off hundreds of workers on Aug. 1, according to industry sources.At deadline time, company chief executive/chairman Neal Henschel could not be reached for comment. At one time the wholesale/retail funder employed more than 1,000 full-timers, said one competitor. One executive called the layoffs "massive." A source inside the firm confirmed the job cuts to MortgageWire but said he could not offer up a number. "We're still funding loans," he added. First NLC is owned by investment banker Friedman Billings Ramsey, which is selling about 80% of the lender to Sun Capital Partners, a private investment firm that has offices in Boca Raton, New York, London, Tokyo, and elsewhere.

Accredited Home Lenders, San Diego, said Thursday that it may not continue to operate as a "going concern," sending its stock price down 25% to just over $6 a share.According to the Quarterly Data Report, Accredited is the nation's 18th-largest subprime funder. The company cited deteriorating conditions in the market, including rising delinquencies and early payment defaults. During the first five months of the year it repurchased $152 million in loans and paid out an additional $39 million in cash to investors to settle loan repurchase-related demands. In June Accredited agreed to be acquired by private equity firm Lone Star for $400 million in a transaction that valued the company at $15.10 a share. There is now speculation that Lone Star will try to greatly reduce the price it will have to pay for the lender.

Class J of GE Capital Commercial Mortgage Corp.'s commercial mortgage pass-through certificates, series 2000-1, has been downgraded from CC/DR4 to C/DR5 by Fitch Ratings.Fitch also upgraded one class in the transaction and affirmed the ratings on nine classes. The downgrade was attributed to increased loss expectations.

Capital Lease Funding Inc., a New York-based real estate investment trust, has announced that it is changing its name to CapLease Inc."CapLease is our well-known trade name and emphasizes our transition to primarily a commercial net lease property owner, from a net lease lender," said Paul McDowell, chief executive officer of the company. CapLease said it has become a portfolio investor across the capital structure of net lease and other single-tenant properties since its initial public offering in 2004.

Equity Residential, a Chicago-based real estate investment trust, has reported net income of approximately $275 million for the second quarter ($0.95 per share), compared with $150 million ($0.51 per share) for the second quarter of 2006.The company, the largest multifamily REIT by market capitalization, attributed the rise in earnings to higher gains on property sales in the second quarter. David J. Neithercut, Equity Residential's president and chief executive officer, said he expects revenue growth to slow in the second half of the year, mainly because of markets that have been affected by "excessive condominium construction and/or reversion and high single-family home inventories," particularly Florida, Phoenix, the Inland Empire region of California, and Washington, D.C. The REIT is revising its acquisition and sales targets for 2007 in view of the "recent pullback in the debt markets," which it expects to reduce transaction activity. Equity Residential can be found online at http://www.equityapartments.com.

The combined earnings of the 12 Federal Home Loan Banks fell 2.8% to $628 million in the second quarter from the level recorded a year earlier, according to a preliminary report by the FHLBanks' Office of Finance.The second-quarter report also shows that assets grew by only 2.0%, to $1.02 trillion, and advances were flat, at $640 billion, over the previous four quarters. The FHLBanks are major investors in Fannie Mae and Freddie Mac mortgage-backed securities, and they are allowed to invest in subprime MBS. "Each FHLBank believes it has limited exposure to subprime loans due to its business model, conservative policies pertaining to advances collateral and investments, and low credit risk due to the design of its mortgage loan programs," the Office of Finance said. In the first quarter, the FHLBanks held $75.5 billion in private-label securities, which are generally rated triple-A. A second-quarter update of their private-label MBS holdings is not yet available. The Office of Finance can be found online at http://www.fhlb-of.com.

Moody's has also refined its approach to analyzing securitizations of payment-option adjustable-rate mortgages.The methodology revisions, stemming from the weaker housing and mortgage markets, also refine the rating agency's credit risk analysis of different option ARM products, Moody's said. "The updated option ARM methodology is expected to increase our loss estimates by up to 20% and Aaa loss estimates by 10% to 40%," Moody's said. The agency said the updated methodology refines its analysis of a loan's negative amortization potential by varying loss estimates based on the difference between a loan's fully indexed interest payment and its minimum payment. In addition, Moody's is enhancing its analysis of how a borrower was qualified by varying loss projections based on the difference between a loan's fully indexed payment and the payment at which the borrower was qualified. Moody's has also increased loss projections for option ARMs in cases where a borrower's income was not verified.

Moody's Investors Service has announced refinements to its methodology for rating residential mortgage securitizations backed by alternative-A mortgage loans.The rating agency said the revisions address the poor performance of subprime-like loans, low- and no-equity loans, and low- and no-documentation loans present in certain alt-A transactions securitized in 2006. Moody's said its increases in loss estimates are projected to range from 10% for stronger alt-A pools to more than 100% for weaker ones. Higher loss estimates for the weakest 5% to 10% of alt-A loans are projected to account for 25% to 50% of the increase in loss estimates. "Actual performance of weaker alt-A loans has in many cases been comparable to stronger subprime performance, signaling that underwriting standards were likely closer to subprime guidelines," said Moody's senior credit officer Marjan Riggi. "Absent strong compensating factors, we will model these loans as subprime loans." Moody's can be found online at http://www.moodys.com.

The Market Composite Index, an overall measure of mortgage applications, fell from 609.0 to 607.1 on a seasonally adjusted basis during the week ended July 27, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 0.4% on the week but were up 14.2% from the level recorded a year earlier. The Purchase Index fell from 424.2 to 416.6 on a seasonally adjusted basis, while the Refinance Index climbed from 1692.9 to 1724.1. Refinancings represented 39.4% of total applications, up from 38.5% the previous week, while adjustable-rate mortgages accounted for 22.3%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.59% to 6.50%, and points (including the origination fee) rose from 1.55 to 1.66 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Oxford Funding Corp., Houston, has announced an agreement with an unnamed major U.S. mortgage lender under which Oxford will acquire a $3 million portfolio of underperforming loans at a substantial discount to market.Ronald Redd, Oxford's chief executive officer, said Oxford hopes to make additional portfolio acquisitions from the lender over the next several months. Citing the subprime crisis, Oxford said it plans to acquire performing, underperforming, and nonperforming loans that it will "restructure and rehabilitate." The company can be found on the Web at http://www.oxfordfunding.com.

Trading in the stock of American Home Mortgage Investment Corp. finally resumed Tuesday afternoon, but not before plunging almost 90% to just over $1 a share.The publicly traded prime/alternative-A real estate investment trust revealed that it could not fund up to $850 million in loan commitments because its warehouse backers are demanding "substantial unpaid margin calls." AHM also said it has retained Milestone Advisors and Lazard to explore "strategic options." On Monday, MortgageWire broke the news that IndyMac Bancorp of California had talked to AHM about buying its retail network but that attorneys for IndyMac balked at the deal, believing that a possible bankruptcy filing by AHM would pose too many legal hurdles. Based in Melville, N.Y., AHM is the nation's 10th-largest residential funder, according to the Quarterly Data Report. Over the past year its stock has traded as high as $36.40.