Originations

TransUnion, Chicago, has announced the introduction of a customized approach to help mortgage lenders identify consumers who may have added "authorized user" accounts to artificially inflate their credit standing.The company said it examined nearly 2 million approved mortgage applicants and developed a set of "highly predictive" credit characteristics. The product is customized based on a lender's credit criteria and risk threshold. "The practice of artificially boosting one's credit score is not just limited to the mortgage industry, and the practice is not going to go away for quite some time," said Dina Anderson, a senior director in TransUnion's Analytic and Decisioning Services. "The key is to help the industry and our customers determine the difference between a legitimate use of an authorized user trade line and provide a meaningful risk assessment when the practice is being abused." The company can be found on the Web at http://www.transunion.com.

Fitch Ratings has announced that 170 subprime residential mortgage-backed securities transactions have been placed "Under Analysis," which indicates that rating actions on the deals will be taken over the next few weeks.Fitch said the latest under-analysis list reflects June performance results that show "continued negative trends, particularly for the late 2005 and 2006 subprime vintages," as well as changes to Fitch's subprime loss forecasting assumptions based on the new data. "These changes were made to better capture the deteriorating performance of pools from 2006 and late 2005 in the face of continued poor loan performance and home price weakness," the rating agency said. Fitch can be found on the Web at http://www.fitchratings.com.

Meanwhile, Standard & Poor's has downgraded 64 other classes backed by first-lien subprime mortgage collateral that involve CreditWatch actions taken before July 10 on 70 tranches of residential mortgage-backed securities.Of six classes that remain on CreditWatch, three remain "because the issuer is appealing the decision based on the presence of mortgage insurance," and three others remain because they involve either closed-end second-lien or alternative-A mortgage collateral, S&P reported. The 70 classes were rated from the fourth quarter of 2005 through the fourth quarter of 2006, S&P said. The rating agency can be found online at http://www.standardandpoors.com.

Standard & Poor's Ratings Services has downgraded 498 of the 612 classes of residential mortgage-backed securities that it placed on CreditWatch with negative implications July 10, and it has corrected the value and status of the securities.S&P said the 612 classes, rated from the fourth quarter of 2005 through the fourth quarter of 2006, represent $7.35 billion of securities, not $12.018 billion as originally reported. The downgraded classes, representing approximately $5.69 billion in securities, are backed by first-lien subprime mortgage collateral. S&P also left 26 of the first-lien subprime classes on CreditWatch and affirmed the ratings on 74 classes and removed them from CreditWatch. Of the remaining 14 classes, the ratings on nine were affirmed and removed from CreditWatch "because they involve alternative-A mortgage collateral and were not intended to be included" in the July 10 rating actions, and five were left on CreditWatch because they are backed by closed-end second-lien mortgage collateral and will be reviewed later by S&P, the rating agency said.

Rep. Spencer Bachus, R-Ala., has introduced a subprime lending reform bill that would establish a national registry for all mortgage originators -- including loan officers at federally insured banks and their wholly owned subsidiaries.The bill "creates a national registration and licensing standard for mortgage originators to enhance accountability and professionalism within the industry," according to a statement issued by Rep. Bachus. The Fair Mortgage Practices Act also restricts prepayment penalties on adjustable-rate 2/28 and 3/27 mortgages and requires escrow accounts on all subprime mortgages. Rep. Bachus worked with several Democrats last year in developing a bipartisan anti-predatory-lending bill, but those talks broke down last fall. House Financial Services Committee Chairman Barney Frank, D-Mass, is currently working on a predatory-lending bill. "I am optimistic we can do a bill this fall," Rep. Frank said.

General Electric Co. says it is actively looking for a buyer for its subprime subsidiary, WMC Mortgage, and has revealed that it sold off $3.7 billion, or 75%, of WMC's loan portfolio during the second quarter.GE executives said their "timing was good" and that the sales were completed before there was "additional turmoil" in the subprime mortgage market. The company's second-quarter results show that GE took a $182 million loss on WMC, including exit costs. The giant international company is continuing to restructure the Irvine, Calif.-based mortgage company for the sale and has already reduced its staffing by 70%. WMC still has a $1.1 billion subprime portfolio, and a GE executive said the "platform has value."

Ashford Hospitality Trust, a real estate investment trust based in Dallas, has priced an offering of 8.0 million shares of 8.45% series D cumulative preferred stock at $25 per share.The proceeds will be used to redeem the company's series C preferred stock, Ashford said. Merrill Lynch & Co., Morgan Stanley, and Wachovia Securities were the joint book-running managers of the offering. The REIT can be found online at http://www.ahtreit.com.

ProLogis, a Denver-based industrial real estate investment trust, is acquiring a portfolio of industrial assets from a joint venture between Dermody Properties and CalSTERS for a total consideration of about $1.85 billion, including transaction costs.The REIT has set up a property fund to channel the acquisition, which includes 114 properties comprising 24.7 million square feet of distribution space, about half of which is in the Reno, Nev., area. The portfolio also includes 518 acres of land, ProLogis reported. Affiliates of Lehman Brothers provided debt and equity funding for the transaction. The acquisition "significantly expands our platform in five key U.S. logistics markets through the addition of complementary, high-quality warehouse assets, and elevates us to the market-leading position in Reno, Las Vegas, and Eastern Pennsylvania," said ProLogis chief executive Jeffrey H. Schwartz. The company can be found online at http://www.prologis.com.

Nearly 165,000 foreclosure filings were reported nationwide in June, down 7% from the level recorded in May but up 87% from that of a year earlier, according to RealtyTrac, an online foreclosure marketplace based in Irvine, Calif.The nation's foreclosure rate stood at one foreclosure filing for every 704 households, the company said in its June 2007 U.S. Foreclosure Market Report. (Foreclosure filings include default notices, auction sale notices, and bank repossessions.) "Foreclosure activity subsided somewhat in June after hitting a 30-month high in May," said James J. Saccacio, chief executive officer of RealtyTrac. "And the drop in activity was fairly broad, with 33 states reporting month-over-month decreases. Still, the foreclosure rates in most states remained substantially above last year's levels." RealtyTrac said Nevada, California, and Colorado recorded the highest foreclosure rates in June. The company can be found online at http://www.realtytrac.com.

The average 30-year fixed mortgage rate rose from 6.63% to 6.73% for the seven-day period ended July 12, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose from 6.30% to 6.39%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages climbed from 6.29% to 6.35%, and the average rate for one-year Treasury-indexed ARMs was unchanged, at 5.71%, 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. "A favorable employment report for June and robust consumer credit growth for May pushed long-term mortgage rates higher in the past week, nearly eliminating the declines made in rates over the previous three weeks," said Frank Nothaft, Freddie Mac's chief economist. "In addition, consumer credit jumped by $12.9 billion in May, almost double market expectations." A year ago, the average 30-year and 15-year fixed rates were 6.74% and 6.37%, respectively, and the average hybrid and one-year ARM rates were 6.33% and 5.75%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

Investor negativity toward subprime lending in general is creating investment opportunities, according to a report from Advantus Capital Management."[I]nvestors have come to view all things subprime as radioactive, punishing companies even marginally involved," says the report by investment analysts Joseph Scanlan and Sean Timonen. "But when investors overreact, opportunities emerge." Companies that relied on subprime lending as their sole business are in trouble, the report says, "but for every company that fits that profile, others are being found guilty by association." Companies with a strong parent -- the authors mention HSBC Finance and Residential Capital -- are better positioned to withstand market pressures. ResCap, whose owner GMAC is having a majority stake in it sold by GM to Cerberus, will get capital from that sale, allowing it to maintain investment-grade ratings. Opportunities exist in the subprime arena for "astute buyers" to scoop up firms at "severely reduced prices," the report says. Investors looking beyond the headlines "will be able to fish excellent opportunities out of the sea of subprime bad news," Advantus says.

The Federal Reserve Board is working "expeditiously" on crafting proposals to protect consumers from unfair subprime lending practices, but there is no timetable for the issuance of a Home Ownership and Equity Protection Act rule, according to a Fed governor."I can't give you a timetable," Fed Governor Randall Kroszner told a meeting of the New York Bankers Association in Washington. One of the bankers, New York Federal Home Loan Bank President Alfred DelliBovi, told the Fed governor that he senses a lot of "anger" in Congress about the subprime mortgage situation and rising foreclosures. Mr. Kroszner stressed that the board is "very sensitive" to the plight of subprime borrowers who have lost their homes and others that are facing resets on adjustable-rate mortgages. The Fed is devoting a lot of resources to the issue, he said. On July 11, the House passed a resolution (H. Res. 526) that calls for "government action" to protect homebuyers "from unscrupulous mortgage brokers and lenders."

The Department of Housing and Urban Development is creating a new fair-lending division to handle an increasing number of investigations into discriminatory mortgage lending practices."We have launched a record number of investigations this year," said HUD Assistant Secretary Kim Kendrick. It is understood that HUD is investigating several subprime lenders for pricing disparities based on Home Mortgage Disclosure Act reports. The new fair-lending division will also oversee Fannie Mae and Freddie Mac to ensure that their underwriting policies and practices comply with fair-lending laws.

Because the appropriations process is crowding out other legislation, House Financial Services Committee Chairman Barney Frank, D-Mass, says he believes passage of a Federal Housing Administration reform bill will have to wait until Congress returns from its August recess in September.During floor debate on a housing resolution, Rep. Frank said a dispute over origination fees on FHA-insured reverse mortgages held up action on the FHA bill until the July 4th recess. That has been resolved, he said, but added that "we then ran out of time because of the appropriation process." The House Financial Services Committee approved the FHA reform bill (H.R. 1852) on May 3. The reforms would increase the FHA single-family loan limits and allow the FHA to charge risk-based premiums and offer zero-downpayment loans. The Senate Banking Committee has scheduled its first FHA hearing for July 18, and FHA supporters are hoping it will lead to the introduction of an FHA reform bill in the Senate soon.

Class L of Bear Stearns commercial mortgage pass-through certificates series 2004-BBA3 has been downgraded from BBB-minus to BB-plus and removed from Rating Watch Negative by Fitch Ratings.In addition, class K of the transaction was placed on Rating Watch Negative and the ratings on six other classes were affirmed. The negative rating actions were attributed to a deterioration in the performance of the three remaining loans: Riverside Center shopping center in Utica, N.Y.; Sheffield Office Park in Troy, Mich.; and Capital Partners Office Portfolio, secured by eight cross-collateralized and cross-defaulted office buildings in Jacksonville, Fla.

The Market Composite Index, an overall measure of mortgage applications, rose from 619.4 to 626.2 on a seasonally adjusted (and holiday-adjusted) basis during the week ended July 6, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 19.1% on the week but were up 25.3% from the level recorded a year earlier. The Purchase Index rose from 437.3 to 453.9 on a seasonally adjusted basis, while the Refinance Index declined from 1687.2 to 1636.9. Refinancings represented 36.2% of total applications, down from 37.8% the previous week, while adjustable-rate mortgages accounted for 20.4%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 6.50% to 6.65%, and points (including the origination fee) fell from 1.69 to 1.52 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Defaults on commercial mortgage-backed securities are likely to start rising, thanks to deals issued in the last few years that contain higher concentrations of interest-only loans and higher levels of debt, according to Fitch Ratings.The rating agency also said it expects the "cumulative vintage 10-year average default rate" to be higher than the current 7.88% level. "Though CMBS collateral will continue to perform well this year, defaults will begin to increase incrementally beyond 2007 as loans with high loan-to-value ratios continue to be added to new CMBS transactions," said Britt Johnson, a Fitch senior director. Default levels were the highest on multifamily properties last year, and Fitch said it expects some markets, such as South Florida, to experience higher than historical levels of defaults. Fitch can be found online at http://www.fitchratings.com.

Fifty-two securities originated in 2005 and backed by subprime closed-end second-lien mortgage loans have been downgraded by Moody's Investors Service.Of the downgraded securities, 27 remain on review for possible downgrade. Moody's placed 23 other classes on review for possible downgrade and upgraded 52 classes. The negative actions, affecting residential mortgage-backed securities with an original face value of nearly $600 million, were based on the fact that projected pipeline losses have increased in recent months and are likely to affect the credit support for the certificates, Moody's said. As with its negative rating actions on first-lien subprime RMBS classes (see item above), Moody's cited "aggressive underwriting" and "prolonged, slowing home price appreciation" as the causes of significant deterioration in loan performance.

Moody's Investors Service has downgraded 399 securities that were issued in 2006 and backed primarily by first-lien subprime mortgage loans.Moody's also placed 32 other classes under review for possible downgrade. The actions, which affect securities with an original face value of over $5.2 billion, were based on higher-than-expected rates of delinquency in the underlying collateral, the rating agency said. First-lien subprime loans securitized in 2006 "were originated in an environment of aggressive underwriting," Moody's said. "This aggressive underwriting combined with prolonged, slowing home price appreciation has caused significant loan performance deterioration and is the primary factor in these rating actions." Moody's said about 60% of the rating actions affected transactions backed by collateral originated by Fremont Investment & Loan, Long Beach Mortgage Co., New Century Mortgage Corp., and WMC Mortgage Corp., which it said have been performing below the average of the 2006 vintage. Moody's can be found online at http://www.moodys.com.

Federal Deposit Insurance Corp. Chairman Sheila Bair said Wednesday that mortgage wholesalers "need to know" who they are doing business with and blamed the subprime crisis partly on unregulated loan brokers.Speaking before a New York Bankers Association meeting in Washington, Ms. Bair -- in response to a question from the audience -- said brokers "are a big chunk of the problem … but we don't regulate brokers." Of the three largest subprime wholesalers in the United States -- Countrywide Home Loans, HSBC Finance, and Option One -- two (Countrywide and HSBC) are depositories, but just HSBC is regulated by the FDIC. On July 16, the FDIC's Advisory Committee on Economic Inclusion will explore the subprime mortgage crisis. One panel will be devoted to the role loan brokers played in the mess.