Originations

The Market Composite Index, an overall measure of mortgage applications, fell from 639.8 to 606.6 on a seasonally adjusted basis during the week ended Feb. 16, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 2.9% on the week and were up 4.1% from the level recorded a year earlier. The Purchase Index declined from 400.7 to 381.4 on a seasonally adjusted basis, while the Refinance Index fell from 2031.7 to 1921.1. Refinancings represented 44.9% of total applications, down from the previous week, while adjustable-rate mortgages accounted for 21.2%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages decreased from 6.24% to 6.19% and points (including the origination fee) fell from 1.06 to 0.88 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Friedman Billings Ramsey, Arlington, Va., said its First NLC nonconforming mortgage subsidiary lost $1.8 million on a pretax basis in the fourth quarter 2006.First NLC built additional reserves related to the industrywide issue of buybacks as a result of early payment defaults. During the quarter, First NLC had $2.1 billion in originations, giving it $7.5 billion for the year. This compares with $1.5 billion and $6 billion for the same periods, respectively, in 2005. Cost to originate fell from an average of 244 basis points in 2005 to 191 bps for last year. FBR's merchant banking unit said it wrote down $17.2 million in the value of certain nonprime mortgage company investments. The largest was a $13.7 million reduction in the carrying value of shares in Fieldstone Investment Corp., which is being sold to C-BASS for cash. FBR said its merchant banking investments in nonprime companies, excluding Fieldstone, was $19 million at the end of 2006.

Metropolitan Funding Corp., a New York-based HUD/FHA lender, has formed a commercial real estate lending platform called Metrofund Group in joint venture with Sagecrest, a Greenwich, Conn.-based hedge fund, and Merchant Equity Group.The venture has arranged $160 million in initial capital and will provide bridge, transitional and mezzanine loans, Merchant Equity Group, a New York-based developer, reports. Hadley Bressman, president, Metropolitan, said that he believes the venture "will enable us to grow quickly and take advantage of the more difficult economic environment in 2007." James Kerner, who has considerable Wall Street experience with some investment banks, will be the COO of Metrofund Group. Most recently, he was chief underwriter for Nomura Securities' real estate division, according to Merchant Equity.

Subprime wholesaler NovaStar Financial, Kansas City, saw its share price fall by as much as 44% on Wednesday after a controversy over its profit outlook for the next several years.At one point, its shares traded down to $9.80 before recovering slightly after the REIT issued a statement clarifying its outlook on "taxable" income vs. GAAP profits. The company said its stock fell dramatically after certain news stories "mistakenly" reported that the subprime lender does not expect to generate profits the next several years. NovaStar -- whose 52-week high is $38.49 -- said it "generally" will be profitable on a GAAP basis over the next several years but will show little, "if any," taxable income from 2007 to 2011. The company said accounting rules allow it to accelerate income recognition during the "early life" of its portfolio. As a REIT it must pay out 90% of its earnings in the form of dividends to shareholders. When it released fourth-quarter earnings on Tuesday -- it lost $14.4 million -- it also said it may give up its REIT status. Besides being a subprime funder it manages a $16.3 billion portfolio.

Reflecting a decision to become more proactive in the legislative and regulatory arena, the National Association of Mortgage Brokers outlined an ambitious policy agenda that it says is aligned with consumers' needs."Mortgage brokers work in the frontline" of the lending process, NAMB president Harry Dinham said in a telephone press conference outlining its agenda for 2007. "We firmly believe our issues and consumer issues go hand-in-hand." The group's plan targets abusive lending practices on several fronts. Among other things, it calls for a mandatory disclosure sheet at both application and closing that reveals possible payment and interest rate changes, restricting the use of pre-screened mortgage leads to written solicitations only, a good-faith estimate of closing costs that mirrors the HUD-1 statement that borrowers receive at settlement, and protections against builder and real estate broker-owned mortgage operations that offer incentives only to borrowers who use their services. NAMB also said it is embracing the Bush administration's proposal to reform the Federal Housing Administration, bipartisan efforts to improve the oversight and regulation of Fannie Mae and Freddie Mac, and legislation that would allow the Department of Veterans Affairs to guarantee home equity conversion loans to eligible veterans. Joseph Falk, a former NAMB president and the current chair of its legislative committee, said that while his group's policy agenda is wide-ranging, no one issue takes priority. "Each is important, each is critical," the former broker from Miami said. "Each has no higher standing than the other."

Despite a slowdown in the housing market, commercial banks and saving banks increased their originations of one-to-four family mortgages in the fourth quarter by 8.5%, according to the Federal Deposit Insurance Corp.Call report data filed by the largest 578 banks show they originated $358.2 billion in single-family loans during the fourth quarter, up from $330.1 billion in first quarter. Meanwhile, the FDIC reported net charge-offs on residential mortgages doubled from $410 million in third quarter to $888 million in the fourth. Even with the charge-offs, non-current mortgage loans jumped 15% during the quarter to $3.1 billion. FDIC chief economist Richard Brown noted that performance of subprime loans has deteriorating sharply in the second half of 2006. He expects the performance of subprime mortgages, particularly hybrids, will continue to get worse and it will take several quarters before there is an improvement. However, FDIC-insured banks and thrifts hold mostly prime loans in portfolio and he estimates that subprime loans make up only 10% to 12% of those portfolios.

The Chicago Board of Trade has launched a new futures contract based on the Dow Jones U.S. Real Estate Index.DJUSRE Index futures contracts are designed to help market participants capitalize on changes in the real estate sector of the stock market and better manage commercial real estate exposure. The new index is intended to accommodate the needs of institutional real estate investors and the commercial real estate market. It settles the value of the DJUSRE Index, which is comprised mostly of REITs. The CBOT also introduced three market makers for the new product including Susquehanna Investment Group, Wolverine Trading LLC and Allston Trading LLC.

American Mortgage Acceptance Co. has lowered its adjusted funds from operations per share guidance for 2006 to a range of $1.08 to $1.13 from a range of $3 to $3.20, citing loan performance issues.“The reduction in AMAC’s expected 2006 AFFO per share is primarily due to writedowns of $12 million in principal and the reversal of $908,000 in accrued interest relating to three nonperforming mezzanine loans in the company’s investment portfolio,” said J. Larry Duggins, AMAC’s chief executive officer. “While we continue to pursue our rights and make efforts to collect on these loans, we determined that these writedowns were necessary,” he said. The company plans to release 2006 earnings results on March 20. The AFFO guidance it has released excludes the changes in fair value of derivative instruments, net of certain associated costs. The company can be found on the Web at http://www.americanmortgageco.com.

The performance of subprime adjustable-rate securities issued in 2006 continues to deteriorate rapidly, and the default rate hit 4.62% in January, up 21% in just one month, according to a report by Friedman Billings Ramsey.The default rate of the 2006 origination year exceeds that of 2005 by 51.6% and that of 2004 by a "whopping" 137% at the same age, the FBR report says. The early defaults on 2006 originations have sparked massive loan buybacks and forced a dozen subprime firms into bankruptcy. In a previous report, FBR researchers warned that this book of business is rapidly deteriorating and that "higher default and loss rates may ensue." FBR can be found online at http://www.fbr.com.

In response to a meltdown in the B&C market, Wells Fargo Home Mortgage on Friday tightened its subprime underwriting guidelines and began cutting mortgage jobs. As MortgageWire went to press on Tuesday details about the changes were sketchy, but according to a statement issued by the firm, subprime loan types affected the most include low-documentation, high loan-to-value and high debt-to-income notes. No figures were available on how many jobs were cut but the statement says, "Most affected team members also receive a 60-day notice, and are offered separation benefits that include insurance and salary continuation based on years of service with the company." Last week the bank-owned WFHM also radically changed how it reports its subprime correspondent production by excluding "co-issuance" volume. This reporting change -- which affects survey figures compiled by National Mortgage News and others -- reduced WFHM's third-quarter production volume by $15 billion, or a whopping 65%. WFHM now ranks fifth among subprime producers, compared to first (prior to the change).

Class J of Mezz Cap commercial mortgage pass-through certificates, series 2004-C2, has been downgraded from B-minus to C and assigned a Distressed Recovery rating of DR5 by Fitch Ratings.Fitch also affirmed the ratings on nine other classes in the transaction. The rating agency attributed the downgrade to projected losses on specially serviced loans. The securitization consists of B notes subordinate to first-mortgage loans securitized in separate commercial mortgage-backed securities.

Hospitality Properties Trust, Newton, Mass., has priced a public offering of 12.0 million shares of series C cumulative redeemable preferred shares at a liquidation preference of $25 per share.The company, a real estate investment trust that specializes in hotels, said it expects to use the net proceeds of the offering to repay a portion of the debt incurred to fund its recently completed acquisition of TravelCenters of America. The underwriters have been granted an option to buy up to 1.8 million additional shares of stock to cover any overallotments. Merrill Lynch & Co., UBS Investment Bank, and Wachovia Securities are the joint book-running managers of the offering. Hospitality Properties can be found on the Internet at http://www.hptreit.com.

Apple Hospitality Two Inc., a real estate investment trust based in Richmond, Va., has announced a merger agreement under which the REIT would be acquired by an affiliate of ING Clarion Partners LLC for a total consideration of approximately $890 million.Under the pact, each outstanding share of Apple's capital stock would be converted into the right to receive cash representing a per-share price of approximately $11.20, Apple reported. Apple specializes in the extended-stay suite segment of the hotel industry, and ING Clarion is a real estate investment management company. The companies can be found online at http://www.applehospitality.com and http://www.ingclarion.com.

Median house prices in nearly half the covered metropolitan statistical areas were lower in the fourth quarter than they were a year earlier, and the sales of existing homes were down in most states, according to the National Association of Realtors.The NAR's fourth-quarter metro area home price report shows that 73 of 149 MSAs experienced price declines in median existing-home prices, while 71 had increases and five were unchanged. The NAR also reported that the national median resale price stood at $219,300 in the fourth quarter, down 2.7% from $225,300 a year earlier. "This information confirms 2006 was the year of contraction, and hopefully the fourth quarter was the bottom of the current business cycle," said NAR chief economist David Lereah. "Home sales are leveling at historically high levels, and examination of data within the quarter shows home prices stabilizing toward the end." The NAR can be found on the Web at http:/www./realtor.org.

The average 30-year fixed mortgage rate rose from 6.28% to 6.30% over the seven-day period ended Feb. 15, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose from 6.02% to 6.03%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages climbed from 5.99% to 6.01%, and the average rate for one-year Treasury-indexed ARMs increased from 5.49% to 5.52%, Freddie Mac reported. Fees and points averaged 0.4 of a point for fixed-rate mortgages, 0.5 of a point for hybrid ARMs, and 0.6 of a point for one-year ARMs. Frank Nothaft, Freddie Mac's chief economist, said mortgage rates held nearly steady because there was "little new information" to prompt a big change, noting that retail sales were "virtually unchanged" in January. A year ago, the average 30-year and 15-year fixed rates were 6.28% and 5.91%, respectively, and the average hybrid and one-year ARM rates were 5.95% and 5.36%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

The Mills Corp. has decided to go with an offer from Simon Property Group, an Indianapolis-based retail real estate investment trust, and Farallon Capital Management to acquire the Chevy Chase, Md.-based retail REIT for a total price of about $7.9 billion.The transaction values The Mills common stock at $25.25 per share, which is payable in cash, the REIT said. The initial offer from Brookfield Asset Management was for a total of $7.5 billion, including a cash payment of $21 per common share. That agreement has been voided. SPG has provided The Mills with debt funding to replace its senior term loan and revolving line of credit from Brookfield. David Simon, chief executive officer of Simon Property Group, sees the Mills assets as "an excellent strategic fit with our existing retail assets." The acquiring companies said they expect to improve the performance of the properties and unlock their "true potential." Farallon is a San Francisco-based investment management company. The companies can be found online at http://www.simon.com, http://www.faralloncapital.com, and http://www.themills.com.

Financial Freedom Senior Funding Corp., Irvine, Calif., has announced the introduction of HECM Advantage, the first in a series of new reverse mortgage products based on the federally insured Home Equity Conversion Mortgage.The company, a subsidiary of IndyMac Bank FSB, said the new product would provide a borrower with a $350,000 home approximately $18,400 more cash (while saving as much as $18,000 in interest accrual during the first 10 years) than a similar HECM loan with a 1.5% margin. Financial Freedom said that, as with other reverse mortgages, the borrower retails title to the home; the loan is nonrecourse, which means the borrower can never owe more than the home is worth upon repayment; and except in the case of a material default, the loan does not have to be repaid until the borrower permanently leaves or sells the home. The company can be found online at http://www.financialfreedom.com.

Credit-Based Asset Servicing and Securitization LLC -- which is backed by two mortgage insurance giants -- has agreed to pay $260 million for Fieldstone Investment Corp., Columbia, Md., a publicly traded nonprime lender.As of midday Friday, Fieldstone's shares had almost doubled in value to just over $5 each. Fieldstone services just shy of $6 billion in loans, ranking 28th among subprime firms, according to the Quarterly Data Report. It ranks 24th among subprime lenders. C-BASS -- a specialty servicer controlled by MI giants MGIC and Radian -- said it would pay $5.53 a share for the mortgage banking REIT, which lost $37.2 million through the first nine months of last year. According to a statement issued by the companies, the per-share purchase price is subject to a $0.20 reduction "in the event Fieldstone does not complete settlement of certain litigation pending prior to the merger." The company is a defendant in at least four civil cases, involving different matters, including a shareholder suit that could cost it $19 million.

Single-family housing starts dropped 11.2% in January and single-family permits fell 4% as the weather and builder inventories stalled new construction.The U.S. Census Bureau reported that single-family starts dropped from a seasonally adjusted annual rate of 1.25 million in December to a 1.11 million rate in January. Compared with the total for January 2006, which was the fourth-warmest January on record, starts were off 38.9%. Richard DeKaser, chief economist of National City Corp., said he believes housing starts have hit bottom but that he expects the pipeline of units under construction to continue to decline over the course of this year. The NCC economist said he also expects home sales to decline by 5%-10% this year after last year's 15% decline in total sales. "The bulk of the decline is behind us," Mr. DeKaser said. However, lenders have tightened their underwriting standards on subprime loans, and he projects further tightening as defaults rise. The turmoil in the subprime market will take its toll on the housing market, "but I don't think it is going to drive it into the ground," he said.

Class MV-4 of CitiFinancial Mortgage Securities Inc. 2003-1 has been placed on review for possible downgrade by Moody's Investors Service.In addition, 18 tranches from four Citi transactions have been placed on review for possible upgrade. The negative rating action was attributed to declining credit enhancement resulting from recent losses. The collateral backing the affected classes consists primarily of first-lien subprime residential mortgage loans.