Originations

Democrats on the Senate Banking Committee are turning up the heat on the Federal Reserve Board, demanding that it establish an ability-to-repay standard on subprime mortgages and designate the failure to escrow homeowners' insurance and property taxes as a deceptive lending practice.Under pressure from the committee, Fed Chairman Ben Bernanke had agreed to review the board's power under the Home Ownership and Equity Protection Act. Now the Democrats are demanding at least some minimum action. "The Board should create a presumption that a loan that requires a borrower to pay more than 50% of his or her income to cover the cost of principal, interest, taxes, and insurance is not a sustainable loan" and fails the repayment test, the 10 Democratic senators say in a letter to the Fed. The Democrats also stress that the failure to escrow taxes and insurance puts homeowners at risk. "Subprime lenders and brokers seem to routinely quote monthly payments to prospective borrowers that do not include taxes and insurance as a way of deceiving the borrowers into thinking their monthly obligations will be lower than their true costs," the April 23 letter says. "This is clearly a deceptive practice."

Sales of existing single-family homes fell almost 10% in March from those of the previous month to an annualized rate of 5.32 million units, according to new figures released by the National Association of Realtors.The NAR also found that over the past year the median price of a single-family home fell almost 1% to $215,300. Compared with those of a year earlier, resales fell by 11.9%. NAR chief economist David Lereah said he expected the sales drop, noting -- among other things -- that, "We also may be seeing some losses as a result of the subprime fallout." Mr. Lereah added: "It's too early to measure a significant impact from tighter lending standards, which should moderately dampen activity, but we're still looking for existing-home sales to gradually improve during the last half of 2007." Sales of condominiums and cooperatives were flat in March, but were down 6.7% compared with those of a year earlier.

Two classes of Diversified Asset Securitization Holdings III LP, a collateralized debt obligation based in part by residential and commercial mortgage-backed securities, have been downgraded by Fitch Ratings.Class A-3L was downgraded from BB to B/DR1, and class B-1L was downgraded from CC/DR3 to C/DR6. Fitch said there have been further writedowns on some previously defaulted bonds since its last rating action on the deal, in March 2006. Fitch said DASH III is a CDO that was originated and managed by Asset Allocation & Management LLC, but that TCW Asset Management Co. became the substitute asset manager for AAMCO in October 2002. The portfolio backing the CDO consists of RMBS, CMBS, asset-backed securities, and real estate investment trusts.

Twenty-three classes from 10 Long Beach Mortgage Loan Trust transactions have been downgraded by Fitch Ratings.Fitch also affirmed the ratings on 91 classes from 21 Long Beach transactions. The negative rating actions were attributed to a continued deterioration in the relationship between credit enhancement levels and loss expectations. All the mortgages in the various transactions -- consisting of fixed- and adjustable-rate subprime loans -- were either originated or acquired by Long Beach Mortgage Co.

Four certificates from Ace Securities Corp. Home Equity Loan Trust series 2006-SL2 have been downgraded and maintained on review for possible further downgrade by Moody's Investors Service, and 10 other certificates from the deal have been placed on review for possible downgrade.The downgrades were as follows: class M-8, from Baa2 to B1; class M-9A, from Baa3 to B3; class M-9B, from Baa3 to B3; and class B-1, from Ba1 to Ca. The additional classes placed on review for possible downgrade are as follows: A, M-1, M-2A, M-2B, M-3, M-4, M-5, M-6A, M-6B, and M-7. Moody's attributed the negative rating actions to "the fact that the bonds' credit enhancement levels, including excess spread, may be too low compared to the current projected loss numbers at the current rating level." The transaction is backed by subprime second-lien loans.

Fifteen classes from three issues of GSAMP Trust mortgage-backed securities have been downgraded by Moody's Investors Service, and eight classes have been placed under review for possible downgrade.Moody's said the actions were taken because credit enhancement is low given the projected losses on the underlying pool. The three affected GSAMP deals are series 2006-S2, series 2006-S3, and series 2006-S5, the rating agency said. The transaction consists of subprime second-lien fixed-rate loans. Moody's can be found online at http://www.moodys.com.

Thomas Properties Group Inc., Los Angeles, has priced a public offering of 8 million shares of common stock at $16 per share.The real estate operating company said the joint book-running managers, UBS Investment Bank, Banc of America Securities LLC, and Friedman, Billings, Ramsey & Co., have been granted an option to buy up to 1.2 million additional shares to cover any overallotments.

Core Mortgage Risk Monitor's foreclosure index has "increased dramatically" in the second quarter, although the risk index overall is showing signs of stabilization, according to First American CoreLogic, a Sacramento, Calif.-based provider of mortgage risk assessment and fraud prevention systems.The foreclosure index posted a 10.5% quarterly increase that was attributed to rising delinquency rates in the subprime sector. "While house prices are stabilizing, we are transitioning the risks to a period of rising delinquencies and foreclosures that is going to have concentrated and contagious impact on local markets," said Mark Fleming, CoreLogic's chief economist. "Fraud and collateral risk has stabilized at a relatively high level not seen in recent years, and foreclosures are expected to continue to rise despite relatively unchanged employment conditions and stabilization of house prices." CoreLogic said the five U.S. markets currently most at risk are Detroit-Livonia-Dearborn, Mich.; Memphis; Warren-Troy-Farmington Hills, Mich.; Youngstown-Warren-Boardman, Ohio-Pa.; and Dayton, Ohio. CoreLogic can be found on the Web at http://www.corelogic.com.

Although subprime defaults are rising in Florida and the West Coast, a market correction is under way and Congress should leave it to regulators and the mortgage industry to help troubled subprime borrowers, according to a top housing regulator."Between the regulators, financial institutions, mortgage servicers, and the brokers, I think it can be worked out," James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told reporters. "There is going to be some pain." And the correction will be "drawn out" as the resets on adjustable-rate subprime mortgages take effect over the next two years. But the best way to address this problem is "not to overreact, and not cause an unnecessary credit crunch that would end up just hurting the people you are trying to help," Mr. Lockhart said. Until recently, subprime defaults were concentrated in the Rust Belt states and the hurricane-affected states -- principally Louisiana and Mississippi. "We are beginning to see rapid growth in the West Coast and Florida," the OFHEO director told an Independent Community Bankers of America meeting in Washington.

Fannie Mae and Freddie Mac are some of the biggest investors in subprime securities, and their regulator -- the Office of Federal Housing Enterprise Oversight -- is looking for ways to ensure that their purchases of private-label securities comply with federal subprime underwriting standards."It would make a lot of sense if they can get a representation from the packagers of these securities that they are following reasonable underwriting standards," OFHEO Director James Lockhart told reporters. In a speech to the Independent Community Bankers of America, the OFHEO director said unregulated lenders and mortgage brokers largely contributed to the deterioration of subprime underwriting standards. "OFHEO is now working with the enterprises on guidance that would have the effect of applying -- through the GSEs' market activities -- the strictures of federal guidances on these unregulated firms," Mr. Lockhart said. Fannie chief executive Daniel Mudd told a congressional panel April 17 that his company will comply with the proposed subprime underwriting guidance issued by federal banking regulators in March. The comment period ends May 7.

MILA Inc., Mountlake Terrace, Wash., a top-20-ranked subprime wholesaler, closed its doors April 20, the apparent victim of loan buyback requests it could not afford.At deadline time, company chief executive and founder Layne Sapp could not be reached for comment. Last summer, rumors began to circulate that the company was receiving large buyback requests from some of its secondary-market investors. In an interview with National Mortgage News, Mr. Sapp confirmed that it had buyback requests but said the company could handle them. According to the Quarterly Data Report, MILA ranked 23rd among wholesale funders in the fourth quarter, originating $453 million through loan brokers, a 61% decline from the volume recorded in the same quarter in 2005. The company can be found online at http://www.mila.com.

Ashford Hospitality Trust, a real estate investment trust based in Dallas, has priced a follow-on public offering of 42.5 million shares of common stock at $11.75 per share.Wachovia Securities, Merrill Lynch & Co., and Morgan Stanley & Co. acted as the joint book-running managers of the offering. The underwriters were granted an option to buy up to 6.375 million additional shares to cover any overallotments. The REIT can be found online at http://www.ahtreit.com.

The mortgage banking sub-segment of Capital One Financial Corp., McLean, Va., incurred a $12.6 million net loss in the first quarter, Capital One has reported.The company cited pressures in the secondary capital markets for loans associated with nonconforming prime mortgage loans (including alternative-A loans), which it said resulted in a $19 million addition to its reserve related to representations and warranties and a $21 million warehouse valuation adjustment. The sub-segment -- which falls under Capital One's National Lending segment and represents the legacy business of GreenPoint Mortgage -- originated $6.8 billion in loans during the first quarter, down $2.5 billion from originations in the fourth quarter and down $1.0 billion from those of a year earlier, Capital One reported. (Capital One acquired North Fork Bank, the parent company of GreenPoint, in December 2006.) Overall, the company reported net income of $675.1 million ($1.62 per share) for the first quarter, compared with $883.3 million ($2.86 per share) in the first quarter of 2006. Capital One can be found online at http://www.capitalone.com.

Citing a need to improve accountability in the mortgage industry and keep families from losing their homes, Pennsylvania Acting Banking Secretary Victoria A. Reider has urged swift action on legislation to stop abusive lending practices blamed for many foreclosures.Legislation was introduced in the state House and the state Senate earlier this year. The six bills are the result of a 2005 Pennsylvania Department of Banking report on foreclosures, which cited abusive lending practices as a significant contributing factor to the state's above-average foreclosure rate. The bills would amend state laws to require individual licenses for mortgage professionals. Currently, the department has the authority to license mortgage companies, but not their employees. "In Pennsylvania, the people who cut your hair are licensed," Ms. Reider said. "The people who sell insurance and stocks are licensed. But the people who guide, for most of us, the largest financial transaction of our lives are not licensed. This legislation would create a new licensing category for individual mortgage loan originators."

Transnational Financial Network Inc., a San Francisco-based wholesale and retail mortgage banking firm, has announced an agreement with Texas Capital Bank to terminate contractual arrangements regarding TFN's acquisition of the bank's mortgage lending division.TFN said it has agreed to pay certain operating losses -- mutually agreed to be $500,000 -- incurred by the division between Sept. 30, 2006, and March 31, 2007. Part of the total, $160,000, has already been paid, and the remaining $340,000 is slated to be paid in three installments, the last in June 2008, the company said. "Given the current volatility in the mortgage industry and the industry's difficulties, we believed that we should focus upon our existing business," said Joseph Kristul, Transnational's chief executive officer. "The new operations would have required our personnel to be involved in their integration rather than the challenges that confront us in our established markets." The company can be found on the Internet at http://www.transnational.com.

New York Attorney General Andrew Cuomo has issued generic subpoenas to about 30 mortgage lenders and servicers asking about industry practices, and he may focus on mortgage broker compensation, according to a mortgage banking attorney."Given his recent foray into the student lending world, it wouldn't surprise me if he looks at payments by lenders to mortgage brokers," said Larry Platt, a partner in the Washington office of K&L Gates. But he stressed that he has no inside knowledge. "I am just speculating." The subpoenas were issued in the past few days, and they generally relate to appraisal practices, mortgage broker practices, and the way lenders slot borrowers into different loan products. "There is no accusation of any wrongdoing," and it appears that the AG's office is trying to get a handle on how the industry operates, Mr. Platt said. "Any subpoenas that were received are part of an ongoing investigation -- that's all I can say," said Arthur Harris, a spokesman for Mr. Cuomo's office. Mr. Platt said he suspects that the New York AG will focus on payments by lenders to brokers, which are called yield-spread premiums, based on his tenure at the Department of Housing and Urban Development. In 1997, then-Secretary Cuomo tried unsuccessfully to impose strong disclosure requirements on broker compensation, which industry groups considered anti-YSP.

Opteum Inc., Vero Beach, Fla., is no longer accepting applications in Opteum Financial Services' conduit and wholesale channels and will exit those lines of business.The company blames deterioration in the secondary market for closed loans and continuing weakness in consumer demand for mortgage products and services. "Recently, some secondary-market investors in closed mortgage loans have changed their terms and have delayed settling whole-loan trades involving certain alt-A mortgage product," said Jeffrey J. Zimmer, chairman, president, and chief executive of Opteum Inc. "This has forced OFS to re-market loans in respect of which it believed it had already obtained purchasing commitments, and has resulted in an estimated $22 million pretax loss associated with mortgage loans originated by OFS." Mr. Zimmer said the company decided to exit the conduit and wholesale origination businesses because it believes that the adverse market environment may continue for some time. OFS will keep open its retail operation, consisting of 24 offices in Georgia, Florida, Illinois, New Jersey, and Massachusetts. The parent company, structured as a real estate investment trust, can be found on the Web at http://www.opteum.com.

The General Electric-owned WMC Mortgage, Burbank, Calif., a top-ranked subprime lender, on Thursday laid off 50% of its work force -- roughly 771 full-time positions.A company spokeswoman confirmed the job cuts to MortgageWire. WMC has just two wholesale offices remaining -- its Burbank location and one in Orangeburg, N.Y. A year ago it had nine. The spokeswoman declined to give a breakdown on what positions were cut. She said WMC -- which GE bought a few years back -- is "committed" to the subprime business. In March WMC laid off 20% of its staff, or about 460 workers. Industry sources say the company has had huge buyback requests from secondary-market investors. The spokeswoman said she could not address the issue. WMC Mortgage can be found online at http://www.wmcdirect.com.

Hedge fund Cerberus Capital Management -- which controls GMAC Mortgage -- has agreed to buy Option One Mortgage Corp., Irvine, Calif., from H&R Block for just under $1 billion in cash.If Option One is combined with GMAC's mortgage unit, the new entity will challenge HSBC and Countrywide for the top slot among all subprime funders, according to figures compiled by the Quarterly Data Report. H&R Block said it would book a noncash pretax charge of up to $320 million on the sale. However, there is an "earn-out" clause tied to the net tangible value of Option One's assets at the time of closing. As of Jan. 31, H&R Block valued Option One's assets at $1.27 billion. Option One can be found online at http://www.optiononemortgage.com.

Class E of Merrill Lynch Mortgage Investors Inc. mortgage pass-through certificates, series 1998-C1-CTL, has been downgraded from Ba3 to B1 by Moody's Investors Service.One other class was upgraded, and the ratings on six other classes in the deal were affirmed. The downgrade reflects "concerns about the credit of Rite Aid Corp.," Moody's said. The certificates are collateralized by 99 credit tenant lease loans backed by 16 corporate credits, the rating agency said. Moody's can be found online at http://www.moodys.com.