Originations

Accelerating subprime foreclosures reached 4.13% in November, up 72% over the previous 12 months, according to a report by Friedman, Billings, Ramsey & Co.The foreclosure rate has jumped 174 basis points since November 2005, when it stood at 2.39%. Following the last recession, the subprime foreclosure rate almost reached 10% in 2002, according to the Mortgage Bankers Association. "We don't think that we will get to that level again, because we have a good job market," said MBA senior economist Mike Fratantoni. He said he does not expect another recession for several years and believes that the strong job market will keep foreclosures at a manageable level. The FBR report, based on data from subprime securitizations, also shows that the default rate on subprime loans hit 10.1% in November, up 347 bps since November 2005. (The default rate includes loans 90 days or more past due, foreclosures, and real estate owned.)

Vornado Realty Trust, a real estate investment trust based in Paramus, N.J., has submitted an alternate proposal to acquire Equity Office Properties Trust, a Chicago-based REIT, that would offer cash up front to Equity Office shareholders.Equity Office's board of trustees unanimously reaffirmed its support late last week for a proposed acquisition by affiliates of The Blackstone Group valued at $54 per share, despite a revised $56-per-share offer by Vornado. Vornado said Feb. 4 that Equity Office had "raised concerns about the speed and certainty of the Vornado offer," and that to address those concerns it was making an alternate proposal "to pay the full cash portion of its offer up front and with certainty." This would be accomplished via a merger agreement requiring Vornado to make an upfront tender offer to buy up to 55% of Equity Office shares for $56 per share in cash and to complete a follow-on merger, Vornado said. Vornado can be found online at http://www.vno.com, and Equity Office can be found at http://www.equityoffice.com.

Indianapolis-based Simon Property Group Inc. and San Francisco-based Farallon Capital Management LLC have announced a proposal to acquire The Mills Corp., a real estate investment trust based in Chevy Chase, Md., for $24 per share in cash.Simon, a retail REIT, and Farallon, an investment management firm, said the proposal represents a higher price than is offered in the existing Mills agreement with Brookfield Asset Management Inc. and "would enable Mills shareholders to receive payment at least six months before the publicly announced expected closing date for the Brookfield transaction." Funds managed by Farallon own approximately 10.9% of The Mills' outstanding common stock, making them the largest reported Mills shareholder, the companies said. The Mills said the merger agreement with Brookfield is still in effect, but that its board will "promptly consider" the Simon/Farallon proposal. The companies can be found online at http://www.simon.com, http://www.faralloncapital.com, and http://www.themills.com.

Root Markets Inc., the New York-based lead-exchange platform whose chairman is mortgage veteran Lew Ranieri, has acquired LeadROI, a provider of mortgage lead and customer relationship management systems headquartered in Costa Mesa, Calif.The terms of the deal were not disclosed. "Together, Root Exchange and Root LeadROI offer unparalleled technology and customer service in the new era of acquiring and managing leads," said Marcia Myerberg, chief executive of Root Markets. "The Root Exchange allows lenders and brokers to immediately diversify their lead sources and be assured they are paying fair market prices." Ms. Myerberg said Root LeadROI "picks up where the Root Exchange leaves off," enabling the companies to offer "unique end-to-end solutions designed to close the loop between lead generation and lead conversion and enhance the value of purchased leads." Lead aggregators who participate on LeadROI will be able to be sellers on Root Exchange. The companies can be found online at http://www.rootexchange.com and http://www.leadroi.com.

The class A notes issued by HarbourView CDO III Ltd., a collateralized debt obligation that includes mortgage-backed securities, has been downgraded from B to A-minus by Fitch Ratings.Fitch also lowered the Distressed Recovery rating on the class B notes from DR5 to DR6, and assigned a DR2 rating to the class A notes. The rating agency said the deal has been in default since March 2005, when the principal balance of the collateral debt securities fell below the aggregate balance of the rated notes. HarbourView III has exited its reinvestment period with a portfolio consisting chiefly of "diversified structured finance assets" as well as corporate debt and the debt of real estate investment trusts, the rating agency said. Fitch can be found online at http://www.fitchratings.com.

U.S. industrial real estate markets experienced steady demand in the fourth quarter despite the fact that rents and construction did not increase as much as expected, according to Colliers International, a Boston-based global real estate services firm.The markets absorbed 50.9 million square feet of industrial space in the quarter, compared with 48.4 msf in the third quarter and 57.5 msf a year earlier, Colliers said. "The warehouse market is poised for steady performance in 2007, although all eyes will be on the supply side, which is beginning to show signs of oversupply," said Ross Moore, the organization's senior vice president and director of market and economic research. "Vacancy levels are unlikely to retreat, and have largely hit bottom for this cycle -- but we don't expect a major increase anytime soon." Colliers can be found online at http://www.colliers.com.

The Eleventh Federal Home Loan District Cost of Funds Index increased nearly 4 basis points in December, bringing it to 4.396%.The index is a weighted average calculation of the cost of mortgage money for thrifts that belong to the Federal Home Loan Bank of San Francisco. The rise wiped out all that was left of the rate decline that took place in October. COFI increased 110 bps for the year, the same as in 2005. COFI is now at its highest level since May 2001. For comparative purposes, the Freddie Mac Primary Mortgage Market Survey found that the monthly average commitment rate for the one-year adjustable rate mortgage peaked at 5.79% in July. Through December, the average rate declined 34 bps. However, the most recent survey, Feb. 1, has the average back up to 5.54%.

Nearly half of all consumers say they think a collapse of housing prices is very likely (16%) or somewhat likely (31%) in their local residential real estate market within three years, according to the latest Experian-Gallup Personal Credit Index survey.This is up from 37% in May 2005 and 42% in April 2006, Experian reported. Fears of a potential housing price collapse are greater in the West (52%) and the East (49%) than in the South (44%) and the Midwest (41%). "Housing market conditions may not have reached bottom at this point, with 57% of renters thinking there is the potential for a price collapse in their local areas over the next few years and 18% of all Americans expecting prices to decline during the year ahead," said Ty Taylor, president of Experian Consumer Direct. The index can be found online at http://www.personalcreditindex.com.

The board of trustees of Equity Office Properties Trust, Chicago, has unanimously reaffirmed its support for a proposed acquisition by affiliates of The Blackstone Group valued at $54 per share, despite a revised $56-per-share offer by Vornado Realty Trust, Paramus, N.J.Under the revised Vornado offer, each Equity Office share would convert into $31 in cash (plus pro rata dividends to the closing) and Vornado common shares valued at $25, except that the fraction of a Vornado share issued per Equity Office share would not be less than 0.1852 or more than 0.2174. In late January, Blackstone raised its offer to acquire Equity Office to $54 per share in cash. Equity Office said its board believes that the higher Vornado bid "fails to adequately compensate Equity Office shareholders for the increased risk when compared to the Blackstone transaction." Equity Office, the largest real estate investment trust by market capitalization in the United States, can be found online at http://www.equityoffice.com. Vornado can be found at http://www.vno.com, and Blackstone can be found at http://www.blackstone.com.

In addressing predatory lending, Rep. Maxine Waters, D-Calif., says she also wants to make sure that blacks and Hispanics have access to prime mortgages and are not forced into higher-priced subprime loans."I am very much focused on the fact that we continue to get substantial documentation that people of color pay more for loans," the new housing subcommittee chairwoman told the National Association of Affordable Housing Lenders. "We cannot have African-Americans and Latinos, who earn the same amount of money as a Caucasian, pay their bills equally as well, but they are only offered subprime loans and pay more for their mortgages. That has got to stop." Rep. Waters said the new leaders of the House Financial Services Committee recognize the seriousness of this kind of discrimination. "We are going to fix it," she said.

Officials from Citigroup have been inspecting the offices of Ameriquest Mortgage in California, and may be preparing to make a bid on the subprime giant, industry sources have told MortgageWire.One source said Citigroup sent a group of executives to Ameriquest's corporate offices in Orange, Calif., and to another location in Rancho Cucamonga. The source -- and another official -- said Citigroup may be eyeing Ameriquest's servicing unit, which has about $60 billion in receivables. Meanwhile, a hedge fund called Ellington Management out of Old Greenwich, Conn., has also expressed interested in Ameriquest, sources said, though it is unclear how serious it is about the company. A Citigroup spokesman said the bank does not comment on market rumors, and an Ameriquest spokesman said the same. Ellington could not be reached for comment. (For more details, see the Feb. 5 issue of National Mortgage News.)

Mortgage lenders dropped 6,500 full-time employees from their payrolls in December, and the correction in the subprime sector is starting to show up in the government's job figures.The U.S. Bureau of Labor Statistics reported that employment in the mortgage banking/broker sector declined from 501,200 in November to 494,700 in December. The BLS also revised downward the November and October job numbers, and the statistics now indicate that the industry cut 10,000 employees during the last two months of 2006. Industry economists have been expecting a retrenchment for some time, even though mortgage originations declined by only 7% in 2006 from the level of the previous year. A preliminary estimate by NMN's Quarterly Data Report shows that one- to four-family originations totaled $3.1 trillion last year, down from $3.3 trillion in 2005. However, home sales were down 10% last year, and the purchase mortgage business is more labor-intensive than refinancings. Housing economists are forecasting another 5% to 7% drop in originations in 2007. The Bureau of Labor Statistics can be found online at http://stats.bls.gov.

Two classes of certificates from Meritage Mortgage Loan Trust 2004-1 have been placed on review for possible downgrade by Moody's Investors Service.The class M-8 and B-1 notes are backed by average subprime collateral, consisting primarily of adjustable-rate mortgages, the rating agency said. Moody's said it will assess "whether rate resets and resulting prepayments may have contributed to the deterioration in credit quality of the pool in the past year, resulting in higher-than-expected projected tail-end losses."

NorthStar Realty Finance, a New York-based real estate investment trust, has announced the pricing of a public offering of 5.4 million shares of 8.25% series B cumulative redeemable preferred stock at $25 per share.The underwriters have been granted an option to buy up to 810,000 additional shares to cover any overallotments. Bear, Stearns & Co. and Wachovia Securities are the joint book-running managers of the offering. The REIT can be found online at http://www.nrfc.com.

Boston Properties Inc., a Boston-based real estate investment trust, has announced the pricing of $750 million of exchangeable senior notes issued by its subsidiary Boston Properties LP.The offering had an initial exchange rate of 6.6090 common shares per $1,000 principal amount of the notes, representing an exchange price of approximately $151.31 per common share, the REIT reported. The initial purchasers have been granted an option to buy up to $112.5 million in additional notes to cover any overallotments. The REIT can be found online at http://www.bostonproperties.com.

Echoing what happened 12 months earlier, December 2006 was the best month of the year by far for the members of the Mortgage Insurance Companies of America in terms of primary new insurance written.The reason for that, as it was in December 2005, was that the dollar volume of bulk transactions topped the dollar volume of traditional transactions for the month. In fact, the $14.2 billion written in the bulk channel alone for December was more than any month written in the traditional channel during 2006 (with the exception of August). With $13.1 billion coming through the traditional channel in December, the $27.3 billion tops the $22.2 billion recorded in June. The worst month was January 2006, when volume totaled $13.6 billion. At the end of 2005, primary insurance in force totaled $668.4 billion, up from $615.1 billion a year earlier. New pool risk written in December totaled $413.7 million. The cure/default ratio reached its lowest level of the year, 68.6%, with 32,177 cures and 46,921 defaults reported.

A leading indicator of existing-home sales recorded its biggest gain in nearly three years in December, although it was still below the level recorded a year earlier, according to the National Association of Realtors.The NAR reported that its index of pending home sales rose from 107.2 in November to 112.4 in December, a 4.9% increase, but it was down 4.4% from the level of December 2005. It was the biggest increase since March 2004, when the index rose 6.9%. NAR chief economist David Lereah said the moderate rise in resale contracts is a welcome relief for the real estate markets. "Some of the monthly gain may be weather-related, but it appears buyers are becoming more comfortable, sensing the timing is good and that their local market has bottomed out," Mr. Lereah said. The NAR index rose 8.1% in December in the Northeast, 5.3% in the West, 4.3% in the South, and 3.2% in the Midwest. The NAR can be found online at http://www.realtor.org.

The average 30-year fixed mortgage rate rose from 6.25% to 6.34% over the seven-day period ended Feb. 1, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose from 5.98% to 6.06%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages climbed from 6.00% to 6.04%, and the average rate for one-year Treasury-indexed ARMs increased from 5.49% to 5.54%, Freddie Mac reported. Fees and points averaged 0.4 of a point for fixed-rate mortgages, 0.6 of a point for hybrid ARMs, and 0.7 of a point for one-year ARMs. "Interest rates moved higher following the latest upbeat economic news," said Frank Nothaft, Freddie Mac's chief economist. "The strong 3.5% annualized growth in the economy over the final quarter of 2006 occurred while inflation moderated." A year ago, the average 30-year and 15-year fixed rates were 6.23% and 5.81%, respectively, and the average hybrid and one-year ARM rates were 5.87% and 5.33%, respectively, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

Wayne Lee, a 15-year veteran of Ameriquest Capital Corp., is suing the company, alleging that it reneged on a $50 million consulting deal, while its owner -- the current ambassador to the Netherlands -- blocked badly needed operational reforms.Filed late last week, the lawsuit alleges that company owner Roland Arnall (currently an ambassador) "blocked" reforms that might have helped the subprime giant stem allegations that it engaged in abusive lending practices. A year ago Ameriquest agreed to pay $325 million to settle claims with 49 states that it engaged in abusive lending practices. Mr. Lee headed Argent Mortgage, an Ameriquest company, until June 2004 when he was promoted to chief executive of ACC Capital Holdings, where he oversaw both Ameriquest Mortgage (Ameriquest's retail arm) and Argent, a wholesaler. (Argent was not a party to the Ameriquest/ACC settlement.) Mr. Lee resigned 11 months later, agreeing to a $20 million lump sum payment and five installments of $6 million a year. He contends that ACC paid the $20 million, but not the first installment that was due in mid-June of last year. In a statement, Ameriquest's attorney Bernard LeSage called Mr. Lee's complaint a "ridiculous work of fiction." (For the full story, see the Feb. 5 issue of National Mortgage News.

Mortgage industry representatives will have a chance to calm fears that a wave of subprime foreclosures could reach crisis proportions over the next few years when they testify before the Senate Banking Committee on Feb. 7.Committee Chairman Christopher J. Dodd, D-Conn., has scheduled the hearing, entitled "Preserving the Dream: Predatory Lending Practices and Home Foreclosures," largely in response to a Center for Responsible Lending study indicating that 20% of all adjustable-rate subprime mortgages originated in 2005 and 2006 will end up in foreclosure. Citing the CRL study, Sen. Dodd said recently that 2.2 million families with nontraditional or subprime loans made since 1998 "have faced or will soon face foreclosures because of mortgage lending practices that have been described as 'predatory' in nature." Executives from the CRL, the Mortgage Bankers Association, the National Association of Mortgage Brokers, and others will testify, including two consumers.