Originations

Originations of commercial and multifamily loans by mortgage bankers were up 17.3% in the second quarter, compared with those of the second quarter of last year, according to the Mortgage Bankers Association.Originations were also up 23.3% from those of the first quarter, the trade association reported. However, in one sign that the pace of originations may be slowing, the second-quarter volume increase is the smallest in percentage terms on a year-over-year basis since the fourth quarter of 2004, which saw a 9.8% increase. (All quarters since then have seen double-digit percentage gains ranging from 25% to 64% on a year-to-year basis.) "Origination activity remains strong and, while the Federal Reserve has been raising short-term rates, long-term rates have actually been falling recently," noted Doug Duncan, the MBA's chief economist. The largest percentage increase in lending over last year's second quarter was for health care properties, which saw a 177.4% increase. Among investor types, commercial banks and life insurance companies were the most active. The MBA can be found online at http://www.mortgagebankers.org.

Tighter underwriting standards on subprime loans could have a greater impact on reducing foreclosures than banning prepayment penalties and balloon loans and other so-called predatory lending practices, according to a study by the Office of the Comptroller of the Currency.OCC researchers discovered a strong correlation between high foreclosures and refinanced loans with no- and low-document features, which they equated with "loose" lending practices. The study of foreclosures in Chicago did not find the same correlation on subprime loans with balloons or prepayment penalties (36 months or longer) or on no- or low-doc purchase loans. The OCC researchers maintain that underwriting practices that ensure borrowers can repay their loan represent a more effective approach to preventing foreclosures than "blanket" prohibitions on certain lending practices. This approach is also consistent with the proposed guidance on interest-only and payment-option mortgages, according to the study. Federal banking regulators are expected to finalize the guidance this fall.

The class B certificates from three Renaissance Home Equity Loan Trust subprime deals issued in 2002 have been placed under review for possible downgrade by Moody's Investors Service.The affected transactions are: series 2002-1, series 2002-2, and series 2002-3. The deals were originated by Delta Funding Corp. The rating actions were taken because credit enhancement levels are low given the projected losses on the underlying pools, Moody's said. Overcollateralization in all the underlying pools is below its target or 50-basis-point floor as of the Aug. 25 reporting date, the rating agency reported. Moody's can be found online at http://www.moodys.com.

Affordability products dominated the alternative-A mortgage sector in the second quarter, pushing the issuance of alt-A securities to a record high after a brief downturn early in the year, according to Standard & Poor's Ratings Services.Issuance rose about 33%, from $76 billion in the first quarter to $101 billion in the second quarter, and 50% when compared with the $66 billion volume a year earlier, S&P reported. Affordability products such as payment-option adjustable-rate mortgages and interest-only ARMs represented 77% of the total volume in the second quarter, up from 61% a year earlier, S&P said. "This growth is a result of the dramatic increase in the popularity of affordability products during the first half of 2006," said credit analyst Jeff Watson. "Standard & Poor's expects total volume in second-half 2006 to stabilize, rather than to continue to grow above current levels." The data were published in a report titled "Trends in U.S. Residential Mortgage Products: Alt-A Sector Second-Quarter 2006." S&P can be found online at http://www.standardandpoors.com.

Freddie Mac has announced the expansion of a joint initiative with several financial institutions and a New Orleans foundation to help members of the New Orleans Police, Fire and Emergency Medical Services become homeowners.The participating institutions are Chase, Standard Mortgage Corp., Wells Fargo Home Mortgage, and the New Orleans Police and Justice Foundation. The foundation's mortgage subsidy program offers subsidies of up to $8,000 to be used for downpayment and closing costs. It has already helped 245 families become New Orleans homeowners, Freddie Mac said. The expansion of the program will make homeownership available to another 500 families, which includes 200 first responders who served during Hurricane Katrina now on the foundation's waiting list. Freddie Mac, Chase, Standard Mortgage, and Wells Fargo are adding access to flexible mortgage products such as Freddie's HomePossible affordable housing options. Freddie Mac can be found online at http://www.freddiemac.com.

First Horizon National Corp., Memphis, saw its share price fall 4% Aug. 29 after announcing that third-quarter earnings would be hurt by what it calls a "further deterioration" in the residential mortgage market. First Horizon, the parent of First Horizon Home Loans, Irving, Texas, said the "current mortgage environment" will reduce pretax operating earnings by $35 million (compared with those of the second quarter). FHHL is the nation's 19th-largest residential funder, according to the Quarterly Data Report, a MortgageWire affiliate. First Horizon singled out lower gain-on-sale margins and an inverted yield curve as contributing to its woes. It also said a legal settlement involving a predecessor mortgage company will reduce quarterly earnings by about $21 million (after taxes).

The Market Composite Index, an overall measure of mortgage applications, fell from 561.5 to 556.5 on a seasonally adjusted basis during the week ended Aug. 25, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 2.3% on the week and were down 22.4% from the level recorded a year earlier. The Purchase Index fell from 382.2 to 375.9 on a seasonally adjusted basis (its lowest level since November 2003), while the Refinance Index rose slightly, from 1608.5 to 1609.2. Refinancings represented 41.5% of total applications, up from 40.6% the previous week, while adjustable-rate mortgages accounted for 26.8%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages increased from 6.38% to 6.39%, and points (including the origination fee) rose from 0.98 to 1.03 for loans with 80% loan-to-value ratios, the association reported.

Federal Reserve officials were still waiting to see "reliable" data on house prices when they voted to pause and keep the target federal funds rate unchanged at a Federal Open Market Committee meeting in early August."Reliable, comprehensive data were not yet available on recent house price movements, but the rate of appreciation appeared to be moderating and was likely to slow further in coming months," according to the minutes of the Aug. 8 FOMC meeting. In late July, the National Association of Realtors reported that the sale prices of existing single-family homes increased by only a 1.1% annual rate in June -- down dramatically from a 14.5% annual rate in June 2005. The FOMC minutes show that Fed Chairman Ben Bernanke and other FOMC members recognized that residential investment "contracted" in the second quarter and the housing market "continued to cool." However, they said it is still uncertain how much the slowdown in housing would "restrain" consumer spending. The Office of Federal Housing Enterprise Oversight is scheduled to release its Housing Price Index for the second quarter on Sept. 5. The Fed can be found online at http://www.federalreserve.gov.

New Plan Excel Realty Trust, New York, has announced the renewal of its $350 million senior unsecured revolving credit facility and the addition of an accordion feature permitting its expansion to $500 million.The real estate investment trust said the revolver bears interest at 55 basis points over the London interbank offered rate and incurs an annual facility fee of 15 bps. This results in a 15-bp reduction in the effective interest rate, New Plan said. The REIT also announced the renewal of a $150 million senior secured term facility bearing interest at 55 bps over LIBOR, representing a 30-bp reduction. The loan matures on Aug. 25, 2010. Banc of America NA acted as administrative agent for both facilities, New Plan said. The REIT can be found on the Web at http://www.newplanexcel.com.

Simon Property Group Inc., an Indianapolis-based real estate investment trust, has announced the sale of $1.1 billion of senior notes by its subsidiary operating partnership, Simon Property Group LP.The offering consisted of $600 million of 5.60% notes due in 2011 and $500 million of 5.875% notes due in 2017, according to the parent company. The REIT said it had concurrently settled certain forward-starting interest rate swap contracts, and that if the proceeds of the settlement were applied to the notes, the effective interest rates would be raised to 5.63% for the 2011 notes and 5.96% for the 2017 notes, for a blended yield of 5.78%. The REIT can be found online at http://www.simon.com.

The first homeowners from The Road Home pilot program have received financial assistance for their losses from Hurricane Katrina, according to the state of Louisiana.It is estimated that 42 applicants will receive compensation of almost $1.5 million in the next few weeks. "We opened 10 Housing Assistance Centers statewide this week and are closing on the first disbursement accounts in record time," said Gov. Kathleen Babineaux Blanco. The state has tapped banks and other financial institutions to assist their customers by establishing accounts that will hold and disburse the grant funds. Lenders will implement disbursement guidelines that have been reviewed by the state for their effectiveness in maximizing homeowner awards and defending against fraud and misuse of funds. Participating lenders will shoulder the cost of helping the state disburse the funds and have agreed to waive most fees associated with implementation. Homeowners can start their applications to The Road Home by visiting http://www.road2la.org.

Markit Group Ltd., London, a provider of data and services to the global financial markets, has announced the acquisition of Chasen Enterprises, a Peekskill, N.Y.-based provider of modeling for collateralized mortgage obligations and asset-backed securities.The terms of the transaction were not disclosed. Markit said it will leverage Chasen's structured finance expertise to further develop its Reference Cashflow Database. Andrew Chasen, founder and president of Chasen, said Markit "has helped to build liquidity in the subprime residential mortgage market through ABX," a Markit calculator. Markit can be found on the Web at http://www.markit.com.

Three subordinate certificates from three subprime securitizations issued by Saxon Asset Securities Trust in 2001 have been downgraded by Moody's Investors Service.The downgrades were as follows: series 2001-1, class MF-2, from Ba2 to Ba3; series 2001-2, class B-1, from Ba2 to B1; and series 2001-3, class B, from Ba1 to B1. The downgrades were based on weaker-than-expected performance by the mortgage pools and the resulting erosion of credit support, Moody's said. In the 2001-1 deal, the overcollateralization is almost fully depleted and the BF-1 tranche has realized losses, the rating agency reported. In the 2001-2 and 2001-3 deals, pipeline losses could cause further erosion of the overcollateralization and put pressure on the most subordinate tranches, Moody's said. Saxon Mortgage Inc. is the master servicer of the transactions, and Saxon Mortgage Services Inc., a sister company, is the primary servicer.

Los Angeles-based KB Home has announced the beginning of sales in its first residential community in New Orleans.The company said it is the only national homebuilder currently building houses and seeking land permits in the hurricane-devastated Crescent City. The new community, called River Garden, is slated to include 73 homes, all to be built in traditional New Orleans architecture. Of the total, 58 will be sold at market prices and 15 will be designated as affordable and priced by the Housing Authority of New Orleans, KB Home said. KB Home and Countrywide Financial Corp., Calabasas, Calif., announced in June 2005 that Countrywide's main subsidiary, Countrywide Home Loans, was acquiring substantially all the assets of KB Home's mortgage subsidiary, KB Home Mortgage Co. The company can be found online at http://www.kbhome.com.

Seven in 10 investors believe that conditions in the real estate market are getting worse, according to a monthly UBS/Gallup index.The companies' Index of Investor Optimism indicates that 70% of respondents view conditions as worsening in the real estate market, compared with 63% in June. According to the index, 56% of respondents rated conditions in the real estate market as "only fair" (44%) or "poor" (12%) in August, up from 46% in June and July. The index overall registered a 53, down two points since the previous month and 40 points since January. "The drop in confidence in the real estate market reflects the economic data for that sector and suggests that investors are feeling the pinch in their local markets," said Anne Briglia, senior fixed-income strategist in UBS Wealth Management Research. Further information on the index can be found online at http://www.ubs.com/investoroptimism.

Mortgage bankers funded $865 billion in loans during the second quarter, a strong showing amid a rapidly deteriorating housing market.According to exclusive survey figures compiled by National Mortgage News and the Quarterly Data Report, residential fundings rose 4% in the second quarter compared with those of the same period last year. NMN/QDR found that refinancings accounted for 45% of production. (Compared with those of the first quarter, originations rose 14%.) Based on first-half volume, it would appear that lenders could have a year similar to 2005 when they funded $3.3 trillion, their second-best year ever. However, few in the industry think loan volumes will hold, and some companies experienced a severe decline in production during the quarter. Firms suffering the most among the top 30 include: ABN Amro Mortgage, Ann Arbor, Mich., which experienced a 36% drop in fundings, to $9.8 billion, and National City Mortgage, Miamisburg, Ohio, down a hefty 77%, to $3.5 billion. (For the full story and rankings, see the Aug. 28 issue of NMN.)

Winston Hotels Inc., a real estate investment trust based in Raleigh, N.C., has announced the pricing of a public offering of 2.4 million shares of common stock at $11.75 per share.The sole bookrunner of the offering was Friedman, Billings, Ramsey & Co., and Raymond James & Associates was the co-lead manager. Winston Hotels has granted the underwriters an option to buy up to 360,000 additional shares to cover any overallotments. The REIT can be found on the Web at http://www.winstonhotels.com.

Colonial Realty LP, the operating partnership of Colonial Properties Trust, Birmingham, Ala., has priced a $275 million public offering of senior unsecured notes, according to Colonial Properties.The 10-year notes, which bear a coupon of 6.05%, were priced at 99.637 to yield 6.099%, Colonial Properties said. The offering was led by UBS Securities LLC, Bear Stearns & Co., and Merrill Lynch as joint book-running managers. Colonial Properties, a real estate investment trust that owns multifamily, office, and retail properties in the Sunbelt, can be found on the Web at http://www.colonialprop.com.

Gramercy Capital Corp., New York, has announced the closing of Gramercy Real Estate CDO 2006-1, a $1 billion commercial real estate collateralized debt obligation.Gramercy said the CDO, which matures in 2041, is expected to reduce the company's weighted average cost of debt capital, enable it to offer a broader array of products and services, and improve its leveraged returns on equity capital. The CDO securities consist of $903.75 million of bonds that were purchased by institutional investors, plus $38.75 million of non-investment-grade bonds and $57.5 million of preferred equity and equity. More than 80% of the debt investments contributed to the CDO by Gramercy were first-mortgage loans secured by transitional and stabilized commercial properties. The company can be found online at http://www.gramercycapitalcorp.com.

Class M of GMAC Commercial Mortgage Securities Inc. series 1998-C2 has been downgraded from CCC/DR4 to CC/DR4 by Fitch Ratings.Fitch also upgraded one class and affirmed the ratings on 11 other classes in the deal. The downgrade was attributed to an increase in expected losses on the six specially serviced loans. Fitch said it expects the losses to deplete the principal balance of the nonrated class N and significantly affect the principal balance of class M. The largest of the specially serviced loans (representing 0.8% of the pool) is in foreclosure and is secured by a 420-unit multifamily property in West Des Moines, Iowa, Fitch reported. The second-largest (0.2%) is real estate owned and is secured by a 467-pad mobile home property in Saginaw, Mich.