Originations

Marathon Asset Management, New York, which had considered investing in the struggling Mortgage Lenders Network USA, has pulled out of talks with the company, according to one MLN source.Marathon, an asset management company, was believed to be the one investor mentioned in company e-mail messages sent by chief executive Mitch Heffernan -- but not identified -- as being the firm's financial savior. A former official in MLN's servicing unit said the company has now commenced cuts in that division as well. He said remaining employees now believe that the lender will file for bankruptcy protection. Marathon did not return a telephone call about the matter. MLN had not commented at deadline time. Last week the nondepository laid off 180 employees that worked in its retail division in Middletown, Conn. Two weeks ago, MLN cut loose 832 people who had been on furlough. (For the full story, see the Jan. 29 issue of National Mortgage News.) MLN can be found on the Web at http://www.mlnapproves.com.

HFF Inc., a Pittsburgh-based provider of commercial real estate and capital market services, has announced the pricing of its initial public offering of 14.3 million shares of class A common stock at $18 per share.The underwriters have been granted an option to buy up to 2.145 million additional shares to cover any overallotments. The joint book-running managers of the IPO are Goldman, Sachs & Co. and Morgan Stanley & Co. HFF, the parent company of Holliday Fenoglio Fowler LP and HFF Securities LP, said the shares are slated to trade on the New York Stock Exchange under the symbol HF.

Eagle Hospitality Properties Trust, Covington, Ky., has set up a special committee of independent directors to explore strategic options, including a possible sale of the company.The real estate investment trust reported that it has retained Morgan Stanley as its financial adviser. Eagle can be found on the Web at http://www.eaglehospitality.com.

The Market Composite Index, an overall measure of mortgage applications, rose from 611.3 to 631.3 on a seasonally adjusted basis during the week ended Jan. 26, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications increased 5.9% on the week and were up 0.7% from the level recorded a year earlier. The Purchase Index rose from 402.7 to 408.0 on a seasonally adjusted basis, while the Refinance Index rose from 1848.8 to 1940.2. Refinancings represented 47.4% of total applications, down from 47.8% the previous week, while adjustable-rate mortgages accounted for 21.4%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 6.22% to 6.29%, and points (including the origination fee) rose from 0.97 to 1.07 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Second-lien originator DeepGreen Financial, Cleveland, has gone out of business, according to officials close to the situation.Owned by Lightyear Capital, a New York-based investment fund, DeepGreen's telephones no longer answer, and its website has been shut down. Lightyear Capital -- headed by former PaineWebber chief Don Marron -- declined to comment. In late 2003, Third Federal Savings and Loan of Cleveland sold the online lender to Lightyear for an undisclosed sum. DeepGreen's president was mortgage industry veteran Sy Naqvi, who once headed PNC Mortgage. Mr. Naqvi could not be reached for comment. Since its inception in 2000, DeepGreen funded $5 billion in loans.

The senior unsecured debt rating of Reckson Operating Partnership LP has been downgraded from Baa3 to Ba1 by Moody's Investors Service in the wake of SL Green Realty Corp.'s acquisition of Reckson Associates Realty Corp.The rating remains under review for possible downgrade. Moody's said Reckson's bondholders "are in a weaker position" after the closing because the transaction results in greater leverage and asset concentration. "Moody's does not expect near-term changes in SL Green's current capital strategy, which utilizes high levels of secured debt, total effective leverage, and joint venture funding," the rating agency said. "Reckson's ratings were downgraded as a result of the geographic, asset, and tenant concentrations within the combined portfolio." Moody's can be found online at http://www.moodys.com.

The sharp growth in commercial real estate lending at U.S. banks (especially construction and land development loans) and increased reliance on noncore funding sources pose heightened risks to the banking industry, according to a report by A.M. Best Co., Oldwick, N.J.The weakening consumer credit market has prompted banks to boost commercial real estate lending to offset the slowdown, the report says. The banking industry's assets grew twice as fast as deposits (based on third-quarter 2006 regulatory data), while CRE loans grew three times as fast and C&D loans grew more than five times as fast, according to A.M. Best. "As of the end of the third quarter, CRE stood at a record 14.2% of total assets, which makes these trends particularly distressing," the company said. A.M. Best can be found online at http://www.ambest.com.

Health Care Property Investors, a Long Beach, Calif.-based real estate investment trust, has announced the promotions of six executives to the senior vice president level or above.Edward J. Henning, who joined the company in 1994, was promoted to executive vice president, general counsel, and corporate secretary, and Mark A. Wallace was promoted to executive vice president, chief financial officer, and treasurer. Promoted to senior vice president were George Doyle, SVP and chief accounting officer; Brian J. Maas, SVP and associate general counsel; Stephen Robie, SVP of financial planning and analysis; and Timothy Schoen, SVP of investment management. The company also announced the hiring of Susan M. Tate as senior vice president of asset management. The REIT can be found online at http://www.hcpi.com.

NHB Holdings Inc., Jacksonville, Fla., has announced the receipt of regulatory approval to launch Proficio Bank to market specialized banking and mortgage services to the relocation, homebuilding, and real estate brokerage industries.NHB said the new company was formed when executives from the three industries saw an opportunity to create a specialty bank to serve the industries' needs. "Proficio addresses unique market, product, and service needs in these industries and provides these companies the opportunity to work with a financial institution that specializes in their industry," said William G. Slagle, founder and chairman of NHB Holdings and chairman of Proficio Bank. The companies can be found online at http://www.nhbholdings.com, http://www.proficiobank.com, and http://www.proficiomortgage.com.

Moving from one end of the credit spectrum to the other, Merrill Lynch, New York, has agreed to acquire luxury home lender First Republic Bank, San Francisco, in a deal valued at $1.8 billion.First Republic specializes in working with high-net-worth individuals and has expertise in luxury home lending. Merrill Lynch's most recent acquisition was nonprime mortgage company First Franklin, and it was also an investor in the now-defunct OwnIt Mortgage Solutions. The 12th edition of the Mortgage Industry Directory lists First Republic as the 126th-largest lender for 2005, with total production of $2.4 billion (all through the retail channel). As of Dec. 31, 2005, it had a servicing portfolio of $7.8 billion, the MID said. In 2005, First Republic did $71 million in commercial loans (including multifamily, office, hotel, and retail properties). After the deal closes, First Republic will be operated separately as a division of Merrill Lynch Bank & Trust Co. FSB, and its current management team of Jim Herbert, president and chief executive, and Katherine August-deWilde, chief operating officer, will retain their positions. The companies can be found online at http://www.merrilllynch.com and http://www.firstrepublic.com.

Countrywide chief executive Angelo Mozilo estimates that 40 to 50 subprime firms are going out of business each day, a trend that likely will continue all year.During a conference call discussing Countrywide's earnings, Mr. Mozilo -- in response to a question -- said analysts are seeing reports of two to three firms failing each day, but that the number is much larger. Addressing the carnage in the subprime sector, Mr. Mozilo said, "I think we have a way to go on that." Company president David Sambol said Countrywide is beginning to see its subprime volume increase because of all the firms leaving the sector. Meanwhile, Mr. Mozilo declined to comment on news reports that the company might be talking to Bank of America about an alliance in mortgages or a merger.

Countrywide Financial Corp., Calabasas, Calif., has reported slightly lower fourth-quarter earnings than in the fourth quarter of last year, but also revealed a huge jump in accumulated negative amortization on its payment-option ARM portfolio.According to the lender's earnings statement, it holds $32.7 billion in option adjustable-rate mortgages on the balance sheet of its bank, a 23% gain from last year. But its option ARMs have accumulated negative amortization of $653 million -- a stunning increase of 782% over 12 months. Countrywide earned $622 million in the fourth quarter (down 3%), but had record earnings of $2.67 billion for the year. It funded $124 billion in the fourth quarter (mostly residential), an 8% drop from that of the fourth quarter of 2005. Acquisitions by its capital markets conduit fell 69%, to $2.7 billion. Countrywide now services $1.298 trillion in loans, a 17% increase from a year ago. The company can be found online at http://www.countrywide.com.

Adoption of a "suitability standard" would reverse long-standing efforts to increase homeownership and fairness in lending and put pressure on lenders to deny credit in order to protect themselves from liability, according to a position paper issued by the Mortgage Bankers Association."A subjective suitability standard, combined with a private right of action, would be a poison pill for the dream of homeownership for all except the most economically secure Americans," said MBA's top lobbyist, Kurt Pfotenhauer. The MBA has issued the 34-page position paper to marshal legal and economic arguments in an effort to warn Congress about the damage that could be done by inserting a suitability standard into a predatory-lending bill. (Under such a standard, brokers and lenders would be required to provide the loan most "suitable" for each borrower's circumstances.) Consumer groups are pushing for a suitability standard, and their efforts have gained traction on Capitol Hill. The position paper also takes issue with the notion that specific loan products, specifically adjustable-rate subprime loans, are driving foreclosures up. The MBA stresses that its data continue to show that job loss, divorce, medical problems, and other personal difficulties are the main reason for rising delinquencies and defaults. The MBA can be found online at http://www.mortgagebankers.org.

Class M-11 of J.P. Morgan Mortgage Acquisition Corp. asset-backed pass-through certificates, series 2005-FRE1, has been placed on Rating Watch Negative by Fitch Ratings.Fitch also affirmed the ratings on 18 other classes in the transaction. The negative rating action was attributed to "early trends in the relationship between serious delinquency and credit enhancement." The collateral pool consists of fixed- and adjustable-rate subprime mortgage loans originated by Fremont Investment and Loan. Fitch can be found online at http://www.fitchratings.com.

Clayton Holdings, Shelton, Conn., has announced the introduction of fraud detection services designed to protect conduits, Wall Street issuers, and holders of mortgage-backed securities from losses due to origination fraud and breaches of representations and warranties.Clayton said the new services draw upon its "extensive" due diligence and credit risk surveillance experience. They include: high-risk loan identification; expanded fraud reviews; put-back reviews; and trend analysis. "We're drawing on the breadth and depth of our data, experience, and technology to spot issues prior to securitization, and we have the analytics and surveillance tools to identify exceptions that, when cured, enhance bond performance," said Keith Johnson, Clayton's president and chief operating officer. "Our new fraud services not only reduce fraud and early payment default exposure, but increase client efficiency and enhance understanding of this problem." The company can be found online at http://www.clayton.com.

A recent report by a consumer advocacy group predicting a wave of foreclosures on 2/28 adjustable-rate mortgages is "grossly inaccurate," according to the Coalition for Fair & Affordable Lending, a subprime lending group."Traditional hybrid ARMs are neither a significant problem nor a disaster waiting to happen as some have claimed," CFAL executive director Wright Andrews says in a letter to federal and state banking regulators. The CFAL argues that foreclosure rates on subprime ARMs will be dramatically less than the 20% predicted in the Center for Responsible Lending study. But the CRL is not projecting a 20% foreclosure rate, according to CRL senior vice president Eric Stein. The study shows that 20% of the subprime ARMs originated in 2006 will end up in foreclosure over the life of the loans. "That is a totally different question that the CFAL letter does not address," Mr. Stein said.

Residential Funding Corp., a unit of GMAC, has told the struggling Mortgage Lenders Network USA, Middletown, Conn., and an affiliate that it is terminating their right to service loans for RFC.The announcement came late Jan. 26 after the market closed. It is unclear how many loans MLN and its Virgin Islands-based affiliate, Emax Financial Group, service for RFC. Meanwhile, this past weekend MLN laid off 180 employees that worked in its retail division in Middletown. About 10 days ago MLN cut loose 832 people who had been on furlough. It now employs less than 780, compared with 1,800 in early December. MLN is the subject of temporary cease-and-desist orders in all of New England, Pennsylvania, and Michigan. The C&D orders prohibit it from funding new mortgages. MLN services about $17 billion in loans. An auction of $3 billion in servicing rights belonging to MLN was recently scuttled last week, according to the Jan. 29 issue of National Mortgage News.

Sandler O'Neill, which has been following Countrywide's stock for years, says it is unlikely that Bank of America will buy the nation's largest mortgage banking firm.In a research note issued Jan. 26, Sandler analyst Mike McMahon declared that "one way for a commercial bank to destroy market value is to buy a big mortgage company." However, Mr. McMahon writes that the "likely scenario" is that Countrywide is talking to BoA about a possible outsourcing arrangement whereby Countrywide would process (and presumably service) residential mortgages for the bank. Countrywide, which has a depository affiliate, has scheduled its fourth-quarter earnings conference call for noon on Jan. 30. Presumably, the BoA issue will come up during the call.

Bank of America, Charlotte, N.C., and Countrywide Financial Corp., Calabasas, Calif., are involved in talks about combining forces in mortgages, according to a report by The Financial Times.BoA and Countrywide declined to comment. A few years back, National Mortgage News reported that Countrywide and Bank of America were discussing an outsourcing arrangement whereby Countrywide would originate and service loans for the bank under a "private-label" arrangement. BoA eventually passed on the deal, said an executive familiar with the talks. The Financial Times also reported Friday that the two parties might be engaged in merger talks. One analyst who follows Countrywide said it is more likely that the firms would strike a deal in regard to outsourcing as opposed to a merger.

The national office market posted a strong fourth quarter as demand for office space exceeded expectations nationwide, according to Colliers International, a Boston-based commercial real estate manager.Office vacancies totaled 12.55% in the fourth quarter, down from 12.73% in the third quarter and 13.59% in the fourth quarter of 2005, Colliers reported. Both downtown and suburban asking rents increased in the fourth quarter, rising 6.4% and 3.6%, respectively. "The story of Q4 was, without question, rents," said Ross Moore, senior vice president and director of market and economic research at Colliers. "We anticipated this trend, but certainly not to this extent." Absorption totaled 24.4 million square feet, up from 23.4 million square feet in the third quarter but down from 27.8 million square feet a year earlier. The company can be found online at http://www.colliers.com.