Originations

Standard & Poor's has announced that it will not rate loan pools containing mortgages from Oakland, Calif., or high-cost refinance mortgages from Los Angeles.S&P's restrictions on what it will allow in its structured finance transactions mirror those of Fitch Ratings, which recently made an almost identical announcement. The agencies' decisions become effective only if and when the municipal laws in LA and Oakland go into effect. Oakland's law is being challenged in the California Supreme Court, and LA's law is frozen pending the outcome of that case.

A new pilot program combining the high loan-to-value benefits of conventional jumbo financing with more flexible underwriting standards associated with affordable lending programs has been announced by the California Housing Finance Agency.The Cal Jumbo Loan Program, to be piloted in 15 high-cost California counties, is the result of a partnership between CalHFA, Countrywide Home Loans Inc., and National Homebuyers Fund, a California-based nonprofit organization. CalHFA will insure the loans through its mortgage insurance division, NHF will provide downpayment and closing-cost assistance loans, and Countrywide will service the loans and administer the program through its correspondent lenders. "This breaks new ground in the mortgage lending industry, where 100% financing for jumbo loans (conventional or otherwise) is virtually nonexistent," said Theresa A. Parker, executive director of CalHFA. "By providing extremely generous loan thresholds to middle-income earners -- $550,000 on new construction or $500,000 for existing homes -- this resourceful program can help counteract the growing spread between family income and median home prices in high-cost areas." CalHFA can be found online at http://www.calhfa.gov.

Commercial property sectors are likely to see overall improvement through 2005, with vacancy rates in the beleaguered office sector dropping to 16.4% in 2004 from an estimated 17.7% this year, according to a National Association of Realtors forecast."Although the housing market has been booming, the commercial real estate market has been lagging," said NAR chief economist David Lereah. "The commercial real estate recovery has been taking some time to materialize because the growth in the economy hasn't translated into a stronger job market -- but that will improve and should be apparent a year from now with unemployment expected to drop to 5.6% by the fourth quarter of 2004." The Washington-based trade association is forecasting that net absorption of office space will rise to 114.3 million square feet next year from 37.9 million square feet this year. Net absorption of warehouse space is expected to fall to 55.2 million square feet from a projected 82.3 million this year; retail sector net absorption is expected to rise to 112.7 million square feet from an estimated 98.9 million square feet; and the multifamily sector forecast anticipates a drop in vacancy rates from 7.1% to 6.6%. The NAR can be found on the Web at http://realtor.org.

Class B-3TB of DLJ Mortgage Acceptance Corp. commercial mortgage pass-through certificates, series 1997-CF2, has been downgraded from Ba1 to B1 by Moody's Investors Service.In addition, one other class in the series was upgraded and the ratings on seven others were affirmed or confirmed, the rating agency reported. Moody's attributed the downgrade to a decline in property performance and estimated losses of $27.2 million on specially serviced loans. Moody's can be found online at http://www.moodys.com.

Saxon Capital Inc., Glen Allen, Va., has announced it will take a $1.4 million pretax charge to its third-quarter earnings as a result of a settlement of a Fair Labor Standards Acts case.The case involves its subsidiary, America's MoneyLine Inc., and allegations that loan officers worked more than 40 hours per week and did not receive overtime compensation. Even after the pretax charge, the company remained highly profitable. Saxon originally announced third-quarter earnings of $17.5 million ($0.58 per share). After the charge, this fell to $16.6 million ($0.55 per share). A spokeswoman for Saxon said the company was unable to comment any further on the settlement. However, the second-quarter Securities and Exchange Commission filing shows that some 223 current or former America's MoneyLine loan officers have opted in to the collective action, which was filed at the end of January in a federal court in California.

Pretax net income for the average firm in the mortgage banking industry surged to $40.4 million in 2002 from $23.2 million in 2001, according to the Mortgage Bankers Association of America.The MBA's 2003 Cost Study surveyed 193 mortgage companies to determine the income and costs associated with originating and servicing one- to four-unit residential loans. It found that net income from warehousing rose to $522 per loan in 2002 from $456 in 2001. In addition, the study found that net secondary marketing income, capitalized servicing, and servicing release premiums provided the largest contribution to the bottom line in 2002, at $1,609 per loan. Meanwhile, mortgage servicing rights amortization and impairments (net of hedging gains) accounted for $430 per loan in losses in 2002, up from $351 in 2001, according to the MBA study. "Average company profitability surged largely due to favorable warehousing interest spreads and secondary market gains," the MBA reported. "However, one downside to the high refinancing volume was in loan servicing." The MBA can be found online at http://www.mbaa.org.

NovaStar Financial Inc., Kansas City, Mo., has priced its common stock offering at $77 per share.The public offering of 610,000 shares is expected to give NovaStar net proceeds of just under $45 million. JMP Securities LLC, San Francisco, is the lead manager, with Flagstone Securities LLC, St. Louis, as co-manager. The underwriters have a 30-day option to purchase an additional 91,500 shares to cover overallotments.

The number of residential mortgage-backed securities ratings handled by each of the three major rating agencies has been roughly equal, according to a Nov. 6 National Economic Research Associates study that each of the three agencies has responded to differently.Among other findings of the study was that S&P "was more likely than Fitch or Moody’s to initiate a downgrade in RMBS," S&P said. The study "confirms that there are real and substantive differences" between the three agencies, according to Moody's Investors Service, which contracted the NERA to conduct the independent study in 2001. In contrast, Fitch Ratings believes the study shows that those differences are "small." NERA can be found online at http://www.nera.com.

To fund homeownership education and tougher enforcement of a nationwide anti-predatory lending law, a coalition of subprime lenders has endorsed a proposal to assess a fee on every subprime origination."We know that the funding for some of these things is difficult in states and cities these days," Steven Nadon, chairman of the Coalition for Fair and Affordable Lending told a House panel. "So we are saying let us pony up some of the money for that on every loan we fund." CFAL supports enactment of a national lending standard that would preempt state and local predatory lending laws. Mr. Nadon told MortgageWire that CFAL is not proposing to impose a fee on prime loans. "If prime lenders and Fannie and Freddie thought it was a good idea, that would be terrific," he said. Mr. Nadon is chairman and chief operating officer of Option One Mortgage, Irvine, Calif.

Employment in the mortgage industry leveled off in August and September, according to the latest employment report, with a loss of 1,000 jobs in September.U.S. Bureau of Labor Statistics data released on Friday shows full-time employees in the mortgage banker/broker section totaled 422,000 in September, down from 423,000 in August. (The BLS report does not reflect the firing of temporary and contract workers seen recently in the industry.) The October jobs report released on Friday also show that employment in the overall economy grew by 125,0000 in September and October, which signals the economy is starting to generate jobs. The manufacturing section lost 24,000 jobs, which is below the 53,000 average for the past 12 months. (There is one-month lag in mortgage employment data due to changes BLS made to its monthly employment report this spring.)

The Rockefeller Group International, a New York-based commercial real estate investor and developer, and Los Angeles-based CommonWealth Partners have formed a real estate investment management partnership that will acquire and develop office and mixed-use projects nationwide.The venture will provide CWP, a real estate investment management and development firm, with about $1.5 billion under management, with the "combined resources to support an investment portfolio in excess of $3 billion," the two companies report. The resources will be invested on behalf of institutional investors such as the California Public Employees' Retirement System, for whom CWP is already a "core office investment partner". CWP will continue to operate independently and RGI will provide the partnership with the capital, strategic input and access to additional real estate-related resources so as to expand CWP's national reach, especially in terms of access to East Coast markets.

American Business Financial Services Inc., Philadelphia, lost $26.3 million or $8.91 per share in its first fiscal quarter of 2004.This compares to profits of $1.8 million or $0.61 for the same three months in fiscal year 2003. Its current situation is a continuation of problems that developed in the company's fourth fiscal quarter of 2003. Albert W. Mandia, executive vice president and chief financial officer said, "the quarterly loss was primarily due to liquidity issues which substantially reduced our ability to originate loans and generate revenues, our inability to complete a securitization of loans during the quarter and $10.8 million of pre-tax non-cash charges for valuation adjustments on our securitization assets charged to the income statement." As the company shifts its strategy from doing large publicly underwritten securitizations to whole loan sales and smaller privately placed securitizations, ABFS will take operating losses until the third fiscal quarter of 2004, he continued. A cut in warehouse capacity affected originations, as ABFS did only $124.1 million for the three months ended Sept. 30, 2004, compared with $370.7 million the same prior year period. ABFS only had $147.0 million in warehouse credit to draw upon in the third quarter. It entered into arrangements for $450 million more of credits in October. But to be profitable again, ABFS believes it needs quarterly volume of between $700 million and $800 million. The report was issued after the stock market closed on Nov. 5. On that day, ABFS common closed at $5.08 per share on Nasdaq. As of 11:35 a.m. on Nov. 6, it was down to $4.17 per share.

First Chesapeake Financial Corp., a wholesale and retail mortgage banking firm based in Boca Raton, Fla., has entered into an agreement with Royal Bank of Pennsylvania to extend the maturity of a Royal Bank loan to FCFC until Dec. 31, 2003.FCFC made a $650,000 payment on the loan, reducing the balance to $589,947. Furthermore, All American Cos. Inc., which is trying to finalize the purchase of a controlling interest in FCFC, has negotiated an extension agreement for it to obtain the releases of certain guarantees and liens granted by FCFC shareholders to Royal Bank. If All American cannot get the releases by Dec. 31, 2003, 5.4 million shares already issued and 4.6 million shares issuable will be cancelled. In addition, All American will return approximately 3.67 million shares purchased from Mark Mendelson, former FCFC chairman and chief executive and Mark Glatz, former chief financial officers shall be returned to them without refund of the purchase price.

Residential mortgage brokers have begun to shift their business from prime to subprime, according to one executive speaking Nov. 6 at the National Home Equity Mortgage Association's Southeastern Conference in Miami."Brokers shifted from a high percentage of conforming to nonconforming and they did it virtually overnight," said Steve Alonso, chairman and CEO of Oak Street Bancorp in Carmel, Ind. Oak Street does more than $2 billion in annual originations and does business with brokers in 28 states. Broker subprime business has been up at Oak Street for the past three months but is now showing some signs of leveling off, Mr. Alonso said. Many industry watchers expect the subprime business to continue to strengthen if rates continue to rise.

Fannie Mae has entered into a unique $50 billion affordable housing partnership with PMI Mortgage Insurance Co. of Walnut Creek, Calif. that will continue through the end of 2006.The "Gateway to Homeownership in a New Century" community lending alliance "is the first of its kind between a mortgage insurance company and a secondary mortgage market company" aiming to create more affordable housing opportunities for underserved communities and low- and moderate-income families nationwide, according to Fannie Mae.

The average 30-year fixed mortgage rate edged up to 5.98% for the week ending Nov. 7 from 5.94% the previous week, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose to 5.31% from 5.26%, and the average rate for one-year Treasury-indexed adjustable-rate mortgages was down slightly at 3.73% compared to 3.74%. Fees and points averaged 0.7 points for fixed-rate mortgages and ARMs. "Early indicators are showing an increase in both the manufacturing and service industries in October, welcome signs that the economy continues to improve," said Frank Nothaft, Freddie Mac's chief economist. "As a result, growth in employment has begun to rebound." A year ago, the average 30-year and 15-year fixed rates were 6.11% and 5.48%, respectively, and the average one-year ARM rate was 4.15%, Freddie Mac said.

Sales of existing condominiums and cooperatives set a new record in the third quarter at 971,000 units, a 12.9% jump from the previous record of 860,000 units for the second quarter, the National Association of Realtors reports.The "seasonally adjusted annual rate" figure for the third quarter is also 18% higher than the 823,000 unit sales activity for the third quarter of 2002. David Lereah, chief economist of the Washington-based Realtors' trade association, said the extent of the rise was surprising. "We were expecting a new record for condo sales in the third quarter, but being so far above the previous record is incredible," he noted. "The demand for all kinds of housing is unprecedented, and where units are available they're selling briskly." The median existing condo price for the third quarter was $167,200, which is 16.6% higher than the third quarter 2002 price, the NAR said. In comparison, the median price for existing single family homes was $177,000 for the third quarter, up 10.1% from a year ago. With a national average commitment rate on a 30-year fixed mortgage at 6.01% for the third quarter, according to a Freddie Mac, low interest rates have played a big part in the record-breaking sales.

Mortgage applications rose 5.5% on a seasonally adjusted basis during the week ended Oct. 31, according to the Mortgage Bankers Association of America's weekly Mortgage Application Survey.On an unadjusted basis, applications were up 4.7% on the week and down 34.3% from the level recorded a year earlier. On a seasonally adjusted basis, the Purchase Index increased 11.1% to 404.3 from 363.9 the previous week; the Refinancing Index inched up 0.3% to 2319.8 from 2311.8; the Conventional Index climbed 5.5% to 957.8 from 907.5; and the Government Index was up 4.9%, having risen to 230.3 from 219.5. Refinancings represented 51.1% of total applications, down from 53.3% the previous week, while adjustable-rate mortgages accounted for 25.4%, down from 26.5% a week earlier. The average contract interest rate for 30-year fixed-rate mortgages was 5.85%, up from 5.83% the previous week, while points (including the origination fee) increased to 1.47 from 1.39 for mortgages that had an 80% loan-to-value ratio, the MBA reported. The average contract rate for 15-year FRMs rose to 5.17% from 5.12% a week earlier and points (including the origination fee) for mortgages in this category that had an 80% LTV ratio fell to 1.40 from 1.51 the previous week. The average contract rate for one-year ARMs edged up to 3.58% from 3.57% one week earlier and points (including the origination fee) for mortgages in this category that had an 80% LTV ratio slipped to 1.10 from 1.13 the previous week. The MBA's website address is http://www.mbaa.org.

The PMI Group Inc., Walnut Creek, Calif., has sold 5 million shares of common stock in an offering that was priced at $38.20 per share. The company raised $191 million in gross proceeds.On Nov. 3, the day PMI announced the offering closed, its common stock closed at $38.46 on the New York Stock Exchange. In addition, PMI sold 13.8 million of 5.875% equity units at a stated value of $25 per share, raising $345 million of gross proceeds. Bank of America Securities LLC acted as sole book-running manager with respect to both offerings. Co-managers were Citigroup Global Markets Inc., J.P. Morgan Securities Inc., and Lehman Brothers Inc. for both offerings and Keefe, Bruyette & Woods as a co-manager in the common stock offering. PMI said it would use the proceeds to help fund its purchase of its stake in Financial Guaranty Insurance Co. from GE Capital Corp.

Vertical Lend, a Melville, N.Y.-based mortgage company that allows financial planners, accountants, tax preparers and insurance agents to participate in originating loans, has teamed up with Financial Freedom Senior Funding Corp., Irvine, Calif., to offer reverse mortgages.Jim Mahoney, chief executive of Financial Freedom, said, "We are very excited about Vertical Lend's entry into the reverse mortgage industry. Their expertise and experience working with seniors will greatly enhance the utilization of these programs." Financial Freedom offers the FHA Home Equity Conversion Mortgage, the Fannie Mae Home Keeper mortgage and its own jumbo product. All 1,800 Vertical Lend members will be able to offer reverse mortgages to their senior citizen clients.