Originations

House prices declined at a 1.4% annual rate in the first quarter, according to the Standard & Poor's/Case-Shiller national housing index, which registered its first quarterly decline in 15 years."The fall of the national index into negative territory after more than 15 years of positive annual growth is a reaffirmation of the pullback in the U.S. residential real estate market," said Robert Shiller, chief economist at MacroMarkets LLC. In the first quarter of 2006, house prices were increasing at an 11.5% annual rate. Thirteen of the 20 metropolitan areas tracked by S&P/Case-Shiller experienced annual declines in prices. "Most cities are moving deeper into negative terrain," the March report said. "Detroit and San Diego are yielding the largest annual declines, at 8.4% and 6.0%, respectively." Phoenix and Las Vegas had annual price declines of 3% and 1.6% in the first quarter.

Archstone-Smith, a Denver-based real estate investment trust, is being acquired by Tishman Speyer and Lehman Brothers for about $22 billion, including $60.75 per Archstone-Smith share in cash.The acquisition price includes the assumption of Archstone-Smith debt and is the largest going-private deal in the multifamily REIT sector, according to Archstone-Smith. The acquisition price represents a 22.7% premium over Archstone-Smith's closing stock price on May 24. Scot Sellers, chairman and chief executive officer of Archstone-Smith, is expected to continue with Tishman-Speyer after the deal closes. The Archstone-Smith portfolio includes 344 communities with 86,014 units in a number of major metropolitan areas. Tishman Speyer is funding the acquisition with an equity input, as well as debt and equity funding from Lehman Brothers and Bank of America. In a research note on the deal put out by the JP Morgan US Equity REIT group, the analysts said that "shareholders could push back on the price and/or seek a thorough justification as to why they should sell at the agreed upon level."

A contraction in subprime lending is well under way, and it is "not unusual for financial markets to overreact following losses," according to a study commissioned by the American Financial Services Association.However, there is a "real danger" that aggressive legislation or regulation could "exacerbate the effect this contraction has on the availability of credit, leaving huge numbers of Americans out in the cold," said George Wallace, executive director of the Center for Statistical Research, which conducted the study. The CSR study shows that a 10% contraction in subprime lending could cut off mortgage credit to 580,000 American families, and a 20% contraction could affect 1.1 million borrowers. The Alexandria, Va., research firm points out that subprime foreclosure rates are rising but are not unusually high by historical standards. "The increases in foreclosure rates are not an indication that the mortgage marketplace is structurally flawed or requires regulatory intervention," the CSR study says.

The Center for Responsible Lending says the worst of the subprime foreclosure wave is not over and that its research shows that well over one million borrowers (possibly up to 1.5 million) will lose their homes over the next few years."A closer look shows that subprime loans originated in 2005 and 2006 alone will account for over a million projected foreclosures," CRL president Michael Calhoun said. In a recent speech, Mortgage Bankers Association chairman John Robbins took issue with the CRL's research and said it showed that there have been 1.6 million subprime foreclosures since 1998 and that the CRL is projecting another 600,000 foreclosures in the near future. "It's still a lot of people, but out of 75 million homeowners and 50 million mortgage holders, it's not an eyebrow-raising number when looked at over that period of years," Mr. Robbins said in a speech at the National Press Club. The MBA apparently misread the CRL's data and "reversed our estimate" of the number of foreclosures that have occurred and future foreclosures, Mr. Calhoun said. "Mr. Robbins suggested that the worst is over for subprime foreclosures," he said. "That is simply not the case."

Two classes of Asset Backed Securities Corp. subprime mortgage pass-through certificates have been placed on Rating Watch Negative by Fitch Ratings.The affected securities were class M-11 of series 2006-HE2 and class M-10 of series 2006-HE4. In addition, Fitch affirmed the ratings on 55 classes in five ABSC deals. Fitch attributed the negative rating actions to a deterioration in the relationship between loss expectations and credit enhancement. The transactions consist chiefly of fixed- and adjustable-rate subprime residential mortgage loans.

Sunstone Hotel Investors Inc., a real estate investment trust based in San Clemente, Calif., has amended its $200 million unsecured revolving credit facility to reduce the pricing and extend its maturity.The REIT said the facility now bears interest based on grid pricing that is 25-35 basis points lower than the previous facility's. The initial maturity was extended to 2011. Subject to certain conditions, the maturity may be extended for one year and the commitment increased to $300 million, Sunstone reported. The joint lead arrangers and joint book-running managers of the facility were Citicorp North America Inc. and Wachovia Capital Markets LLC. The REIT can be found online at http://www.sunstonehotels.com.

Gramercy Capital Corp., a New York-based commercial real estate finance company, has closed a resecuritization of $633.7 million of recently acquired commercial mortgage-backed securities.The transaction, a type of real estate mortgage investment conduit called a re-REMIC, is expected to generate excess returns based on seasoned collateral with superior credit and structural profiles to those of more recent vintages available in today's secondary market, the company said. The securities included in the deal were selected, evaluated, and acquired by Gramercy's recently formed Real Estate Securities Group. Gramercy, an affiliate of the SL Green office real estate investment trust, can be found on the Web at http://www.gramercycapitalcorp.com.

RMR Asia Real Estate Fund, Newton, Mass., has announced the pricing of an initial public offering of 4.75 million shares at $20 per share.The fund is a closed-end investment management company whose investment objective is capital appreciation, the company said. The book runner for the offering was RBC Capital Markets. The underwriters have been granted an option to buy up to 712,500 additional shares to cover any overallotments. The company can be found online at http://www.rmrfunds.com.

An analysis by Fitch Ratings concludes that the flattening of home price appreciation last year contributed to the rising number of defaults on subprime home loans.Using local metropolitan area data, Fitch found that subprime loans originated in the first quarter of 2006 experienced home price appreciation of just 0.5% last year, but that the default rate jumped to 8.3% of outstanding mortgage balances. By contrast, for the full year of 2005, subprime originations experienced average home price appreciation of 17% after 12 months and the default rate was only 1.7%. Fitch says the data show that home price deflation "is driving higher defaults of recently originated subprime mortgages." Fitch can be found on the Web at http://www.fitchratings.com.

Single-family existing-home sales fell 2.4% in April, and the supply of unsold homes on the market shot up to the highest level in 15 years, according to the National Association of Realtors.The NAR reported that sales of previously owned single-family homes fell from a seasonally adjusted annual rate of 5.35 million in March to 5.22 million in April. Compared with the level recorded in April 2006, sales were down 11.2%. NAR senior economist Lawrence Yun said the April sales continued to be affected by weather issues and the problems in the subprime market. However, he said he is seeing data that show improved sales in early May. And he said it may indicate that the subprime problem will turn out to be a "short-term disruption to the homebuying process" as buyers find other mortgage products. Meanwhile, the supply of unsold single-family homes jumped by 11.5% to 3.6 million in April, which represents an 8.3-month supply at the current sales pace and the highest monthly supply since 1992. Sales of condominiums and co-ops fell 3.8% in April, but inventories rose by only 4.1%. The NAR economist said the condo market has strengthened thanks to "bottom fishing" by investors.

Two classes of Banc of America Commercial Mortgage Inc. commercial mortgage pass-through certificates, series 2001-1, have been downgraded by Fitch Ratings.Class N was downgraded from B to B-minus/DR1, and class O was downgraded from B-minus to CCC/DR2. In addition, Fitch upgraded five classes in the deal and affirmed the ratings on nine other classes. The downgrades were due to increased loss expectations for five specially serviced loans, the rating agency said.

UDR Inc., a real estate investment trust based in Richmond, Va., has priced a public offering of 5.4 million shares of 6.75% series G cumulative redeemable preferred stock at a liquidation preference of $25 per share.The net proceeds are expected to be used to fund the redemption of all outstanding shares of its 8.60% series B cumulative redeemable preferred stock, to repay debt under its $500 million credit facility, and for general corporate purposes, the company said. Wachovia Capital Markets LLC was the sole book-running manager of the offering. UDR, a multifamily REIT, can be found online at http://www.udr.com.

The average 30-year fixed mortgage rate rose from 6.21% to 6.37% for the seven-day period ended May 24, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose from 5.92% to 6.06%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages climbed from 5.92% to 6.02%, and the average rate for one-year Treasury-indexed ARMs rose from 5.48% to 5.64%, 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. "Stronger-than-expected consumer confidence and recent comments from members of the Federal Reserve raised some inflation concerns in the market, causing it to lower expectations of a Fed rate cut this year," said Frank Nothaft, Freddie Mac's chief economist. "This helped push mortgage rates higher this week. We expect a gradual rise in mortgage rates over the remainder of the year, with sales slipping further in the second half of the year. A gradual recovery returns toward the end of 2007, with modest increases in sales and construction during 2008." A year ago, the average 30-year and 15-year fixed rates were 6.62% and 6.23%, respectively, and the average hybrid and one-year ARM rates were 6.21% and 5.61%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

Senior Republicans on the House Financial Services Committee are supporting efforts by Comptroller of the Currency John Dugan to curb "stated-income" loans, for which subprime lenders don't verify the borrower's income."We were interested to see Comptroller Dugan's recent remarks on stated-income loans, or 'liar loans,' and are deeply concerned about the explosion in originations of these mortgages in the subprime market," Reps. Spencer Bachus (Ala.), Paul Gillmor (Ohio), and Judy Biggert (Ill.) say in a letter to federal banking regulators. As previously reported, Comptroller Dugan wants to place curbs on stated-income loans in the subprime guidance that regulators are finalizing. The representatives acknowledge there should be a "small niche" for stated-income loans. But they also contend that "these low-doc or no-doc loans with a high LTV and [prepayment] penalties" increase the risks of default. "Current circumstances in the housing market have exposed these poorly underwritten loans, and we would ask the regulators to closely examine the role the use of liar loans may have played in the subprime market defaults we are experiencing," the committee members said.

New-home sales jumped 16% in April -- the biggest percentage increase since 1993 -- but despite the positive news, sales and construction activity may not have hit bottom yet.The U.S. Census Bureau reported new single-family home sales rose from a seasonally adjusted annual rate of 844,000 in March to 981,000 in April. The April sales pace is off by 10.6% since April 2006. The rebound represents the first increase in new-home sales this year, and it "definitely is a very positive number," said Adam York, an economic analyst at Wachovia Corp. But the economist said he would not be surprised to see a downward revision in the April number or a decline in sales in May. While the sales pace increased in April, Mr. York said the actual level of unsold homes or inventory "remains extremely high," which is not good news for homebuilders. In addition, filings for construction permits are weak and sales cancellations are still fairly high, he said.

Refinancings constituted 47% of thrift single-family originations in the first quarter, but overall origination activity was flat compared with that of the fourth quarter, according to the Office of Thrift Supervision.The OTS first-quarter report actually shows that one- to four-family originations jumped 33.5% to $149.6 billion in the first quarter, but OTS officials said the increase in mortgage activity is mainly due to Countrywide Financial Corp.'s conversion of its national bank into a federally insured thrift. The report also shows that sales of single-family loans increased by 44%, to $177.7 billion. Refinancing activity accounted for 47% of all originations in the first quarter, up from 39% in the previous quarter and 35% a year earlier. Meanwhile, the 838 federal thrifts reported total earnings of $3.6 billion, up 15% from their level in the fourth quarter and down 14% from that of a year earlier.

American Express has announced a new program enabling members to make monthly home mortgage payments on the American Express card.American Home Mortgage Corp. will be the first lender to offer the Express Rewards Mortgage program for eligible prime loans, AmEx said. Cardmembers with qualifying loans with American Home will pay a one-time fee of $395 to the lender for enrollment in the program at closing. American Express said its research had indicated that members "overwhelmingly cited" monthly mortgage payments as "an ideal opportunity" to use the American Express card. The company can be found online at http://www.americanexpress.com.

Summit Mortgage, a private Boston-based mortgage banking firm, has announced the formation of a reverse mortgage division.The company said it will have reverse mortgage experts at each of its nine branches in Massachusetts. "Although reverse mortgages are growing in Massachusetts, there is an untold number of seniors and their families who need to better understand the process," said Richard S. Fedele, Summit's chief executive officer.

The Market Composite Index, an overall measure of mortgage applications, rose from 675.5 to 686.2 on a seasonally adjusted basis during the week ended May 18, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications increased 1.6% on the week and were up 23% from the level recorded a year earlier. The Purchase Index rose from 432.3 to 438.1 on a seasonally adjusted basis, while the Refinance Index rose from 2115.5 to 2154.7. Refinancings represented 42.3% of total applications, up from 42.1% the previous week, while adjustable-rate mortgages accounted for 18.1%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 6.13% to 6.23%, and points (including the origination fee) rose from 1.47 to 1.53 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Grubb & Ellis Co., a real estate services firm based in Northbrook, Ill., and NNN Realty Advisors Inc., a commercial real estate management and services firm based in Santa Ana, Calif., have announced a merger agreement.The merger will create a real estate services company with a total capitalization of approximately $725 million that will retain the Grubb & Ellis name. Under the agreement, 0.88 shares of G&E common stock will be issued for each share of NNN Realty common stock outstanding. Scott D. Peters, chief executive officer and president of NNN Realty, will become CEO of the combined entity. He said it will have "an attractive mix of diversified earnings with minimal leverage on the balance sheet, well-positioned for growth, both domestically and internationally, consistent with the strategic focus of Grubb & Ellis." The company can be found online at http://www.grubb-ellis.com.