Originations

Accredited Home Lenders Holding Co., a San Diego-based originator of nonprime residential mortgage loans, and Aames Investment Corp., a Los Angeles-based nonprime lender, have announced an agreement whereby Accredited will acquire Aames in a transaction valued at approximately $340 million.The companies said the merger is expected to result in the sixth-largest retail originator of nonprime mortgages, the 12th-largest mortgage originator overall, the ninth-largest nonprime mortgage portfolio, and the 19th-largest mortgage portfolio. "Aames' nationwide franchise will almost triple Accredited's retail branches, creating one of the nation's largest independent retail originators," said James A. Konrath, chairman and chief executive officer of Accredited. The stock-and-cash transaction values Aames at approximately $5.35 per share at its closing price on May 24. The companies said approximately $109 million of the $340 million purchase price will be paid in cash to Aames stockholders, and the remainder will be paid in Accredited common stock at an exchange ratio of 0.0700 shares of Accredited stock for each share of Aames common stock. The companies can be found online at http://investors.accredhome.com and http://www.aames.com.

Existing-home sales slipped 2% in April after a two-month rebound as annual price appreciation on single-family homes fell below 5%, according to the National Association of Realtors.The NAR reported that sales of single-family homes, condominiums, and cooperatives fell from a seasonally adjusted annual rate of 6.90 million in March to 6.76 million in April. "Higher interest rates are slowing home sales, but we see this as another sign of a soft landing for the housing market, which remains at historically high levels," NAR chief economist David Lereah said. Meanwhile, median price increases of single-family homes are dropping fast. Single-family house price appreciation fell to 4.7% in April, compared with the median price in April 2005. In February, median house prices were still rising at a double-digit rate of 11.6%.

Sharply divergent views of so-called exotic mortgages were presented at a Federal Trade Commission conference today to assist the consumer watchdog agency in understanding interest-only, option-arm and 40- and 50-year loans.Allen Fishbein, of the Consumer Federation of America said that while interest-only borrowers tend to have higher incomes and credit scores then those that choose traditional loans "many" have only average or even weaker scores. But even with higher scores, Mr. Fishbein charged that credit scoring does not accurately measure the ability of some borrowers to repay given the risk involved. Robert Broeksmit, president of Chevy Chase Bank, a Maryland savings bank, said the majority of lenders qualify borrowers at the fully indexed rate. He also pointed out his bank's borrowers with interest-only loans tend to pay their loan balances down by a greater amount then those with fixed payments. Stella Adams, executive director of the North Carolina Fair Housing Center, said, exotic arms are not appropriate for subprime borrowers. "If they can't manage their money to stay in prime, they have to recognize that they can't manage their money well enough to handle these loans." One thing most of the two dozen speakers agreed on is the need for financial education. "Few borrowers have any idea of their financial health," Ms. Adams said.

NovaStar Capital Inc., Roswell, Ga., the warehouse lending unit of NovaStar Financial Inc., Kansas City, Mo., has purchased the warehouse customer relationships of nBank NA, Commerce, Ga.NovaStar Capital will acquire nBank's warehouse relationships with approximately 40 mortgage lenders, who funded a total of approximately $1.8 billion in loans in the past year. In addition, NovaStar Capital will hire some of the key members of the bank's warehouse lending team. Financial terms of the transaction were not disclosed. Milestone Advisors LLC advised nBank in this transaction.

An alliance of nonprofits that provide downpayment assistance have urged Treasury Secretary John W. Snow to suspend IRS Revenue Ruling 2006-27 and create an opportunity for public comment on the impact the ruling will have on low-to-moderate income homebuyers, the housing industry, and the national economy.The organizations said they united in response to a May 4th revenue ruling by the Internal Revenue Service that they believe could result in preventing certain nonprofit organizations from providing downpayment assistance to low- and moderate-income individuals and families who require help to purchase a home. The alliance, which calls itself Support Downpayment Assistance, can be found on the Web at http://www.supportdownpaymentassistance.org.

Government Properties Trust, an Omaha, Neb.-based real estate investment trust, is considering a possible sale of the company.The REIT reports that it has engaged Wachovia Capital Markets as its financial advisor to consider various strategic alternatives. These could include a recapitalization of the company, an acquisition by the company, or merger of the company with another company. GPT invests mostly in single-tenant properties that are under long-term leases to the U.S. government.

An affiliate of a partnership between Westmont Hospitality Group and a subsidiary of Caisse de depot et placement du Quebec, plan to acquire U.S. hotel real estate investment trust Boykin Lodging Co. in a cash transaction valued at $416 million, including debt.The acquisition by the affiliate, Braveheart Holdings LP, is slated to occur in the third quarter, contingent on customary closing conditions and approval by Boykin's common shareholders. Boykin can be found online at http://www.boykinlodging.com and Caisse de depot placement du Quebec's subsidiary Cadim Inc. can be found on the Web at http://www.lacaisse.com.

Thinly-capitalized companies that became aggregators during the "heady days of the cycle" are among those that likely will be challenged by the market environment ahead, a speaker said during a question and answer session at a Bear Stearns conference in New York.When asked what mortgage companies might be displaced given that the cycle appears to be shifting, Bear Stearns senior managing director and head of structured products Tom Marano said it would likely be the aforementioned companies and possibly real estate investment trusts, which have taken a bit of hit and been through a little recovery already. Mr. Marano, who spoke at Bear's Mortgage Finance & Housing Markets Conference, said there are currently a number of originators up for sale that he has heard hedge fund investors tout as holding value. He said that, from his perspective, he has "yet to see one worth buying." Nevertheless, some might be of value to other market participants who have different business models and strategies, Mr. Marano said.

Subprime lending has become a "commoditized" business with reduced margins and companies have to reduce their cost structure to survive, according to Steven Nadon, the president of H&R Block Mortgage Co.The days of 150 basis point or 200 bp operating margins are gone forever. "Everyone is going to have to come to grips with that if they are going to have any chance of long-term survival," he told the Mortgage Bankers Association's conference in Washington. The Irvine, Calif.-based subprime lender is in the process of reviewing its operations to reduce costs and it is planning to outsource some origination steps, such as data input and basic underwriting, to India. Operating margins have declined from 119 basis points in 2004 to 52 bp in 2005 according to a MBA survey of 18 subprime lenders. Most of that decline is due to a sharp decline in gain on sale, which has dropped by 175 bp over the past three years, MBA director Marina Walsh told the nonprime conference.

The government-sponsored entities pose a potential risk to the financial markets and they need a regulator that has the authority to limit their entry into new products and see that their portfolios are not larger than necessary to make a secondary market, according to John Snow, the Secretary of the Treasury.Speaking at the Bond Market Association's annual meeting in New York, Mr. Snow noted that Fannie Mae and Freddie Mac trade paper as though they are affiliated with the U.S. government, even though they are not, and this is "not a healthy thing." Touching on the housing market, Mr. Snow said that it is seeing some moderation, signs of which include rising inventories. However, he sees this as a sign of "normal adjustment" after a period of attracting capital and high mortgage lending volumes. He doesn't expect this moderation in the housing market to impact the U.S. economy, which he sees as "extraordinary in its capacity to take blows and adapt."

Thrift originations of single-family loans fell 13% in the first quarter even though thrift institutions increased their market share to 26%, up 2 percentage points from the fourth quarter.The Office of Thrift Supervision reported that thrifts originated $142.6 billion in SF loans in the first quarter, down from $163.9 billion in the fourth quarter and $141.5 billion in the first quarter of 2005. Adjustable-rate mortgages comprised 44% of thrift originations in the first quarter, compared to 50% in the previous quarter. Refinancings accounted for 35% of originations, up from 34% in the fourth quarter. The OTS report also shows that that the rapid growth of home-equity lines of credit in 2004 and early 2005 has really come to an end. HELOCs outstanding increased by only $1 billion in the first quarter to $91.6 billion. Thrifts did get a boost from mortgage serving rights in the first quarter. The value of MSRs jumped to $730.4 million from $356.4 million the fourth quarter. Despite this boost, thrift posted $4.2 billion in profits for the first quarter, shy 2% from record profits in the fourth quarter.

Residential Capital Corp., Minneapolis, said it has repaid all domestic and international inter-company borrowings from its parent company, General Motors Acceptance Corp.ResCap, the holding company for GMAC Mortgage and its residential affiliates, has repaid more than $11 billion in GMAC debt in 11 months -- six months ahead of its target goal. In early April Cerberus Capital Management, and two partners paid $14 billion for a 51% stake in GMAC. (General Motors, the parent of GMAC, owns 49%.) "We have accomplished one of our major goals well ahead of schedule," said ResCap treasurer Louise Herrle. "We are pleased by the demand for our bond offerings, as well as the depth and breadth of participation from the investment community." The GMAC-related residential units, combined, rank fifth among all mortgage bankers in the U.S., according to figures compiled by the Quarterly Data Report.

The housing boom is over but the exit from it will be a matter of regional price declines rather than the bursting of a national bubble, former Federal Reserve Board chairman Alan Greenspan said at a dinner celebrating the 30th anniversary of the Bond Market Association, according to Yahoo! News reports.The association at the dinner also established an Alan Greenspan award that association president Micah Green said, "will embody the foresight, dedication and leadership that were the hallmarks of chairman Greenspan's tenure at the Fed." The association can be found on the Web at http://www.bondmarkets.com.

Companies that need to sell loans at premiums higher than 102 in order to have enough income will not survive in the new subprime mortgage business, said Brad Bradley, keynote speaker at the SourceMedia Subprime Symposium in Las Vegas. The chief executive of Senderra Funding LLC said the industry is now going through a second weeding out process. The first occurred in 1998, when many of the top lenders, the pioneers of the nonprime business as he called them, were forced out of business. "When the old model goes away, a new model emerges," Mr. Bradley said, pointing out that nonprime will remain a significant part of the mortgage business. The news from Ameriquest, he said, is not the settlement the company entered into with the state attorneys general, but the fact the company has restructured its retail production operations. It realized its old business model was not going to work, he said.

The first lesson from the Ameriquest Mortgage settlement the subprime industry needs to heed is to "get your hard hats on because there will be more of these things."That was the advice John L. Culhane Jr., an attorney with the firm Ballard Spahr, gave attendees at the SourceMedia Subprime Symposium in Las Vegas. Ameriquest wasn't the first settlement of its kind, and it will not be the last, he said. Furthermore, individual state attorney generals will use the settlement to challenge the practices of other lenders. There are other investigations going on, including one of a lender he represents that has been going on for four years. It is a much smaller action than Ameriquest and a settlement is imminent in that case. The process is skewed in favor of the state attorneys general and they are going to continue to use it, Mr. Culhane said.

There might be a markup of a predatory lending bill in the House of Representatives next week, said Jeffrey Zeltzer, president of the National Home Equity Mortgage Association.It will be a North Carolina-like bill, he told attendees at the SourceMedia Subprime Symposium in Las Vegas, during a question and answer session on a panel on the secondary market. When questioned by the panel on when Congress is likely to pass the bill, Mr. Zeltzer said certainly not in 2006 but most likely in 2008.

A Federal Housing Administration reform package proposed by the Bush administration could increase FHA single-family originations by 100,000 loans a year, according to FHA commissioner Brian Montgomery.The Department of Housing and Urban Development estimates that the reforms, currently pending in Congress, would increase FHA purchase mortgage originations by 100,000 the first year and by nearly 500,000 a year by 2012. FHA endorsed 478,400 loans in fiscal year 2005, down 46% from FY 2004. During the first half of FY 2006, FHA endorsements totaled 189,700 as of March 31, down 24% from the same six-month period in FY 2005. "The number of working families served by FHA has declined considerably" and HUD is "very concerned," the commissioner told a National Association of Realtors meeting. Mr. Montgomery's main message is the FHA reforms will expand homeownership opportunities and provide working families with less costly and safer alternatives to subprime loans. The reform legislation, as introduced in the House, would also raise FHA loan limits so FHA could be a viable product in California again and other high cost states.

Deutsche Bank has agreed to purchase nonconforming lender Chapel Funding Corp., Lake Forest, Calif., for an undisclosed sum.Chapel, whose parent company is based in New Jersey, could not be reached for comment. Its CEO is industry veteran Gordon Stockwell. Outside of California, little is known about Chapel. One warehouse executive said he thought the lender was funding about $70 million a month in residential loans. Deutsche has been shopping for an origination platform for well over a year. (For more details see the Monday May 25 edition of National Mortgage News.)

Fitch Ratings has downgraded the long-term credit rating and distressed recovery rating of one class in COMM's commercial mortgage pass-through certificates, series 2000-C1 while upgrading or affirming the ratings of other classes in the deal.The rating of class N slipped to C/DR6 from CC/DR3 due to "increased loss expectations on the specially serviced assets," Fitch said, adding that, "projected losses on the specially serviced assets are expected to fully deplete [the unrated] class O and significantly impair class N." Fitch raised the ratings of class B through H and affirmed the ratings of class A-1, class A-2, interest-only class X, class J, class K, class L and class M. "The rating upgrades reflect increased credit enhancement due to scheduled amortization and additional defeasance," Fitch said. Fitch Ratings can be found on the Web at http://www.fitchratings.com.

Asian Americans have achieved the fastest increase in home ownership among minority groups since 2000, and this trend is likely to continue, according to a study by the Asian Real Estate Association of America.The homeownership rate of Asian Americans jumped from 53% in 2000 to 60% in 2004 and "their income and credit profile suggests that this growth will continue into the future," according to the study conducted by the UCLA Asian American Studies Center. Over half of the 14 million Asian Americans live in California, New York and Hawaii. However, the study provides information about Asian American populations in 25 metropolitan statistical areas nationwide. In many of the largest cities, over half of the Asian population is foreign-born. "Since nearly half of all Asian Americans are first-time homebuyers, AREAA believes that they will rely heavily on real estate professionals to help guide them through the complex home buying process," AREAA chairman Allen Okamoto said. Freddie Mac, the National Association of Realtors and Bank of America sponsored the AREAA/ULCA study. The Web site for the AREAA is at www.areaa.org.