Originations

Mortgage companies dropped 10,500 full-time employees from their payrolls in April as the contraction in subprime lending is finally showing up in the government's employment reports.The U.S. Bureau of Labor Statistics reported that employment in the mortgage banking/broker sector fell from 481,200 in March to 470,700 in April. Surprisingly, mortgage brokers seem to be staying on the job. The BLS report shows that 140,700 brokers were employed in April, down only 500 from the level of the previous month. So the jobs report appears to be picking up closings and layoffs at subprime companies. According to preliminary survey results compiled by National Mortgage News, subprime production fell 30% in the first quarter compared with that of the same quarter last year. Overall production was down by about 10%. The Bureau of Labor Statistics can be found online at http://stats.bls.gov.

Four classes of Securitized Asset Backed Receivables mortgage pass-through certificates have been placed on Rating Watch Negative by Fitch Ratings.The affected classes were as follows: class B5 of series 2006-HE1; class B-5 of series 2006-FR2; class B-5 of series 2006-FR3; and class B-4 of series 2006-WM1. In addition, Fitch affirmed the ratings on 69 classes in eight SABR securitizations. The negative rating actions were attributed to deterioration in the relationship between credit enhancement and expected losses. The collateral in the transactions consists primarily of closed-end subprime residential loans secured by first- and second-lien mortgages, the rating agency said. Fitch can be found online at http://www.fitchratings.com.

The A-minus issuer default ratings of Archstone-Smith Trust and Archstone-Smith Operating Trust have been placed on Rating Watch Negative by Fitch Ratings.Fitch also placed the preferred stock rating of Archstone-Smith Trust and the debt ratings of Archstone-Smith Operating Trust on Rating Watch Negative. The actions, which followed an announcement that Archstone-Smith is being acquired by a partnership sponsored by Tishman Speyer and Lehman Brothers, indicate that "Fitch expects that if the transaction closes, the surviving entity will undertake a significantly more aggressive financial profile than Archstone has traditionally utilized." Moody's Investors Service has also placed its Archstone ratings on review for possible downgrade. Fitch can be found on the Web at http://www.fitchratings.com.

April was the best month since June 2004 for the traditional category of primary new insurance written by private mortgage insurers, according to data from the Mortgage Insurance Companies of America.The group consists of every MI firm with the exception of Radian, which pulled out of the association in September 2003 and is no longer counted in the data. Primary insurance written totaled $20.7 billion, down 22% from $26.6 billion in March. However, the traditional category increased from $15.9 billion to $17.4 billion. Back in June 2004, MICA members wrote $17.8 billion of traditional insurance. A research report on the numbers from Friedman, Billings, Ramsey & Co., Arlington, Va., commented, "We continue to foresee a worsening credit environment weighing on earnings growth. However, given the heightened attention on the state of the housing market, we believe investors have the credit environment well baked into the stocks' current valuations. If fact, given current expectations, we believe the MIs are more likely to surprise on the upside." The report said the cure/default ratio fell from 92.3% in March to 79.6% in April, with 34,347 new cures and 43,161 new defaults.

Single-family mortgage originations by banks fell 20% to $286.3 billion in the first quarter, according to the Federal Deposit Insurance Corp.The FDIC reported that the 673 commercial banks and savings banks saw wholesale originations of first liens drop 21.6% in the first quarter to $184.3 billion and retail originations fall 16.6% to $92.1 billion. The FDIC first-quarter report also shows that banks and thrifts accelerated their whole-loan sales and mortgage securitization activities over the past four quarters by 175%. In the first quarter, FDIC-insured institutions sold and securitized $1.1 trillion in one- to four-family mortgages. The FDIC reported for the first time that 120 banks and thrifts hold 206.9 billion in negative-amortization loans on their books. These interest-only and payment-option mortgages constituted 9.5% of all mortgage loans held by banks and thrifts in the first quarter.

The average 30-year fixed mortgage rate rose from 6.37% to 6.42% for the seven-day period ended May 31, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose from 6.06% to 6.12%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages climbed from 6.02% to 6.19%, while the average rate for one-year Treasury-indexed ARMs fell from 5.64% to 5.57%, Freddie Mac reported. Fees and points averaged 0.4 of a point for fixed-rate mortgages, 0.5 of a point for hybrid ARMs, and 0.6 of a point for one-year ARMs. "Interest rates on fixed-rate mortgages increased further this week following strong growth in orders for durable goods," said Frank Nothaft, Freddie Mac's chief economist. "Recent reports have indicated that economic growth outside of the housing market remains robust, with a healthy consumer sector and improving business spending." A year ago, the average 30-year and 15-year fixed rates were 6.67% and 6.26%, respectively, and the average hybrid and one-year ARM rates were 6.26% and 5.68%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

The housing correction may be more prolonged than originally thought, but so far any related mortgage concerns have been contained in the subprime market, according to members of the Federal Reserve's Federal Open Market Committee.In minutes of the panel's May 9 meeting released May 30, FOMC members said the housing correction is "likely" to be "somewhat longer than previously expected" and concentrated in the new-home sector. However, the Fed officials also indicated that their housing-sector concerns were outweighed by their concerns about inflation. The slight uptick in the FOMC's caution on inflation reflected by the minutes caused the long-term rate-indicative 10-year Treasury yield to inch upward Wednesday afternoon, according to Yahoo! Finance.

Federal Deposit Insurance Corp. Chairman Sheila Bair says accounting firms and industry groups have concluded that there is latitude in the accounting rules governing securitizations that allow servicers to actively restructure subprime loans facing foreclosure.She noted that the industry groups are committed to working with borrowers to prevent foreclosures and with community activists to reach borrowers that need to restructure their loans. The Mortgage Bankers Association has asked the Financial Accounting Standards Board for guidance on the FAS 140 servicing issues. "MBA believes restructurings of certain securitized residential mortgage loans that are widely anticipated to go into default will not cause qualified special-purpose entities holding restructured loans to be disqualifying, thereby forcing the transferors to record a repurchase of the loans," the association said. The FDIC chairman also reported that the regulators are near agreement on the subprime lending guidance when it comes to curbing stated-income loans and other issues. She said she expects the guidance to be issued no later than July.

Two real estate investment trusts will be added to the S&P MidCap 400 Index.Equity One Inc., North Miami Beach, Fla., will replace Bandag Inc. in the S&P MidCap 400 after the close of trading on a date to be announced, S&P said. Bandag is being acquired by Bridgestone Americas Holding. Equity One, a constituent of S&P's REIT Composite Index, owns, manages, acquires, renovates, and develops neighborhood and community shopping centers. In addition, Nationwide Health Properties Inc., Newport Beach, Calif., has announced that its stock will be added to the MidCap 400 after the close of trading on May 30. The company is a REIT that invests in health care facilities. S&P can be found online at http://www.standardandpoors.com, and the REITs can be found at http://www.equityone.net and http://www.nhp-reit.com.

Two classes from a pair of Finance America Mortgage Loan Trust subprime securitizations have been placed on review for possible downgrade by Moody's Investors Service.The affected securities are class M-8 of series 2004-1 and class M-9 of series 2004-2. Moody's said the negative rating actions were taken because credit enhancement levels on the two classes may be low in view of projected losses. The transactions are backed primarily by first-lien adjustable- and fixed-rate subprime mortgage loans.

The Zacks Equity Research Analyst Blog for May 29 said the rating company is not yet ready to upgrade its sell rating on H&R Block, Kansas City, Mo., despite the fact that the pending sale of a mortgage affiliate is positive in the long term.The firm views the pending sale of Option One Mortgage Corp., an Irvine, Calif.-based nonprime lender, as "a long-term positive." But it added that "the ultimate terms of the deal are still unknown. In the near-term, we expect that [Block's] stock should continue to trade near the lower half of its historical multiple range, and we do not believe that significant price appreciation is warranted at this time." Zacks can be found on the Web at http://www.zacks.com.

The Baa1 senior unsecured debt ratings of Archstone-Smith Trust have been placed under review for possible downgrade by Moody's Investors Service.Moody's noted that the move comes on the heels of an announcement that Archstone-Smith is being acquired by a partnership sponsored by Tishman Speyer and Lehman Brothers in a transaction valued at approximately $22.2 billion. "Although it is assumed that the unsecured notes will be taken out at closing and the preferred shares will either be redeemed or converted into preferred shares of the surviving entity at the election of the partnership, the precise capital structure subsequent to this transaction is not yet clear," the rating agency said. "Moody's considers it likely that leverage, particularly secured leverage, will increase materially, while other credit metrics are likely to deteriorate." The rating agency can be found on the Web at http://www.moodys.com.

The issuer default ratings of Chicago-based Equity Residential and ERP Operating LP have been downgraded from A to A-minus by Fitch Ratings, which cited "a strategic shift" in the company's capital structure and philosophy.Fitch also downgraded Equity Residential's preferred stock ratings from A-minus to BBB-plus and ERP's debt ratings from A to A-minus. The outlook is stable. The rating agency said Equity Residential's "fairly aggressive" debt-funded stock buyback program has put pressure on its financial and operating flexibility. "Moreover, the recent announcement by the company's board of directors authorizing the purchase of $500 million in company common stock, on the heels of its recent purchases of $585 million of company stock (under a separate $700 million authorization plan) signals a shift in EQR's leverage and risk appetite," Fitch said. Equity Residential, a multifamily real estate investment trust, can be found online at http://www.equityapartments.com.

The Market Composite Index, an overall measure of mortgage applications, fell from 686.2 to 636.4 on a seasonally adjusted basis during the week ended May 25, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 7.4% on the week but were up 17% from the level recorded a year earlier. The Purchase Index fell from 438.1 to 427.0 on a seasonally adjusted basis, while the Refinance Index fell from 2154.7 to 1874.6. Refinancings represented 39.7% of total applications, down from 42.3% the previous week, while adjustable-rate mortgages accounted for 17.7%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 6.23% to 6.32%, and points (including the origination fee) fell from 1.53 to 1.41 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Adjustable-rate mortgages made up only 13% of thrift originations in the first quarter, down 44% from the level recorded a year earlier, according to the Office of Thrift Supervision.It marked the second consecutive quarter in which the percentage of total originations represented by ARMs was in the lower teens. But this time it prompted thrifts to sell $177.7 billion in mortgages into the secondary market -- the highest level of sales since the third quarter of 2003. Thrifts generally specialize in ARMs, and these depository institutions like to sell fixed-rate mortgages and hold ARMs in portfolio. Overall, the ARM share for all lenders was 11% in the first quarter, compared with 25% in the same quarter of 2006, according to the Federal Housing Finance Board. Freddie Mac's forecast calls for the ARM share of the mortgage market to be 12% in 2007, down from 21% in 2006.

Ginnie Mae president Robert Couch says his agency is on track to securitize its first pool of Federal Housing Administration-insured reverse mortgages in September."We think it is going to improve pricing for consumers and help originators find an efficient secondary-market execution," Mr. Couch told a Mortgage Bankers Association government housing finance conference. The Ginnie Mae home equity conversion mortgage structure will allow reverse mortgage lenders to securitize lump-sum payouts as well as monthly draws in pools as small as $1 million. Once there is significant volume, Wall Street dealers will be able to aggregate the HECM mortgage-backed securities into real estate mortgage investment conduits. "It is a fairly simply structure for investors," Mr. Couch said in an interview. The complexity comes with the servicing, because one reverse mortgage could have participations in multiple securities. "Ginnie has one servicer ready for the September rollout, and we've got others that may be ready," the Ginnie president said. Mr. Couch is in line to be the new general counsel for the Department of Housing and Urban Development. If confirmed by the Senate, he will give up his post at Ginnie Mae.

Seven classes from three Ameriquest Mortgage Securities Inc. home equity issues have been downgraded by Fitch Ratings.The downgrades were as follows: series 2003-1, class M-4, from B to C/DR4; series 2004-R2, class M-8, from BBB to BB; and series 2004-R4, class M-2, from A to A-minus, class M-3, from A-minus to BB-plus, class M-4, from BBB-plus to BB, class M-5, from BBB-minus to B, and class M-6, from BB-minus to CCC/DR1. In addition, Fitch affirmed the ratings on 36 classes from five Ameriquest deals. The downgrades were attributed to a continued deterioration in the relationship between credit enhancement and expected losses.

PremierWest Bancorp, Medford, Ore., has announced the selection of PHH Mortgage as a strategic partner in providing mortgage services to the bank's customers.Jim Ford, president of PremierWest Bancorp and PremierWest Bank, said the alliance will enable customers to apply for a loan "via their channel of choice, including personal loan officers in PremierWest branches, through the Internet 24 hours a day, or by telephone." All loans will be serviced by PHH Mortgage, Mt. Laurel, N.J. The companies can be found on the Web at http://www.premierwestbank.com and http://www.phh.com.

A global real estate investment portfolio should be anchored by a "significant" component of North American real estate, according to a new Ibbotson Associates study commissioned by the National Association of Real Estate Investment Trusts.Ibbotson said it explored optimal global real estate allocations by creating and comparing the performance of optimal portfolios based on two methodologies: one that constructed portfolio performance using historical investment returns for various asset classes, and another that projected performance using forward-looking, expected-investment returns. Ibbotson's historical analysis of data for 1990-2005 showed that adding global real estate allocations improved the returns of global portfolios, with nearly all the increase coming from U.S. real estate investment, according to Thomas Idzorek, Ibbotson's vice president of research and product development and co-author of the study. NAREIT can be found online at http://www.nareit.com.

Home prices were virtually unchanged for 2006 subprime mortgages even as subprime defaults rose to double-digit levels, according to a new report by Fitch Ratings.Fitch analyzed the default rates (defined as the sum of 90-day-plus delinquency, foreclosure, real-estate-owned, and bankruptcy rates) of loans originated from 2002 through 2006 and the cumulative rate of home price inflation after origination. By weighting home prices based on the amount of subprime loans in each metropolitan statistical area, Fitch was able to create a more accurate picture of HPI levels in areas where subprime mortgages are concentrated, the rating agency said. The analysis showed that subprime loans originated in the first quarter of 2006 have experienced only 0.5% of home price inflation after 12 months, but that defaults have jumped to 8.3% of outstanding mortgage balances. "This contrasts starkly to 2005 full-year originations, which experienced average HPI of 17% after 12 months and very low defaults of 1.7%," said managing director Glenn Costello. The report is titled "Examining Home Price Inflation and Residential Mortgage Default Rates." Fitch can be found online at http://www.fitchratings.com.