Originations

New Century Financial Corp., a nonprime mortgage lender structured as a real estate investment trust, says it is restating its earnings for each of the first three quarters of 2006 because it incorrectly applied SFAS 140 involving the repurchase of loans.New Century also said that, because of repurchases and adjustments to the valuation of residuals, it expects to take a fourth-quarter loss. The Irvine, Calif.-based company said when it repurchases a loan, the loan is added to its balance sheet as a mortgage loan held for sale at its estimated fair market value. The company's repurchase reserve is reduced by the amount the repurchase price exceeds fair market value. In the second and third quarters, New Century said it did not include the expected discount upon disposition of loans when estimating its allowance for loan repurchase losses. Furthermore, in determining the volume of repurchases to be included in the reserve calculation for the first three quarters of 2006, New Century did not properly anticipate the growing amount of repurchase requests. This was compounded by the increasing length of time between the original sale and the repurchase request. New Century said it expects to file amended 10-Qs for the three quarters by March 1. Its year-end earnings announcement has been postponed indefinitely. New Century's common stock, already trading near the low end of its 52-week range, crashed through that barrier, and was down $8.28 to $21.88 as of late morning on Feb. 8.

Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., says federal banking regulators need to "step up" and tighten the underwriting of certain subprime mortgage products that he contends are responsible for rising defaults and foreclosures.The committee chairman also said he is "annoyed" that the regulators have not responded to his December letter regarding subprime 2/28 adjustable-rate mortgages. In the letter, six members of the committee, including Sen. Dodd, urged the regulators to extend the protections of the nontraditional mortgage guidance to borrowers of 2/28 ARMs, who are disproportionately black and Hispanic. "It is unacceptable to me that they have gone this long without responding to the letter," Sen. Dodd told reporters after a hearing on subprime lending and foreclosures. Mortgage industry representatives presented evidence that there is nothing unusual about the recent rise in foreclosures. But Sen. Dodd maintains that certain subprime practices and loan products are causing the problem. "This is a problem that you cannot attribute to the kind of shocks that normally cause a spike in foreclosures rates," he said. The banking committee chairman is planning to call the regulators to testify before the committee in a few weeks.

Anticipating a major spike in subprime second-lien delinquencies, HSBC Holdings, London, on Wednesday increased the bad-debt reserve on its U.S. B&C unit to $10.56 billion -- a stunning 125% increase from the reserve level on Sept. 30.During a Feb. 7 conference call, HSBC officials in London noted that adjustable-rate mortgage resets are set to explode -- and that most of the anticipated damage will come from residential loans funded through the wholesale/broker division of HSBC Financial, Prospects Heights, Ill. (the old Household Finance). In response to the deteriorating situation, HSBC officials signaled that the channel will be scaled back significantly, focusing only on broker-originated loans that have cross-sell or emerging market opportunities. HSBC bought Household Finance almost four years ago, agreeing to pay $14 billion for the business. In a December conference call with analysts, HSBC said it had increased the bad-debt reserve on its subprime business to $8.8 billion. According to a third-quarter Securities and Exchange Commission filing by HSBC Finance (the unit that houses HSBC Financial, the lender), the reserve was $4.64 billion. According to the Quarterly Data Report, HSBC services $51 billion in subprime mortgages, ranking seventh nationwide. In the third quarter, HSBC funded $11.7 billion in subprime loans, ranking third. (For more details, see the Feb. 12 issue of National Mortgage News..)

Classes B-1 and B-2 of First Franklin Mortgage Loan Trust, series 2003-FFB, have been placed under review for possible downgrade by Moody's Investors Service.The rating actions were based on low credit enhancement levels in comparison with loss projections, Moody's said. The overcollateralization amount has declined below the required level, and mortgage insurance does not cover all the losses, "leaving the subordinate tranches with eroding credit protection," the rating agency said. The subprime deal consists of closed-end, fixed-rate, second-lien residential mortgage loans. Moody's can be found online at http://www.moodys.com.

Three classes of Salomon Brothers Mortgage Securities VII Inc. mortgage pass-through certificates have been downgraded by Fitch Ratings.The downgrades were as follows: series 1997-HUD1, class B-4, from CCC/DR2 to C/DR2; series 1997-HUD2, class B-3, from BB to B-plus; and series 2001-UP2 group 1, class BF-4, from CCC/DR3 to CC/DR3. In addition, the ratings on 22 classes in five Salomon deals were affirmed and the Distressed Recovery rating on class B-4 of series 1997-HUD2 was lowered from DR3 to DR6. The downgrades were attributed to a deterioration of credit enhancement relative to monthly losses.

Kennedy Wilson, a real estate services and investment firm based in Beverly Hills, Calif., has announced a partnership with Noblehouse Realty LLC, a Fort Lauderdale, Fla.-based real estate firm, to create an auction and investment company covering the Florida market.The new firm, Noblehouse LLC, is a residential and commercial real estate marketing, development, and financial services firm. Kennedy Wilson, which has offices throughout the United States and Japan, can be found on the Web at http://www.kennedywilson.com.

LandAmerica Financial Group Inc., Richmond, Va., has announced the acquisition by its LandAmerica Valuation Corp. subsidiary of Butler Burgher Inc., a Dallas-based commercial real estate valuation company.The terms of the transaction were not disclosed. LandAmerica said the acquisition is the latest move in LVC's targeted growth strategy, giving it greater geographic coverage and "significant customer relationships in new market niches." Butler Burgher, which has offices in Dallas and Austin, Texas, has "significant expertise" in affordable housing and Low Income Housing Tax Credit properties, LandAmerica said. LandAmerica can be found on the Web at http://www.landam.com.

Vornado Realty Trust, a real estate investment trust based in Paramus, N.J., has terminated its offer to acquire Equity Office Properties Trust, a Chicago-based REIT, in the wake of the latest amended offer from affiliates of The Blackstone Group.Vornado had recently boosted its offering price to $56 per share, and then made an additional proposal involving an upfront tender offer for up to 55% of Equity Office's shares to address concerns about "the speed and certainty of the Vornado offer." But Equity Office announced Feb. 6 that it had amended its existing merger agreement with affiliates of Blackstone to increase the consideration to $55.50 per share in cash. The REIT's board then recommended that shareholders approve the amended merger pact at a special shareholders' meeting scheduled for Feb. 7. Vornado can be found online at http://www.vno.com, and Equity Office can be found at http://www.equityoffice.com.

The Market Composite Index, an overall measure of mortgage applications, fell from 631.1 to 630.1 on a seasonally adjusted basis during the week ended Feb. 2, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications increased 3.0% on the week and were up 1.4% from the level recorded a year earlier. The Purchase Index fell from 408.0 to 404.7 on a seasonally adjusted basis, while the Refinance Index rose from 1940.2 to 1943.4. Refinancings represented 46.1% of total applications, down from 47.4% the previous week, while adjustable-rate mortgages accounted for 22.3%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.29% to 6.23%, and points (including the origination fee) rose from 1.07 to 1.09 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

IndyMac Bancorp, Pasadena, Calif., has agreed to purchase the 32-branch retail platform of New York Mortgage Trust for $13.4 million.NYMT's chairman and co-CEO Steven Schnall -- who will be joining IndyMac when the sale closes -- told MortgageWire that the move will help the thrift meet its goal of becoming a top-5 retail lender. (According to the Quarterly Data Report, IndyMac ranks 23rd among retail residential lenders, NYMT 41st.) The transaction is slated to close by the end of March. The branch network -- 21 full service outlets and 11 satellite locations -- runs from Florida to New Hampshire, but is heavily dependent on the Northeast and New England. NYMT, a real estate investment trust, is trying to sell its wholesale operation as well. Retail accounts for 75% of the nondepository's production. (For more details, see the Feb. 12 issue of National Mortgage News.) The companies can be found online at http://www.indymacbank.com and http://www.nymtrust.com.

The National Association of Home Builders is projecting a first-ever overall decline in housing prices for 2007.Despite a pick-up in demand and a projected increase in housing starts by the second quarter, NAHB chief economist David Seiders is calling for a "modest downward" correction in prices this year on a national basis. "Sales activity has bottomed out already," Mr. Seiders said at the NAHB's annual convention in Orlando, Fla. "But we've got one heck of an inventory overhang." The NAHB economist said the large supply of standing inventory of both new and existing houses could be underestimated by 100,000 units because they were sold to investors who failed to close. The deals are counted as sales by the Census Bureau, but are not erased when they fall through. The result, Mr. Seiders said, is "an extra source of supply without any corresponding demand." Overall, he added, the new home market is "overbuilt by at least 400,000 units." The economist said he expects production to increase in markets not saddled with huge inventories, leading to an overall increase in starts. But he expects "the weight of the inventory overhang" to exert downward pressure of house values "for some time." If prices do move lower this year, it will be the first time they have done so since the Great Depression.

The Distressed Recovery rating of class J of GS Mortgage Securities Corp. II's commercial mortgage pass-through certificates, series 1998-C1, has been downgraded from DR5 to DR6 by Fitch Ratings.In addition, Fitch assigned a Distressed Recovery rating of DR2 to class H. (Distressed Recovery ratings range from DR1, the highest, to DR6 to designate a transaction's recovery prospects.) One other class in the deal was upgraded, and the ratings on seven other classes were affirmed. Fitch attributed the downgrade to increased expected losses on specially serviced loans. The rating agency can be found online at http://www.fitchratings.com.

The Chicago Board of Trade has designated Feb. 21 as the date of launch for its previously announced stock index futures contract based on the Dow Jones U.S. Real Estate Index.The contract, which will allow market participants to capitalize on changes in the real estate sector of the stock market and manage their commercial real estate exposure, will settle to the value of the Dow Jones U.S. Real Estate Index, which is composed primarily of real estate investment trusts. The CBOT can be found online at http://www.cbot.com.

Fidelity National Real Estate Solutions Inc., Jacksonville, Fla., has acquired Go Apply, a provider of online mortgage leads based in Aliso Viejo, Calif., for an undisclosed amount.FNRES is a majority-owned subsidiary of Fidelity National Financial Inc., a provider of title and other specialty insurance. "Go Apply will provide a tremendous platform to deliver consumer traffic to Cyberhomes.com, a newly created [FNRES] real estate portal that generates leads by offering home evaluation tools to consumers," said William P. Foley II, FNF's chairman and chief executive officer. The companies can be found online at http://www.fnf.com and http://www.goapply.com.

Freddie Mac closed a record $28.8 billion in new multifamily business transactions in 2006, a 10% increase from $26.2 billion in 2005, according to the government-sponsored enterprise.The volume includes approximately $1.2 billion in targeted affordable housing products, which financed about 478,000 apartment homes affordable to families earning low or moderate incomes, Freddie Mac said. Other highlights of Freddie's multifamily business in 2006 include: over $12 billion through Freddie Mac's flow programs; over $2 billion through its structured programs, including more than $360 million in targeted affordable housing products and $1.4 billion in commercial mortgage-backed securities small-loans volume; approximately $1.5 billion in seniors housing mortgages related to the flow program; $500 million in low-income housing tax-credit investments; and over $14 billion in CMBS activity, excluding small-loans volume. The GSE can be found online at http://www.freddiemac.com.

A lot of capital chasing commercial real estate deals has led to a relaxation in underwriting standards, according to panelists at a session on underwriting quality at the MBA's commercial real estate finance convention in San Diego."It's an efficient market, and it's working right now," said Susan Branscome, a principal with Q10 Triad Capital Advisors, adding that she is seeing a reduced emphasis on equity in deals. Conduits have become more aggressive in the last couple of years, and the life companies have followed suit to keep up, Ms. Branscome said. Michael Bellissimo, chief underwriter at Arbor Commercial Mortgage, predicted that there may be "some hiccups" when it comes time to refinance the loans. Michael Gerdes, a senior credit officer/vice president at Moody's Investors Service, observed that the rating agency is seeing more non-stabilized assets that used to be the domain of equity investors. Collateralized debt obligations and commercial mortgage-backed securities avenues are efficient financing vehicles, and that efficiency has allowed originators to search out new property types, he said. All this "fishing" has led to a deterioration in fundamentals, he says.

Originations of commercial and multifamily loans by mortgage bankers were only 3% higher in the fourth quarter of 2006 than in the fourth quarter of 2005, according to the Mortgage Bankers Association.Hotel properties were at the forefront, with a 20% increase in loans on hotels from the level of a year earlier, followed by office properties, which saw an 8% increase in originations over the same period, the MBA reported at its 17th Annual Commercial Real Estate Finance Convention in San Diego. Lending on retail and health care properties was down 5% and 7%, respectively, in the fourth quarter compared with levels recorded a year earlier. Breaking down the figures by investor type, mortgage bankers' originations for commercial mortgage-backed securities conduits, and other securitization vehicles, were up 32% compared with those of the fourth quarter of 2005. But originations were down 7% for commercial banks, 30% for life insurance companies, and 4% for government-sponsored enterprises, the MBA reported. However, compared with the third quarter of 2006, fourth-quarter origination activity showed increased lending activity on multifamily, office, retail, industrial, and health properties. Originations were up 27% compared with those of the third quarter. The MBA can be found online at http://www.mortgagebankers.org.

Mortgage Lenders Network USA, Middletown, Conn. -- once a top-15 subprime lender -- filed for Chapter 11 bankruptcy protection on Feb. 5, a spokesman for the company has confirmed to MortgageWire.The filing comes a few days after MW broke the news that Marathon Asset Management, New York, which had considered investing in the struggling company, had pulled out of talks with the nondepository. At deadline time MLN was preparing a statement. MLN recently began cutting workers in its servicing department. In late December, faced with a liquidity crisis, it closed the wholesale unit that accounted for 90% of its production. It has since been barred from funding new loans by several states. Its warehouse providers have included Merrill Lynch and RFC-GMAC. It owns roughly $17 billion in housing receivables. MLN can be found on the Web at http://www.mlnapproves.com.

A pair of powerhouses in the mortgage insurance business, MGIC Investment Corp., Milwaukee, and Radian Group Inc., Philadelphia, have agreed to merge.MGIC will exchange one share of its common stock for every 0.9658 shares of Radian. Late Tuesday morning Radian was trading at $66.35, up $5.51, while MGIC stood at $69.66, up $6.73. In a conference call discussing the deal, MGIC chairman and chief executive Curt Culver said half-jokingly that the move was about "re-establishing my credibility," as he has been preaching about mortgage insurance industry consolidation for the past five years. The parties project savings of $128 million annually as a result of the combination. They also project lost flow business volume of $12 billion in new insurance written by 2008. According to the Quarterly Data Report, the parties will have a combined market share of policies in force of nearly 38%. MGIC is already the largest player in the industry, with $173.4 billion of insurance in force, while Radian is ranked third, with $115.3 billion. Meanwhile, an early opinion on the transaction from Fitch Ratings has placed MGIC on Rating Watch Negative. Citing competitive pressures, Fitch said the merger "makes economic and strategic sense, and if consummated, the new entity will solidify its position as the premier mortgage insurer in the U.S." However, the deal would increase MGIC's risk profile, Fitch said.

Wachovia Securities has retained its position at the top of the Mortgage Bankers Association's annual ranking of commercial and multifamily mortgage loan servicers in total primary and master servicing volume, at $306.6 billion.Following Wachovia are Capmark Finance, with $229.3 billion; Midland Loan Services, with $213.4 billion; Wells Fargo, with $132.9 billion; and KeyBank Real Estate Capital, with $105.5 billion. (These companies are also the top primary and master servicers, in the same rank order, for commercial mortgage-backed securities, except that Bank of America NA ranks fifth instead of KeyBank.) Rankings of servicing for life company loans place GEMSA Loan Services at the head of the list, the trade group reported, followed by Prudential Asset Resources, Midland, NorthMarq Capital, and Capmark. Midland is ranked No. 1 for servicing of Fannie Mae and Freddie Mac loans, followed by Deutsche Bank Commercial Real Estate, Wachovia, Capmark, and ARCS Commercial Mortgage. Wachovia is No. 1 for servicing of commercial bank and savings institution loans. The MBA can be found online at http://www.mortgagebankers.org.