Originations

Small-balance commercial loans have become an attractive securitization product, and as they become more prominent, so will the servicers of such loans, according to Fitch Ratings.Originators are increasingly viewing small-balance commercial loans (with balances up to $3 million) as a way to increase market share and offer a full menu of products, the rating agency reported. "Servicing these loans typically requires greater customer service interaction with borrowers than is necessary with traditional commercial loan servicing," said Fitch senior director Mary Kelsch. She said many properties securing such loans are owner-occupied or owner-operated businesses, so analyzing property inspection reports, monitoring payment histories, and evaluating credit scores are often as important as analyzing property operating statements, if not more so. Fitch said it now has two new rating categories for small-balance commercial servicers: Small Balance Commercial Primary Servicer and Small Balance Commercial Special Servicer. The rating agency can be found online at http://www.fitchratings.com.

Standard & Poor's has announced that Winthrop Realty Trust Inc. will replace Highland Hospitality Corp. in its S&P REIT Composite Index.Winthrop will replace Highland, which is being acquired by affiliates of JER Partners Acquisitions IV LLC, after the close of trading on a date to be announced, S&P said. Winthrop, based in Boston, owns and manages real property and real-estate-related assets.

BPG Properties Ltd., a Philadelphia-based real estate fund manager, has closed BPG Investment Partnership VIII LP, its largest private equity fund, with a total equity commitment of $850 million.BPG said the fund will invest in office, multifamily, industrial, and retail properties throughout the United States. "With our track record of strong returns and our demonstrated staying power, over 90% of our existing investors committed to our latest offering, and we quickly developed a waiting list of new investors who wanted to invest in the fund," said Daniel M. DiLella, president and chief executive officer of BPG Properties. The company can be found online at http://www.bpgltd.com.

Inland Institutional Capital Partners, Oak Brook, Ill., has announced the negotiation of a $125 million investment in Cobalt Industrial REIT II on behalf of Inland American Real Estate Trust Inc.The Cobalt real estate investment trust intends to make approximately $1 billion of industrial property acquisitions and developments in major U.S. metropolitan markets over the next 30 months, Inland said. Cobalt is a private REIT advised by Cobalt Capital Partners LP, Dallas. Inland Institutional Capital is a part of The Inland Real Estate Group of Companies, which can be found online at http://www.inland-american.com.

Real estate investment trusts have fallen behind other equity market benchmarks for the first half of 2007, following years of continued outperformance.The FTSE NAREIT All REIT Index turned in a total return of negative-6.96% for the first half, according to the National Association of Real Estate Investment Trusts. The Washington-based REIT industry trade group reported that this compares with a return of 6.90% on the S&P 500 for the first half, 7.59% on the Dow Jones Industrials, and 7.78% on the NASDAQ. Taking into account only mortgage REITs, total return for the first half of 2007 was even worse, at negative-19.97% (with the home financing sector turning in a return of negative-20.86%, and the commercial financing sector at negative-18.03%). NAREIT can be found online at http://www.nareit.com.

More than 600 classes of securities backed by subprime residential mortgages have been placed on CreditWatch with negative implications by Standard & Poor's Ratings Services, and S&P said a majority are expected to be downgraded.The rating agency reported that the 612 affected classes total approximately $12.08 billion in residential mortgage-backed securities, representing 2.13% of the $565.3 billion in U.S. RMBS rated by S&P from the fourth quarter of 2005 through the fourth quarter of 2006. The negative rating actions were attributed to "poor collateral performance, our expectation of increasing losses on the underlying collateral pools, the consequent reduction of credit support, and changes that will be implemented with respect to the methodology for rating new transactions." Among the changes in rating methodology are an increase in the "severity of the surveillance assumptions" (from 33% to 40%) used to evaluate creditworthiness and a greater likelihood that senior classes will be downgraded in transactions containing subordinate classes that have been downgraded, S&P said. The rating agency can be found online at http://www.standardandpoors.com.

Freddie Mac economists expect mortgage originations to decline by 8.5% this year due to fewer home sales, slower growth in home prices, and rising interest rates."We now forecast total mortgage originations in 2007 to hit 2.75 trillion," down from 2.92 trillion last year, they said. Freddie Mac economists also estimate that new and existing single-family homes will decline by 6.7% this year, from 6.76 million in 2006 to 6.28 million. (Freddie Mac's home sales numbers do not include condominiums.) Meanwhile, the level of refinancings is expected to hit a seven-year low. Freddie's latest forecast projects that refinancings will constitute 42% of mortgage originations in 2007, down from 49% last year. The government-sponsored enterprise can be found online at http://www.freddiemac.com.

The 11th Circuit Court of Appeals has reaffirmed its position in a 12-year-old legal battle that lender-paid fees to mortgage brokers are proper unless consumers can prove the amount is excessive."In summary, the borrowers bear the burden of demonstrating, with specific evidence, that the total remuneration that their brokers received was unreasonable … in light of market standards and the subjective facts of their mortgage transactions," the circuit judges ruled in Culpepper v. Irwin Mortgage Corp. The appeals court stressed that the courts should use the Department of Housing and Urban Development's two-part test in evaluating yield-spread premiums, which are paid by the wholesale lender to the broker at closing. This test requires a case-by-case inquiry into each mortgage transaction, the appeals court said in affirming a lower court decision to decertify class action status in the Culpepper case. The 11th Circuit Court had upheld class certification in 2001, and the mortgage industry was afraid it would be engulfed in class action lawsuits. But the appeals court reversed itself after HUD issued a clarification of its YSP test.

Independent Bank Corp., Ionia, Mich., has reported that it expects to record a small net loss in the second quarter as a result of a larger-than-anticipated $13-16 million loan-loss provision related to its commercial real estate portfolio.The company cited several factors, including increases in specific reserves or chargeoffs totaling approximately $6 million on seven credit relationships totaling $24 million. "In general, these borrowers are experiencing cash flow difficulties, often as a result of the slow residential housing market that is impacting many real estate developers in Michigan," Independent Bank said. The bank can be found online at http://www.ibcp.com.

Huntington Bancshares Inc., Columbus, Ohio, has announced that it expects to report higher loan-loss provisions and market-related losses involving real estate credits and mortgage servicing rights for the second quarter.Huntington said it expects to report a $60 million loan-loss provision, including $25 million related to two East Michigan real estate credits and one Northeast Ohio commercial loan that were downgraded to nonperforming status. "The commercial developer and residential real estate homebuilder markets in East Michigan deteriorated during the quarter, reflecting a significant downturn in home sales activity and the inability of homebuilders to sustain sufficient sales activity," Huntington said. The bank holding company also reported a $3 million pretax charge of net market-related losses based on "a combination of hedging ineffectiveness for mortgage servicing rights and investment securities impairment." The company can be found online at http://www.huntington.com.

NorthStar Realty Finance Corp., a New York-based real estate investment trust, has announced the closing of $109 million of commitments for North Star Real Estate Securities Opportunity Fund.NorthStar, the manager and general partner of the fund, said it intends to conduct its real estate securities investment business through the fund. The company said it will typically receive annual base management fees of 1%-2% on third-party capital and is entitled to annual incentive management fees ranging from 20% of the increase in the fund's net asset value to 25% of the increase in net asset value in excess of an 8% return. "This closing represents an important beginning to our strategy of increasing fee-based revenues and returns on our invested capital and diversifying our funding sources," said David Hamamoto, NorthStar's president and chief executive officer. The company can be found online at http://www.nrfc.com.

RBC Capital Markets is entering the small-balance commercial mortgage loan market through its Dallas-based Real Estate Mortgage Capital unit.The program, which RBC is calling RBC Streamline, aims to provide funding of between $500,000 and $5 million for multifamily and commercial properties, RBC Capital Markets reported. "This loan program combines the best of global capital markets and local bank service by giving small loan borrowers a wide range of flexible options, commercial real estate expertise, minimal costs, responsive service and speed," said Dan Smith, head of RBC's Real Estate Mortgage Capital business. RBC is building a team of people to focus on this niche. Cheryl Higley, director of the small-balance lending program, said RBC Streamline "will give small balance borrowers and mortgage brokers a faster process and easier access to decision-makers so they can quickly get the capital they need."

WMC Mortgage, Irvine, Calif., recently auctioned off $3 billion in subprime loans but offered few details on the sale.In a statement, the General Electric-owned company said only that the mortgages included a mix of performing and "seasoned" loans. It did not disclose price or the identity of the buyer(s). Like many subprime lenders, WMC has been forced to repurchase delinquent subprime mortgages from investors in the secondary market. The company, so far, has declined to quantify its buyback problems. After the auction, WMC now has $1.5 billion in loans on its balance sheet. According to the Quarterly Data Report, it ranked 10th among subprime lenders in the first quarter, originating $3.4 billion in loans, a 50% decline from the total for the same period a year earlier.

Generation Mortgage Co., an Atlanta-based reverse mortgage lender, has acquired Amston Mortgage Co., another reverse mortgage lender based in Moodus, Conn.The terms of the deal were not disclosed. For fiscal year 2006, Amston was the 16th-largest originator of Home Equity Conversion Mortgages, with 518, according to data from the Department of Housing and Urban Development. Amston is licensed in 15 states and has plans to add more. Besides originating HECMs, Generation has its own proprietary jumbo product, Generation Plus. The company was founded in 2006 and has both retail and wholesale production channels. "This acquisition, combined with many other significant additions to our capabilities, poises Generation Mortgage to become recognized among the top tier of the reverse mortgage industry," said Jeff Lewis, chairman of Generation Mortgage and a senior managing director at Guggenheim Partners LLC, Generation's controlling shareholder. Generation recently acquired California Reverse Mortgage Co., Sacramento, the 21st-largest HECM lender in fiscal 2006, originating 442 of these loans. On a pro forma basis, Amston and California Reverse totaled 1,060 HECM originations in that year, which would rank them seventh overall.

Option One Mortgage Corp., Irvine, Calif., has lost a warehouse facility with Lehman Brothers Bank, Wilmington, Del., which leaves the company close to the minimum capacity specified as a closing condition of its sale by current owner H&R Block, Kansas City Mo., to an affiliate of Cerberus Capital Management, New York.The terms of the deal require Option One to have $8 billion in warehouse capacity, including $2 billion in uncommitted capacity. According to a Securities and Exchange Commission 8-K filing by Block in which the loss of the line was disclosed, Option One has $8.002 billion in committed capacity, as well as $2 billion in uncommitted capacity. The Lehman line, which expired on July 31, was for $1.5 billion, based on information gleaned from Block's 10-K filing. To make up some of the lost capacity, Block has entered into an agreement with Bank of America, Charlotte, N.C., to extend a line issued by that company to June 12, 2008. The line of $2.002 billion has been temporarily increased to $2.252 billion through Oct. 31, 2007, or the closing date of the Cerberus deal, whichever comes first. Option One can be found online at http://www.optiononemortgage.com.

The Securities and Exchange Commission has initiated a formal investigation of New Century Financial Corp., according to the subprime mortgage company, which is in bankruptcy.Previously known as one of the nation's largest subprime lenders, New Century disclosed the existence of the SEC investigation in a July 5 securities filing and said it is cooperating with the commission. An internal investigation by the Irvine, Calif.-based company earlier this year discovered accounting errors relating to its loan repurchase losses and residual interests in securitizations. New Century has warned that its financial statements for 2005 and 2006 should not be relied on. New Century also disclosed in the SEC filing that it completed the sale of its servicing assets and servicing platform to Carrington Capital LLC for $177.4 million, including $5 million that is being held in escrow to indemnify Carrington for any possible claims. The company can be found on the Web at http://www.ncen.com.

Mortgage companies shaved 4,900 full-time employees off their payrolls in May after cutting 9,200 in April, according to the latest government report.The U.S. Bureau of Labor Statistics reported that employment in the mortgage banking/broker sector fell from 472,000 in April to 467,100 in May. The report indicates that 5,400 mortgage brokers exited the business in May -- the first significant decline since January. The employment numbers for other mortgage professionals stabilized in May after 17,400 job cuts since January. The BLS can be found online at http://stats.bls.gov.

Eight classes of New Century Home Equity Loan Trust series 2006-S1 have been downgraded by Fitch Ratings, four of which have also been placed on Rating Watch Negative.The downgrades were as follows: class M-1, from AA to A-minus; class M-2, from A-plus to BBB; class M-3, from A to BB; class M-4, from A-minus to B; class M-5, from BBB-plus to C/DR5; class M-6, from BBB to C/DR5; class M-7, from BB to C/DR6; and class M-8, from BB-minus to C/DR6. Fitch also placed classes M-1 through M-4, as well as classes A-1, A-2a, and A-2b, on Rating Watch Negative, and removed class M-6 from Rating Watch Negative. The negative rating actions were attributed to the fact that credit enhancement levels may be too low to maintain current rating levels in view of projected losses. The transaction is backed by subprime second-lien loans. Fitch can be found online at http://www.fitchratings.com.

The Market Composite Index, an overall measure of mortgage applications, rose from 618.6 to 619.4 on a seasonally adjusted basis during the week ended June 29, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 0.1% on the week but were up 9.7% from the level recorded a year earlier. The Purchase Index rose from 428.9 to 437.3 on a seasonally adjusted basis, while the Refinance Index declined from 1731.6 to 1687.2. Refinancings represented 37.8% of total applications, down from 38.7% 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 6.60% to 6.50%, and points (including the origination fee) rose from 1.54 to 1.69 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

The average 30-year fixed mortgage rate fell from 6.67% to 6.63% for the seven-day period ended July 5, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate fell from 6.34% to 6.30%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages declined from 6.30% to 6.29%, but the average rate for one-year Treasury-indexed ARMs rose from 5.65% to 5.71%, Freddie Mac reported. Fees and points averaged 0.4 of a point for all four mortgage categories. "Long-term mortgage rates continued to move lower for the third consecutive week, in part reflecting a moderation in core inflation," said Frank Nothaft, Freddie Mac's chief economist. "In the statement accompanying their decision to leave the target federal funds rate unchanged, the Fed noted that core inflation had declined recently, though a 'sustained' moderation is still to be seen, and signaled that inflation risk continues to figure prominently in their policy decisions." A year ago, the average 30-year and 15-year fixed rates were 6.79% and 6.44%, respectively, and the average hybrid and one-year ARM rates were 6.39% and 5.82%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.