Originations

New-home sales plummeted 16.6% in January as tighter lending standards appear to be taking hold -- making it harder for some homebuyers to qualify for a mortgage.The U.S. Census Bureau reported that new single-family home sales dropped from a seasonally adjusted annual rate of 1.12 million in December to 937,000 in January. This is the biggest monthly drop in 13 years and the lowest level of sales since early 2003. The drop also bumped up inventories of unsold newly constructed homes to a 6.8-month supply. Wachovia Corp. economic analyst Phillip Neuhart noted that winter weather might have deterred some buyers. But the drop is "reflective of a housing market that is still weak" and of tighter underwriting standards on subprime loans, he said. He pointed out that new-home sales in the West dropped by 37.4% in January and by 50.4% year over year. The West had the reputation for the loosest underwriting standards, Mr. Neuhart said. "If you tighten up, the West is going to feel it more than other regions," he said. Meanwhile, Federal Reserve Board Chairman Ben Bernanke told a congressional panel that the turmoil in the subprime sector has not had a significant affect on the housing market so far. The Census Bureau, an agency of the Commerce Department, can be found online at http://www.doc.gov.

HomeBanc Corp., Atlanta, has reported a net loss of $10.7 million ($0.18 per share) for the fourth quarter under generally accepted accounting principles, compared with GAAP net earnings of $348,000 ($0.01 per share) for the same period a year earlier.Kevin Race, recently promoted to president and chief executive following the departure of Patrick Flood, said HomeBanc had a GAAP net operating loss of $6.3 million for the period, but the company had to record a net tax expense instead of a net tax benefit for the quarter. For the year, HomeBanc reported a GAAP net loss of just under $11 million ($0.20 per share), an improvement over the net loss of $11.6 million ($0.21 per share) in 2005. As part of its 2007 strategic plan, the company has sold its mortgage-backed securities portfolio, generating $70 million in net proceeds. The sale reduced its investment portfolio from $5.9 billion at year-end 2006 to $4.6 billion, and it now consists almost entirely of mortgage loans. The company, a real estate investment trust, has also closed five of its 10 Georgia production offices and two of its nine Florida production offices. Mr. Race said this would generate $3.8 million of savings in 2007. The company is also working on how to implement its intentions to give up its REIT status. (REITs typically report financial results as funds from operations, a non-GAAP measure.)

Eagle First Mortgage of Mesa, Ariz., has closed its doors, according to a notice published on the company's website.Meanwhile, according to combined news reports, the Arizona Department of Financial Institutions has suspended the mortgage firm's licenses, citing more than 100 illegal money transactions, and problems with its loan activities and hiring practices. EFM operated about 75 branches. The lender has until March 14 to finish any outstanding loans and close its doors. Neither the president of the firm nor a representative of the Financial Institutions Department could be reached for comment at deadline time.

Temple-Inland Inc., Austin, Texas, says it is splitting its operations into three stand-alone public companies, retaining its manufacturing operations but spinning off the financial services and real estate operations.Temple-Inland will also sell its timberland holdings. The financial services unit, better known as Guaranty Bank, has branches in Texas and California, but originates single-family mortgages nationwide. It is also a warehouse lender, and according to the 12th edition of the Mortgage Industry Directory, was the 11th-largest lender of this type as ranked by commitments in 2005. The real estate business operates under the name Forestar Real Estate Group, includes single-family residential, commercial, mixed-use, and multifamily development and investment activities. Carl Icahn, a critic of Temple-Inland's board, said in a statement that he was pleased by the company's decision. "We look forward to continuing our dialogue with management and working to assist, as appropriate, in the separation of Temple-Inland's component businesses," Mr. Icahn said. He also withdrew his threat to nominate a slate of candidates in opposition to the current board.

Mortgage brokers would be required to disclose all fees they receive from borrowers and lenders seven days prior to closing under a bill that Rep. Luis Gutierrez, D-Ill., plans to introduce soon.The Mortgage Broker Licensing and Predatory Loan Disclosure Act calls for clearer disclosures on exotic and subprime mortgages. It also establishes liability for brokers that violate the new law. "The legislation will bring accountability, transparency, and stricter standards to this loosely regulated industry," said Rep. Gutierrez, who is a senior member of the House Financial Services Committee. "It will ensure that people understand the hazards of high-risk loans and the subprime market, and it will ensure that mortgage brokers are properly licensed and are operating in good faith." The bill also requires all mortgage brokers to be bonded, and it directs the Department of Housing and Urban Development to establish minimum licensing requirements for mortgage brokers. The National Association of Mortgage Brokers says it supports better and clearer disclosures. However, brokers should be treated like other lenders and not singled out, according to the association. "Everybody should live under the same standards," NAMB president Harry Dinham said.

Fannie Mae executives said during a conference call Feb. 27 that the company's purchases of subprime credit quality loans and mortgage-backed securities may continue to grow.Fannie chief executive Daniel Mudd stressed that at year-end 2006, only about 0.2% of Fannie Mae's single-family mortgage credit book of business consisted of subprime mortgage loans or Fannie Mae MBS backed by subprime home loans. However, an additional 2% of the book of business consisted of private-label MBS backed by subprime home loans. Mr. Mudd said Fannie Mae will make prudent and incremental decisions about continuing to expand its subprime credit business. "I like where we are," he said. "We have enough engagement so far to be knowledgeable about the market, but we don't have so much that this is a major exposure on our books." He reported that cumulatively, the loan-to-value ratio on Fannie Mae's book of business is 55% and the average credit score is 721. Fannie can be found online at http://www.fanniemae.com.

Starting Sept. 1, Freddie Mac will stop purchasing subprime 2/28 ARM securitizations unless the loans are underwritten to the fully indexed rate and consideration is given to the borrowers' ability to pay taxes and insurance on their homes.The government-sponsored enterprise has been a major investor in subprime mortgage-backed securities, and it is changing its policies in response to regulatory and congressional pressures on the industry and the GSEs to clean up the underwriting of these subprime adjustable-rate mortgages, which are exhibiting extremely high default and foreclosure rates. Freddie also said it is developing subprime fixed-rate and hybrid ARM products that it will purchase for its mortgage portfolio. These subprime products will limit payment shock by offering reduced adjustable-rate margins, longer fixed-rate terms, and longer reset periods. In addition, the company will not purchase no-documentation loans. "The steps we are taking today will provide more protection for consumers and enhance the level of underwriting standards in the market," said Richard Syron, Freddie's chairman and chief executive officer. Freddie Mac current holds $185 billion in triple-A-rated subprime MBS in its $700 billion mortgage portfolio. The GSE can be found online at http://www.freddiemac.com.

Existing-home sales rose in January to 5.69 million units, their highest level in seven months, according to new figures released by the National Association of Realtors.Compared with December's level, sales rose 3.5%, but they fell 4.2% from that of the same month last year. National Association of Realtors chief economist David Lereah cautioned that the industry should not overreact to the sales gain. "Although we're expecting existing-home sales to gradually rise this year, and buyers are responding to the price correction, some unusually warm weather helped boost sales in January." The 5.69 million figure excludes condominium and cooperative sales, which fell slightly to 767,000 units in January from the level of a year earlier. Compared with their level in January 2006, condo and co-op sales slid 5.7%.

Moody's Investors Service has downgraded one class of certificates and has placed under review for possible downgrade seven other classes from CDC Mortgage Capital Trust deals.The affected multiple originator transactions were issued in 2001, 2002, and 2003 and consist primarily of first-lien, adjustable- and fixed-rate subprime mortgages, according to Moody's. "The subordinate certificates are being downgraded or reviewed for possible downgrade based on the fact that existing credit enhancement levels are low given the current projected losses on the underlying pools," Moody's said. The downgrade affects series 2001-HE1, class B, which has seen its rating slip from B3 to Caa2. The review for possible downgrade affects the following classes: series 2002-HE1, class B; series 2002-HE3, class B-1; series 2003-HE1, class B-1; series 2003-HE1, class B-2; series 2003-HE1, class B-2; series 2004-HE1, class B-2; and series 2004-HE1, class B-3.

Vornado Realty Trust, Paramus, N.J., has announced that its Form 10-K filing for 2006 will include a third-quarter net loss of approximately $51.7 million for Toys "R" Us, in which Vornado has a 32.9% ownership stake.The loss is an increase from the approximately $8.5 million net loss disclosed by Vornado in a December news release, the real estate investment trust noted. The reason for the revision was a determination that $36 million of certain tax benefits relating to Toys' foreign operations must be recorded as a reduction of goodwill under the purchase accounting methodology used by the REIT. The $36 million had previously been recorded as income, Vornado said. The company can be found online at http://www.vno.com.

Fitch Ratings has affirmed the long-term issuer default rating and short-term rating of National City Corp., Cleveland, in large part because of the sale of First Franklin at the end of last year.It continued the Stable rating outlook of the bank holding company as well. Fitch said the affirmations reflect NCC's "successful navigation of the volatile mortgage market" and the eventual wind-down of its subprime mortgage portfolio. "While the mortgage banking business has slowed substantially, NCC is a diversified company, and other aspects of the organization have helped to fill the void from mortgage banking," the rating agency said. Fitch can be found on the Web at http://www.fitchratings.com.

Zacks Equity Research, Chicago, had downgraded New Century Financial Corp., Irvine, Calif., to "sell," according to highlights of its analyst blog for Feb. 22.In the blog, Zacks said, "While the company is now trading at a significant discount to book value, it appears that the operating environment will continue to get for worse for companies that focus on subprime loans." Zacks added it would issue an update when New Century issues restated earnings for the first three quarters of 2006 in March.

Some recent merger and acquisition activity in the real estate investment trust sector that has involved the use of debt funding has resulted in lowering of the credit quality of some of the firms involved, Moody's Investors Service reports.The New York-based credit rating agency believes that this wave of M&A activity in the sector could slowdown as institutional investors, in particular, hit their targeted real estate allocations and as other investment avenues become more attractive. This is more likely considering that REIT prices have gone up in recent years. As to whether the leveraged buyout of Equity Office Properties "represents the high water mark or the tip of the iceberg," for leveraged buyout activity, Moody's analyst Christopher Wimmer notes that "the REIT privatization party may not be over, but it could be time to switch to water." And John Kriz, Moody's managing director of real estate finance, does not believe that the public ownership of real estate through REITs is becoming a less popular model.

Impac Mortgage Holdings Inc., Irvine, Calif., has taken a net loss of $66.3 million ($1.06 per share) for 2006, compared with net income of $270.3 million ($3.35 per share) the previous year.However, because it is a real estate investment trust, Impac has $79.5 million ($1.05 per share) of estimated taxable income available to common stockholders compared to actual taxable income of $142.9 million ($1.87 per share). The company blames the GAAP loss on a compression of net interest margins because borrowing repriced more quickly than adjustable mortgage assets. Impac also reported a $257.9 million decrease in the fair value of derivatives, which was partially offset by a $181.1 million increase in cash receipts. Net earnings decreased by $29.5 million because of a charge related to loan repurchases in the second and fourth quarters of 2006. Total origination volume for the year was $11.6 billion of residential loans and $983.4 million of commercial and multifamily loans. In 2005, it did $22.3 billion and $798.5 million respectively. Impac said it tightened underwriting guidelines in the residential business 17 times during 2006.

AARP, AFL-CIO, Consumer Federation of America, Center for Responsible Lending, along with scores of community activist, civil rights and religious groups are urging federal and state banking regulators to tighten underwriting standards on subprime 2/28 ARMs and protect consumers and minorities from payment shock and foreclosures.In a letter, the 80 diverse groups call on the regulators to extend the nontraditional mortgage guidance to subprime 2/28 adjustable-rate mortgages so those loans are unwritten at the fully indexed rate. "We remain concerned that millions of high-risk, unaffordable loans are not covered by the guidance and that massive payment shock built into these loans could cause a foreclosure crisis that eclipses the displacements caused by Hurricane Katrina," the Feb. 21 letter said.

The settlement of shareholder litigation by Fieldstone Investment Corp., Columbia, Md., will ease the way for its acquisition by C-BASS.The former shareholders had filed suit over the price paid by Fieldstone to redeem their shares following the close of its Rule 144A equity offering in 2003. It will pay the former shareholders $10.6 million in total. The settlement removed a potential $0.20 reduction in the per-share price C-BASS could have demanded relating to this litigation. Thus C-BASS, which is currently majority-owned by MGIC and Radian (whose own merger will force them to reduce their equity stake in the company), will pay the agreed-to price of $5.53 per share for Fieldstone.

Subprime giant Option One Mortgage Corp., Irvine, Calif., lost $69.7 million in its fiscal third quarter ending Jan. 31, reflecting a large increase in loan loss reserves.The loss figure was released late Thursday when OOMC's parent, H&R Block, reported its earnings. H&R Block officials also revealed that OOMC sold $670 million in delinquent loans during the quarter. H&RB chairman and CEO Mark Ernst noted there "is a weak secondary market" for early payment default loans. The company still expects to sell OOMC for at least $1.3 billion and is continuing to talk to potential investors. It promised to provide an update on the sale process in March. H&RB said it reported OOMC's third-quarter results as "discontinued operations," saying the unit added $111 million to loan loss reserves during the period. H&RB offered a ray of hope that conditions were improving at OOMC, noting that "early payment default trends improved reflecting the company's efforts to tighten underwriting criteria." (For more details see Monday's National Mortgage News.)

Bobby Mehta, CEO of HSBC Finance Corp., Charlotte, N.C., has resigned from the troubled subprime lender, according to HSBC Holdings' London office.Additionally, the bank said Sandy Derickson, president and CEO of HSBC Bank USA, has departed as well. (She also carried the title of vice chairman of HSBC North America, a holding company that houses the subprime unit.) News of the resignations came Thursday, about a week after HSBC Holdings revealed that it had hiked the bad debt reserve on its U.S. subprime business by 20% to $10.56 billion. Both executives worked for HSBC Finance's predecessor company, Household International, which was bought by the bank for $14.4 billion in 2003. Brendan McDonagh, chief financial officer of HSBC Finance, was named as Mr. Mehta's replacement. The bank named Paul Lawrence to succeed Ms. Derickson. Mr. Lawrence serves as chief of corporate investment banking and markets for HSBC Bank USA. HSBC Finance is in the process of trimming its subprime wholesale and correspondent network and is no longer funding "stated-income" loans.

The Department of Housing and Urban Development has initiated a rulemaking process to crack down on downpayment assistance programs that have bolstered Federal Housing Administration single-family loan originations but also led to rising FHA defaults and foreclosures, according to the HUD inspector general."We are just happy that this thing is going forward on downpayment assistance," HUD IG Kenneth Donohue told MortgageWire. The HUD IG has been critical of the DA program for several years because it allows builders and sellers to funnel cash assistance through nonprofit groups to homebuyers. The sellers usually recoup the assistance through inflated property prices or fees. Mr. Donohue said he could not discuss specifics about the proposed rule, which is currently being reviewed by the White House Office of Management and Budget. However, the current DA program -- in the way it was designed and applied -- should be eliminated, Mr. Donohue said.

The downturn in the housing market took its toll on federally chartered thrifts in the fourth quarter as originations declined, profits dropped and provisions for loan losses doubled.Thrift originations of single-family loans totaled $112.1 billion in the fourth quarter, down 25% from the third quarter, according to the Office of Thrift Supervision. Mainly due to rising delinquencies on single-family and construction loans, thrifts increased their loss provisions by 23 basis points 0.46% in the fourth quarter as charge-offs jumped 17 basis points to 0.39%. Thrift loan loss allowances stood at 50 bps at the end of the fourth quarter and OTS director John Reich told reporters he would be more comfortable if the allowance was higher. Meanwhile, thrift earnings totaled $3.2 billion in the fourth quarter, down nearly 20% from the same period in 2005. The OTS director expects to see higher profits in the first quarter, but he remains cautious. "Thrifts are well positioned to weather any storm or clouds on the horizon," Mr. Reich said.