Originations

About $60 billion in subprime adjustable-rate mortgages that will reset upward this year can refinance into prime or near-prime mortgages, according to David Berson, Fannie Mae's chief economist.Mr. Berson, the second-day keynote speaker at the SourceMedia Nonprime Lending Conference in Las Vegas, said there will be $2.6 trillion of mortgages originated in 2007, down from $2.7 trillion in 2006. However, the refinance share of mortgages will increase because of borrowers who are moving from the subprime into the prime market. Mr. Berson said there actually could be more than $60 billion of these loans because there are a number of issues involved in getting certain subprime borrowers to make the move into prime. These include: not having experience with prime lenders; not knowing they are eligible to refinance; and having prepayment penalties inhibiting their ability to refinance.

Aegis Mortgage Corp. has agreed to change its underwriting restrictions on row houses and eliminate a $60,000 minimum property value requirement in settling a fair housing complaint filed by the National Community Reinvestment Coalition.The complaint alleged that the Houston-based mortgage lender and wholesaler engaged in a pattern and practice of discriminating against African-Americans and Latinos by not making loans on homes worth less than $60,000 or on row houses. "We have agreed to clarify our underwriting guidelines to remove any perceived barriers to equal access to credit for all eligible borrowers," AMC executive vice president Michael Balog said. He noted that the guidelines in question affected only a few of the company's loan products. The settlement agreement will ensure that residents of row houses in cities on the East Coast and in the Midwest "enjoy equal access to credit," NCRC president John Taylor said. "We trust that other lenders and securitizers with similar policies will follow the lead of Aegis."

H&R Block will take a $19 million pretax charge in connection with a restructuring plan for its subprime wholesale affiliate, Option One Mortgage Corp., Irvine, Calif.H&R Block revealed the financial hit in a May 17 filing with the Securities and Exchange Commission a day after MortgageWire broke the news that Option One was closing 12 mortgage processing offices and cutting 600 workers. In the SEC filing, Block upped the job loss number to 615. The charge will be taken in Block's 2008 fiscal year. Option One is slated for sale to hedge fund Cerberus Capital. The deal is expected to close in the fall. Cerberus also owns Aegis Mortgage and 51% of GMAC.

Hammered by early payment defaults, OceanFirst Financial Corp., Toms River, N.J., will close its subprime mortgage affiliate, Columbia Home Loans LLC, according to a new filing with the Securities and Exchange Commission.Columbia incurred significant operating losses in the past two quarters because of EPDs and related problems, especially on loans with loan-to-value ratios of up to 100%. The thrift will take a $900,000 hit because of employee severance and lease cancellation charges related to the closure. "The discontinuation of Columbia's operation is expected to be completed within six months," the filing said. OceanFirst had hoped to sell Columbia, but talks with an interested party fell apart.

The rating on class A-5 of Asset Securitization Corp.'s commercial mortgage pass-through certificates series 1995-MD IV has been revised from Rating Watch Negative to Rating Watch Evolving by Fitch Ratings.In addition, class B-1 was placed on Rating Watch Evolving and the ratings on five other classes of the same series were affirmed. Fitch attributed the revision from Rating Watch Negative to the upcoming maturity of the largest of the two remaining loans in the pool. Although class A-5 has unpaid interest shortfalls, the rating agency said it expects the shortfalls to be fully recovered. Fitch can be found online at http://www.fitchratings.com.

Four certificates from Renaissance Home Equity Loan Trust deals issued in 2002 and 2003 have been placed under review for possible downgrade by Moody's Investors Service.The affected securities are: series 2002-1, classes M-2 and B; series 2002-4, class B; and series 2003-2, class M-4. In addition, nine classes were placed under review for possible upgrade. The negative rating actions were attributed to credit enhancement levels that are considered low given the projected losses on the underlying pools. The transactions consist of subprime, primarily first-lien, adjustable- and fixed-rate loans.

Two certificates from SG Mortgage Securities Trust 2006-FRE1 have been downgraded by Moody's Investors Service.Class M-10 was downgraded from Ba1 to Ba2, and class M-11 was downgraded from Ba2 to B2. The reason for the downgrades is that credit enhancement levels may be low given the projected losses on the underlying pools, Moody's said. The transaction " has built up a large delinquency pipeline of approximately 13% in foreclosure" and real estate owned compared with the available overcollateralization, according to the rating agency. The deal consists of subprime, primarily first-lien, adjustable- and fixed-rate loans.

Seven classes of certificates from two deals issued by MASTR Asset Backed Securities Trust in 2006 have been downgraded by Moody's Investors Service.The downgrades were as follows: series 2006-FRE1, class M-7, from Baa1 to Ba1, class M-8, from Baa2 to B3, and class M-9, from Baa3 to Caa3; and series 2006-FRE2, class M-8, from Baa2 to Ba2, class M-9, from Baa3 to B2, class M-10, from Ba1 to Caa1, and class M-11, from Ba2 to Caa3. The downgrades stemmed from credit enhancement levels (including excess spread) that are deemed too low in view of projected losses, Moody's said. The series 2006-FRE1 transaction is backed entirely by first lien adjustable- and fixed-rate subprime mortgage loans, while series 2006-FRE2 contains a small fraction (5.9% at closing) of second-lien subprime loans as well. Moody's can be found online at http://www.moodys.com.

Acadia Realty Trust, a White Plains, N.Y.-based real estate investment trust, has reported the formation of a third discretionary investment fund with $500 million of discretionary institutional capital.The retail REIT said it expects the fund to be able to acquire or develop up to $1.5 billion in assets on a leveraged basis. The fund is expected to consist of 13 institutional investors, including all the investors from the previous funds, the REIT said. The existing investors and seven new members will invest a total of $400 million of equity, and Acadia will invest $100 million.

BNY Mortgage Co., Newburgh, N.Y., has announced the introduction of Prime Advantage, which the company termed the first fixed-rate jumbo reverse mortgage.The product is designed for older borrowers who want access to more cash than a traditional reverse mortgage provides and the "added financial certainty" of a fixed interest rate for the life of the loan. "With interest rates more than doubling over the past three years, many homeowners are uncomfortable with an adjustable rate," said Robert Sivori, co-president of BNY Mortgage. "Prime Advantage eliminates this uncertainty by providing an opportunity to lock in a fixed rate at closing. It also provides the flexibility to eliminate lender closing costs and gives borrowers the comfort of knowing exactly how much money they will owe at any point in time." The company also offers a variable-rate Prime Advantage loan. Its parent company, EverBank, can be found online at http://www.everbank.com.

Greystone Servicing Corp., a Fannie Mae Delegated Underwriting and Servicing lender, has announced the launch of GreyStoneExpress, a product designed to serve the growing demand for multifamily loans ranging from $400,000 to $2,400,000."There was a clear need for a product featuring higher proceeds, lower transaction costs, and a faster close time while being able to accommodate more qualifying properties than previously existing multifamily loans," said Billy Posey, chief executive officer of Fannie Mae DUS production at Greystone Servicing Corp. "The new GreyStoneExpress product was developed on the back of significant demand from the mortgage banking and real estate development communities, and we've seen an extremely encouraging response in the very short time this product has been available from these two groups."

The average 30-year fixed mortgage rate rose from 6.15% to 6.21% for the seven-day period ended May 17, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose from 5.87% to 5.92%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages climbed from 5.89% to 5.92%, and the average rate for one-year Treasury-indexed ARMs was unchanged, at 5.48%, Freddie Mac reported. Fees and points averaged 0.4 of a point for fixed-rate mortgages, 0.6 of a point for hybrid ARMs, and 0.7 of a point for one-year ARMs. "Mortgage rates inched up this week following the Federal Open Market Committee statement reiterating that the predominant concern remains the risk that inflation will fail to moderate as expected," said Frank Nothaft, Freddie Mac's chief economist. "However, as long as core inflation continues to trend downward and economic growth remains subpar, it is unlikely that we will see any big movement in mortgage rates." A year ago, the average 30-year and 15-year fixed rates were 6.60% and 6.20%, respectively, and the average hybrid and one-year ARM rates were 6.23% and 5.62%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

A new subprime product totally different from anything seen before will be created within six months, according to a panelist at the SourceMedia Nonprime Lending Symposium in Las Vegas.Tom Zimmerman, managing director and head of asset-backed securities research at UBS, said the industry needs to create a subprime product "that makes sense," noting that some think a product like the 2/28 adjustable-rate mortgage is not appropriate for people who already have problems making payments. Mr. Zimmerman also noted that we have gone from an era when early payment defaults were "unusual and unexpected" and less than 1% to a point where 6%-10% of all loans in packages are being put back for EPDs.

While the supply of subprime credit has fallen, it has not "evaporated," says Federal Reserve Board Chairman Ben Bernanke, thanks to increased purchases by investment banks and hedge funds.Wall Street firms and other private pools of capital are "beginning to fill the void" left by the failure of many subprime lenders, the Fed chairman said in a major address about problems in the subprime market. He said there are some signs of a "self-correction" in the subprime market due to delinquency and foreclosure rates, which are expected to remain at high levels into 2008. But curbs on subprime lending will "restrain" home purchases and residential investment in coming quarters. "All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime market will likely be limited," Mr. Bernanke said.

Neighborhood Housing Services of America has announced the receipt of a $2 million grant from the Wachovia Foundation to support Just Price Solutions, which helps borrowers qualify for prime loans by establishing their credit history through nontraditional means.The electronic commerce platform features a digital channel that includes customized automated underwriting engines linked to third-party services for loan fulfillment, NHSA said. The platform is backed by affordable loan products designed for the community development field. "Wachovia's grant is an answer to many prayers," said Mary Lee Widener, president and chief executive officer of NHSA. "It will push forward our JPS initiative to help nonprofits and mission-oriented lenders fight predatory lending and inappropriate subprime lending." NHSA can be found online at http://www.nhsaonline.org, and the Wachovia Foundation's parent company, Wachovia Corp., can be found at http://www.wachovia.com.

Fitch Ratings has announced the introduction of presale reports for U.S. subprime/home equity loan residential mortgage-backed securities.The reports, to be published before the sale of a new subprime RMBS transaction, will contain deal summary information and extensive collateral analysis. "Fitch's RMBS presale reports will provide investors with unprecedented detail on the drivers of each deal's default and loss risk," said Glenn Costello, managing director and co-head of Fitch's RMBS group. The presale reports will also contain comparisons to past transactions by the issuer and base-case expected-loss comparisons from Fitch's ResiLogic model. "By providing detailed comparisons of collateral attributes and ResiLogic model analytics, Fitch is providing investors with a powerful tool to analyze rapidly changing subprime risk," Mr. Costello said. The first RMBS presale report featured HSBC Home Equity Loan Trust (USA) 2007-2, Fitch said. The rating agency can be found online at http://www.fitchratings.com.

State sales of existing homes generally fell below those of a year earlier in the first quarter, but a growing number of states are showing improvements, according to the National Association of Realtors.The NAR's metro area home price report found that sales of existing homes (including condominiums) stood at a seasonally adjusted annual rate of 6.41 million units in the first quarter, down 6.6% from a 6.86-million rate a year earlier. However, the rate was 2.4% higher than the 6.26 million recorded in the fourth quarter. The NAR also reported that the national median resale price stood at $212,300 in the first quarter, down 1.8% from $216,100 a year earlier. "It appears the worst of the price correction is behind us," said NAR president Pat V. Combs, a vice president of Coldwell Banker-AJS-Schmidt. "More stable home prices and declining mortgage interest rates are increasing buying power, which should encourage potential buyers who've been on the sidelines." The NAR can be found on the Web at http://www.realtor.org.

The Market Composite Index, an overall measure of mortgage applications, fell from 680.7 to 675.5 on a seasonally adjusted basis during the week ended May 11, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 0.6% on the week but were up 13.8% from the level recorded a year earlier. The Purchase Index fell from 438.3 to 432.3 on a seasonally adjusted basis, while the Refinance Index inched up from 2115.2 to 2115.5. Refinancings represented 42.1% of total applications, up from 41.8% the previous week, while adjustable-rate mortgages accounted for 17.4%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 6.10% to 6.13%, and points (including the origination fee) fell from 1.48 to 1.47 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Single-family housing starts rose 1.6% in April from the level recorded in March to a seasonally adjusted annual rate of 1.23 million units, according to new figures released Wednesday by the Commerce Department.However, compared with those of the same month last year, single-family starts fell significantly -- by 18.9%. Multifamily starts rose to 267,000 units, posting a 6.4% gain from the level recorded in March. "Housing starts in April were somewhat stronger than expected, though there were modest downward revisions to February and March," said Stephen Stanley, chief economist for RBS Greenwich Capital. "If one wanted to squint really hard, it would be literally correct to argue that starts have had a slight upward tilt to them in recent months, but the volatility in the monthly readings, much of which may be reflecting swings in the weather, argues for taking a longer view of the data."

Wholesale subprime giant Option One Mortgage Corp. plans to close 12 mortgage processing offices and trim 600 workers by early September, industry sources have told MortgageWire.The company will also exit the bulk acquisition/flow correspondent market. At deadline time an Option One spokeswoman confirmed that cuts were under way, but stressed that the lender -- slated for sale to hedge fund Cerberus Capital -- will not exit any geographic areas. Of the 600 jobs that will be lost, 14% are in sales. Most of the job losses (66%) are in the production functions, the spokeswoman said. The offices slated to close include: Tempe, Ariz.; Milwaukee; Philadelphia; Foxborough, Mass.; Charlotte, N.C.; Columbus, Ohio; Ft. Lauderdale, Fla.; Bellevue, Wash.; Saratoga, Calif.; Rancho Cucamonga, Calif.; Rolling Meadows, Ill.; and Sterling, Va. The company's Lake Forest, Calif., branch will relocate to Irvine, Calif., by July 13. The Irvine-based lender is making the changes "to better align our cost structure to current revenues." (For more details, see the May 21 issue of National Mortgage News.)