Originations

Servicers, community groups, investors, and investment banks should work together to help subprime borrowers who can't afford their current loans and can't find new financing, a major subprime servicer has told a congressional panel.Ocwen Financial Corp. vice president William Rinehart testified that the recent underwriting and product changes in the subprime market will be beneficial and will reduce early defaults on new loans. However, the changes dictated by investors and regulators will make it more difficult for existing subprime borrowers to "fix their current problems," he warned. "Ocwen and other servicers, [community groups], investors and investment banks must work together to help these homeowners already facing difficulties," Mr. Rinehart said. Ocwen, based in West Palm Beach, Fla., is the sixth-largest subprime servicer, according to NMN's Quarterly Data Report.

Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., is calling on lenders, investors, and other stakeholders to work together to provide relief for subprime borrowers facing foreclosure."The solution to this problem may not be legislative," Sen. Dodd said at a hearing on the turmoil in the subprime market. "Instead, I intend to ask leaders from all the stakeholders -- regulators, investors, lenders, GSEs, FHA, and consumer advocates -- to come together and try to work out an efficient process for providing relief to homeowners." The subcommittee chairman accused the regulators of being "spectators" as lenders pushed unaffordable subprime loans. He said he plans to introduce a bill that "attacks" predatory lending. "We need to put a stop to abusive and unsustainable lending," he said. Sen. Dodd acknowledged that it will be "tough" to pass a predatory lending bill, but added that "we must try."

Bank of America has extended the terms of its warehouse line to Option One Mortgage Corp., but reduced the facility by about half -- to just over $2 billion, according to a new public filing.H&R Block, the parent of Option One of Irvine, Calif., said in a filing with the Securities and Exchange Commission that it also amended a servicing and sale agreement with Wells Fargo Bank, but offered no details on what those changes entail. The BoA warehouse line has been extended to March 14, 2008, but is subject to several "performance triggers" tied to capital, net income, defaults, and related matters. H&R Block is trying to sell Option One and is supposed to make a public announcement regarding the sale process by the end of the week of March 25. According to the Quarterly Data Report, Option One ranks seventh among all subprime originators in the United States.

UDR Inc. (formerly United Dominion Realty Trust), Richmond, Va., has priced a $150 million offering of 5.50% medium-term notes due April 1, 2014.The proceeds are expected to be used to repay debt, the company said. Citigroup Global Markets Inc. was the sole book-running manager of the offering. UDR, a multifamily real estate investment trust, can be found online at http://www.udrt.com.

Fitch Ratings has lowered the residential primary servicer rating of Accredited Home Lenders Inc. from RPS3-plus to RPS3-minus for subprime loans.The rating agency said the downgrade was based on "the challenging operating environment in the subprime mortgage market and uncertainties over [Accredited's] ability to maintain adequate funding and remain viable over the intermediate term." Fitch noted that Accredited announced March 16 that it had reached an agreement to sell $2.7 billion of loans at a discount in order to alleviate pressure from margin calls. The rating agency also noted the company's March 20 announcement of a commitment for a $200 million term loan from entities managed by Farallon Capital Management LLC. Fitch rates residential servicers on a scale of 1 to 5, with 1 being the highest rating.

Superior Development Group Inc., a residential real estate development company based in Clarksdale, Miss., has announced the introduction of a lease-purchase program that allows consumers to lease and occupy a home under a contract to purchase it.The contract specifies the purchase price and a predetermined purchase date, the company said. "The Lease Purchase program will become a very popular way to sell or buy a house because of the meltdown in the subprime mortgage lending market, which is causing the housing market to struggle as well," said Derrick D. Neal, president and chief executive officer of Superior Development. Minimum cash may be required up front, but a benefit of the program is that the program "affords consumers time to repair less-than-stellar credit" before buying a home, the company said. Another benefit is that consumers may skip paying closing costs, a traditional downpayment, and other fees normally associated with a conventional home purchase, Superior said. The company can be found online at http://www.superiordevelopmentgroup.com.

The Market Composite Index, an overall measure of mortgage applications, fell from 690.5 to 672.1 on a seasonally adjusted basis during the week ended March 16, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 2.5% on the week and were up 18.0% from the level recorded a year earlier. The Purchase Index fell from 414.3 to 410.6 on a seasonally adjusted basis, while the Refinance Index fell from 2312.2 to 2208.6. Refinancings represented 45.3% of total applications, down from 46.2% the previous week, while adjustable-rate mortgages accounted for 20.9%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 6.03% to 6.06%, and points (including the origination fee) fell from 1.38 to 1.30 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

PHH Corp., Mt. Laurel, N.J., says it is unable to file its Form 10-K for 2006 because it has not yet finalized its financial statements for the fourth quarter and full-year 2006.This comes on top of the company's failure to file its 10-Q forms for each of the first three quarters of this year. PHH had restated its earnings for the periods prior to 2005, and this occupied much of the auditors' time, the company said. The 2005 10-K was filed on Nov. 22, 2006. PHH Corp. is being sold, with its parts being split up and PHH Mortgage ending up with The Blackstone Group. In a filing with the Securities and Exchange Commission, PHH said it is "currently unable to provide an expected date for the filing of the 2006 Form 10-K." PHH can be found online at http://www.phh.com.

The news media have "overreacted" to the correction in the subprime market, and the mortgage market will settle down soon, according to a top official of the Department of Housing and Urban Development."Some of the concerns are justified because of the cooling in the housing market," HUD Deputy Secretary Roy Bernardi told the National Association of Mortgage Brokers. He stressed that the housing boom was unsustainable and that no one should be surprised by the adjustment or by the fact that subprime loans are risky. "I believe this cooling-off period will be a short-term adjustment, and it will eventually be healthy for our economy," Mr. Bernardi said. Sen. Mike Crapo, R-Idaho, told the brokers that market discipline is working but that some regulation is needed so the adjustment will not be so "severe" in the future. But the banking committee member stressed the need for a balanced approach. "We need to be careful that we don't create a disincentive to provide financial credit to those who have less than a perfect credit history," Sen. Crapo said. The NAMB can be found on the Web at http://www.namb.org.

Regulators and legislators should not go too far in reining in so-called "toxic loans," the chairman of the Mortgage Bankers Association said at the group's nonprime conference.Some loan products that lawmakers at the state and federal levels are seeking to bridle are "valuable tools" that enable people with affordability problems to achieve homeownership, San Diego mortgage banker John Robbins said. He said the market is already adjusting to the overzealousness of some originators, and today's loans are "significantly more conservative." "The market is efficient," he said. "It has [moved] and always will move at lightning speed" compared with those who oversee it. Rather than curb the use of such loans, or make it all but impossible for borrowers to qualify for them, Mr. Robbins called on lawmakers to work with the industry in repairing a lending process that includes, among other things, 21 federal forms "written in complex legal language which those within the industry cannot explain, much less understand." He said that as part of the fix, the industry's compensation structure must be "realigned" so that commissions to loan officers, account executives, and mortgage brokers do not contain excessive fees or yield-spread premiums. During his keynote address, Mr. Robbins took particular umbrage at what he said are "irresponsible" statistics being used by the Center for Responsible Lending. He said 86% of all subprime borrowers are currently paying their notes on time.

Rating agencies Standard & Poor's and Moody's Investors Service expect the 2006 book of subprime mortgages to perform well below the norm, but spokesmen for the firms say they don't believe problems on the lowest rung of the credit ladder will reach up to take a bite out of the prime and alternative-A sectors."The turmoil so far has been limited to the subprime space," S&P's Scott Mason said at the Mortgage Bankers Association's National Nonprime and Networking Conference in Carlsbad, Calif. "There will probably be some tightening in alt-A as well, but that's about it." David Teicher of Moody's agreed. Although early payment defaults have increased dramatically in the two sectors, he said, they are rising from general delinquency levels that are low by historical standards. Mr. Mason told the conference "there's a good probability" that vintage 2006 nonprime loans "will be one of the worst-performing in recent history." Mr. Teicher said that while it's still "too early to tell" how last year's subprime book will perform, it is more likely to play worse than better.

Fremont General Corp., Santa Monica, Calif., has agreed to sell $4 billion in subprime loans to an unnamed buyer (or buyers) -- but will book a $140 million loss on the deal.It is unclear whether servicing rights tied to these loans are also being sold. The lender could not be reached for comment. Fremont is trying to sell its subprime division, which services $27 billion in loans but has stopped funding new originations. Fremont, a depository, said it has received "approximately $950 million in cash from the first sale installment under the agreements, with the remaining sales under the agreements expected to be completed over the next several weeks." The company, in a filing with the Securities and Exchange Commission, said the mortgages are being sold at a discount, "reflecting current conditions in the sub-prime mortgage market."

Fannie Mae has cut ties with ailing subprime lender New Century Financial Corp., informing the company that it can no longer sell loans to the government-sponsored enterprise or service its mortgages.New Century, which is expected to file for bankruptcy protection, disclosed the news March 20 in a filing with the Securities and Exchange Commission. The Irvine, Calif.-based wholesaler also said it has been hit with cease-and-desist orders from several states, including California, Florida, and New York. The C&Ds accuse the company of not funding loans after closing. (New Century has not funded a mortgage in at least two weeks.) All of its warehouse providers cut off credit to the company. It services about $40 billion in loans, according to the Quarterly Data Report. One investment adviser told MortgageWire that New Century has enough cash to last 60 days. Its stock was delisted by the New York Stock Exchange and now trades on the "pink sheets." The companies can be found online at http://www.fanniemae.com and http://www.ncen.com.

Subprime wholesaler Investaid Corp. of Southfield, Mich., has closed its doors, according to industry officials.As of MortgageWire's deadline, the company could not be reached for comment. On Wednesday its telephone switchboard was not retrieving calls. It specialized in funding subprime loans with FICOs ranging from below 500 to 600, but it also did higher-credit-quality loans. An e-mail message reportedly written by one Investaid official explains, "The conditions in the market continue to collapse and the pressure placed upon our affiliated bank from the regulatory agencies with regards to subprime is impossible to bear." The e-mail message could not be verified.

Subprime lender People's Choice Financial Corp. and affiliates -- which had hoped to go public one day -- filed for bankruptcy protection late Monday, leaving behind as unsecured creditors several banks and Wall Street warehouse lenders.In total, warehouse providers -- including GMAC-RFC and Merrill Lynch -- are owed close to $100 million, all of it unsecured. The Irvine, Calif.-based wholesaler could not be reached for comment. Its chief executive is Neil Kornsweit, a former top executive at Aames Financial. In its March 19 issue, National Mortgage News broke the news that People's Choice was in financial trouble. According to court documents relating to People's Choice and affiliates, its warehouse-related unsecured creditors include: GMAC-RFC ($17.4 million owed), EMC Mortgage ($15.3 million), Merrill Lynch ($14.6 million), and Washington Mutual ($14.2 million), among others. EMC is owned by Bear Stearns. Subprime lender Option One Mortgage of Irvine, a competitor, is owed $361,327 and is listed as both a landlord and "trade vendor." Sources told MortgageWire that People's Choice, which had not funded a loan in two weeks, is in the process of closing offices and letting workers go. The company, a privately held real estate investment trust, ranked among the top 40 subprime lenders in the United States, according to the Quarterly Data Report.

California wholesaler LoanCity closed its doors on Tuesday, telling its brokers that "we cannot meet the capital constraints needed to continue."News of its closing was first revealed on the Grapevine, a bulletin board operated by National Mortgage News. On its website, LoanCity posted a message telling brokers that all mortgages not funded by March 20 "will have to be taken elsewhere to close." It also notes that "our friends" at CMG Mortgage will handle "all active loans in the LoanCity pipeline, which are currently scheduled to fund later than March 20, as these loans can be underwritten, relocked and funded by CMG Mortgage in an expedited manner." Based in San Ramon, Calif., CMG is operated by industry veteran Chris George. LoanCity can be found online at http://www.loancity.com.

Class M of GMAC Commercial Mortgage Securities Inc.'s mortgage pass-through certificates, series 1998-C1, has been downgraded from CCC to C and assigned a distressed recovery rating of DR6 by Fitch Ratings.Class L of the transaction was assigned a distressed recovery rating of DR2. In addition, Fitch upgraded one class, affirmed the ratings on five classes, and placed the ratings of five other classes on Rating Watch Evolving. The downgrade and assignment of distressed recovery ratings are the result of "possible losses from the Senior Living Properties loan," the rating agency said. Fitch can be found online at http://www.fitchratings.com.

Highwoods Properties Inc., a real estate investment trust based in Raleigh, N.C., has announced the pricing of a $400 million offering of 10-year unsecured notes by its operating partnership, Highwoods Realty LP.The notes were priced at 99.695, with a coupon of 5.85%. Highwoods said it plans to use the net proceeds to repay unsecured debt. The company can be found on the Web at http://www.highwoods.com.

The Texas Rangers Baseball Club has removed the Ameriquest name from its major league stadium, cutting short -- by 27 years -- a $75 million sponsorship agreement.A spokesman for the Orange, Calif.-based Ameriquest Mortgage told MortgageWire that the baseball team approached the lender about the name removal late last year. "We were able to reach a mutually beneficial agreement," he said. The sponsorship deal was struck three years ago when Ameriquest was flying high in the subprime industry. Starting immediately, the stadium will be called Rangers Ballpark in Arlington. The Rangers are also removing a 15-foot Ameriquest bell located in left field that rang each time a Ranger hit a home run. ACC Capital Holdings recently laid off an estimated 3,000 workers at retailer Ameriquest and its wholesale division, Argent Mortgage. Ameriquest and Argent are losing money, and Citigroup has signed an option to buy some of their assets.

Tarragon Corp., a New York-based developer of multifamily housing, has reported net income of $9.8 million ($0.31 per share) for 2006, compared with $88.5 million ($2.93 per share) for 2005.The company reported that its 2006 income was "adversely impacted by unusual items," which include "market-driven margin reductions and impairments" on cost of sales. Adjustments were made to reflect price reductions, slower absorption, and increased marketing costs on unsold units, Tarragon said. Tarragon is also proposing to spin off its homebuilding division as a separate, publicly traded company, while continuing to operate its real estate services business as Sage Residential. For the fourth quarter, Tarragon reported a net loss of $25.1 million ($0.89 per share), compared with net income of $7.8 million ($0.26 per share) for the fourth quarter of 2005. The company can be found online at http://www.tarragonsite.com.