Originations

The House has passed a bill by a 412-4 vote that revamps the Federal Housing Administration program for manufactured housing loans and makes this form of affordable housing lending more attractive to lenders.The bill (H.R. 4804) authorizes the FHA to insure individual manufactured housing loans, but the lender is on the hook for 10% of losses. Currently, the FHA provides pool insurance for these house-only loans, which are not secured by real estate. FHA Commissioner Brian Montgomery said the "outdated and problematic" pool insurance forced Ginnie Mae to stop securitizing manufactured housing loans in the early 1990s. Ginnie officials have indicated that they would reconsider MH loans if Congress passes an acceptable bill. The average cost of a manufactured home was $58,000 in 2004. About two-thirds of manufactured homes are placed on a relative's or the owner's property, and the other third are on placed on leased lots. Sen. Wayne Allard, R-Colo., has sponsored a similar FHA manufactured housing bill in the Senate.

By a 415-7 vote, the House has passed a bill to reform the Federal Housing Administration single-family program so that it can be competitive again and serve its traditional borrowers, who are being steered into subprime loans.The House vote is largely symbolic because the real fight over the FHA reforms, which the Bush administration supports, will occur during a House and Senate conference on the HUD appropriations bill, which has already cleared the House. However, the House vote certainly increases pressure on Senate appropriators to include key FHA reforms in the Department of Housing and Urban Development appropriations bill. The vote shows that an overwhelming number of House members understand that the FHA can be a "benefit for their low- and moderate-income constituents," FHA Commissioner Brian Montgomery said. With the flexibility to charge risk-based premiums and offer zero-downpayment loans, the FHA can provide credit-impaired borrowers a safer and lower-cost alternative to conventional subprime loans, the commissioner said. "We think we have a pretty good argument," the commissioner said.

PS Business Parks Inc., a real estate investment trust based in Glendale, Calif., will replace Diagnostic Products Corp. in the S&P SmallCap 600 Index after the close of trading July 27, Standard & Poor's has announced.S&P said the reason for the change is that Diagnostic is being acquired by Siemens AG. PS Business Parks acquires, develops, owns, and operates commercial properties, with a special focus on flex, multitenant office, and industrial space. S&P can be found online at http://www.standardandpoors.com, and PS Business Parks can be found at http://www.psbusinessparks.com.

Nonconforming lender Lime Financial, Lake Oswego, Ore., has obtained a $10 million leverage capital facility from investment banker Credit Suisse.According to a company spokesman, the line of credit "is closer to subordinated debt" and can be used to leverage its warehouse facilities. "It's a big deal for us to have Credit Suisse standing in our corner," he said. Lime is a wholesale lender that funds in 43 states. It currently has a production run-rate of about $200 million a month. Andy Kimura, co-head of structured products trading at Credit Suisse, said the investment banker made the facility because Lime "is well positioned for long-term growth and financial stability." The company can be found online at http://www.limefinancial.com.

Total returns from U.S. real estate investments have peaked and will begin to moderate in the second half of the year, according to Prudential Real Estate Investors, Parsippany, N.J.In its quarterly outlook report on the real estate markets, PREI said it expects private, unleveraged real estate investments to produce average total returns of 12%-15% this year. Investment activity appears to be slowing because of rising long-term interest rates and high asset values, the company said. "Real estate fundamentals have continued to improve as the economy has expanded and, while transaction activity continues at a fairly brisk pace, the market appears to be slowing from its somewhat frenzied rate of recent years," said Youguo Liang, managing director and head of PREI Research. "The balance of power seems to be shifting slightly in favor of buyers." PREI, the real estate investment and advisory business of Prudential Financial Inc., can be found online at http://www.prei.com.

Thanks to a strong performance in its servicing business, Countrywide Financial Corp., Calabasas, Calif., earned $722 million in the second quarter, a 27% gain compared with earnings from a year earlier.Compared with those of the first quarter, earnings rose about 6%. A nationally chartered bank, a majority of CFC's income ($630 million) came from its mortgage banking operations. Its servicing business had pretax earnings of $279 million in the quarter, a 213% gain compared with those of the second quarter of 2005. Its production business had pretax earnings of $325 million in the quarter, a 21% drop from those of the second quarter of last year. Sandler O'Neill issued a report on CFC, noting that its production margin may have bottomed out. "The third quarter is typically the strongest quarter in the mortgage banking cycle," Sandler added. Despite the strong quarter, Countrywide's shares were trading down about $1 to $38.30 as of MortgageWire's deadline Tuesday. The company can be found online at http://www.countrywide.com.

Existing-home sales declined 1.3% in June as the condominium market showed further deterioration and house price appreciation flattened out.The National Association of Realtors reported that sales of single-family homes, condominiums, and cooperatives fell from a seasonally adjusted annual rate of 6.71 million in May to 6.62 million in June. Condo and co-op sales declined by 5.5% in June, and condo prices are down 2.1% from the level recorded in June 2005. Single-family home sales slipped 0.9% in June, and single-family home prices are up 1.1% from those of a year ago. "The change in price performance is directly tied to housing inventories," NAR chief economist David Lereah said. Last year, the inventory of unsold homes was at a lean 4.4-month supply in June. Now there are 3.73 million existing homes on the market, representing a 6.8-month supply at the current sales pace.

Lennar Corp., a Miami-based homebuilder, has obtained a new $2.7 billion unsecured revolving credit facility to replace its $2.2 billion credit line.The company said the five-year credit facility was syndicated to 46 lenders led by JP Morgan Chase Bank NA as joint lead arranger and administrative agent and Deutsche Bank Trust Co. Americas as joint lead arranger and syndication agent. The facility also includes an accordion feature that provides Lennar with access to an additional $500 million of financing. The homebuilder can be found online at http://www.lennar.com

The second quarter was another solid quarter for the national office market, according to Colliers International, a Boston-based commercial real estate manager.Absorption totaled 27.9 million square feet, up from 22.2 million square feet in the first quarter and 26.3 million square feet in the second quarter of 2005, Colliers reported. The national vacancy rate stood at 13.1%, down from 13.3% in the first quarter and 14.6% a year earlier. "The office sector is clearly on a tear, but we may be nearing the top of this cycle, as the economy shows increasing signs of slowing," said Ross Moore, senior vice president and director of research at Colliers. "Any slowdown, however, won't be felt in the office leasing market until 2007." The company can be found online at http://www.colliers.com.

Lexington Corporate Properties Trust, a New York office real estate investment trust, is acquiring Newkirk Realty Trust, Boston, to form Lexington Realty Trust, a $4.6 billion REIT focused on single-tenant office properties.The combined company will own interests in more than 350 properties in 44 states, with a presence in the nation's highest-growth markets, according to Lexington. Under the merger agreement, each share of Newkirk common stock will be exchanged for 0.80 common shares of Lexington. Following the merger, Newkirk shareholders and unitholders are expected to own approximately 46.8% of Lexington Realty Trust, and Lexington shareholders and unitholders are expected to own approximately 53.2% of the combined company, Lexington reported. Lexington said it believes that the acquisition will provide "an enhanced platform to exploit opportunities in high-growth coastal markets, such as California, New Jersey, Florida, and Maryland." T. Wilson Eglin, Lexington's chief executive officer, will serve as CEO, president, chief operating officer, and trustee of the combined company, which will be headquartered in New York. The REITs can be found online at http://www.lxp.com and http://www.newkirkreit.com.

Updating its earnings restatement process, PHH Corp., Mt. Laurel, N.J., says its financial statements for prior periods cannot be relied upon, but also indicated that reductions in pretax income will be offset by gains.PHH, the parent of private-label funder PHH Mortgage, also said it has entered into a $750 million line of credit with a syndicate of lenders led by Citicorp and Wachovia Bank. In a filing with the Securities and Exchange Commission, it stressed that it has adequate liquidity. Company president Terry Edwards said in a statement that "the long-term future of our private-label business is bright," adding that the company's "pipeline of prospects remains promising." Morgan Stanley has an "overweight" rating on the stock. A new report by Morgan notes that updated estimates of its accounting and tax-related issues are within $2 million of prior disclosures. PHH was spun off by Cendant Corp., New York, in the spring of 2005. It ranks 16th among residential originators in the United States, according to the Quarterly Data Report, a MortgageWire affiliate.

Consumers groups are opposed to allowing the Federal Housing Administration to charge risk-based insurance premiums, and they supported a decision by Senate appropriators to keep FHA reforms out of a HUD budget bill.The Consumer Federation of America, ACORN, the National Community Reinvestment Coalition, and five other consumer groups signed the joint letter complaining that the FHA reforms would force consumers with lower credit scores to pay more for FHA single-family loans. "We are concerned that customers priced out of the FHA market may have no other choice but to turn to subprime loans, and fear that some may fall victim of predatory lenders that operate in this market," the July 17 letter says. The letter is addressed to Sen. Christopher Bond, R-Mo., chairman of the Senate Appropriations subcommittee that oversees the Department of Housing and Urban Development's budget bill. The Senate Appropriations Committee approved a HUD budget bill last week without including FHA reforms requested by the Bush administration and housing industry groups. NCRC vice president Josh Silver noted that subprime lenders use risk-based pricing. "We think FHA should continue its role as offering an alternative to subprime lending and thereby increasing the competitive pressure on subprime lenders to lower their prices," he said.

Key senators and consumer groups are urging Congress to wait for a Government Accountability Office study before taking legislative action on Federal Housing Administration reforms -- but don't expect the study to be completed anytime soon."We haven't received the formal request, and we haven't initiated anything," a GAO official said. A spokesman for the Senate Banking Committee said a letter requesting the report would be sent to the GAO by the end of the week. At a June 20 hearing, Sen. Wayne Allard, R-Colo., said he is asking the GAO to conduct a study on the Bush administration's FHA single-family reform proposals and wants the GAO to recommend the "most viable options FHA can pursue to serve additional low-income and first-time homebuyers." Senate Banking Committee Chairman Richard Shelby, R-Ala., recently urged Senate appropriators not to include the FHA reforms in a Department of Housing and Urban Development appropriations bill, and FHA reform was kept out of the bill. "We have commissioned a study by GAO to examine the implications of the reform proposal," Sen. Shelby said in a July 17 letter. "We believe that it would be premature to legislate without this additional information."

Hospitality Properties Trust, Newton, Mass., has priced a follow-on public offering of 2.0 million common shares of beneficial interest at $43.66 per share.The underwriters have been granted an option to buy up to 1.95 million additional shares of common stock from the company to cover any overallotments. Merrill Lynch & Co. and Wachovia Securities are the joint book-running managers 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.

Ashford Hospitality Trust, a Dallas-based real estate investment trust, has priced a follow-on public offering of 13 million shares of common stock at $11.40 per share.The underwriters have been granted an option to buy an additional 1.95 million shares of common stock from the company to cover any overallotments, Ashford said. Merrill Lynch & Co. and Morgan Stanley & Co. are the book-running managers of the offering. The REIT can be found on the Web at http://www.ahtreit.com.

Zacks Equity Research, Chicago, announced Friday that it had made Duke Realty Corp. its "Bear of the Day" -- a stock expected to underperform the markets over the next three to six months -- for July 21.Zacks said the Indianapolis-based real estate company reported first-quarter funds from operations that were 10% lower than Zacks' expectations. "We do not expect a material improvement in operating results in the next six months, as the company has assets concentrated in weak, slow-growth markets," Zacks said. Zacks can be found online at http://www.zacks.com, and Duke can be found at http://www.dukerealty.com.

Supporters of Federal Housing Administration reforms are using a new Congressional Budget Office report to bolster their claims that Congress needs to pass legislation that allows the FHA to charge risk-based premiums.Compared with private mortgage insurers, the Federal Housing Administration is grossly underpricing its mortgage insurance -- by 50 basis points -- and subsidizing homeowners, according to the CBO report. The report shows that the FHA charges a mortgage insurance premium of 73 bps for all borrowers, while the private MIs charge risk-based premiums ranging from 109 bps for prime borrowers to 287 bps for subprime borrowers with credit scores of 575-599. (Premiums are based on what a borrower would pay annually over eight years.) The CBO estimates that the FHA should charge 123 bps for prime and subprime borrowers under its current premium structure. But this would put the FHA at a competitive disadvantage in attracting prime borrowers, who account for 63% of its business. The CBO report demonstrates that "FHA's current one-size-fits all approach overcharges the majority of its borrowers and undercharges borrowers of higher risk," the National Association of Realtors said.

CRA Qualified Investment Fund, a Fort Lauderdale, Fla.-based mutual fund, has announced the launching of the Charlotte County (Fla.) Hurricane Housing Recovery Program, a $7 million bond financing initiative.Executives said the program was designed to assist the forgotten victims of Hurricane Charley of August 2004, the strongest hurricane to hit the region since 1960, which caused over $13 billion in damage. Many of the victims still live in temporary housing. "We are solving a problem here and creating a template that can be picked up and used again by other local and state governments looking for innovative ways to provide assistance to storm-hit regions," said CRA portfolio manager Barbara Van Scoy. The program will initially supply a pool of investment capital to participating lenders, CRA said. SunTrust Bank, Countrywide Financial Corp., and Mercantile Bank, along with Fannie Mae, the Charlotte County Housing Authority, and The Housing Corp., are participating in the program to guarantee the loans to individual families.

The average 30-year fixed mortgage rate rose from 6.74% to 6.80% over the seven-day period ended July 20, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose from 6.37% to 6.40%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages climbed from 6.33% to 6.36%, and the average rate for one-year Treasury-indexed ARMs increased from 5.75% to 5.80%, Freddie Mac reported. Fees and points averaged 0.5 of a point for 30-year fixed-rate mortgages and hybrid ARMs, 0.4 of a point for 15-year fixed-rate mortgages, and 0.6 of a point for one-year ARMs. "Financial markets were a bit jittery after core Consumer Price Index figures for June were released that indicated inflation might be a potential threat," said Frank Nothaft, Freddie Mac's chief economist. "If this were the case, the Fed would be more inclined to continue to raise rates this year. .... However, [Federal Reserve Board Chairman Ben] Bernanke, in his semiannual speech to Congress, hinted that another rise in overnight lending rates might not be imminent, and financial markets breathed a collective sigh of relief, which should be reflected in the results of next week's survey." A year ago, the average 30-year and 15-year fixed rates were 5.73% and 5.32%, respectively, and the average one-year ARM rate was 4.42%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

Washington Mutual Inc., Seattle, has reported net income of $767 million ($0.79 per share) for the second quarter, down from $844 million ($0.95 per share) a year earlier, but the results include a $101 million after-tax adjustment for a pending sale of mortgage servicing rights to Wells Fargo (see previous item).In addition to the adjustment for the MSR sale, the income figures reflect a $52 million after-tax restructuring charge related to WaMu's efficiency initiatives. The company said net income excluding these two items would have been $920 million ($0.94 per share). Net income for the home loans business segment totaled $32 million in the second quarter, compared with $39 million in the first quarter and $292 million in the second quarter of 2005, WaMu said. WaMu can be found online at http://www.wamu.com.