Originations

Minority and low-income Americans mostly prefer adjustable-rate mortgages, even though they are vulnerable to losing their homes if interest rates rise, according to a survey conducted by the Consumer Federation of America."The 25% of Americans who say they prefer ARMs are younger, poorer, and less well-educated than those who prefer fixed-rate mortgages," the CFA said. "Fixed-rate mortgages are preferred by 76% of those with incomes over $75,000, by 70% of college graduates, and by 75% of those between the ages of 45 and 64." CFA executive director Stephen Brobeck said lenders "who aggressively market ARMs to lower-income consumers and those with low credit scores are acting irresponsibly. Given the high probability of interest rate increases, an adjustable-rate loan made to a family which can barely afford the initial monthly payments represents a ticking time bomb." The CFA urges lenders and consumers to use caution when marketing and purchasing ARMs. "In a rising interest rate environment, investors should be particularly leery of purchasing subprime adjustable-rate mortgages," said Mr. Brobeck. "These high-priced ARMs have the potential to harm investors as well as borrowers."

First Community Bancshares Inc., Bluefield, Va., has announced the discontinuance of the wholesale portion of its mortgage subsidiary.The company noted that a proposed sale of the mortgage subsidiary was canceled in early July. "While the mortgage banking subsidiary continues to be held for sale, termination of the previously announced sale led to the elimination of the wholesale portion of the mortgage company's business and substantial downsizing of the remaining retail division," the company said. In the second quarter, the company recorded impairment charges of $933,000 to reduce the carrying value of the subsidiary to "its estimated fair value less costs to sell." First Community reported net income of $5.6 million ($049 per share) for the second quarter, compared with $7.0 million ($0.63 per share) a year earlier.

Lee Brodsky, former president and chairman of Bankers Insurance Service, has announced the launch of an independent insurance brokerage at JMB Insurance, Chicago, that will specialize in the mortgage banking industry.Called the Mortgage Banking Insurance Group, it will offer the Mortgage Bankers Bond as well as other coverages geared for lending operations, such as mortgage banking professional liability errors and omissions; mortgage impairment and mortgagee's E&O; directors' and officers' liability; and employment practices liability. Mr. Brodsky said he spent five years rewriting BIS's Mortgage Bankers Bond policy with underwriters at Lloyds, the Mortgage Bankers Association, and investors such as Fannie Mae, Freddie Mac, and Ginnie Mae. The Mortgage Banking Insurance Group can be found on the Web at http://www.mortgagebankinginsurance.com.

Sales of existing single-family homes rose 2.1% in June to a new monthly record, and house price appreciation jumped 9.6% on an annualized basis.The National Association of Realtors reported that sales of previously owned homes rose to a seasonally adjusted annual rate of 6.95 million in June, up from 6.81 million in May. Resales have not dipped below 6 million since June 2003, and NAR economists are expecting another annual record in 2004. Until the 30-year fixed-rate mortgage hits 7%, "homebuying should remain very, very healthy," NAR senior economist Lawrence Yun told reporters. Rising home prices are being driven by strong demand and a lean supply of single-family homes on the market. The national median resale price rose to $191,800 in June, up from $175,000 in June of last year. Median home prices rose by more than $10,000 in 2002 and in 2003. Homeowners can expect "another $10,000-plus gain in 2004," Mr. Yun said.

Troy McClain, a contestant on NBC's Emmy-nominated "reality" show, The Apprentice, has been hired as the spokesman for Pinnacle Financial Corp.'s nationwide advertising campaign.Pinnacle, an Orlando, Fla.-based mortgage lender, said Mr. McClain is a licensed mortgage broker "who understands the business of mortgage banking." The ad campaign will begin in Phoenix in August, San Diego in September, and Houston in October. Pinnacle can be found on the Web at http://www.pinnaclefinancial.com.

Fives classes of securities issued by E*Trade ABS CDO I Ltd. and E*Trade ABS CDO I LLC and supported in part by residential and commercial mortgage-backed securities have been placed on Rating Watch Negative by Fitch Ratings.The affected securities are as follows: class B third-priority secured floating-rate notes due 2037; classes C-1 and C-2 mezzanine secured floating-rate notes due 2037; $12.5 million of preference shares due 2037; and approximately $4.9 million of composite securities due 2037. The collateralized debt obligation is supported by RMBS, CMBS, CDOs, and asset-backed securities, Fitch said. The rating agency said a June 30 trustee report on the transaction indicates that 0.86% of the portfolio had defaulted. "The portfolio default and rating performance has increased the risk to the notes to a point where the risk may no longer be consistent with their respective ratings," Fitch said.

Freddie Mac has announced the deadline for submitting stockholder proposals for inclusion in the proxy statement for its annual stockholders' meeting in November.To be considered for inclusion in the proxy statement, stockholder proposals must be submitted in writing to Freddie Mac and received by Aug. 27, the government-sponsored enterprise said. Submissions should be sent to Corporate Secretary, Freddie Mac, 8200 Jones Branch Drive MS 200, McLean, Va. 22102. Procedural requirements for submissions can be found on Freddie Mac's website.

Adjustable-rate mortgages could cause problems for Southern California homeowners in three to seven years as they convert from fixed to adjustable rates, according to the Lusk Center for Real Estate at the University of Southern California."If interest rates increase, some buyers may not be able to afford the higher payments and may have to sell their homes," said the Lusk Center's Raphael Bostic, a former economist for the Federal Reserve Board who specializes in tracking the home mortgage market. "This could cause a sudden rush of homes on the Southern California market and depress prices." However, despite this long-term concern, Dr. Bostic said Southern California is not threatened by a "bubble" in housing prices. "As interest rates increase, the region's home sales will slow to more moderate but sustainable levels, and prices will increase more slowly," he said, pointing to the region's employment growth and housing demand as evidence that home prices are not being artificially inflated. The Lusk Center can be found online at http://www.usc.edu/lusk.

The American Financial Services Association is applauding a July 21 Ohio court decision to strike down the city of Toledo's mortgage lending ordinance on the grounds that it conflicts with state law."Our objective has been, and continues to be, a logical regulatory regime for mortgage lending," the AFSA said. "Such a regulatory structure cannot be built upon a patchwork of local and municipal ordinances, each of which reflects its own perception of abusive lending." According to Laurence Platt, a partner with the Washington law firm Kirkpatrick & Lockhart, a number of municipalities have tried to exercise more authority than they have under state law. "Toledo is a perfect example of that," Mr. Platt said. "The decision of the [Common Pleas Court of Lucas County, Ohio] said Toledo doesn't have the authority to regulate credit in that way." The Toledo ruling comes on the heels of an appellate court decision in City of Dayton v. State of Ohio barring Dayton's ordinance for essentially the same reason, according to the AFSA.

In an effort to revamp its cost structure, Washington Mutual has announced that it will eliminate an additional 2,500 mortgage-related positions from its workforce by the end of the year.That will bring WaMu's total job cuts in 2004 to approximately 8,500 positions, including cuts that have already been made or announced by the company. WaMu said it will close about 100 retail lending and loan processing offices in 17 markets where it does not have a retail banking footprint, though it will maintain wholesale and correspondent lending relationships in those markets. WaMu also said it is closing its loan servicing facility in San Antonio in a move that will account for 660 of the job cuts. Separately, the company announced that Craig Chapman, president of Washington Mutual Commercial Group, will now head the company's mortgage unit. His previous duties as chief administrative officer for WaMu will be dispersed to other executives, chairman and chief executive officer Kerry Killinger said during the company's July 22 quarterly earnings conference call.

The long-term debt ratings of EOP Operating LP have been lowered from Baa1 to Baa2 by Moody's Investors Service, and its ratings of Equity Office Properties Trust's preferred stock have been lowered from Baa2 to Baa3.The rating agency said the downgrades reflect "the erosion in the company's operating performance in recent years, resulting in cash flow levels insufficient to cover its dividend obligations and a moderate decline in key debt protection measures." Moody's said recovery in the U.S. office markets will be "slow and uneven," but added that the company's declining performance stems only in part from the cyclical downturn. Its operating results "have been pressured by the lack of preparedness in its internal operational infrastructure to manage through the weakening operating environment, unanticipated tenant credit quality challenges, and overexposure to highly correlated markets," the rating agency said. Moody's added that the company has taken action to strengthen its operational infrastructure. The rating agency can be found online at http://www.moodys.com.

Acadia Realty Trust, a White Plains, N.Y.-based retail investor, has reported the formation of a second acquisition fund with $300 million of committed capital.The real estate investment trust, an investor in properties that are anchored by grocery and "value-oriented" retail, said it expects the fund to be able to acquire up to $900 million in assets, with the use of debt funding. The investors in Acadia's first fund, along with two other institutional investors, are investing $240 million in this second fund, while Acadia is investing $60 million, the REIT said. Acadia will get a fee for managing the fund, in addition to a return on its invested equity. Kenneth F. Bernstein, Acadia's president and chief executive officer, said the fund will allow the REIT to "fuel our future growth independently of the increasingly volatile public markets."

Rapid Reporting Verification Co., Fort Worth, Texas, a provider of income and identity verification products to the mortgage industry, has introduced a Stated Doc Program that enables lenders to verify that a potential borrower filed an income tax return without having to verify the income.The verification company said it created the program after receiving numerous requests from customers to find a way to verify that a potential borrower filed an income tax return without requiring the customer to send documentation about the income. The Stated Doc Program also verifies whether the potential borrower filed certain schedules showing a self-employed individual's business income or an individual's share of trust or estate income. "The Stated Doc Program fulfills a need in the mortgage industry by giving lenders a way to verify that the borrower is straightforward enough to file a tax return even though the loan program does not require the borrower's income be verified," said Jay Meadows, Rapid Reporting's president and chief executive officer. The company can be found online at http://www.rapidreporting.com.

GMAC Mortgage Corp., Horsham, Pa., has announced an agreement to acquire certain assets of Pacific Republic Mortgage, a privately held mortgage banking company based in Anaheim, Calif.The terms of the deal were not disclosed. Pacific has 31 retail offices and 290 loan officers in Arizona, California, Colorado, Idaho, Oregon, Utah, and Washington, with the majority of operations in California, GMAC said. It funded $7.9 billion in mortgages in 2003, evenly divided between retail and wholesale/broker channels. "This acquisition complements our strategy to increase market share in the western United States by uniting with established, closely held regional lenders," said Ralph Hall, chief operating officer of GMAC Mortgage.

Washington Mutual Inc., Seattle, has reported earnings of $489 million ($0.55 per share) for the second quarter, down from $995 million ($1.07 per share) a year earlier, a decline that it attributed chiefly to a net loss of $63 million in its mortgage banking segment.The mortgage banking segment had recorded net income of $489 million a year earlier, WaMu said. "The principal drivers of the year-to-year difference were the results of the company's mortgage servicing rights hedging program, a high cost structure in the mortgage banking segment, and declining loan volumes," the company said. Originations of home loans totaled $59.49 billion for the quarter, down from $106.68 billion a year earlier. "While second-quarter results were affected by the volatility of our mortgage servicing rights, the root of our problem is the unacceptably high cost structure in our mortgage banking business," said Kerry Killinger, WaMu's chairman, president, and chief executive officer. "We know what we need to do, our efforts are well under way, and we will not be satisfied until we have fixed it." WaMu can be found online at http://www.wamu.com.

Countrywide Financial Corp., Calabasas, Calif., has reported consolidated net earnings of $699.6 million ($2.24 per share) for the second quarter, up 83% from $382.9 million ($1.37 per share) in the second quarter of last year.The earnings per share represented the company's second-best quarter on record, Countrywide said. Pretax earnings by the company's mortgage banking operations were 118% higher than those recorded a year earlier, and contributed 77% of the company's consolidated pretax earnings. "Based on recent financial data released by our major competitors, Countrywide appears to have maintained the No. 1 market position in originations during the second quarter," said Angelo R. Mozilo, Countrywide's chairman and chief executive officer. ".... This surge in production helped us maintain an excellent trend in our servicing portfolio, with growth of $43 billion during the quarter, which equates to an annualized growth rate of 25%." Countrywide's mortgage servicing rights appreciated in value by $2.2 billion, which enabled the company to recover a previously recorded MSR impairment of $1.4 billion. The difference between the two numbers represents an unrecognized increase in MSR value of $810 million, Mr. Mozilo said. The company can be found online at http://www.countrywide.com.

The average 30-year fixed mortgage rate fell to 5.98% for the week ending July 23 from 6.00% the previous week, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate dipped from 5.40% to 5.39%, while the average rate for one-year Treasury-indexed ARMs climbed from 4.02% to 4.12%. Fees and points averaged 0.6 of a point for all three mortgage categories. "Although Chairman Greenspan stated in his testimony before Congress recently that the economy may have hit a 'soft patch' in June, his outlook for the second half of the year was more upbeat than expected," said Frank Nothaft, Freddie Mac's chief economist. "Stronger growth in the economy will invariably translate into higher mortgage rates in the future, particularly for ARM products. But this should be offset by job growth and by rising incomes nationwide." A year ago, the average 30-year and 15-year fixed rates were 5.67% and 5.00%, respectively, and the average one-year ARM rate was 3.58%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

Class A-5 of Asset Securitization Corp. commercial mortgage pass-through certificates, series 1997-D5, has been downgraded from BB to B-plus and removed from Rating Watch Negative by Fitch Ratings.Fitch also affirmed the ratings on classes A-6 and A-7 of the deal and removed them from Rating Watch Negative and affirmed the rating on five other classes. The downgrade "reflects the losses expected on several specially serviced loans, with a majority of losses due to occur after the disposition of the Hyde Park loan, secured by a vacant hospital in Chicago," the rating agency said. The expected principal losses to the Hyde Park loan are attributable to unpaid principal balance, legal fees, and assumed future legal fees, accruing at approximately $500,000 per month, Fitch said. In addition, Fitch said it expects losses of approximately $10 million on four other specially serviced loans.

Nasdaq has notified Fog Cutter Capital Group, Portland, Ore., of its intention to delist the company effective July 29, an action that follows an agreement by Fog Cutter with its convicted chief executive officer, Andrew Wiederhorn, the company has reported.Fog Cutter said it will challenge the delisting decision. Mr. Wiederhorn became embroiled in a controversy related to the activities of Wilshire Credit Corp., a Portland company he owned in partnership with Lawrence Mendelsohn that traded in debt-related investments, Fog Cutter said. That company became insolvent following the Russian crisis of 1998, and on June 3, 2004, Mr. Wiederhorn pleaded guilty to two felony violations relating to its activities and received an 18-month prison term in addition to a monetary penalty. Fog Cutter then entered into a leave-of-absence agreement to prevent adverse consequences to the company. If Mr. Wiederhorn leaves his position as CEO and chairman of Fog Cutter, the minority shareholders of George Elkins Mortgage Banking, a commercial mortgage banker and broker, will have the right to buy FogCutter's 51% stake in George Elkins at a "significant" discount to its current market value, Fog Cutter said.

NewStar Financial Inc., a new Boston-based commercial finance company, has reported raising $660 million in capital that will be used to provide financing to midsize corporations, commercial real estate borrowers, and issuers of asset-backed securities.The capital consists of $210 million in equity and $450 million in debt, the company said. The formation of NewStar was sponsored by Capital Z Financial Services Fund II LP and JP Morgan Corsair II Capital Partners LP. (Capital Z's previous investments have included Aames Financial Corp. and Lending Tree Inc.) NewStar said it will originate senior and subordinated debt financings through a direct calling effort, often in concert with other lenders. Timothy J. Conway, formerly a senior executive with Citigroup and FleetBoston, is chief executive officer of the new company. NewStar can be found on the Web at http://www.newstarfin.com.