Originations

Huron Consulting Group, Chicago, has issued a report on the top questions board members and chief executives should ask when evaluating the risk of a subprime mortgage portfolio.The questions touch on issues such as the reliability of property appraisals, the independence of parties to the originations, the effectiveness of anti-fraud controls, the integrity of the mortgage brokers, and the quality of borrower documentation. "The subprime mortgage world is under tremendous pressure," said Huron managing director Ken Evola. "The recent news surrounding improperly managed subprime mortgages, which has in some cases forced bankruptcy, requires that companies carefully evaluate risk right now to determine an appropriate course of action." The company can be found online at http://www.huronconsultinggroup.com.

Subprime lender Accredited Home Lenders -- which is in danger of being delisted by the NASDAQ Stock Market -- has hired Squar, Milner, Peterson, Miranda & Williamson LLP as its new independent auditor.Squar Milner will assist the San Diego-based mortgage firm in completing its financial statements for full-year 2006. In early April Accredited's auditor, Grant Thornton, resigned. Accredited, which was supposed to file its annual 10-K report by March 15, has said it hopes to file its 10-K "as soon as possible." It is appealing NASDAQ's decision to delist it.

A large inventory of unsold homes on the market could continue to put downward pressure on homes prices even with strong home sales this spring, according Freddie Mac chief economist Frank Nothaft.With solid job growth and favorable rates on fixed-rate mortgages, "conditions are ripe for a firming in housing demand," Mr. Nothaft says in his April economic outlook report. However, Freddie's chief economist points out that the inventory of unsold new homes hit a 16-year high in February, and there is an unusually large number of existing homes listed for sale this spring. Meanwhile, a significant number of potential homebuyers may not qualify for financing this year because of problems in the subprime market, foreclosures are rising, and there is a large number of vacant homes, which suggests a "hidden supply" of homes that may go up for sale this spring. "Even if the expected upturn in housing demand does materialize, these sources of excess supply will continue to weigh on price appreciation nationally and may lead to continued price declines in the hardest-hit local markets," Mr. Nothaft said. Freddie Mac can be found online at http://www.freddiemac.com.

The Department of Housing and Urban Development could refinance distressed subprime borrowers into more affordable Federal Housing Administration loans in a prudent way that would not be a "bailout" for the lenders, according to the National Association of Realtors.The NAR is urging HUD to waive an underwriting requirement so the FHA can refinance borrowers who are behind on their adjustable-rate 2/28 and 3/27 mortgage payments. It is understood that the original lender would forgive a significant amount of the loan so the FHA can refinance at a 97% loan-to-value ratio reflecting the current appraised value of the property. "This would not be a bailout for lenders since they would incur significant losses," NAR president Pat Combs says in a letter to HUD Secretary Alphonso Jackson. Lenders generally lose $20,000 to $40,000 in a foreclosure. Mortgage banking consultant Brian Chappelle said there would be considerable lender interest in this program if it were implemented. A HUD official said the department has no comment at this time. "We believe FHA can design a mechanism where creditworthy borrowers could refinance subject to prudent guidelines and therefore avoid losing their homes," Ms. Combs said. The NAR can be found online at http://www.realtor.org.

Affordable Residential Communities Inc., Englewood, Colo., has announced that it will negotiate exclusively with Farallon Capital Management LLC through April 16 regarding Farallon's possible acquisition of ARC's manufactured home business.The transaction under discussion contemplates Farallon's purchase of substantially all ARC's operating assets (except its recently acquired insurance subsidiary, NLASCO) for an amount expected to total approximately $1.84 billion in cash, ARC said. "After giving effect to expenses, taxes, and repayment of debt associated with the assets under discussion, the amount realized by ARC is currently estimated to be between $520 million and $545 million net of retained debt and preferred stock, or between approximately $9.00 and $9.40 per common share on a fully diluted basis," ARC said.

BioMed Realty Trust Inc., a real estate investment trust based in San Diego, has announced the formation of a joint venture with Prudential Real Estate Investors to acquire a portfolio of assets from Lyme Timber Co.The joint venture completed the acquisition concurrently with its formation, at a purchase price of $507 million. The portfolio consists of approximately 600,000 square feet of life science space as well as land that can support approximately 266,000 square feet of additional life science and laboratory office space in Cambridge, Mass. BioMed said the joint venture also obtained a $550 million secured acquisition and interim loan facility from KeyBank NA. BioMed can be found online at http://www.biomedrealty.com, and PREI can be found at http://www.prei.com.

The loss mitigation tools available to Federal Housing Administration lender/servicers have helped 36,500 thousand families who were behind in their mortgage payment keep their homes during the first half of fiscal year 2007, according to the Department of Housing and Urban Development."FHA lending relief measures continue to help families around the nation work through difficult times, stay in their homes, and avoid foreclosure," HUD Secretary Alphonso Jackson said. HUD is urging Congress to pass an FHA reform bill that would allow the federal mortgage insurance program to finance more subprime borrowers. "Modernizing the FHA would provide more hard-working families with a strong alternative to risky mortgages," the secretary added. In fiscal 2006, the FHA loss mitigation program helped 75,000 delinquent borrowers keep their homes. However, FHA foreclosures totaled 51,600 in fiscal 2006. In addition, 4,900 defaults resulted in pre-foreclosure sales.

State regulators are taking steps to ensure that mortgage brokers and state-licensed lenders adhere to the same standards as federally chartered and regulated financial institutions when it comes to subprime hybrid adjustable-rate mortgages like 2/28s.The Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators have endorsed a proposed statement on subprime mortgage lending issued by federal banking regulators on March 2. The comment period on the federal interagency statement ends May 7. Now the CSBS and the AARMR are "developing a parallel statement which will significantly mirror the final interagency statement," CSBS said in its weekly newsletter. The state regulators are accepting input until May 7. The CSBS and the AARMR conducted a similar process in adopting guidance on nontraditional mortgages that addressed interest-only and payment-option ARMs.

NovaStar Financial Inc. is closing down its small warehouse lending unit, WarehouseUSA Capital Corp, over the next few weeks in response to the correction in the subprime mortgage market.NovaStar "decided this business is no longer strategic," said company spokesman Dick Johnson, and it wants to focus on its core nonprime mortgage lending business. He said the warehouse lending team has already informed customers about the decision, and they are helping those independent mortgage bankers/brokers make the transition to other warehouse providers. WarehouseUSA Capital, Roswell, Ga., had $39.5 million in warehouse lines outstanding as of Dec. 31. NovaStar, based in Kansas City, Mo., originated $11.2 billion in subprime, alternative-A, and jumbo loans in 2006. NovaStar can be found online at http://www.novastarmortgage.com.

In a cost-cutting move, Fieldstone Investment Corp. says it is reducing its work force by 125 employees and consolidating its wholesale operations into three offices.The subprime mortgage banking company, based in Columbia, Md., is planning to close six wholesale operating centers along with nine of its smaller retail offices. "In all, Fieldstone expects the operations consolidation and retail branch closings to reduce its work force by approximately 125 persons, or 14% of its work force, and is currently evaluating the size of the home office staff reductions," the publicly traded company said. Fieldstone originated $5.4 billion in mortgages in 2006, but the real estate investment trust reported a $68.4 million loss for the year and is trying to reduce its cost structure. The REIT can be found online at http://www.fieldstoneinvestment.com.

Foreclosure sales jumped 27% in California last month and now represent 15% of home sales in the state, according to Foreclosure Radar, a foreclosure listings and software company based in Discovery Bay, Calif.The company reported that 5,316 California foreclosures were sold at auction in March, representing a 264% increase in foreclosure sales over the past six months. Of the $2 billion worth of properties sold in March, 4,796 ($1.82 billion) went back to the lender after receiving no bids, the company said. "Foreclosures sold at auction now account for 15% of all home sales in California and continue to rise," said Sean O'Toole, founder and chief executive officer of Foreclosure Radar. "This isn't just a story about failing subprime lenders and their customers. At the current pace, foreclosures will be a significant part of the real estate economy." The company can be found on the Web at http://www.foreclosureradar.com.

New Century Financial Corp., Irvine, Calif., has reported bankruptcy court approval of a motion to give the company interim access to up to $50 million of the $150 million debtor-in-possession financing arranged by The CIT Group and Greenwich Capital Financial Products Inc.The U.S. Bankruptcy Court for the District of Delaware also approved New Century's other "first-day" motions, which the company said will facilitate its operations as it pursues the sale of assets and operations under the Chapter 11 process. The motions will allow New Century to continue its customer programs and its employee benefit programs and insurance policies, the company said. New Century can be found online at http://www.ncen.com.

Federal regulators should have the authority and the responsibility to end abusive lending practices, Sen. Hillary Rodham Clinton says in a letter that urges the Federal Reserve Board to act quickly in finalizing guidance on subprime lending."We should take greater steps to ensure the regulators not only have the authority but the responsibility to end the deceptive and irresponsible lending practices that drew people into adjustable rate mortgages and other hybrids they could not afford when the rates adjusted upwards," the New York senator says in the letter to Fed Chairman Ben Bernanke. The Democratic presidential candidate also argues that lending regulations should cover nonbank lenders and should be effectively enforced. "I fear that regulatory oversight has been lax and too many lenders were irresponsible or unscrupulous," the senator says. "Families and communities are now paying the price." The comment period on the subprime guidance ends May 7.

Mortgage companies added 3,000 full-time employees to their payrolls in February after laying off 16,400 workers over the previous three months.The U.S. Bureau of Labor Statistics reported that employment in the mortgage banking/broker sector rose from 488,300 in January to 491,300 in February. Considering the meltdown in the subprime sector, the sudden hiring may be explained by increasing demands on servicers to deal with rising delinquencies and foreclosures. The subprime default rate hit 10.52% in January, up 40 basis points in one month, according to a recent report by the investment banking firm Friedman, Billings, Ramsey & Co. Defaults on alternative-A loans rose to 1.86% in January, up 20 bps in one month.

Citizens Home Loan, a national mortgage lender based in Charlotte, N.C., has announced the introduction of the Five Year Fixed Wealth Builder Option ARM.The adjustable-rate mortgage gives customers a fixed interest rate for five years and four fixed payment options every month, freeing up cash flow for investments, paying off credit card debt, or emergencies, the company said. Customers can choose from a 15-year payment, a 30-year payment, an interest-only payment, and a minimum payment (which is less than an IO payment). Citizens Home can be found on the Web at http://www.citizenshomeloan.com.

Wells Fargo & Co., San Francisco, has announced the introduction of the Wells Fargo Home Rebate Card, a credit card designed for customers of Wells Fargo Home Mortgage who want to pay down their mortgage faster.Under the terms of the program, virtually every purchase made with the card counts toward a 1% rebate credited to the principal on the customer's Wells Fargo Home Mortgage Loan, the company said. The rebate is applied automatically in $25 increments, and there is no cap on the amount of rebate customers can earn. "The rebate can help customers potentially save thousands of dollars on their long-term mortgage interest and lower the number of their remaining payments on fixed-rate loans," Wells Fargo said. The company's mortgage unit can be found online at http://www.wellsfargo.com/mortgage.

Wachovia and Wells Fargo again ranked No. 1 and No. 2, respectively, among commercial and multifamily loan originators in 2006, according to the Mortgage Bankers Association.Credit Suisse took over third place in the rankings, and the others on the top-10 list, based on the MBA's third annual origination volume report, are: Holliday Fenoglio Fowler LP; Key Bank Real Estate Capital; Capmark Financial Group; Deutsche Bank Commercial Real Estate; Lehman Brothers; CBRE/Melody; and LaSalle Bank/ABN Amro. The MBA report also lists originators by investor groups. Wachovia was the top originator for commercial bank/savings institutions and conduits; Capmark Financial Group for Freddie Mac and FHA/Ginnie Mae investors and specialty finance companies; MetLife for life insurance companies; Deutsche Bank Berkshire for Fannie Mae investors; TIAA-CREF for pension funds; GE Real Estate for credit companies; and Wells Fargo for real estate investment trusts, investment funds, and other investors.

The average 30-year fixed mortgage rate rose from 6.16% to 6.17% for the seven-day period ended April 5, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose from 5.86% to 5.87%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages climbed from 5.88% to 5.92%, and the average rate for one-year Treasury-indexed ARMs increased from 5.43% to 5.44%, Freddie Mac reported. Fees and points averaged 0.4 of a point for 30-year fixed-rate mortgages, 0.5 of a point for 15-year fixed-rate mortgages, and 0.6 of a point for ARMs. "Mortgage rates have remained within a narrow band of 0.1 percentage point over every week in March," said Frank Nothaft, Freddie Mac's chief economist. "This relative stability is due to mixed economic data releases as to how strong the economy is and whether future inflation will recede. One bright spot this week came from an unexpected increase in pending home sales for February, which suggests the housing market is still healthy." A year ago, the average 30-year and 15-year fixed rates were 6.43% and 6.10%, respectively, and the average hybrid and one-year ARM rates were 6.11% and 5.57%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

Problems in the subprime market are "largely contained" and the economy will "weather this storm," Dallas Federal Reserve Bank president Richard Fisher says, but the outlook for the housing market isn't as clear.Last year, 40% of homebuyers were subprime or alternative-A borrowers, Mr. Fisher told the Austin Mortgage Bankers Association. With the contraction in nonprime lending, "housing markets may feel some short-term pain, making it less clear whether housing construction has bottomed and how long the housing downturn may last," he said. The Dallas Fed president also said the regulators are being very careful in setting credit standards because they don't want to compound the problems in the subprime sector or stifle innovation. "I think the recent subprime mortgage statement put out by the Fed and four other regulators gets the notion of sensible risk-taking just about right," Mr. Fisher said.

Lenders are already using a number of tools to help financially stretched borrowers avoid foreclosure, but these cases need to be addressed individually rather than with a blanket moratorium, according to the Mortgage Bankers Association.Lenders and servicers have developed loss mitigation tools to help borrowers who are at risk of losing their homes, MBA chairman John Robbins said in response to calls for an immediate six-month moratorium on foreclosures. Mr. Robbins acknowledged that a credit crunch in the subprime market has left some borrowers "trapped" and unable to refinance into a more affordable loan. "They are trapped, and we are doing everything we can to help them, including looking at new products designed to help troubled borrowers," Mr. Robbins said. Four civil rights groups have called for a moratorium. Allen Fishbein, director for housing policy at the Consumer Federation, said "unprecedented action" is needed. "We certainly think the situation is serious enough that it warrants consideration of all possible solutions, including a moratorium," he said.