Originations

The National Association of Securities Dealers has issued a warning to investors about the risks associated with mortgages having a 100% loan-to-value ratio, also known as pledged-asset mortgages.In an Investor Alert, the NASD noted that customers of brokerage firms offering 100% mortgages can pledge their stocks, bonds, mutual funds, and other securities in lieu of a downpayment for a mortgage. The firms often tout the fact that such mortgages allow investors to avoid private mortgage insurance or liquidating their securities to come up with a downpayment, but they may "overlook, or consign to the fine print," the associated risks, the trade group said. "There 100% mortgages are not suitable for everyone, and investors should approach them with extreme caution," said Mary L. Schapiro, NASD vice chairman and president of regulatory policy and oversight. "Many investors aren't aware of the considerable risks involved. We're especially concerned that they don't understand that the securities they pledge in lieu of a downpayment may be liquidated if the value of those securities drops below a certain level, or if they default on their mortgage." The association can be found online at http://www.nasd.com.

The typical American family's ability to buy a median-priced home increased in the first quarter as a result of a drop in mortgage interest rates, rising family income, and a decline in home prices, according to the National Association of Realtors.The NAR's composite Housing Affordability Index stood at 144.1, up from a revised 138.7 in the fourth quarter but down from 144.9 a year earlier. The latest index number means that the typical household in the United States had 144.1% of the income needed to purchase a home at the first-quarter median existing-home price, which was $170,800. "Although mortgage interest rates have risen in the last month, housing affordability conditions remain favorable," NAR chief economist David Lereah said. "There are some challenges in the more expensive markets, but on balance, most of the households in the United States can readily afford a typical home." The NAR can be found online at http://realtor.org.

Keystone Property Trust, West Conshohocken, Pa., has announced a $1.5 billion merger agreement under which a partnership of Aurora, Colo.-based ProLogis and affiliates of investment companies managed by Eaton Vance Management will acquire Keystone and its subsidiaries.Under the merger pact, the partnership will acquire all the outstanding common shares and common units of Keystone for $23.80 per share in cash, representing a premium of approximately 17% over the closing price on April 30, Keystone said. The transaction has an equity value of $850 million (based on Keystone's approximately 35.7 million common shares outstanding), and a total value of approximately $1.5 billion, including debt and preferred shares, the company said. The merger has been approved by the Keystone and ProLogis boards of trustees and by Eaton Vance. Keystone, an industrial real estate investment trust, can be found online at http://www.keystoneproperty.com, and ProLogis, also an industrial REIT, can be found at http://www.prologis.com.

The lower interest rate environment that sparked a brief boom in March boosted volume for the member companies of the Mortgage Insurance Cos. of America.The total dollar volume of primary new insurance written was $20.25 billion, up from $14.45 billion in February. The March total included $16.84 billion in traditional insurance and $3.4 billion in bulk. Application volume increased 25% in March, from 140,648 to 189,311, and new pool risk written totaled $83.4 million. The cure/default ratio was well over the 100% line for the second straight month, at 114.4%. There were 43,489 cures and 38,014 defaults. Beginning in July 2003, all data from MICA excludes information from Radian Group, which is no longer a member of the trade association. MICA can be found online at http://www.micanews.com.

The Pacific Exchange has announced the beginning of trading in options on Impac Mortgage Holdings Inc. and United Dominion Realty Trust Inc.The options of both companies will trade on the January expiration cycle, with exercise limits set at 3.15 million shares. The lead market makers will be Steven D. Juno and Ethan Dorr of Cutler Group LP. The exchange can be found on the Web at http://www.pacificex.com.

Classes G and H of Deutsche Mortgage & Asset Receiving Corp.'s commercial mortgage pass-through certificates, series 1998-C1, have been removed from Rating Watch Negative by Fitch Ratings.The rating agency said the actions were taken due to the full repayment of interest shortfalls. "In April, the losses from liquidation of the Healthcare Capital portfolio (3.8%), a group of eight cross-collateralized, cross-defaulted health care loans, were passed through the trust, resulting in a 100% principal loss," Fitch said. "However, a portion of the liquidation proceeds was used to repay the interest shortfalls on several classes." The rating agency can be found online at http://www.fitchratings.com.

Piper Jaffray analyst Robert Napoli has applauded the decision of Accredited Home Lenders, San Diego, to buck the growing trend of publicly traded subprime lenders converting to real estate investment trust status.Accredited announced the decision in a recent news release on its first-quarter earnings. "While the company found certain arguments for becoming a REIT to be compelling, it also found the structure would add significant administrative complexity," Accredited said. "The company received divergent advice concerning how a hybrid REIT should be structured and how it would be valued." Mr. Napoli commented that "[t]his is a different decision than most competitors who are choosing the REIT structure, and we like it. Accredited can still choose to become a REIT at a later date after it reviews the success of its peers. We recommend aggressive purchase of Accredited stock if it sells off because of this less 'popular' decision."

The liquidating trusts of three affiliated real estate investment trusts -- Shelbourne Properties I, II, and III -- have announced the transfer of all the REITs' remaining assets to the respective trusts.April 23 was the last day of trading of the three REITs' common stock on the American Stock Exchange. Arthur N. Queler, the trustee of the three liquidating trusts, reported that each stockholder of each of the three REITs automatically became the holder of one unit of beneficial interest in the related liquidating trust for each share of the company's common stock held as of April 30. In addition, the holder of class B units in each REIT's operating partnership received 15% of the aggregate units in the related liquidating trust in lieu of the holder's entitlement to 15% of all distributions made by the REIT.

The Eleventh Federal Home Loan District Cost of Funds Index reversed course and headed downward again in March, nearly erasing a 3-basis-point rise in February.The index for March, as calculated by the Federal Home Loan Bank of San Francisco, stood at 1.815%; in February it was 1.841%. The March number is the second-lowest point the index has ever reached. The lowest came in January, when COFI stood at 1.811%. COFI is one of several indices popular for setting rates for adjustable-rate mortgages. Its proponents believe one of its benefits is that -- because it is a weighted average of the interest paid by thrifts in California, Arizona, and Nevada on money used to originate mortgages -- it lags other rates by three to six months. Meanwhile, with rates rising, a number of industry sources are reporting an increasing popularity of ARM loans in general.

CNL Hospitality Properties Inc., a real estate investment trust based in Orlando, Fla., has announced a merger agreement under which it will acquire its external adviser, CNL Hospitality Corp.Under the agreement, all the outstanding shares of capital stock of the adviser would be exchanged for shares of the REIT's common stock and cash. The total consideration would amount to approximately $297 million plus the assumption of approximately $11 million of debt, the REIT said. CNL Hospitality Corp. would become a wholly owned subsidiary of CNL Hospitality Properties, and the officers and other executives of CNL Hospitality Corp. would become associates of the REIT. The REIT can be found online at http://www.cnlonline.com.

The median income of California households fell $41,360 short of the $93,680 needed to buy a median-priced home in the first quarter, according to the California Association of Realtors.The Los Angeles-based organization said its Homebuyer Income Gap Index is a quarterly analysis of the difference between the median household income -- $52,320 in the first quarter -- and the qualifying income needed to buy a median-priced single-family home for the state and for select regions of the state. The median price for such homes stood at $406,390 statewide in the first quarter, CAR reported. The income gap for the first quarter was up 45% from $28,530 a year earlier, CAR said, when the median household income was $51,180 and the income needed to buy a median-priced home at $338,010 was $79,710. CAR can be found on the Web at http://www.car.org.

Commercial mortgage-backed securities performed well in the first quarter, with 142 confirmations of rating actions, 68 upgrades, and 40 downgrades, Moody's Investors Service has reported.Floating-rate bonds accounted for more than half of the investment-grade downgrades. Conduits accounted for half the upgrades, "largely due to credit support build up, and also to declines in overall loan leverage," according to Tad Philipp, managing director/CMBS at Moody's. Leverage for conduits and conduit portions of fusion deals continued to rise, reaching 93.2% on a loan-to-value basis, Moody's said. This is the highest level the rating agency has seen in seven years of tracking the measure. Hotel collateral is making its way back into CMBS loans, which Moody's said it believes to be an indicator that the sector has bottomed out and is poised for a rebound. Moody's can be found online at http://www.moodys.com.

Hal Rose, a 35-year veteran of real estate lending, has been hired by First Federal Bank of California, Santa Monica, to lead its Income Property Lending Group.The bank said Mr. Rose will assist in expanding the income property lending business into wholesale lending and new territories. It said Mr. Rose's career highlights include "the development of a nationwide lending presence for one of the largest multifamily lenders in the country [and] top performance as senior real estate officer for a mortgage banking company." The bank can be found on the Web at http://www.firstfedca.com.

Three classes of Commercial Mortgage Acceptance Corp. commercial mortgage pass-through certificates, series 1997-ML1, have been downgraded by Moody's Investors Service and four others have been placed on review for possible downgrade.The downgrades were as follows: class F-1, from B1 to B3; class F-2, from B2 to Caa1; and class G, from Caa3 to Ca. Classes B, C, D, and E were placed on review for possible downgrade, Moody's said. The rating agency attributed the downgrades to the decline of the Shilo Inns Hotel Portfolio Loan ($89.2 million, 12.0% of the pool) and the Newton Oldacre McDonald Loan ($83.1 million, 11.2%). Moody's said the other classes were placed on review because of concerns about the operating performance of four loans: the Farb Investments Portfolio Loan, the Four Seasons Biltmore Hotel Loan, the Brookfield Loan, and the Four Seasons Hotel Austin Loan. Moody's can be found online at http://www.moodys.com.

NovaStar Financial Inc., Kansas City, Mo., has reported net income of $29.7 million for the first quarter, up from $23 million in the same period of 2003.Approximately 23% of the company's subprime business comes from its net branches, which fell from 432 as of Dec. 31 to 383 in the first quarter, the company said. While selectively eliminating branches, NovaStar increased nonconforming loan production and securitized $1.7 billion in nonconforming mortgage loans. The company also reported that its lending arm, NovaStar Mortgage, received an SQ2 rating from Moody's Investors Service, the second-highest mark in the industry, for above-average loss mitigation on loans and average foreclosure timeline management results. NovaStar Mortgage can be found online at http://www.novastarmortgage.com.

1st Metropolitan Mortgage, a national mortgage broker headquartered in Charlotte, N.C., has announced that it will offer a choice of two compensation plans to its branch managers, one based on funded loan volume and the other on a percentage of gross revenue.The new commission structure will be available to new branches, and existing branches will be able to switch to the new option based on funded loan volume, the company said. "FlexChoice will allow [branch managers] to feel empowered and in control of their destiny and they will, in turn, work harder to reach their own goals," said Daniel Jacobs, chief operating officer of 1st Metropolitan. The company said it plans to have FlexChoice rolled out by the end of the summer.

The average 30-year fixed mortgage rate rose to 6.01% for the week ending April 30 from 5.94% the previous week, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose from 5.25% to 5.35%, and the average rate for one-year Treasury-indexed ARMs climbed from 3.69% to 3.75%. Fees and points averaged 0.7 of a point for 30-year fixed-rate mortgages and 0.6 of a point for the other two mortgage categories. "With financial markets more optimistic that the economy is expanding nicely, mortgage rates had nowhere to go but up this week," said Amy Crews Cutts, Freddie Mac's deputy chief economist. A year ago, the average 30-year and 15-year fixed rates were 5.70% and 5.03%, respectively, and the average one-year ARM rate was 3.74%, Freddie Mac said. Freddie Mac can be found online at http://www.freddiemac.com.

Countrywide Financial Corp., Calabasas, Calif., has announced a grant of $1 million to the National Housing Endowment in support of the nonprofit organization's efforts "to safeguard the future of affordable housing and elevate housing to a national priority."The grant will be formally presented to the NHE April 30 during the inauguration of a new conference room at the National Housing Center in Washington, D.C. The NHE said the conference room has been named after Countrywide in recognition of the gift and Countrywide's "unwavering commitment" to affordable homeownership. "Supporting the National Housing Endowment is an ideal way for Countrywide to participate in the national dialogue on this important issue," said Angelo Mozilo, Countrywide's chairman and chief executive officer. The NHE is the philanthropic arm of the National Association of Home Builders established in 1987 to provide a permanent source of funds to address long-term industry concerns.

Equity Residential, Chicago, has reported earnings per share of $0.35 for the first quarter, a 14.6% decline from EPS of $0.41 for the first quarter of 2003.The largest multifamily real estate investment trust (by market capitalization) also reported net income of $117.065 million for the first quarter, compared with $135.347 million for the comparable period of 2003. "We continue to look at 2004 as a transitional year leading to very strong 2005 performance," said Bruce W. Duncan, the REIT's president and chief executive officer. "While we are more optimistic today than we were three months ago, we remain cautious in our expectations for the remainder of the year." The REIT's funds from operations figure -- an adjusted earnings measure that is widely used in the REIT world -- was $0.52 per share for the first quarter, compared with $0.57 a year earlier. The REIT can be found online at http://www.equityapartments.com.

Delta Financial Corp., Woodbury, N.Y., has reported a loss of $9.3 million ($0.55 per share) for the first quarter, compared with net income of $6.7 million ($0.36 per share) a year earlier.The company said the loss was due to a shift from gain-on-sale to portfolio accounting in the treatment of its securitizations. The shift resulted in an adjustment of $18.4 million. If Delta still used gain-on-sale accounting, it would have had earnings of $9.1 million ($0.51 per share). Hugh Miller, Delta's president and chief executive officer, said the shift in accounting treatment delays the timing of Delta's recognition of income from securitizations. "It does not change the fundamental economics of our business," he said. "We expect this change will enable us to deliver a more consistent earnings stream in the future." Loan production volume for the first quarter was $504 million, up 56% from that of the previous year. In what was shaping up as a down day in the stock market, investors had boosted Delta's stock price by $0.49 to $8.00 per share by late morning on April 28.