Originations

Commercial and multifamily mortgage bankers enjoyed a record year in 2004, according to the Mortgage Bankers Association."Everything was up," MBA chief economist Doug Duncan said at the group's Commercial Real Estate/Multi-Family Finance Conference in San Diego. And with little on the horizon to slow investment real estate, Mr. Duncan expects "more of the same" for 2005 – or at least very close to it. For 2004, mortgage bankers originated $136 billion in commercial and apartment mortgages, a 16% increase from $117 billion the year before, with fourth quarter production topping all others in the MBA's quarterly survey. The October-November-December total was $42.7 billion, $7.1 billion better than third quarter 2004 volume and $3.8 billion above the same period last year. The big jump reflected the usual push to close deals by the end of the year, with "widespread gains" across all property and investor types, the MBA said. The increases in last year's volumes were across all sectors, too. But Fannie Mae and FHA multi-family investors registered declines, the only investor-types to do so. "By any measure, our industry had a great year," said MBA chairman Michael Petrie. "We're flush with capital. We outperformed other asset classes, and we've earned a permanent place in institutional asset allocation models."

Nearly 50% of small- and medium-size banks and thrifts expect to see an increase in single-family originations in 2005, compared to 2004, while only 21% expect a decline, according to a real estate lending survey by the America's Community Bankers.The majority of 533 banks and thrifts responded to the ACB in November and December and it appears the upbeat expectations reflect a reduction in refinancing activity coupled with a strong home purchase market, according to ACB managing director Robert Davis. The survey also found that respondents increased their adjustable-rate mortgage production from 21% in 2003 to 30% in 2004 and reduced their loan sales into the secondary market from 50% in the 2003 to 43% in 2004. For depository institutions with more than $1 billion in assets, originations of 5/1 hybrid ARMs increased from 10% of loan production in 2003 to 15% in 2004. Meanwhile, the percentage of loan sales to wholesalers and conduits increased to 35% in 2004 from 22% in 2003, while the banks and thrifts reduced their sales to Fannie Mae and Freddie Mac from 32% in 2003 to 18% in 2004.

Commercial Capital Bancorp Inc., Irvine, Calif., has agreed to acquire Timcor Exchange Corp., Los Angeles, Calif., in an all-stock deal valued at $29.4 million. Timcor is a "qualified intermediary" which facilitates tax-deferred real estate exchanges under Section 1031 of the Internal Revenue Service Code.For Commercial Capital, the agreement means that it would get all of the approximately $400 million in transaction related exchange balances on deposit with 15 institutions. Currently, the bank has $127 million in exchange balances on deposit at Commercial Capital, pursuant to a strategic alliance the two entered into in February 2004. Nearly $300 million of those balances were shifted to the bank concurrent with the execution of the merger agreement, with the rest being moved within five days. Besides gaining these deposits, which have a low cost of funds, Commercial Capital also will benefit from the fee income Timcor produces.

GMAC Commercial Mortgage Corp., Elkins Park, Pa., has agreed to acquire Highland Mortgage Co., a Department of Housing and Urban Development lender based in Birmingham, Ala.Highland also has offices in Richmond, Va., and Raleigh, N.C. In 2004, GMACCM, the largest HUD lender in the nation, originated close to $800 million in loans, and Highland originated nearly $500 million in HUD loans. Susan Hall and John "Chip" Moore Jr. in Birmingham, Jim Tanner in Raleigh and Peggy Knisley in Richmond manage Highland's production offices. All 15 origination and underwriting staff members will join GMACCM. GMACCM senior vice president and managing director Karl Reinlein said, "We are excited to have Highland join GMACCM and help us build our HUD operations in the Southeast. We are confident that their expertise and local market knowledge will enhance GMAC Commercial Mortgage’s HUD operations."

The Mortgage Bankers Association plans to release a commercial version of the data set standards used in the residential market to facilitate the transfer of information between the various players in the lending transaction.Speaking at the group's Commercial Real Estate Finance/Multifamily Housing Conference in San Diego, Chairman Michael Petrie said the MISMO-like platform would allow commercial lenders and their trading partners to swap information using consistent definitions. It will save money by reducing the need for repeated manual input, increasing reporting accuracy and bolstering investor conference, Mr. Petrie told the conference's opening session. He also told the meeting that the commercial sector must be more vigilant than ever. "We've never before been subject to so much regulation," he said. To make sure the industry's voice is heard, the MBA intends to boost its grassroots, Web-based Capital Assets program to 10,000 members and fatten its political action committee to the tune of $1.3 million. About 4,500 people are registered for the meeting, "the largest number (of commercial real estate executives) assembled in one place at one time," according to MBA President Jonathan Kempner.

The Bush administration will continue to push for a federally insured zero downpayment program for borrowers with strong credit histories and a payment incentives program for borrowers with limited or weak credit histories, despite resistance in Congress and concerns about high default rates and costs."To remove two large barriers to homeownership -- downpayment and impaired credit -- the budget proposes two mortgage programs," the president's fiscal year 2006 budget proposals says. The administration proposed the two Federal Housing Administration loan program in last year's budget. Legislation to create the FHA zero down program was approved by a House committee last year but the bill was stopped in its tracks when the Congress Budget Office estimated the new program would incur $125 million in losses annually. However, the President's budget estimates the zero down program would generate $231 million in revenues annually and help over 200,000 families purchase their first home. The payment incentives program, which is essentially a subprime program with higher FHA premiums, did not get any traction in Congress last year.

Class L of Commercial Mortgage Acceptance Corp.'s commercial mortgage pass-through certificates, series 1998-C2, has been downgraded from CCC to CC by Fitch Ratings.The ratings on 12 other classes in the deal were affirmed. Fitch attributed the downgrade to expected losses on several specially serviced loans. The largest specially serviced loan, 330 South Warminster Road, is secured by an office property in Hatboro, Pa., and is over 90 days delinquent, the rating agency said. Fitch can be found online at http://www.fitchratings.com.

The typical American family's ability to purchase a median-priced home increased in the fourth quarter as a result of declining mortgage interest rates and rising family income, according to the National Association of Realtors.The NAR's composite Housing Affordability Index stood at 131.8, up from 128.9 in the third quarter but down from 136.8 a year earlier. The latest index number means that the typical household in the United States had 131.8% of the income needed to purchase a home at the fourth-quarter median existing-home price, which was $187,500, the association said. NAR chief economist David Lereah said the improvement in housing affordability is sustaining high home sales. "The median-income family is very well-positioned to buy a median-priced home in most of the country," he said. The NAR can be found online at http://realtor.org.

GMAC Commercial Holding was the leading commercial mortgage servicer, by total primary and master servicing volume, at the end of 2004, according to data compiled by the Mortgage Bankers Association.GMAC, which had a servicing portfolio of $208.14 billion for the period, was also at the top of the list for 2003. Wachovia is next, at $184.83 billion, followed by Midland Loan Services, with $98.365 billion. (They also held the same positions for 2003.) The association plans to release its servicer rankings data in conjunction with its annual commercial real estate finance/multifamily convention Feb. 6-9 in San Diego. Ranked by commercial mortgage-backed securities primary and master servicing volume, Wachovia topped the list as of Dec. 31 with a servicing volume of $117.56 billion, the MBA reported. GMAC was next, at $111.49 billion, followed by Midland Loan Services at $72.28 billion. The MBA also reported that GMAC ($65.09 billion), GEMSA ($32.40 billion), and Prudential Asset Resources ($24.29 billion) were the largest servicers for life insurance companies and other private investors.

Employment in the mortgage industry held steady in December after lenders added 32,200 new employees to their payrolls in 2004, according to Friday's jobs report by the Bureau of Labor Statistics.The BLS reported that employment in the mortgage banking/broker sector rose by only 200 full-time positions in December to 486,400. (There is a one-month delay in the release of mortgage employment data. The BLS will release the January data on March 4.) Data for the full year show that the annual rate of employment in the mortgage industry rose by 6% in 2004, to 473,800. Meanwhile, Friday's employment report showed that the economy generated 146,000 new jobs in January, and the unemployment rate declined to 5.2%.

Chicago-based Equity Residential, the largest multifamily real estate investment trust by market capitalization, has reported earnings per share of $1.48 for 2004, down from $1.55 in 2003.For the fourth quarter, the REIT reported EPS of $0.48, compared with $0.33 for the fourth quarter of 2003. Equity Residential said the quarterly increase is mostly a result of higher gains on property sales in 2004 as well as some costs associated with its redemption of preferred shares in 2003. Funds from operations totaled $0.56 per share for the fourth quarter, compared with $0.45 per share a year earlier. "Operationally, 2004 was a year of improving fundamentals," said Bruce W. Duncan, president and chief executive officer of Equity Residential. "Revenues in the majority of our markets increased primarily as a result of decreased concessions. We sold nearly $1.0 billion in assets, at excellent prices, in markets we were determined to cull from our portfolio and invested $900 million in assets and markets with greater long-term potential."

Equity Office Properties Trust, Chicago, has reported net income of $98.2 million ($0.24 per share) for 2004, a major decline from $603.2 million ($1.50 per share) for 2003.For the fourth quarter, EOP reported net income of $61.3 million ($0.15 per share), compared with $201.4 million ($0.50 per share) in the fourth quarter of 2003. EOP, the largest office real estate investment trust by market capitalization, said the fourth-quarter 2003 results had included net gains on the sale of real estate of $115.7 million. The REIT's funds from operations for the fourth quarter were $283.3 million ($0.62 per share), compared with $320 million ($0.70 per share) for the comparable period of 2003. EPS and FFO for 2004 and the fourth quarter have been negatively affected by an impairment charge of about $229 million, lower rents on leases, an increase in real estate taxes, costs associated with redeeming some EOP securities, and reduced income from asset sales, the REIT said. Richard D. Kincaid, EOP's president and chief executive officer, noted that the company is "seeing indications that the economic recovery is translating into increased activity in the office market." The REIT can be found online at http://www.equityoffice.com.

New Century Financial Corp., a nonprime mortgage company based in Irvine, Calif., has reported net earnings of $375.6 million ($8.29 per share) for 2004, compared with $245.5 million ($6.32 per share) in 2003.Mortgage loan originations totaled $42.20 billion, up 54.1% from $27.38 billion in 2003. For the fourth quarter, the company reported earnings of $78.7 million ($1.44 per share), compared with $74.1 million ($1.80 per share) in the fourth quarter of 2003. Mortgage originations totaled $11.50 billion for the quarter, up 39.4% from $8.25 billion a year earlier. Robert K. Cole, New Century's chairman and chief executive, cited several developments in 2004, including its conversion into a real estate investment trust and its acquisition of the rights to the name Home123 and related brand assets. "As a result, we are confident we can deliver our EPS target of $9.00 per share or more, at least 50% of which will be from our mortgage loan portfolio, and deliver a dividend of $6.20 per share or more for 2005," he said. New Century can be found online at http://www.ncen.com.

The average 30-year fixed mortgage rate fell to 5.63% for the week ending Feb. 4 from 5.66% the previous week, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate was unchanged, at 5.14%, the average rate for five-year Treasury-indexed hybrid adjustable-rate mortgages declined from 5.02% to 5.00%, and the average rate for one-year Treasury-indexed ARMs rose from 4.18% to 4.23%. Fees and points averaged 0.7 of a point for fixed-rate mortgages and one-year ARMs and 0.6 of a point for five-year hybrid ARMs. "Not surprisingly, the one-year ARM rose on the expectation that the Fed would raise rates once again ...," said Frank Nothaft, Freddie Mac's chief economist. "We will probably see the ARM rise a little more over the next few weeks in anticipation of further rate increases by the Fed while the long-term fixed rates remain fairly flat." A year ago, the average 30-year and 15-year fixed rates were 5.72% and 5.03%, respectively, and the average one-year ARM rate was 3.61%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

The Office of the Comptroller of the Currency has incorporated its 2003 anti-predatory-lending guidelines into a regulation to emphasize its commitment to take enforcement actions when it discovers unfair and deceptive lending practices at national banks."It responds to critics who have said OCC does not have sufficient enforcement authority," said James McLaughlin, director of regulatory affairs at the American Bankers Association. Rep. Barney Frank, D-Mass., has been critical of OCC consumer protection efforts and remains "skeptical" of OCC authority to take action against unfair and deceptive practices, as provided in the Federal Trade Commission Act. "It is a good-faith effort by the OCC, and I welcome it," he said. "But it shows there are legal limitations on their ability to carry this out." Meanwhile, the National Community Reinvestment Coalition complained that the OCC's guidelines are vague and ridden with holes. "While the guidance attempts to address common predatory lending practices, in fact, these standards provide little consumer protections in our communities."

The Federal Open Market Committee has raised its target for the federal funds rate by 25 basis points, to 2.5%, and has indicated that rate hikes are likely to continue in the future."Even after this action, the stance of monetary policy remains accommodative," the FOMC said. (The committee is the monetary policy-making organ of the Federal Reserve Board.) "Nothing in the Fed outlook has changed," said Steve Stanley, chief economist at RBS Greenwich Capital Markets. "As long as economic growth is robust and inflation is contained, the Fed will tighten by 25 bps at each meeting, at least until they get close to neutrality." Mr. Stanley said he based his interpretation of the Fed's statement on the fact that it "was a verbatim repeat of December 14, except for one word -- 'earlier.' The 'earlier rise in energy prices' became 'the rise in energy prices.' Otherwise, the statement was exactly the same as last time."

Class G of Red Mountain Funding LLC's commercial mortgage pass-through certificates, series 1997-1, has been downgraded from CC to C by Fitch Ratings.Fitch also affirmed the ratings on classes C, D, and E and removed them from Rating Watch Negative. In addition, Fitch affirmed the ratings on three other Red Mountain classes. The rating agency attributed the downgrade to a loss associated with the resolution of the Fairfield pool in December, and the elimination of the Fairfield-related uncertainty resulted in the removal of classes C, D, and E from the watchlist. The largest loan in the pool (27%) is secured by a health care facility in Birmingham, Ala., and Fitch said it "remains concerned" about the fact that health care properties account for 100% of the pool.

Five classes of Salomon Brothers Mortgage Securities VII Inc., commercial mortgage pass-through certificates, series 2000-C2, have been downgraded by Moody's Investors Service.The downgrades were as follows: class J, from Ba2 to B3; class K, from Ba3 to Caa1; class L, from B2 to Caa2; class M, from Caa1 to Caa3; and class N, from Caa2 to Ca. In addition, Moody's affirmed the ratings on nine other classes of Salomon mortgage-backed securities. The downgrades were attributed to realized and expected losses from specially serviced loans, loan-to-value ratio dispersion, and interest shortfalls. The certificates are collateralized by 178 mortgage loans secured by commercial and multifamily properties. Nine loans, representing 9.6% of the pool, are in special servicing. Moody's said it has estimated aggregate losses of approximately $22.5 million for all the specially serviced loans. The pool collateral is a mix of office (36.9%), retail (21.6%), industrial and self storage (18.3%), multifamily (11.5%), lodging (1.7%), mixed-use (1.2%), and health care (0.3%) loans, and U.S. government securities (8.5%).

Madison Title Agency, Lakewood, N.J., has announced the launch of LeaseProbe LLC, a wholly owned subsidiary that conducts lease review, lease abstraction, and commercial real estate due diligence.The company said LeaseProbe enables customers to better organize and manage critical lease data, including base rent, terms, operational expenses, assignment, subletting, purchase, relocation, and termination options. The service is designed as a due-diligence tool for parties engaged in acquisitions, mergers, or dispositions and a property management tool for landlords and tenants. "LeaseProbe was created to provide commercial real estate professionals with precise and accurate lease information," said David Tesler, LeaseProbe's chief executive officer. "Traditionally, the review and abstracting of commercial leases has been one of the most time-consuming and laborious elements of the acquisition and management process, yet it is also one of the most critical functions."

The Eleventh Federal Home Loan District Cost of Funds Index continues its climb, increasing by 9 basis points in December to 2.118%.The index is a weighted average calculated by the Federal Home Loan Bank of San Francisco of the interest expense for thrifts in Arizona, California, and Nevada to originate mortgage loans. For the first time since 2000, COFI has ended the year higher than it was at the end of the previous year. COFI stood at 1.902% in December 2003. The index then spent the next five months continuing its decline, until it reached bottom in May, at 1.708%. In seven months the index has risen 40 bps, a relatively small gain given how fast the index fell. The index is now at its highest level since June 2003. COFI's most recent peak was in December 2000, at 5.617%.