Originations

The housing market may already have hit bottom, but homebuilders are likely facing a slow recovery, according to Standard & Poor's Ratings Services.S&P said the reasons for this expectation are affordability problems in key coastal markets, a glut of unsold homes that could worsen, and a reluctant consumer that is still waiting for the market to hit bottom despite builders' price concessions. "Our bet is on a slower recovery with plenty of mixed signals and false starts along the way as undercapitalized homebuilders falter and consumers maintain their pricing power," said S&P credit analyst James Fielding. "The picture is likely to become clearer after the first half of 2007, when homebuilders report results from the important spring selling season." The S&P report is titled "Industry Report Card: Mixed Signals and False Starts Ahead in the U.S. Homebuilding Sector." The rating agency can be found online at http://www.standardandpoors.com.

Homebuilders are forecasting that housing starts will bottom out early next year, but they say they still expect a 15% decline in single-family starts, similar to this year's decline.Housing starts will be negative in the first quarter and steadily increase over the next three quarters, according to National Association of Home Builders economist David Seiders. New-home sales will be flat in 2007 after this year's 17.6% decline, he told reporters. Meanwhile, purchase mortgage originations declined this year, and Fannie Mae chief economist David Berson says he expects a larger decline in 2007. "It will be the first two-year fall in purchase originations since the early '90s," Mr. Berson said. His forecast calls for purchase originations to decline to $1.28 trillion in 2007, down from $1.45 trillion in 2006 and $1.51 trillion in 2005. Existing-home sales should be off 1% in 2007 following a 9% decline in 2006, according to National Association of Realtors chief economist David Lereah.

Opteum Inc., a real estate investment trust based in Vero Beach, Fla., has reported a consolidated net loss of $6.3 million ($0.25 per share) for the third quarter, compared with net income of $7.9 million ($0.37 per share) a year earlier.The REIT also reported a consolidated net loss of $15.6 million ($0.64 per share) for the nine months ended Sept. 30, compared with net income of $27.0 million ($1.27 per share) for the same period in 2005. Opteum announced in November that it would delay filing its third-quarter earnings report and restate earnings for the first and second quarters due to an accounting irregularity involving a subsidiary's valuation of interest-rate lock commitments. Opteum invests in residential mortgage-related securities and originates loans through its taxable REIT subsidiary, Opteum Financial Services LLC. The company can be found on the Web at http://www.opteum.com.

NNN Realty Advisors Inc., a commercial real estate management and services firm based in Santa Ana, Calif., has announced the acquisition of NNN Capital Corp., a broker-dealer.The terms of the transaction were not disclosed. NNN Capital is now a 100%-owned subsidiary of NNN Realty, the latter company reported. NNN Realty is the parent company of Triple Net Properties LLC and Triple Net Properties Realty Inc., as well as NNN Capital.

Homebuilding came in second only to the automotive industry in a recent poll as the industry facing the greatest financial or operational difficulties in the coming year, according to the Chicago-based Turnaround Management Association.In the association's annual Trend Watch poll, 58% of the respondents named homebuilders as likely to face the worst difficulties, compared with 74% who picked the automotive industry. (Respondents were not limited to only one choice.) Construction and contractors were named by 36%, and the manufacturing sector got the nod from 26%, the TMA reported. "Homebuilders are sitting on undeveloped land they once considered assets," said Tom Henderson, a Houston attorney who serves on the TMA's international board of directors. "Now the land's become just another form of liability, as sales of new homes in most markets have slowed." The association can be found on the Web at http://www.turnaround.org.

The average 30-year fixed mortgage rate rose from 6.12% to 6.13% over the seven-day period ended Dec. 21, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose from 5.86% to 5.89%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages climbed from 5.92% to 5.96%, and the average rate for one-year Treasury-indexed ARMs decreased from 5.45% to 5.44%, 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. "A quiet week for financial markets translated into a quiet week for mortgage rates as well," said Frank Nothaft, Freddie Mac's chief economist. ".... What is interesting to note is that the 30-year FRM this week is 1/8 of a percentage point lower than the 30-year FRM was at this time last year. This could bode well for housing in the new year, and indeed we have seen a spike in refinancing activity over the past few weeks as rates have come down." A year ago, the average 30-year and 15-year fixed rates were 6.26% and 5.79%, respectively, and the average hybrid and one-year ARM rates were 5.82% and 5.22%, respectively, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

With the housing market stabilizing, mortgage lenders may see stronger origination activity next year, according to an economist at Wells Fargo & Co."People may be surprised how quickly housing activity bounces back," said Scott Anderson, a senior economist at Wells Fargo. Home sales and construction are already starting to stabilize, and Mr. Anderson said he expects to see higher originations next year, mainly due to strong refinancing activity as well as increasing home sales in the second half of 2007. "It has really been a mortgage story," Mr. Anderson said. Mortgage rates are down nearly a percentage point from the peak last July, which created a surge in refinancings. In addition, purchase mortgage applications are up almost 15% over the past four weeks. "We do think we are at the bottom, and we will see an uptick in originations as well as sales and perhaps even starts," the senior economist told reporters.

Entertainment Properties Trust, Kansas City, Mo., has priced a public offering of 5.4 million shares of series C cumulative convertible preferred shares at a liquidation preference of $25 per share.The real estate investment trust said the underwriters have been granted an option to buy up to 600,000 additional shares to cover any overallotments. The REIT said the shares will be convertible into the company's common stock at any time, subject to certain conditions, at an initial conversion rate of 0.3504 common shares per $25 liquidation preference, which is equivalent to an initial conversion price of approximately $71.34 per share. Bear, Stearns & Co. is the sole book-running manager of the offering. The REIT can be found online at http://www.eprkc.com.

The Market Composite Index, an overall measure of mortgage applications, fell from 721.2 to 647.6 on a seasonally adjusted basis during the week ended Dec. 15, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 11.6% on the week but were up 13.9% from the level recorded a year earlier. The Purchase Index fell from 463.8 to 436.5 on a seasonally adjusted basis, while the Refinance Index fell from 2304.4 to 1968.8. Refinancings represented 50.8% of total applications, down from 52.6% the previous week, while adjustable-rate mortgages accounted for 23.6% (the lowest level since October 2003), the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 6.02% to 6.10%, and points (including the origination fee) fell from 1.00 to 0.93 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Almost 20% of all subprime loans funded over the past two years will wind up in foreclosure, according to a new report issued by the Center for Responsible Lending.At a news conference on Dec. 19, CRL president Mike Calhoun said that when refinancings of troubled loans are factored into the equation, one-third of all B&C loans could go bust. In particular, the nonprofit chastised mortgage bankers for qualifying borrowers -- especially minorities -- using low teaser rates (instead of the fully indexed rate). Analyzing six million subprime loans funded since 1998, the CRL said foreclosures could eventually cost consumers $164 billion. The Mortgage Bankers Association criticized the group's findings, saying the CRL's numbers are cumulative and ignore the potential for delinquent loans to be worked out prior to foreclosure. "Their projections are incredibly pessimistic," said MBA senior economist Mike Fratantoni. At the end of the third quarter, just 3.8% of subprime loans were in foreclosure, according to the MBA. One in four loans in the foreclosure category are cured prior to actually being foreclosed upon, the MBA noted. Pat Vredevoogd, president-elect of the National Association of Realtors, participated with the CRL during the news conference, but the NAR did not fund the new report. The CRL can be found online at http://www.responsiblelending.org.

Industry groups are warning federal banking regulators that any sudden action to expand the nontraditional mortgage guidance to include "2/28" adjustable-rate mortgages could create a "major disruption" in the primary and secondary mortgage markets."For these reasons and others, we believe that a full economic analysis and a notice and comment process is essential before consideration of an expansion of the guidance to hybrid ARMs," says a Dec. 20 letter signed by the nine trade groups. Federal regulators appear to be divided on the issue, but they are under pressure from Congress and consumer groups to clarify that the nontraditional mortgage underwriting guidance applies to hybrids like 2/28 and 3/27 ARMs (which have initial fixed-rate periods of two and three years, respectively). But the trade groups stress that they would have "strong concerns" about such an expansion of the guidance without a careful and deliberative process.

A U.S. appeals court in San Francisco has affirmed lower court decisions that Lehman Brothers, as a warehouse lender, is liable for the actions of a subprime lender that is engaged in fraudulent lending practices."We affirm the holdings of the district court imposing liability on Lehman for aiding and abetting a class-wide fraud perpetuated by First Alliance," Circuit Judge Richard Clifton says in Henry v. Lehman Commercial Paper. First Alliance Mortgage Co. filed for bankruptcy in 2000 to escape class action lawsuits, and a jury found Lehman was liable for $5.1 million in damages as FAMC's sole warehouse lender. The jury concluded that Lehman officials were aware of FAMC's lending practices. The appeals court overturned the $5.1 million award, however, with instructions to the district court to reduce it. Lehman Brothers declined to comment. Nevertheless, the Lehman decision puts wholesale lenders on notice that they have to act if they have knowledge of fraudulent practices. "If you have evidence to suggest that you actually know of a material violation, then you have to act on that knowledge," said Larry Platt, a partner at Kirkpatrick Lockhart Nicholson Graham in Washington.

Morgan Stanley has slashed 170 jobs at its newly acquired subprime unit, Saxon Mortgage, including president and chief executive Mike Sawyer, MortgageWire has learned.One source familiar with Saxon said senior managers Jeff Parkhurst (wholesale), John Trapp (underwriting), and Dick Shepherd (legal) have also left the company. A spokesman for Morgan Stanley confirmed the job cuts. The investment banker officially took control of the publicly traded Saxon Mortgage on Dec. 4. The Richmond, Va.-based firm ranks among the top 30 subprime lenders and servicers, according to the Quarterly Data Report. Kevin Rodman, a Morgan Stanley executive, will replace Mr. Sawyer. The Morgan spokesman said Saxon will focus its efforts on "wholesale lending and servicing." It recently closed Saxon's retail division and is consolidating different servicing locations into its platform in Fort Worth, Texas.

Glimcher Realty Trust, Columbus, Ohio, has amended its three-year unsecured credit facility, increasing its borrowing capacity from $300 million to $470 million.The initial interest rate on the amended facility is 1.05% over the London interbank offered rate, but the rate can range from 0.95% to 1.40% over LIBOR depending on the company's ratio of debt to total asset value, Glimcher said. The sole lead arranger is KeyBank Capital Markets. Glimcher, a real estate investment trust specializing in the ownership, management, and development of malls, can be found on the Web at http://www.glimcher.com.

Hospitality Properties Trust, Newton, Mass., has priced a public offering of 12 million common shares of beneficial interest at $47.51 per share.HPT said it expects to use the proceeds of the offering to fund, in part, the acquisition of TravelCenters of America and for general corporate purchases. The underwriters have been granted an option to buy up to 1.8 million additional shares to cover any overallotments. Merrill Lynch & Co. is the sole book-running manager of the offering. Hospitality Properties, a real estate investment trust that specializes in hotels, can be found on the Internet at http://www.hptreit.com.

Delinquencies on commercial mortgage-backed securities fell 4 basis points in May to 0.47%, according to a Fitch Ratings loan delinquency index.Loans on multifamily properties represented the largest percentage of the index by property type, the rating agency said. "Over the past year, multifamily delinquencies have averaged about 32% of all CMBS delinquencies, significantly higher than the average share of office and retail delinquencies of 20% and 19%, respectively, over the same time period," said Patty Bach, a Fitch senior director. Fitch can be found online at http://www.fitchratings.com.

Construction-and-development and commercial real estate loans by the U.S. banking industry rose 29.5% and 9.1%, respectively, in the first nine months of 2006, compared with a growth rate of only 6.8% for one- to four-family residential loans, according to A.M. Best Co., Oldwick, N.J.Growth rates in C&D and CRE loans surpassed that of residential lending in 2003 and have done so since then, the company said, adding that the slowdown in residential lending may be partly attributable to record levels of consumer debt service obligations. The company also noted that home price appreciation has slowed. "Combined with a negative savings rate, these factors suggest that the consumer's capacity to take on additional debt is limited," A.M. Best said. The company can be found online at http://www.ambest.com.

Roark Capital Group, an Atlanta-based private equity firm, has announced the acquisition of Millennium Funding Group by Ace Mortgage Funding, a Roark portfolio company.The terms of the transaction were not disclosed. Millennium, a wholesale loan originator whose broker network is located chiefly in the West and in Florida, will become a wholly owned subsidiary of Ace, a retail mortgage broker. "Millennium will be a valuable addition to our business, providing Ace an integrated origination and aggregation platform," said Richard Hall, chief executive officer of Ace Mortgage Funding. The companies can be found on the Web at http://www.roarkcapital.com, http://www.acerefi.com, and http://www.mfgloans.com.

Robert K. Cole will retire as chairman of New Century Financial Corp., Irvine, Calif., and Fredric J. Forster will assume the role of non-executive chairman of the board on Jan. 1, New Century has announced.Mr. Cole, who co-founded the real estate investment trust in 1995 with Brad Morrice and Ed Gotschall, will continue as a member of the board. "Now that there has been a smooth transition of the chief executive officer role to Brad, I plan to retire from my position as chairman of the board at the end of this year," Mr. Cole said. Mr. Forster, New Century's lead independent director, has been a board member since 1997. He was formerly president and chief operating officer of H.F. Ahmanson and Co. and its subsidiary, Home Savings of America. New Century can be found on the Web at http://www.ncen.com.

If the nontraditional mortgage guidance applies to the underwriting of all adjustable-rate mortgages, then Fannie Mae and Freddie Mac may be precluded from purchasing most of the subprime mortgage-backed securities issued by mortgage bankers, according to Friedman Billings Ramsey researchers.The two secondary-market agencies purchased nearly half of all triple-A rated subprime MBS issued in 2005, according to FBR research director Michael Youngblood. He pointed out that a majority of the underlying subprime loans, such as 2/28 ARMs, don't conform to the nontraditional mortgage underwriting guidance, which the Office of Federal Housing Enterprise Oversight recently directed Fannie and Freddie to follow. Two/28 ARMs represent 62% of all subprime lending. "If our reasoning holds, Fannie and Freddie may be precluded from acquiring a majority of subprime securities that they previously purchased," Mr. Youngblood said. "We know as a fact" that the two agencies purchased most of their subprime securities in 2005 from mortgage banking companies that don't have to comply with the recently issued guidance, the FBR researcher said.