Originations

While some local housing markets are sinking fast, many will post production gains of up to 10% or more this year over last, according to a Harvard economist who says the sector is going through a long-expected correction."The bubble is not bursting," said Kent Colton, senior scholar at Harvard's Joint Center for Housing Studies, at the Midwinter Conference in Park City, Utah. "There will be no body bag nationally." Mr. Colton, a former executive vice president of the National Association of Home Builders, said the markets that will do well in 2007 will be those that never became overheated. The biggest gainers will be Nevada, Colorado, New Mexico, Illinois, Pennsylvania, and Tennessee, he said. And Georgia, North Carolina, New York, New Jersey, Utah, and Washington will be close behind. Markets that reached unsustainable heights over the last few years -- California, Florida, and Washington, to name a few -- are likely to feel the most pain, he said. Mr. Colton said the overall housing market is going through a much-needed correction. Between 2002 and 2005, he said, the sector was propelled by unprecedented annual gains in eight important benchmarks -- the ownership rate, new- and existing-home sales, new- and existing-home prices, single- and multi-family starts, and residential fixed investment. "This is something I suspect we will never see again," the Harvard scholar said. "We couldn't keep running at this level. A correction was necessary."

A research note written by an analyst at Countrywide Securities Corp. says the rate "at which the subprime market has fallen is astounding," adding that secondary-market investors are being highly selective in what they bid on.The note, dated Feb. 28 and provided to MortgageWire by a source, adds that the subprime business is "falling apart again this week," with negative media reports pounding the market on a daily basis. "There were very few whole loan pools that were out for bid in the last week, with most of them trading at a discount to par servicing released," writes analyst Vandy Fartaj. "Fasten your seatbelts, as we expect the volatility to continue in the next few months as the market reprices risk and tries to find a bottom." The report was written the day before CSC's parent, Countrywide Financial Corp., Calabasas, Calif., disclosed in a filing with the Securities and Exchange Commission that its subprime servicing portfolio saw its delinquencies climb to 19% at year-end, a 25% spike from the level recorded as of Sept. 30 [see item above].

Countrywide Financial Corp., Calabasas, Calif., reported Thursday that $22 billion, or 19%, of its subprime receivables are in some form of delinquency.The nation's largest mortgage banker -- and subprime servicer -- said in a filing with the Securities and Exchange Commission that late payments on its A-minus to D servicing portfolio spiked by 25% from the third to the fourth quarter. At year-end, Countrywide serviced $116 billion in subprime or "nonprime" loans. Countrywide said in the filing that 3.53% of the loans in its nonprime servicing portfolio are pending foreclosure. A year ago its B&C foreclosure rate stood at 2.93%. As of MortgageWire's deadline, the company had not returned several telephone calls.

The B2 preferred stock rating of Winston Hotels Inc. has been placed on review for downgrade by Moody's Investors Service in the wake of a recent announcement that 100% of Winston's common stock shares would be purchased by Wilbur Acquisition Holding Company LLC.Wilbur, which is held by affiliates of Och-Ziff Real Estate and Norge Churchill Inc., plans to leave the preferred stock outstanding as shares of the surviving entity, Moody's reported. The rating agency said the action "takes into consideration the potential for additional leverage and portfolio sales that may occur when Winston becomes a private company." During its review, Moody's said it will focus on the pro forma capital structure, strategic profile, and management structure of Winston, a real estate investment trust based in Raleigh, N.C. Moody's can be found online at http://www.moodys.com.

DiamondRock Hospitality Co., Bethesda, Md., a real estate investment trust that invests in premium hotel properties, has announced the closing of a four-year, $200 million unsecured revolving credit facility.The facility replaces DiamondRock's $75 million secured revolving credit facility, the real estate investment trust said. The interest rate for the new facility is based on grid pricing, with an expected spread of 95 basis points over the London interbank offered rate, which is up to 50 bps lower than the rate on the previous facility, the REIT said. The company can be found online at http://www.diamondrockhospitality.com.

A special committee of Eagle Hospitality Properties Trust Inc., Covington, Ky., has acknowledged the receipt of a letter from Corporex Cos. proposing to acquire all the outstanding common stock of Eagle not already owned by Corporex or its affiliates.Eagle said the Special Committee, which was formed to explore strategic options, has instructed Morgan Stanley, its financial adviser, to continue to solicit indications of interest in a possible sale of the company. The Corporex letter will be reviewed in this context, Eagle said. The company, a real estate investment trust, can be found online at http://www.eaglehospitality.com.

Rural Opportunities Inc., a multistate rural development organization based in Rochester, N.Y., has announced the formation of a partnership with Fannie Mae to protect affordable rental properties in the Northeast."The net loss of affordable units in rural communities is of particular concern in the face of mounting challenges to the development of new projects in smaller communities," said Lee Beaulac Sr., vice president of ROI, which is part of the national NeighborWorks network. The ROI/Fannie Mae partnership will focus in particular on properties that have been financed by the Department of Agriculture's Rural Housing Service and, to a lesser extent, by the Department of Housing and Urban Development. Fannie and ROI were joined in the announcement by Sen. Hillary Rodham Clinton, D-N.Y., who "played a key role in encouraging the formation of the partnership," they said. Fannie Mae can be found online at http://www.fanniemae.com.

Although the overall volume of new private mortgage insurance written declined over 41% in January, almost all the decline came in the bulk category, according to data compiled from members of the Mortgage Insurance Companies of America.In December, $27.4 billion of primary new insurance was written, compared with $16.1 billion in January. Traditional insurance written stayed almost level, with $13.1 billion in December vs. $13.0 billion in January. Bulk insurance fell from a revised $14.3 billion to $3.0 billion. Application volume fell 29%, from 158,937 in December to 112,942 in January. These numbers are still much better than those of January 2005, when $10.0 billion of traditional primary new insurance was written and just 95,131 applications were received. New pool risk written fell from $413.7 million in December to $36.6 million in January. However, the cure/default ratio fell from 68.6% in December to 60.2%, with 31,616 cures and 52,528 defaults reported in January. MICA can be found online at http://www.micanews.com.

Single-family house prices increased by 5.9% in 2006, but the rate of increase has slowed considerably from 13.2% in 2005, when the housing market was booming, according to new Office of Federal Housing Enterprise Oversight data.The OFHEO House Price Index also shows that appreciation increased by 1.1% in the fourth quarter and 1.03% in the third quarter. House prices are still rising but are now "more in line with historical norms," OFHEO Director James Lockhart said. Separately, the S&P/Case-Shiller House Price Indices released Feb. 27 indicate that house prices declined in 20 metropolitan areas by 0.4% in 2006. Some economists are coming to view the Case-Shiller HPI as more representative of housing price trends than OFHEO's because they track all purchase transactions. The OFHEO index includes refinancings and is limited to transactions involving conventional conforming loans purchased by Fannie Mae and Freddie Mac.

The average 30-year fixed mortgage rate fell from 6.22% to 6.18% over the seven-day period ended March 1, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate fell from 5.97% to 5.92%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages declined from 5.96% to 5.93%, and the average rate for one-year Treasury-indexed ARMs was unchanged, at 5.49%, 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 drifted lower last week largely on the basis of new economic information suggesting a slower economy and lower inflation," said Frank Nothaft, Freddie Mac's chief economist. "Real [gross domestic product] growth for the last quarter was revised downward to a 2.2% annualized rate, compared to the 3.5% initially estimated, while the accompanying price measure showed that core inflation was tamer than first reported, at a revised 1.9% annualized rate." A year ago, the average 30-year and 15-year fixed rates were 6.24% and 5.89%, respectively, and the average hybrid and one-year ARM rates were 5.97% and 5.34%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

Fog Cap Commercial Lending, a subsidiary of Portland, Ore.-based Fog Cutter Capital Group, has sold its commercial mortgage brokerage unit, George Elkins Mortgage Banking Co., to a division of MuniMae for $10.4 million.The Fog Cutter affiliate owned 51% of Los Angeles-based George Elkins, Fog Cutter reported. The brokerage business, which provides brokerage services in the origination of commercial mortgages, specializes in arranging commercial real estate loans for a variety of property types, with loan amounts averaging from $1 million to $50 million. During 2006, George Elkins facilitated the placement of over $1.0 billion in commercial mortgages, according to Fog Cutter. George Elkins also manages a commercial loan servicing portfolio in excess of $1.1 billion for various investors. Fog Cutter can be found on the Internet at http://www.fccgi.com.

IndyMac Bancorp Inc., Pasadena, Calif., has announced that it expects earnings per share to decline this year and that it has revised plans regarding its whole-loan and mortgage-backed securities portfolios.In IndyMac's 2006 annual shareholder letter, company chief executive Michael W. Perry says return on equity has declined in the whole-loan and MBS portfolios, falling below the company's cost of capital at times for some assets, "such that it does not make economic sense" to expand the portfolios as much as previously planned. "Frankly, we have also not received the price/earnings multiple increase we had expected from growing our investment portfolio and building more 'stable, core' spread income into our overall earnings picture," Mr. Perry says. "Accordingly, our capital deployment and profit growth will be more focused in the future on the two broad segments of our mortgage banking business [production and servicing]." IndyMac, the holding company for IndyMac Bank, can be found online at http://www.indymacbank.com.

Subprime giant Fremont General Corp., Santa Monica, Calif., says it will delay the release of its fourth-quarter and full-year earnings, sending its share price down 20% on Wednesday.The earnings delay -- and the revelation that it will not file its annual 10-K on time -- comes a few weeks after the wholesaler said it will no longer fund second liens. Over the past few months, it has also trimmed 8,000 brokers from its wholesale network. A federally insured depository, FGC is the parent of Fremont Investment & Loan, the nation's eighth-largest subprime lender, according to the Quarterly Data Report. The QDR, a National Mortgage News publication, reported that Fremont's subprime fundings fell by 38% in the quarter. The production figure, though, is an estimate. (Fremont would not provide origination numbers.) After the announcement, Fitch Ratings downgraded various Fremont ratings, including its long-term issuer default rating (from BB-minus to B-plus) and its long-term senior debt (from B-plus to B). Fitch also placed Fremont General and Fremont Investment & Loan on Rating Watch Negative. FGC's shares were down $2.20 to $9.45 late Wednesday after reaching a new 52-week low earlier in the day. The shares had rebounded slightly as of midday Thursday, when they were up $0.21, or 2.38%.

Citigroup has signed a deal that gives it an "option" to buy subprime wholesale giant Argent Mortgage, Orange, Calif., and the $65 billion servicing platform of its sister company, Ameriquest Mortgage.Both units are owned by ACC Capital Holdings, a company controlled by mortgage industry veteran Roland Arnall, who is currently serving as U.S. ambassador to the Netherlands. In a statement issued after the market closed Wednesday, ACC revealed that Citigroup not only has an option to buy Argent and the receivables, but is providing "additional working capital" to ACC's subprime units, becoming their primary warehouse lender. The option to buy does not include the retail division of Ameriquest and is subject to "certain requirements, including achieving business milestones and satisfaction of regulatory filings and approvals." Among subprime lenders, Citigroup ranks 10th and Ameriquest/Argent 11th, according to the fourth-quarter edition of the Quarterly Data Report, a National Mortgage News publication.

Two classes of DLJ Commercial Mortgage Trust commercial mortgage pass-through certificates, series 2000-CKP1, have been downgraded by Moody's Investors Service.Class B-5 was downgraded from Caa2 to Caa3, and class B-6 was downgraded from Caa3 to Ca. Moody's also upgraded three classes and affirmed the ratings on six classes from the transaction. The downgrades were attributed to realized and expected losses from the specially serviced loans and dispersion in loan-to-value ratios. The certificates are collateralized by 196 mortgage loans, of which two, representing 0.6% of the pool, are in special servicing. Moody's said it projects aggregate losses of approximately $635,000 for the specially serviced loans. The rating agency can be found online at http://www.moodys.com.

Investors should avoid investments in mortgage real estate investment trusts that have a large exposure to subprime lending and office REITs that have assets in areas with high vacancy rates, according to a senior analyst at Zacks.com, Chicago.In an interview circulated by the company, Greg Sukenik said yields for mortgage REITs are attractive, but that "we think things could get worse, and there is the possibility that many subprime lenders will become insolvent." He cited in particular New Century, which he described as one of the larger subprime lenders that Zacks has downgraded to Sell. New Century will "make it through the current downturn, but we expect a large dividend cut in 2007," Mr. Sukenik said. Regarding office REITs, the analyst said coastal markets are "performing much better" than those in the Midwest and the South. "We tend to favor REITs that have hard-to-duplicate urban properties in large cities, like New York, Boston, and San Diego," he said. Office REITs with assets in areas that have high overall vacancy rates should be avoided because rent growth is "very difficult" in such markets, Mr. Sukenik said. He cited Liberty Property Trust as an office/industrial REIT rated Sell by Zacks that "has trailed peers" in funds from operations growth in recent quarters. Zacks can be found online at http://www.zacks.com.

Heritage Capital Credit Corp., which engages in commercial real estate lending through its subsidiary Independent Capital Credit Corp., has announced that an institutional investor will purchase up to $300 million in BCLOC Trust Notes to fund commercial projects.The BCLOC Trusts can buy the commercial property assets originated by Independent Capital, Heritage said. The company and its subsidiary can be found on the Web at http://www.heritagecapitalcreditcorp.com and http://www.independentcapitalcreditcorp.com.

The Market Composite Index, an overall measure of mortgage applications, rose from 606.6 to 626.1 on a seasonally adjusted basis during the week ended Feb. 23, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 5.4% on the week but were up 8.8% from the level recorded a year earlier. The Purchase Index rose from 381.4 to 401.3 on a seasonally adjusted basis, while the Refinance Index rose from 1921.1 to 1943.5. Refinancings represented 43.2% of total applications, down from 44.9 the previous week, while adjustable-rate mortgages accounted for 21.1%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.19% to 6.16%, and points (including the origination fee) rose from 0.88 to 1.05 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Centro Properties Group, an Australian real estate investment trust, is acquiring New Plan Excel Realty Trust, a New York-based retail REIT, in a deal valued at $6.2 billion.New Plan said its common shares are being acquired for $33.15 per share and Centro is assuming some New Plan debt. The acquisition price represents a 12.9% premium over New Plan's closing stock price on Feb. 27, according to New Plan. The New Plan portfolio comprises 467 properties located in 38 states, with a total of over 68 million square feet. "Centro Watt's fully-integrated national platform is well placed to manage the diverse style and geographic mix of its expanded U.S. retail property platform," said Andrew Scott, Centro's chief executive officer. The companies can be found on the Web at http://www.centro.com.au and http://www.newplan.com.

Ivanhoe Mortgage, a $2 billion-a-year conventional/government lender based in Orlando, Fla., has closed its doors, according to industry officials familiar with the company.As of MortgageWire's deadline, company executives could not be reached for comment. A year ago Ivanhoe merged with nondepository Central Pacific Mortgage, Folsom, Calif., which recently agreed to sell its wholesale division to TMSF Holdings, Los Angeles. It is not known whether Ivanhoe is part of that transaction. (It does not appear to be.) CPM is headed by former Mortgage Bankers Association chief John Courson. Officials at CPM and TMSF could not be reached for comment. On Ivanhoe's website there was no notice of its closure. It employed about 300, including wholesale account executives. Company president Paul Reich could not be reached for comment at his Florida home. (See the March 5 issue of National Mortgage News for the full story.)