Originations

Sen. Charles E. Schumer, D-N.Y., has introduced a stand-alone bill to raise the loan limits on Federal Housing Administration single-family loans and offer homebuyers an alternative to subprime loans."My bill will raise the FHA loan limits so that more homebuyers, especially those living in high-cost areas, will have the opportunity to [get] safe and affordable FHA prime mortgages," Sen. Schumer said during a Senate Banking Committee hearing. The New York senator noted that House Financial Services Committee Chairman Barney Frank, D-Mass., supports his bill. The senator said the bill would raise the FHA single-family loan limit from $362,000 to the $417,000 conforming-loan limit in high-cost areas. A copy of the bill was not available at deadline time, but Sen. Schumer's bill is expected to raise the FHA limit in low-cost areas and set the loan limit at the median house price in other areas. These adjustments to the FHA loan limits are contained in a comprehensive FHA reform bill approved by Rep. Frank's committee. Sen. Schumer noted that the inability to get FHA loans in many areas has exacerbated the subprime crisis.

The federal regulators are targeting a few subprime mortgage subsidiaries of bank and thrift holding companies for special consumer protection compliance reviews in the fourth quarter.The feds plan to coordinate with state regulators so the state-licensed mortgage brokers working with those mortgage subsidiaries also come under scrutiny. "Additionally, the states will conduct coordinated examinations of independent state-licensed subprime lenders and their associated mortgage brokers," the agencies said. The Federal Reserve Board, the Office of Thrift Supervision, and the Federal Trade Commission, along with the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators, are participating in the pilot program. The nonbank subsidiaries of holding companies are generally overlooked in the examination process. "At the conclusion of the reviews, the agencies will analyze the results and determine whether the project is to be continued," the regulators said.

Single-family housing starts edged down 0.2% in June as housing construction appeared to be stabilizing in the face of tighter credit standards and huge inventories of unsold homes.The U.S. Census Bureau reported that single-family housing starts were nearly unchanged, at a seasonally adjusted annual rate of 1.15 million in June, from the level of the previous month. However, the June report shows downward revisions in the April and May start numbers totaling 33,000 units. Meanwhile, builders' confidence in the housing market, as measured by the National Association of Home Builders/Wells Fargo Housing Market Index, fell 4 points to 24 in July -- the lowest level since January 1991. NAHB chief economist David Seiders noted that builders are trimming prices and offering buying incentives to work down their inventories. "The bottom line is the single-family market is still in a correction process," Mr. Seiders said. He predicts that housing starts will begin a gradual recovery early next year.

Standard & Poor's Ratings Services has placed 68 classes from 19 collateralized debt obligations with exposure to recently downgraded subprime residential mortgage-backed securities on CreditWatch with negative implications.The actions followed S&P's July 12 downgrades of numerous classes from first-lien subprime RMBS transactions. S&P said it has reviewed the results of preliminary cash flow analyses for the CDOs and compared them with scenario default rates generated by its CDO Evaluator model to determine whether the credit enhancement is still adequate. The CreditWatch placements "reflect the increased probability of default within the overall portfolios and take into consideration the CDO structures and the rating cushions available to support each tranche," S&P said. The rating agency can be found online at http://www.standardandpoors.com.

Mission West Properties is looking at a possible sale of the company in a transaction valued at about $1.8 billion.The Cupertino, Calif.-based real estate investment trust reported that it is negotiating a deal with a "leading real estate private equity fund" to acquire its common shares at $13.55 per share in cash. The transaction is subject to due diligence by the buyers and also contingent on their arranging financing for the deal, the industrial REIT said. Commenting on the development, the JP Morgan equity REIT research team noted, "With the announcement of negotiations before a definitive agreement has been reached and a price that is below that of the last trade, MSW could be leaving open the door for other potential bidders to come in and take a look." Mission West can be found online at http://www.missionwest.com.

Wells Fargo & Co., San Francisco, has reported record net income of $2.28 billion ($0.67 per share) for the second quarter, up from $2.09 billion ($0.61 per share) a year earlier.Wells Fargo's home mortgage business recorded originations totaling $80 billion in the second quarter, up from $68 billion in the first quarter but little changed from those of a year earlier. However, origination growth and higher net gains on origination/sale activities were offset by a net loss of $225 million related to the effect of higher interest rates on the valuation of mortgage servicing rights (net of hedging costs), the company said. "As a result of our responsible lending and risk management practices, we do not face many of the issues others do in the mortgage industry," said Mark Oman, senior executive vice president in the Wells Home and Consumer Finance Group. "First, we do not retain any credit interest in any prime and nonprime securitizations. Second, we do not originate any negative-amortizing mortgages, including option adjustable-rate mortgages. Finally, we do not portfolio any nonprime no-documentation mortgages or nonprime low-documentation mortgages." The company can be found online at http://www.wellsfargo.com.

Starting July 22, Fannie Mae's automated underwriting system will alert lenders if the collateral for a mortgage is located in an area where house prices are declining.In such cases, Fannie's Desktop Underwriter will send a message to lenders that they need to carefully review the appraisal to ensure its accuracy and require additional information from the appraiser, if necessary. Appraisers should describe market trends and the effects it will have on the value of the property, Fannie says in an announcement to its seller/servicers. "It is unacceptable for the appraiser to ignore these issues and not report the factual property value trends and market conditions," Announcement 07-11 says. The government-sponsored enterprise can be found online at http://www.fanniemae.com.

The Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators have issued new subprime lending guidance for state-licensed mortgage lenders and brokers that mirrors the guidance recently issued by federal banking regulators.The two state regulatory groups had previously announced their intention to promote uniform application of the subprime guidance, which requires lenders to underwrite subprime adjustable-rate mortgages at the fully indexed rate. So far, 26 state mortgage regulators have said they will expedite adoption of the subprime guidance. To enhance the subprime lending guidance, the state regulators are planning to issue model examination guidelines that will provide a uniform standard for multistate examinations and enforcement actions. The state regulators also plan to offer training problems for examiners that will be open to quality control personnel and internal auditors at mortgage companies. After the examination guidance is issued later this month, "we will be rolling out a training program," CSBS vice president Chuck Cross said. The organizations can be found online at http://www.csbs.org and http://www.aarmr.org.

The Federal Reserve Board should impose tough restrictions on prepayment penalties in the subprime market, according to an FDIC advisory committee, as a way to prevent mortgage brokers from "steering" borrowers into higher interest-rate loans."Lenders will not pay [an excessive] yield spread premium, which is the incentive structure for steering, unless they have a prepayment penalty," Martin Eakes, chief executive of Self-Help Credit Union, told his fellow members on the advisory board. The Federal Deposit Insurance Corp. advisory committee agreed to send a letter to the Fed urging it to restrict prepayment penalties at the end of all-day discussion on subprime lending problems. In the subprime market, prepayment penalties can equal six months' worth of interest payments. Under the recommendation, lenders could only charge a penalty that recovers the administrative costs of setting up a new loan. The Fed is considering changes to its Home Ownership and Equity Protection Act regulations to ban certain subprime lending practices that it deems unfair or deceptive.

Nearly 90 mortgage lenders have formed an alliance to support passage of legislation to "reinvigorate" the Federal Housing Administration so it can provide safe and affordable financing for homebuyers, as well as a lifeline for subprime borrowers who are in trouble."We believe that a greater FHA presence in the mortgage market could have prevented the recent turmoil and that FHA is well-positioned to offer borrowers in trouble a simple and practical solution that will bring much-needed stability to local real estate markets," the FHA Alliance members say in a letter to leaders of the Senate Banking Committee. The House Financial Services Committee has approved a bill that raises the FHA single-family loan limits and allows the FHA to charge risk-based premiums and offer zero-downpayment loans. The Senate Banking Committee is scheduled to hold an FHA hearing on July 18. The formation of the alliance shows that lenders are "very interested" in the FHA reform legislation and view the changes as "very valuable to the housing finance system," said mortgage banking consultant Brian Chappelle. National companies such Bank of America, Countrywide Financial Corp., and SunTrust Mortgage, as well as regional companies such as Mortgage America, are alliance members.

DBRS, New York, has downgraded 94 classes of residential mortgage-backed securities from 62 RMBS transactions.DBRS also placed 15 other classes under review with negative implications, and upgraded 17 classes. 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.

In a preview of its third-quarter earnings release, BankUnited Financial Corp., Coral Gables, Fla., said it will make nearly $3 million less on mortgage whole-loan sales for the period than it did in the previous quarter.The company said there were gains available at times for option adjustable-rate mortgage loans it was looking to sell in the whole-loan market, but that it deemed those gains to be insufficient. Therefore, it elected to hold on to the loans during the quarter. BankUnited said it expects its gain-on-sale to be approximately $500,000, compared with $3.5 million for the previous quarter.

Sage Credit Co., a mortgage banking company based in Irvine, Calif., has announced the formation of a reverse mortgage department.Quentin Caruana, president of Sage Credit, said establishing the department "broadens our scope of services and provides many benefits for our mortgage network. Reverse mortgages are a growing segment of the market and will continue to expand to meet consumer needs." A reverse mortgage enables homeowners aged 62 years and older to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or make a monthly payment, the company explained. Sage Credit can be found on the Web at http://www.sagecreditcompany.com.

Senate appropriators have approved a Department of Housing and Urban Development spending bill that includes $100 million for foreclosure prevention counseling.Sen. Charles E. Schumer, D-N.Y., said the $100 million will go to nonprofit counseling agencies that work with borrowers who are trapped in unaffordable subprime loans. "The current situation in the subprime mortgage market is untenable," Sen. Schumer said. "The more we do to help solve it, the fewer families will be faced with losing their homes because of bad loans and dubious mortgage brokers." Sen. Schumer and two fellow Democrats -- Sens. Robert P. Casey Jr. (Pa.) and Sherrod Brown (Ohio) -- have co-sponsored a bill that would provide $300 million for foreclosure prevention counseling and clamp down on certain kinds of subprime lending. The HUD appropriations bill also increases the loan limit on Federal Housing Administration-insured multifamily mortgages and suspends for one year a cap on the number of reverse mortgages the FHA can insure.

Three major housing trade groups want to stop the Office of Federal Housing Oversight from moving forward with a proposed formula that could trigger a decline in the conforming loan limit in 2009 if house prices decline by 1% or more this year.In a letter to Congress, the Mortgage Bankers Association, the National Association of Home Builders, and the National Association of Realtors warn that a reduction in the $417,000 confirming loan limit could be "detrimental" to the economy, homebuyers, homeowners, and the housing industries. "[W]e respectfully request that you encourage OFHEO to withdraw the proposed guidance," the trade groups say in a letter to the ranking members of the House and Senate banking committees. OFHEO's formula would allow a decline in the conforming loan limit as house prices decline, but with a one-year lag. So a possible decline in house prices this year would not affect Fannie Mae and Freddie Mac mortgage purchases until 2009. The CLL also serves as a benchmark for loan limits on Federal Housing Administration-insured and Department of Veterans Affairs-guaranteed loans.

Many subprime borrowers who stretched their financial resources to buy a home are running into trouble and creating a new trend in foreclosures, according to a former Federal Housing Administration commissioner.Pockets of foreclosures are developing in the middle of relatively new subdivisions, former Housing Commissioner William Apgar told a Federal Deposit Insurance Corp. advisory committee. The Harvard University lecturer noted that builders "push-marketed" subprime loans with teaser rates as "affordability" products to keep home sales going and to clear their inventories. "Major homebuilders are some of the largest holders of foreclosed properties in Texas," Mr. Apgar said. He also said that defaults on these subprime affordability mortgages are "going to ultimately lead to a ramp-up" in foreclosures. Mr. Apgar is a lecturer at Harvard's Kennedy School of Economics.

Fannie Mae and Freddie Mac say they will stop purchasing interest-only and payment-option mortgages on Sept. 13 if the loans do not comply with the nontraditional mortgage guidance issued last fall by federal banking regulators.The mortgage giants are taking this action at the direction of their regulator -- the Office of Federal Housing Enterprise Oversight -- and they issued notices to their sellers about the coming changes. "It is Freddie Mac's expectation that sellers will comply with the guidance, and that regulated sellers will do so in a manner consistent with their regulators' interpretation and application," the government-sponsored enterprise said. Fannie Mae also notified its sellers about the guidance and served noticed that OFHEO expects the GSEs to adopt the subprime guidance next. "Accordingly, we expect to issue a subsequent announcement related to the Subprime Guidance in the near future," Fannie said. The federal banking agencies issued the subprime guidance on June 29. OFHEO Director James Lockhart predicted that Fannie's and Freddie's actions will force unregulated lenders that sell nontraditional and subprime loans to the GSEs to comply with new standards. "This is a significant step," Mr. Lockhart said.

Class 3G of Commercial Capital Access One Inc.'s commercial mortgage series 3 has been downgraded from CCC/DR2 to CC/DR2 by Fitch Ratings.Fitch also affirmed the ratings on seven other classes in the transaction. The downgrade was attributed to actual losses and additional expected losses since Fitch's last rating action. Of the deal's original 108 loans, 84 remain in the pool, Fitch said. One asset, secured by a golf course in East St. Louis, Ill., is in special servicing.

Three certificates from two IndyMac trusts have been downgraded by Moody's Investors Service.The downgrades were as follows: IndyMac Home Equity Mortgage Loan Asset-Backed Trust, series SPMD 2000-C, class MV-1, from A3 to Baa3, and class MV-2, from B2 to Caa2; and IndyMac ARM Trust mortgage pass-through certificates, series 2001-H1, class B-2, from Baa1 to Ba1. The downgrades were "based on the analysis of the credit enhancement provided by subordination, overcollateralization, and excess spread relative to expected losses," Moody's said. Collateral in the 2000 deal consists of first-lien adjustable-rate subprime mortgages, while the 2001 deal is backed by first-lien, alternative-A mortgages.

Annaly Capital Management Inc., New York, has priced a public offering of 47 million shares of the company's common stock at $14 per share, for estimated gross proceeds of $658 million.The real estate investment trust said the estimated net proceeds of $626.5 million will be used to purchase mortgage-backed securities and for general corporate purposes. The sole book-running manager of the offering is Merrill Lynch & Co. Annaly can be found online at http://www.annaly.com.