Originations

CIT Group Inc., New York, took a pretax charge of $765 million to second-quarter earnings relating to a fair-value adjustment on $10.6 billion of receivables transferred to assets-held-for-sale stemming from a decision to exit its home lending business.The charge led the company to post a loss of $134.5 million ($0.70 per share) for the quarter, compared with profits of $236.0 million ($1.16 per share) a year earlier. "All CIT's businesses must meet rigorous return standards," said Jeffrey M. Peek, chairman and chief executive. "As a result, we decided to exit home lending and construction, enabling us to redeploy resources to higher-returning businesses. While we believe exiting home lending is the right decision, it significantly impacted our current results." Fitch Ratings said it supported the move, even though it caused a loss for the quarter, because it "may prove beneficial in the long run." Fitch said it is to likely revisit CIT's Positive Rating Outlook if market conditions preclude the timely sale of the home lending business or cause further portfolio writedowns.

Senior Financial Inc., Richmond, Va., has announced an agreement to acquire Liberty Reverse Mortgage Inc., Rancho Cordova, Calif., for $50 million (plus a possible added performance-based financial consideration).Senior Financial is a wholly owned venture investment subsidiary of Genworth Financial Inc., a mortgage insurer based in Richmond. "Liberty will allow Genworth to offer senior market consumers new products that provide liquidity, retirement income, and enable funding of their retirement safety net," said Pam Schutz, executive vice president at Genworth. Genworth can be found on the Web at http://www.genworth.com.

Will the mortgage industry's current decline reverse itself by January 2008?Mortgage Bankers Association chief economist Doug Duncan predicts that it will. PIMCO senior vice president Jennifer Bridwell thinks not. Offering a bond market perspective at the 35th Annual Western Secondary Market Conference in San Francisco, Ms. Bridwell pointed to the problem of impending 2008 adjustable-rate mortgage resets as a serious bump in the road that may lead to defaults that delay recovery. Mr. Duncan said the troubles in the mortgage market were confined enough that a generally healthy economy would blunt the effect of further subprime woes.

Federal regulators and mortgage lenders were "largely responsible" for the housing and mortgage crisis, which should be remedied by better enforcement of predatory-lending statutes and the adoption of "suitability" requirements and federal licensing standards for lenders, according to a white paper by Weiss Research Inc.The white paper, submitted to the Federal Reserve Board July 19, argues that the crisis is likely to worsen and that the Fed played a role in "further inflating the housing bubble that's at the root of the current crisis." Mike Larson, Weiss's interest rate and real estate analyst and the author of the report, also points the finger at lenders who "debased their standards" rather than accept a decline in lending volume, and at Wall Street, whose "large-scale transformation of mortgages into securities significantly boosted risk-taking." Among other things, the report calls for assignee liability for the secondary market and closer monitoring and prompter action by the Fed to "help avert runaway asset price inflation." Weiss, based in Jupiter, Fla., can be found online at http://www.weissgroupinc.com.

A smaller percentage of senior investors viewed housing market disruptions as a high-risk factor for U.S. credit markets in June than in December 2006, according to the latest Fitch Ratings/Fixed Income Forum Survey of Senior Investors.Fitch reported that 24% of survey respondents cited housing market disruptions as a high-risk factor in June, down from 31% in December. However, the percentage of respondents identifying a hedge fund collapse as a high-risk factor rose from 12% in December to 17% in June. The survey also found that investor concerns have shifted from weak economic activity toward such factors as higher interest rates, oil price volatility, weak creditor protections, and event risk. "The results of this recent credit investor survey are interesting in that they point to a relatively improved view of fundamentals, but also show that anxiety over structural declines, deal trends, and event risk persists, and in some cases has grown," said Mariarosa Verde, managing director of Fitch Credit Market Research. Fitch can be found online at http://www.fitchratings.com.

Bank of America Corp., Charlotte, N.C., has reported net income of $5.76 billion ($1.28 per share) for the second quarter, an increase of 5% from $5.48 billion ($1.19 per share) a year earlier, though its mortgage-related earnings declined.BoA said the net income from its Consumer Real Estate segment, including its home equity and mortgage businesses, fell 18% to $141 million "because of higher provision expense from increased loss expectations in the home equity portfolio, reflecting the growth of this business." Revenues for the segment totaled $856 million, a 22% increase, the company said. BoA can be found online at http://www.bankofamerica.com.

Washington Mutual Inc., Seattle, has reported net income of $830 million ($0.92 per share) for the second quarter, up from $767 million ($0.79 per share) a year earlier, although its Home Loans group recorded a net loss.The Home Loans group took a loss of $37 million in the second quarter, compared with a net loss of $113 million in the first quarter and net income of $50 million a year earlier, WaMu said. "Net losses from the sales of subprime mortgage loans and adjustments to reflect changes in market values of loans held for sale totaled $38 million, which was a substantial improvement from net losses of $164 million in the first quarter," the company said. Prime mortgage volume rose 7% in the second quarter, while subprime mortgage production declined 30% from that of the first quarter. WaMu can be found online at http://www.wamu.com.

For the second year in a row, Wachovia ranked highest in overall customer satisfaction among home equity lenders in the J.D. Power and Associates 2007 Home Equity Line/Loan Origination Study, according to the marketing information firm.The company said the study measures customer satisfaction with home equity line/loan lenders among 3,871 consumers who had obtained a home equity loan or line of credit from July 2006 to April 2007. J.D. Power reported that Wachovia scored 831 on a 1,000-point scale, performing well in all three factors contributing to customer satisfaction: the closing process, loan officer/representative or banker, and application/approval process. SunTrust ranked second, with a score of 794, and U.S. Bank finished third, at 787. "Wachovia manages to do everything well across the board -- from the application process to closing -- and it shows in the results," said Tim Ryan, senior research director of the company's finance and insurance practice. J.D. Power, headquartered in Westlake Village, Calif., can be found online at http://www.jdpower.com,

The average 30-year fixed mortgage rate was unchanged at 6.73% for the seven-day period ended July 19, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate fell from 6.39% to 6.38%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages was unchanged at 6.35%, and the average rate for one-year Treasury-indexed ARMs rose from 5.71% to 5.72%, Freddie Mac reported. Fees and points averaged 0.4 of a point for fixed-rate mortgages and 0.5 of a point for adjustable-rate mortgages. "In a week marked by stock indexes' reaching new highs on Wall Street, mortgage rates lingered near the previous week's level as the latest economic indicators did not affect inflation expectations significantly," said Frank Nothaft, Freddie Mac's chief economist. ".... The most recent statistics suggest that the housing market has yet to reach a trough. Although June's housing starts unexpectedly rose to 1.47 million units, construction of one-unit houses still saw a decline of 0.2%. At 1.15 million units, it was the slowest pace since January. Building permits fell by 7.5% last month to the lowest level since June 1997." A year ago, the average 30-year and 15-year fixed rates were 6.80% and 6.41%, respectively, and the average hybrid and one-year ARM rates were 6.36% and 5.80%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

Key credit metrics in the commercial mortgage-backed securities market weakened further in the second quarter, according to Moody's Investors Service.The debt service coverage ratio, a measure of cash flow available to pay off debt on commercial mortgage loans, declined to 1.26, one of the lowest levels in recent years. In addition, the loan-to-value ratio on the deals rated by Moody's was up more than 5% for the second quarter in a row to reach a record 117.0. This came about in an environment of "record low" capitalization rates used in underwriting, Moody's said. Furthermore, the share of interest-only loans reached a new high of 87.4% in the second quarter. In April, Moody's had initiated tighter credit policies for CMBS deals it rates, following a few years of declines in underwriting. The rating agency said it believes that it has lost deals to competitors following the move, reporting that it will not be rating eight of the first 12 CMBS deals following the implementation of its adjustment. The rating agency can be found on the Web at http://www.moodys.com.

Standard & Poor's Ratings Services has downgraded 418 classes of securities that are backed by U.S. closed-end second-lien mortgage collateral and were issued from January 2005 through January 2007.The rating actions, involving residential mortgage-backed securities with an original balance of approximately $3.8 billion, resolved 229 CreditWatch actions taken since Oct. 6, 2006, S&P reported. Over 100 of the downgraded classes had previously been downgraded, S&P said. The rating agency said it took the actions "because it believes that losses on U.S. RMBS backed by closed-end second-lien collateral will significantly exceed historical precedent and our original assumptions." The poor performance was attributed to various factors, including looser underwriting standards; pressure on home prices; speculative borrowing; risk layering (combining several risk elements for one borrower); very high combined loan-to-value ratios; financial pressure resulting from payment increases on first-lien mortgages; and questionable data quality. "Furthermore, in the past, when borrowers had difficulty managing their mortgage payments, they were able to refinance," S&P noted, something that tighter underwriting standards, higher interest rates, and home price erosion will make more difficult.

The Office of Federal House Enterprising Oversight is pushing Fannie Mae and Freddie Mac to stop their purchases of private-label mortgage-backed securities if the underlying mortgages don't comply with nontraditional mortgage and subprime guidance."We are working closely with the enterprises so that going forward these rules will apply to mortgages they purchase directly and through private-label MBS," OFHEO Director James Lockhart said in a speech to the Exchequer Club. The guidance issued by the federal banking regulators imposes tough underwriting standards on interest-only, payment-option, and subprime mortgages. Fannie and Freddie have agreed to comply with nontraditional mortgage guidance with respect to purchases of whole loans, and they are expected to adopt the subprime guidance soon. After his speech, Mr. Lockhart indicated to reporters that his discussions with the GSEs about their purchases of private-label MBS are going well. He said the talks are focused mainly on implementation issues.

The deterioration in the credit quality of subprime mortgages could result in losses ranging from $50 billion to $100 billion, Federal Reserve Board chairman Ben Bernanke told Congress July 19.The chairman indicated that delinquencies and foreclosures are rising faster than the Fed anticipated only a few months ago. And these problems "likely will get worse before it gets better," he said. Mr. Bernanke also told the Senate Banking Committee that he expects the Fed to issue new Home Ownership and Equity Protection Act regulations to address certain subprime lending practices, such as prepayment penalties, later this year. When asked about Federal Housing Administration reform, the Fed chairman advised the Senate to act cautiously because FHA single-family loans have high delinquency and default rates. "I would suggest moving with some caution to ensure you don't create another source of problems," Mr. Bernanke testified.

"We have a long way to go" in the subprime mortgage crisis, Countrywide chairman Angelo Mozilo told attendees in keynote remarks July 18 at the 35th Annual Western Secondary Market Conference in San Francisco.Pouring cold water on statements by other mortgage executives, including Countrywide Financial Corp.'s own Todd Dal Porto, Mr. Mozilo said the current subprime collapse is causing a paradigm shift that will bring down an avalanche of regulatory scrutiny. While declining to point blame for the subprime collapse in any particular direction, he said, "The Street stepped up to provide liquidity irrespective of underwriting" as New Century and others "went to the market time after time to get more capital" for exotic loans. The mortgage industry itself will be the real victim, Mr. Mozilo said.

Class M of Citigroup Commercial Mortgage Securities series 2005-EMG has been downgraded from B-plus to B/DR1 by Fitch Ratings.In addition, Fitch upgraded four classes from the deal and affirmed the ratings on 12 other classes. The rating agency attributed the downgrade to principal losses arising from the prepayment of a loan in June 2006.

Four classes of Credit Suisse First Boston Mortgage Securities Corp. commercial mortgage pass-through certificates, series 2005-CND1, have been downgraded by Moody's Investors Service.The downgrades were as follows: class B, from Aaa to Aa3; class C, from A2 to Baa1; class D, from Baa3 to Ba1; and class E, from Ba1 to Ba2. Moody's also confirmed the ratings on four other classes in the transaction. The two remaining loans in the pool, the Royal Palm Hotel Loan (54.2%), located in Miami Beach, Fla., and the Hotel 71 Loan (45.8%), located in Chicago, involve properties that had been financed for conversion into condo-hotels. "No condominium units have closed at either property, and both loans were transferred to special servicing for maturity default," Moody's reported. "The special servicer has commenced a foreclosure action against the Hotel 71 property. The borrowers' efforts to sell both properties have to-date been unsuccessful." The rating agency can be found online at http://www.moodys.com.

Health Care REIT, a Toledo, Ohio-based real estate investment trust, has priced the sale of $400 million of convertible senior notes due September 2027.The net proceeds will be used to invest in additional health care properties, the REIT said. The joint book-running managers for the offering were UBS Investment Bank and Banc of America Securities LLC. The underwriters have been granted an option to buy up to $60 million in additional notes to cover any overallotments. The REIT can be found on the Web at http://www.hcreit.com.

JPMorgan Chase & Co., New York, has reported net income of $4.2 billion ($1.20 per share) for the second quarter, up from $3.5 billion ($0.99 per share) a year earlier, and the company's mortgage banking operations recorded net income of $71 million.A year earlier, the mortgage banking operations had recorded a net loss of $7 million. The company said mortgage production revenue totaled $463 million in the second quarter, up $261 million from that of a year earlier. The production revenue surge reflected a 41% rise in mortgage originations (which totaled $44.1 billion) and the classification of certain origination costs as expense due to the adoption of Statement of Financial Accounting Standards 159. Net mortgage servicing revenue totaled $170 million, up from $116 million in the second quarter of 2006. The company also reported that it strengthened the reserve for its home equity lending portfolio during the quarter. The company can be found online at http://www.jpmorganchase.com.

The Market Composite Index, an overall measure of mortgage applications, rose from 626.2 to 631.6 on a seasonally adjusted basis during the week ended July 13, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications increased 25.9% on the week (from the week that included the Fourth of July) and were up 15.7% from the level recorded a year earlier. The Purchase Index fell from 453.9 to 446.5 on a seasonally adjusted basis, while the Refinance Index climbed from 1636.9 to 1717.4. Refinancings represented 37.7% of total applications, up from 36.2% 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 fell from 6.65% to 6.61%, and points (including the origination fee) rose from 1.52 to 1.60 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Fannie Mae has once again lowered its projections for home sales and starts for 2007.Home prices will continue to fall as well, chief economist David Berson said in his monthly forecast. If he is on target, the projected level of sales -- 900,000 new homes in 2007 and 5.8 million resales -- would be the lowest since 2002, and the two-year decline (2006-2007) would be the largest since the housing downturn of 1989-1991. The "significantly larger decline" in production -- 14% -- stems from the need to cut into the "near record" inventory of completed but unsold homes. "The large number of unsold units also is putting pressure on house prices," Mr. Berson said. He said he expects prices in the part of the market served by his company and its chief rival, Freddie Mac, to remain unchanged, but that he thinks prices in the more expensive segment above the $417,000 conforming-loan limit will be off by 2%. The economist has also cut his projection for mortgage originations. Now he says production "will slow" to $2.47 trillion, a 10.5% drop from $2.76 trillion in 2006. About half the new loans written this year will be refinancings, he said, as adjustable-rate mortgage borrowers continue to jettison their loans before they reset.