Originations

The mortgage business faces a challenging -- not to mention lucrative -- future, according to Regina Lowrie, president of Gateway Funding and the new chair of the MBA.Of the 30 million new Americans expected over the next two decades, up to half will need a mortgage, Ms. Lowrie said at the group's rain-soaked annual convention in Orlando. The hard part will be accommodating them, for they will require $6-7 trillion in capital from the international markets. Ms. Lowrie called it "a huge challenge." In her inaugural address, she also took a swipe at President Bush's Advisory Panel on Federal Tax Reform, which has discussed the possibility of lowering the cap on the mortgage interest deduction from $1.1 million to $300,000-$350,000. "Enacting this proposal could turn a healthy housing market upside down," she told the convention. Such a change in policy would do nothing to increase the nation's homeownership rate or eliminate the ownership gaps between whites and nonwhites, she said. The tax reform panel's report is due on the president's desk no later than Nov. 1.

In her first official act as chair of the Mortgage Bankers Association, Regina Lowrie says she will create a new council to develop a "tactical plan" that will serve as a guide for the now 3,000-member trade group through the next decade.Described by the Horsham, Pa., lender as a "think tank," the panel of 15-20 members will include "some of the most accomplished leaders" in the housing finance field, Ms. Lowrie said at the MBA's annual convention in Orlando. She said she has "someone in mind" to chair the council but declined to name the person because he, or she, hasn't been asked as yet. Ms. Lowrie told MortgageWire that the group will consist of nonpartisan, independent thinkers who represent all facets of the "food chain," including large and small, commercial and residential, and all the production channels. The MBA's current three-year strategic plan is entering its second year, and Ms. Lowrie expects the council's report, due by the end of summer 2006, to set the framework for the trade group's next blueprint. "I think that, as the trade association that speaks for the housing finance industry, this is a major undertaking," she told MW. "This will be a big part of my legacy."

Class B-1 of Asset Backed Securities Corp. series 1999-LB1 has been downgraded from BB to CCC by Fitch Ratings.In addition, Fitch affirmed the ratings on four other classes in the ABSC deal. The rating agency attributed the downgrade to higher-than-expected collateral losses and deterioration in the relationship between loss expectations and credit support levels. The transaction consists of fixed- and adjustable-rate subprime mortgage loans, primarily on one- to four-family and multifamily properties. Fitch can be found online at http://www.fitchratings.com.

First Union Real Estate Equity and Mortgage Investments, Boston, has announced that Winn-Dixie Stores Inc., a tenant at First Union's Jacksonville, Fla., property, has rejected its lease with First Union in connection with Winn-Dixie's bankruptcy.First Union said it does not believe the rejection of the lease will have a material effect on its operating results. The real estate investment trust also announced the appointment of John Alba as its chief investment officer. Mr. Alba was previously a vice president of First Union and of its external adviser, FUR Advisors LLC.

Nationwide Health Properties Inc., Newport Beach, Calif., has closed a new $700 million senior unsecured credit facility.The real estate investment trust said the facility includes a three-year $600 million revolving facility (with an option to extend for a fourth year) and a $100 million term loan. The credit facility replaces the company's $400 million senior unsecured facility. The new facility was jointly arranged and syndicated by Banc of America Securities LLC and J.P. Morgan Securities Inc. The REIT can be found on the Web at http://www.nhp-reit.com.

Two business units of Fiserv Inc. -- Integrated Loan Services, Rocky Hill, Conn., and General American Corp., Pittsburgh -- have combined operations to form the Fulfillment Services Division of Fiserv Lending Solutions.The division will adopt FLS as the parent brand for all products and services, the Brookfield, Wis.-based Fiserv said. The combination "brings together two leaders in fulfillment services with strengths in different markets," said FLS group president James Puzniak. "ILS has succeeded in the prime equity market by offering innovative solutions, while GAC's strength has been in the subprime and traditional markets." Jerry Smith, chief executive officer of ILS, and Rich Sneddon, CEO of GAC, will hold co-CEO positions with the division, and Lee Howlett will serve as division president and chief operating officer, Fiserv said. Among the division's offerings are the CASA automated valuation model, QuickClose Lien Protection Insurance, the GATORS settlement management system, and various appraisal products, broker price opinions, flood certificates, title insurance, closing services, and outsourced loan processing systems. FLS can be found online at http://www.fiservlendingsolutions.com.

Commerce Velocity, Irvine, Calif., has announced the introduction of an end-to-end group of mortgage services that extends into secondary-market functionality.The company said the group of services "weaves automated processing and superior intelligence throughout the entire mortgage processing channel" to handle lead management, point of sale, eligibility and pricing, underwriting, document preparation, fulfillment, loan risk modeling, and more. Founded in 1999, Commerce Velocity has had its greatest impact so far in offering automated underwriting for subprime and nonconforming loans, particularly for wholesale transactions. Funding America recently adopted Commerce Velocity's CQ BrokerConnect Automated Underwriting platform to provide brokers and borrowers with instant pricing, pre-qualification, and AU approvals. The company can be found online at http://www.cvelocity.com.

Washington Mutual Inc., Seattle, has reported earnings of $821 million ($0.92 per share) for the third quarter, up from $674 million ($0.76 per share) a year earlier despite a falloff in net income in its home loan segment.Net income for the home loan segment totaled $165 million in the third quarter, down from $208 million in the second quarter and $273 million a year earlier, the company said. "The decrease from the comparable quarters reflects a decline in noninterest income due to lower gain from mortgage loans driven by a more competitive pricing environment for prime home loans in the secondary market, as well as the increasing cost of hedging the [mortgage servicing rights] as interest rates have risen throughout the year," the company said. "Also contributing to around half of the linked quarter variance were gains recorded in the second quarter related to inter-segment sales of loans during the first half of 2005." Net income for the commercial group segment, including Long Beach Mortgage Co., totaled $201 million in the third quarter, up from $139 million a year earlier, WaMu reported. The company can be found online at http://www.wamu.com.

Residential sales and housing construction remain at high levels but demand is slowing in some regions, according to a periodic report of economic activity by the Federal Reserve Board."Residential real estate activity remained generally strong, but reports that demand has eased have become somewhat more common," the Fed's Beige Book says. Federal Reserve Banks in Atlanta, Boston, Chicago, Kansas City (Mo.), and Minneapolis noted slower sales in some parts of their districts. The Richmond (Va.) district bank reported "continued strength in housing construction, but indicated that demand was easing in some parts of the district." Reports of economic activity from all 12 district banks were collected in early October. Meanwhile, the commercial sector continues to improve. "All of the districts reporting on commercial real estate conditions noted rising demand for office, retail, or industrial space," the Beige Book says.

The average 30-year fixed mortgage rate rose from 6.03% to 6.10% over the seven-day period ended Oct. 20, its highest level since July 2004, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate increased from 5.62% to 5.65%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages rose from 5.57% to 5.59%, and the average rate for one-year Treasury-indexed ARMs climbed from 4.85% to 4.89% (its highest level since April 2002). Fees and points averaged 0.5 of a point for 30-year fixed-rate mortgages, 0.6 of a point for 15-year FRMs, and 0.7 of a point for ARMs. "Despite the gradual rise in mortgage rates over the last two months, housing starts were actually up in September, highlighting the resiliency of the housing market," said Frank Nothaft, Freddie Mac's chief economist. "As a matter of fact, housing directly contributed to real [gross domestic product] growth of 19% in the first quarter of the year and 23% in the second quarter." A year ago, the average 30-year and 15-year fixed rates were 5.69% and 5.07%, respectively, and the average one-year ARM rate was 4.02%, Freddie Mac said.

Desert Capital REIT Inc., Henderson, Nev., has filed a registration statement with the Securities and Exchange Commission for a proposed public offering of $225 million of common stock.Desert Capital is proposing to offer 15 million shares of common stock at $15 per share. Offers will be made only by means of a prospectus, which can be obtained (when available) from the dealer-manager of the proposed offering, CMC Financial Services Inc., Henderson. The real estate investment trust can be found online at http://www.desertcapitalreit.com.

Two classes of Morgan Stanley 1997-XL1 commercial mortgage-backed certificates have been downgraded by Fitch Ratings.Class G was downgraded from B to B-minus, and class H was downgraded from CC to C. In addition, two classes were upgraded by Fitch and the ratings on five others were affirmed. The downgrades were attributed to a decline in performance at the Westshore Mall property, representing 4.5% of the pool. The property became real estate owned in March 2005, and in August the special servicer applied an appraisal reduction of $7.9 million as a result of a decline in appraised value and accumulated servicer advances, Fitch said. "Upon disposition of the Westshore Mall, Fitch expects realized losses will exceed the balance of class H," the rating agency said.

A program aimed at rehabilitating empty foreclosed homes and offering affordable low-downpayment mortgages and downpayment assistance has been launched by Freddie Mac and several partners in Gwinnett County, Ga.Under the program, Building a Better Block Gwinnett, renovated homes will be marketed and sold through participating local real estate professionals, Freddie Mac said. The properties will be renovated by HomeSteps, Freddie Mac's real-estate-owned sales unit. The partners of the government-sponsored enterprise are The Impact! Group, a Georgia nonprofit community development corporation; Taylor, Bean & Whitaker Mortgage Corp., a wholesale mortgage lender based in Ocala, Fla.; and Brand Bank. In addition to expanding homeownership opportunities, the initiative is expected to "stabilize communities that have deteriorated due to the high number of foreclosures that Gwinnett County continues to face," said Marina Peed, executive director of The Impact! Group. The organizations can be found online at http://www.freddiemac.com, http://www.theimpactgroup.org, and http://www.taylorbean.com.

The Market Composite Index, an overall measure of mortgage applications, rose from 694.8 to 737.5 on a seasonally adjusted basis during the week ended Oct. 14, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.On an unadjusted basis, applications decreased 4.4% on the week but were up 3.7% from the level recorded a year earlier. The Purchase Index rose from 469.5 to 503.9 on a seasonally adjusted basis, while the Refinance Index climbed from 2004.9 to 2095.7. The four-week moving average for the Purchase Index rose 0.2%, from 481.7 to 482.6, and the comparable average for the Refinance Index fell 3.0%, from 2143.2 to 2078.7. Refinancings represented 42.8% of total applications, down from 43.5% the previous week, while adjustable-rate mortgages accounted for 29.3%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages increased from 5.98% to 6.09%, and points (including the origination fee) increased from 1.22 to 1.29 for loans with 80% loan-to-value ratios, the MBA reported. The MBA can be found online at http://www.mortgagebankers.org.

The chief economist for Standard & Poor's told the nation's leading homebuilders Oct. 19 that there are "big local" housing bubbles in such high-priced markets as California, Florida, and New York.S&P economist David A. Wyss said a typical home in San Diego costs 9.6 times the area's average household income, compared with a national affordability ratio of 3.2 times. He said in the New York metropolitan area a home costs 8.6 times the average household income. Ten years ago the national average was just 2.6 times household income. Even though Mr. Wyss described these markets as "bubbles," he said home prices could fall gradually in these areas. He also said housing bubbles exist in several foreign industrialized nations, including the United Kingdom. Mr. Wyss and NAHB chief economist David Seiders predicted that mortgage rates will continue to rise and will top out at 7% over the next two years.

Single-family housing starts rose 2.6% in September, as construction activity remained strong despite the devastation caused by Hurricane Katrina in Louisiana, Mississippi, and Alabama.The U.S. Census Bureau reported that single-family starts increased from a seasonally adjusted annual rate of 1.70 million in July to a 1.75 million rate in September. September starts were 12.3% above the rate in September 2004. Celia Chen, director of housing economics at Economy.com, said she expected single-family starts to be flat this month because of Hurricane Katrina. But starts in the South are up 6.2%. She commented that Census Bureau data may not have captured the impact of the hurricane. At the same time, sales remain strong, and the rise in mortgage rates is attracting more "last-minute" buyers to the table, Ms. Chen said. Economy.com, West Chester, Pa., projects that single-family starts will total 1.69 million for 2005 and drop to 1.58 million in 2006 as the 30-year mortgage hits 7% by year-end.

Two classes of Residential Asset Mortgage Products Inc. series 2001-RM2 group I have been downgraded by Fitch Ratings.Class B-I-1 was downgraded from BB to B, and class B-I-2 was downgraded from B to CC. Fitch also upgraded three classes and affirmed the rating on nine others in the transaction. The downgrades were attributed to a deterioration in credit enhancement and the likelihood that class B-I-3 will be fully written down in as little as six months, "at which time the class B-I-2 will begin taking principal writedowns," the rating agency said. The mortgage pool consists of fixed- and adjustable-rate loans to subprime borrowers secured by first liens on one- to four-family residential properties.

Accepting Mexican assets in U.S. commercial mortgage-backed securities transactions may carry extra credit risk for investors, according to Fitch Ratings.Cross-border lending may expand if CMBS investors become comfortable with accepting Mexican assets, but Fitch "remains cautious" because of inherent risks in loans with Mexican collateral, said director David Harrison. "Structural mechanisms such as liquidity facilities, currency swaps, offshore sponsorship, and political risk and currency conversion insurance, can help mitigate the risks associated with cross-border lending," Mr. Harrison said. But even with adequate structural features, a loan backed by Mexican collateral "can only be tranched three to four notches above the country ceiling," he said. Fitch senior director Sam Fox said geopolitical and economic instability that results when a sovereign nation nears default "will also affect the value of collateralized properties in CMBS transactions, which makes loans backed by Mexican collateral more susceptible to greater losses in default than similar loans backed by U.S. collateral." Fitch can be found online at http://www.fitchratings.com.

The risk of price declines over the next two years has increased in the nation's 50 largest housing markets, according to the latest PMI U.S. Market Risk Index, whose median risk index value rose 11.6% in the third quarter.PMI Mortgage Insurance Co., the Walnut Creek, Calif.-based mortgage insurer that created the index, said the median value increased from 120 to 134, which means the probability of experiencing a home price decline in the next two years has risen from 12.0% to 13.4% in the 50 largest housing markets. "House prices are sticky, so moving to another phase in the real estate cycle can be a slow process," said Mark Milner, chief risk officer of PMI Mortgage Insurance. "But we believe that over the medium to long term, prices will move into better alignment with local economic factors -- in particular, income." According to the index, markets with a greater than 50% chance of price declines over two years are Boston-Quincy (Mass.), at 551; San Diego-Carlsbad-San Marcos (Calif.), at 536; Nassau-Suffolk (N.Y.), at 532; Santa Ana-Anaheim-Irvine (Calif.), at 522; and Oakland-Fremont-Hayward (Calif.), at 502. PMI can be found online at http://www.pmigroup.com.

The Colorado Department of Regulatory Agencies is recommending that the state legislature require all brokers working in Colorado to register with the director of the Division of Real Estate.In a new report, DORA says all candidates should submit to criminal history and regulatory background checks and post bonds worth $100,000. The director of DER would be able to deny or revoke registration if a broker is found convicted of any crime involving mortgage fraud. DORA also wants to make it a class 1 misdemeanor to practice as a broker without being registered and to grant the state attorney general jurisdiction over such offenses. "DORA, after reviewing our application and gathering data on their own, decided to take more drastic actions to cut down on crime," said Bart Bartholomew, president of the Colorado Association of Mortgage Brokers, which requested the legislation. "CAMB is in favor of anything to help reduce mortgage fraud in Colorado." Chris Holbert, president of the Colorado Mortgage Lenders Association, said registration of nonexempt brokers is not the answer to combating fraud. What the industry needs is aggressive enforcement, he said. "Regulation is threatening to mortgage brokers," Mr. Holbert said. "If it reduces the number of mortgage brokers in Colorado, it will very likely decrease business for wholesale lenders. .... Such regulation is anti-competitive." Colorado is one of only two states that does not regulate brokers.