Originations

The housing market will continue to cool over the next two years as mortgage rates gradually rise to 6.7% by the end of 2007, according to a panel of bank economists."Some of the steam has come off the housing market, but the decline in activity will be gradual and orderly," said Robert McGee, chief economist for U.S. Trust Co., New York, and chairman of the Economic Advisory Committee of the American Bankers Association. The EAC forecast calls for existing-home sales to decline 8.9% to 6.52 million in 2006 as the 30-year fixed mortgage rate climbs to 6.54% in the fourth quarter of this year. Meanwhile, the bank economists are predicting that the Federal Reserve will stop tightening by midyear, with the federal funds rate at 5%. "The impact from higher interest rates on home equity and adjustable-rate mortgages will combine with stubbornly high energy prices to squeeze discretionary spending," Mr. McGee said.

Aames Investment Corp., a Los Angeles-based subprime mortgage lender, has announced that it will end its status as a real estate investment trust in conjunction with a cost reduction initiative.The company said ending its REIT status is expected to enable it to retain its portfolio earnings, increase its book value, and support loan portfolio growth while using its $304 million of net operating loss carry-forwards. The cost reduction initiative is designed to cut the company's overhead expenses and reduce its net-cost-to-originate ratio to below 1.50%. Under the scheme, Aames is introducing a more stringent wholesale loan pricing matrix and will eliminate products it said are unprofitable in the current market. Aames announced in February 2004 that it would switch to REIT status through an initial public offering. The latest announcement came after the New York Stock Exchange ended its trading day on March 16. On that day Aames closed at $5.35 per share. By midday on March 17, the stock was trading at $5.55 per share, after going as high as $5.79 per share. Aames can be found online at http://www.aames.net.

The sale of GMAC Commercial Mortgage, Horsham, Pa., should close by the end of March, industry sources have told MortgageWire.Negotiations between the buyers -- a partnership that includes Kohlberg Kravis Roberts, Five Mile Partners, and Goldman Sachs -- and General Motors have been going on for a year. One source familiar with the deal said a key issue for attorneys working the sale is "who's on the hook for the reps and warranties if GM files for bankruptcy?" The source said, "If GM goes bankrupt, a judge could set the sale aside." A spokeswoman for General Motors Acceptance Corp., the parent of GMACCM, would only say that the deal is closing "soon." Meanwhile, GM announced March 16 that its financial loss for 2005 was $10.6 billion, $2 billion larger than previously reported. (For the full story on GMACCM, see the March 20 issue of National Mortgage News.)

Classes M9, M10, and M11 of the ARSI series 2004-PW1 Ameriquest Mortgage Securities Inc. home equity issue have been placed on Rating Watch Negative by Fitch Ratings.Fitch also affirmed the ratings on 306 classes from 32 Ameriquest home equity deals. The negative actions were attributed to a deterioration in the relationship between credit enhancement and expected losses. The transaction consists of loans originated or acquired by Argent Mortgage Co. or Olympus Mortgage Co., Fitch said. Fitch can be found on the Web at http://www.fitchratings.com.

The San Diego-based Asian Real Estate Association of America has announced the formation of a National Advisory Board made up of "some of the leading thinkers" in the housing, real estate, and academic communities.The members will be: Alan Dakay, president and chief executive officer, Citi Home Equity; Renie Yoshida Grohl, senior vice president and deputy general counsel, Fannie Mae; Rodolfo Saenz, executive vice president of emerging markets, Countrywide Home Loans; Gary Acosta, founder of the National Association of Hispanic Real Estate Professionals; Don Nakanishi, director of the UCLA Asian American Studies Center; Cliff Turner, president of the National Association of Real Estate Brokers; and Thomas Stevens, president of the National Association of Realtors. "I will rely heavily on this advisory board to help us build a world-class organization and deliver on our important mission of closing the homeownership gap facing the Asian-American community," AREAA chairman Allen M. Okamoto said.

The California Housing Finance Agency has announced the introduction of a 40-year fixed-rate mortgage product aimed at helping first-time homebuyers afford a home.The fixed rate on the new product will be 5.75% initially, about one percentage point below the average market rate for 40-year mortgages, CalHFA said. The agency also offers a 30-year fixed-rate mortgage and a 35-year interest-only PLUS mortgage that carry below-market rates. CalHFA can be found online at http://www.calhfa.ca.gov.

The Association of Community Organizations for Reform Now has launched a telephone and door-to-door campaign financed by Countrywide Financial Corp. to find Gulf Coast evacuees and put them in touch with their lender.The program is being undertaken in Houston, Dallas, San Antonio, New Orleans, and Baton Rouge, La. The canvassing follows newspaper advertisements placed by Countrywide last month that encouraged its customers to call the company and listed the ACORN Housing Helpline as an intermediary for customers of other mortgage companies. "ACORN Housing has been able to assist almost all the Katrina survivors we have worked with in making arrangements with their lender to protect their home and their finances," said Dorothy Stukes, president of the ACORN Katrina Survivors Association. "But everyone needs to get in contact with their lender or ACORN Housing as soon as possible." Michael Gross, managing director of mortgage servicing at Countrywide, noted that the company has suspended mortgage payments and credit reporting for customers victimized by the storm, but that "despite our best efforts to reach them, there are still a number of customers who we have been unable to reach, limiting our ability to provide assistance to them." The company, based in Calabasas, Calif., can be found online at http://www.countrywide.com.

A new property law in the United Arab Emirates allows foreigners to own real estate in the small Middle Eastern country on the Arabian Gulf.The law, which legalizes freehold ownership of land and property in the UAE, permits even expatriates the same rights as UAE and Gulf Cooperation Council citizens. Hashem Al Dabbal, chief executive of Dubai Properties, hailed the change at MIPIM in Cannes, France, saying it will have an immediate impact by attracting a new set of international investors into the city-state, "We see the new law as further support to the growing confidence in Dubai's market, and solidifies its position as a viable investment opportunity." The law "opens so many doors to so many" who have been eyeing Dubai's fabulous real estate from afar, he said. "Now there is clarity in terms of the legal framework of freehold ownership for foreigners."

The nouveau riche who have accumulated small fortunes as a result of the information technology boom are being courted in Europe as prime candidates to invest in real estate projects, according to panelists appearing at MIPIM, the International Property Market.The speakers agreed that there are plenty of people who have amassed $3 million-$30 million and are more than willing to participate in commercial real estate ventures. Dieter Aigner, general manager of an Austrian real estate fund, said he has set up and managed several funds since 2003 that are made up of largely private investors with up to $50 million in personal wealth. People like this have become "classic" direct real estate investors, he said. Stephen Rees, the chief executive of Mosaic Property LLP in the United Kingdom, said these relatively young millionaires are knowledgeable, sophisticated, and willing to invest for the long haul. "These are people who will wait for the real estate clock to ring," he said. "One chap told me, 'I don't want to be poor again'." As Mr. Rees sees it, old money isn't as important as it used to be. The newly rich are the new face of the private investor, he told the meeting, adding that "we owe our present and our future to private investors."

The internationalization of real estate has gone truly global, according to two research reports released in Cannes, France, where more than 20,000 real estate professionals from all over the world are attending MIPIM, the International Property Market.A third of the world's transactions -- some $475 billion worth in 2005, an increase of 21% from the previous year's level -- were cross-border deals, according to Jones Lang LaSalle's report. "Investors are searching further and further from their home bases," said Tony Harrel, chief executive officer of the firm's International Capital Group. A report covering the 15 European Union countries by CB Richard Ellis, though smaller in scope, found a similar phenomenon. While purchases by investors within their own countries rose by just over 20% last year compared with 2004 levels, cross-border acquisitions increased by more than 70%, the firm said. "There's been a big increase in the amount of capital moving around the European market, with a significant increase in the amount coming into Europe from the outside," said Nick Axford, who heads the Ellis firm's research and consulting department. "Across the board, real estate really is now an international market."

There could be more loans that meet high-cost triggers in 2006, according to Ken Markison, senior director and regulatory counsel in the Mortgage Bankers Association's Office of Government Affairs.Speaking at the Regional Conference of Mortgage Bankers Associations in Atlantic City, N.J., he said this will happen because rates are going up while there is a narrow spread in the yield curve between long-term and short-term Treasury rates. Mr. Markison said it is not reflective of any changes in the marketplace. In addition, he added, there is a belief that the increased rate of foreclosures is simply a function of growth in the subprime market. What is lost, Mr. Markison said, is that there is a higher percentage of homeownership among Americans.

Commercial and multifamily mortgage debt outstanding rose to $2.64 trillion at the end of 2005, a 14.2% rise over 2004 levels.For the fourth quarter alone, commercial and multifamily debt rose by $103 billion, or 4.1%, which is also a new record, the Mortgage Bankers Association has reported based on data provided by the Federal Reserve Board. Outstanding multifamily mortgage debt alone stood at $674 billion at the end of 2005, representing a 10.2% increase for the year. And for the fourth quarter, multifamily debt was up $19 billion, or 2.9%. Doug Duncan, the MBA's chief economist, said the trends "show every sign of continuing." Commercial banks hold the largest share of the debt, at $1.1 trillion, or 43%, of the total (including commercial loans that are backed by property pledged by businesses, rather than income-producing properties). Commercial mortgage-backed securities pools hold $553 billion, or 21%, of the debt. Considering just multifamily mortgage debt outstanding, Fannie Mae, Freddie Mac, and Ginnie Mae together hold $195 billion, or 29%, the MBA said. Commercial banks hold $140 billion of the multifamily mortgage debt, 21% of the total.

The average 30-year fixed mortgage rate fell from 6.37% to 6.34% over the seven-day period ended March 16, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate fell from 6.00% to 5.98%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages decreased from 6.03% to 5.93%, and the average rate for one-year Treasury-indexed ARMs declined from 5.45% to 5.37%, Freddie Mac reported. Fees and points averaged 0.7 of a point for fixed-rate mortgages and hybrid ARMs, and 0.8 of a point for one-year ARMs. "Financial markets, hedging against the potential build-up in inflation, pushed mortgage rates higher last week," said Frank Nothaft, Freddie Mac's chief economist. "However, market indicators this week seemed to point to less of a threat of inflation, and that allowed rates to drift a little lower." A year ago, the average 30-year and 15-year fixed rates were 5.95% and 5.47%, respectively, and the average one-year ARM rate was 4.20%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

The national delinquency rate for residential mortgage loans rose to 4.70% at the end of last year, up from 4.38% a year earlier, according to the Mortgage Bankers Association.The delinquency rate was also up by 26 basis points since the end of the third quarter. However, the percentage of loans in the foreclosure process nationally fell 16 bps from that of the previous year, though the fourth quarter's foreclosure inventory was up 2 bps from that of the third quarter. Doug Duncan, the MBA's chief economist, said the increase is not surprising. "We have been expecting an uptick in delinquencies due to a number of factors: the seasoning of the loan portfolio, the increased shares of the portfolio that are ARMs and subprime mortgages, as well as the elevated level of energy prices and rising interest rates," Mr. Duncan said. Hurricane Katrina also had a big impact. If the effect of last year's hurricanes is eliminated from the numbers, the MBA said the national delinquency rate would have been 4.55% at the end of last year. The MBA can be found online at http://www.mortgagebankers.org.

Led by a dramatic decline in building activity in the Northeast, single-family housing starts fell 2.3% in February to a seasonally adjusted rate of 1.8 million units, according to figures released by the U.S. Department of Commerce.The decline reflects sequential activity. Compared with those of a year earlier, starts fell nationwide by 0.4%. The biggest decline occurred in the Northeast, where starts on one- to four-family units fell 20%. Nationwide, multifamily construction fell by a whopping 36.5%, to 275,000 units. Starts in the West bucked the trend, rising almost 8%. David Pressly, president of the National Association of Home Builders, said builder confidence remained unchanged in March, but noted that rising rates and a decline in "short-term investors" is hurting business.

Two classes of Credit Suisse First Boston's commercial mortgage pass-through certificates, series 2001-CF2, have been downgraded by Fitch Ratings.Class M was downgraded from B to CCC, and class N was downgraded from CCC to C. In addition, Fitch upgraded seven classes in the deal and affirmed the ratings on seven others. The downgrades reflect an increase in expected losses on three of the four specially serviced assets, the rating agency said. The largest loan in special servicing (1.9%) is secured by an office property in Minneapolis and is current, Fitch reported. The loan was transferred to the special servicer in December 2005 due to imminent default.

Four classes of Asset Backed Securities Corp. mortgage pass-through certificates have been downgraded by Fitch Ratings, and two classes have been placed on Rating Watch Negative.The downgrades were as follows: series 2002-HE1, class B, from BBB to BBB-minus; series 2002-HE2, class B, from BBB to BBB-minus; series 2002-HE3, pool 1 class I-M4, from BBB-minus to BB, and pool 2 class II-M4, from BBB-minus to BB. Classes M-3 and M-4 of series 2003-HE1 were placed on Rating Watch Negative. Fitch also removed four classes of series 2002-HE3 from Rating Watch Negative: classes I-M3 and I-M4 of pool 1 and classes II-M3 and II-M4 of pool 2. In addition, Fitch upgraded four classes and affirmed the ratings on 55 classes in 12 ABSC deals. The rating agency attributed the downgrades to a deterioration in the relationship between loss expectations and credit enhancement. The transactions consist of fixed- and adjustable-rate subprime mortgage loans on one- to four-family properties. Fitch can be found online at http://www.fitchratings.com.

Investment in commercial real estate rose 44% last year to a record $268 million of investment-grade real estate (not counting transactions valued at less than $5 million), according to the National Association of Realtors."Investment-grade real estate has been changing hands at unprecedented rates, which demonstrates that the value of portfolio diversification into commercial real estate is being embraced strongly in the investment marketplace," said NAR president Thomas M. Stevens. "Many members of the National Association of Realtors underscore this wisdom in their own investments -- 13% hold an ownership interest in at least one commercial structure, and 39% own residential properties for investment in addition to their primary residence or vacation home." The association, in its latest Commercial Real Estate Outlook, also reported that vacancy rates are declining in all major commercial sectors, and rents are rising. The NAR can be found online at http://www.realtor.org.

The Market Composite Index, an overall measure of mortgage applications, fell from 575.6 to 574.4 on a seasonally adjusted basis during the week ended March 10, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications increased 0.2% on the week but were down 20.4% from the level recorded a year earlier. The Purchase Index rose from 399.0 to 403.0 on a seasonally adjusted basis, while the Refinance Index declined from 1614.4 to 1583.6. The four-week moving average for the Purchase Index rose from 400.1 to 401.9, and the comparable average for the Refinance Index fell from 1599.0 to 1593.4. Refinancings represented 37.7% of total applications, down from 38.5% the previous week, while adjustable-rate mortgages accounted for 28.8%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages increased from 6.31% to 6.42%, and points (including the origination fee) fell from 1.22 to 1.14 for loans with 80% loan-to-value ratios, the association reported.

The chairman of the Mortgage Bankers Association, Regina Lowrie, is calling on the mortgage banking industry to foster a more diverse work force so that it looks more like the customers it deals with.It is imperative that the industry "better reflect the customers we will be serving over the next two decades," she told the Regional Conference of Mortgage Bankers Associations in Atlantic City, N.J. To serve the customer of the future, the industry's companies need to reflect that customer, Ms. Lowrie said. As part of her commitment in this area, she has appointed an MBA diversity committee chaired by association president Jonathan Kempner. "Diversity is a key priority for me," Ms. Lowrie said. The MBA can be found online at http://www.mortgagebankers.org.