Originations

The chief executive of Saxon Capital Inc., Glen Allen, Va., says there is a possibility that the company could become a real estate investment trust, depending on market reaction to its future financing efforts.Answering a question at the Friedman Billings Ramsey annual investor conference in New York, Mike Sawyer said the subprime lender expects to go back to the capital markets when it reaches a point of equilibrium in its whole loan mortgage portfolio. (Equilibrium is the point when the amount of loans entering the portfolio equals the amount running off.) Saxon is still using capital from its initial public offering to expand its portfolio. Mr. Sawyer said the company is "several quarters" away from having to return to the markets. But if the markets are not favorable to the company's plan to continue expanding its portfolio, Saxon would consider becoming a REIT, he said.

K Capital Partners LLC, Boston, has urged Prime Group Realty Trust, Chicago, to liquidate "a substantial portion" of its real estate portfolio or to pursue a sale of the entire company.In a Dec. 3 letter to Prime Group acting chairman Stephen J. Nardi, K Capital managing director Abner Kurtin said K Capital controls over 18% of the shares of Prime Group, a real estate investment trust. Mr. Kurtin said K Capital believes the stock market valuation of the REIT "represents a significant discount to its real estate net asset value" as a result of high leverage, lack of a dividend, and small market capitalization. The discount exists despite the efforts of Prime Group's board and management to turn the company around and manage debt levels, so "we strongly encourage" the REIT's management and board to "pursue a liquidation of a substantial portion of its real estate portfolio or a sale of the entire company," he said.

Freddie Mac has reported that home prices increased at an annualized rate of 3.2% nationwide in the third quarter, down significantly from the revised rate of 8.8% in the second quarter.Annual growth rates in home values peaked at 9.1% between the first quarter of 2000 and the first quarter of 2001 and have been slowing for six quarters, according to the Conventional Mortgage Home Price Index released by Freddie Mac. The index showed that the Pacific states recorded the largest gains in home prices in the third quarter, rising at an annualized rate of 9.0%. The New England states followed with a 7.4% annualized growth rate, and the Middle Atlantic states of New Jersey, New York, and Pennsylvania finished third with a 3.8% growth rate. "The rate of home price growth will continue to ease into 2003, averaging 5.0%-5.5% for the U.S., and certain areas will undoubtedly begin to experience some negative growth," said Frank Nothaft, Freddie Mac's chief economist. "We still do not see a national housing price bubble anywhere in the foreseeable future." The index was jointly developed by Freddie Mac and Fannie Mae. Freddie Mac can be found online at http://www.freddiemac.com.

Mortgage applications dropped 17% on a seasonally adjusted (and holiday-adjusted) basis for the week ended Nov. 29 as the Refinance Index plunged more than 1,500 points, according to the Mortgage Bankers Association of America's Weekly Mortgage Applications Survey.On an unadjusted basis, applications were down 43.5% on the week and 10.8% from the level recorded a year earlier. On a seasonally adjusted basis, the Purchase Index rose from 350.2 to 386.6, while the Refinance Index plummeted from 5672.3 to 4151.9. Refinancings represented 69.5% of total applications, down from 76.6% the previous week, while adjustable-rate mortgages accounted for 14.0%. The average contract interest rate for 30-year fixed-rate mortgages climbed from 6.00% to 6.09%, and points (including the origination fee) decreased from 1.54 to 1.51 for loans with 80% loan-to-value ratios, the MBA reported. The MBA can be found online at http://www.mbaa.org.

HRPT Properties Trust, Newton, Mass., has priced an offering of $200 million of 6.5% notes due 2013 at a discount, producing an effective yield of 6.6%.The book-running manager for the offering was Merrill Lynch & Co., and the joint lead managers were Merrill Lynch and Wachovia Securities. HRPT, a real estate investment trust, can be found on the Internet at http://www.hrpreit.com.

Boston Properties is selling 875 Third Avenue, a Midtown Manhattan office property, to Global Holdings for $370.1 million.The real estate investment trust said the proceeds from the sale of the 719,000-square-foot property will be used to reduce Boston Properties' debt. The sale is part of Boston Properties' plan to raise money to fund the acquisition of 399 Park Avenue in Midtown Manhattan, a property the REIT acquired earlier this year from Citigroup for a little over $1 billion.

Six classes of Credit Suisse First Boston Mortgage Securities Corp.'s multifamily mortgage pass-through certificates, series 1995-M1, have been placed on Rating Watch Negative by Fitch Ratings.The affected securities are classes B, C, D, E, F-1, and F-2. The ratings on two other classes of the series were affirmed. Fitch said the rating actions stemmed from interest shortfalls totaling $180,000 in the Nov. 25 remittance report. The six classes will remain on Rating Watch Negative until the shortfalls are recovered, and could be downgraded if they persist, the rating agency said. Fitch can be found on the Web at http://www.fitchratings.com.

Miami and Miami-Dade County have launched a local version of Freddie Mac's "Don't Borrow Trouble" campaign to help families avoid falling prey to unscrupulous lending practices.The campaign uses advertising and consumer education to alert the public about predatory lending, Freddie Mac said. Local residents can now call a referral network of local agencies and nonprofit organizations that is administered by H.O.P.E. Inc. The hotline, 305-651-HOPE, will refer callers for appropriate counseling on legal or housing questions. The campaign also includes the Department of Housing and Urban Development, state and local agencies, and a coalition of lenders and consumer and housing groups. Freddie Mac said it is launching local "Don't Borrow Trouble" efforts in 20 cities around the country, including Washington, Chicago, and Los Angeles. The campaign was pioneered in Boston by Mayor Thomas M. Menino and the Massachusetts Community & Banking Council. Freddie Mac's website address is http://www.freddiemac.com.

The Eleventh Federal Home Loan District Cost of Funds Index fell to 2.708% in October, a decline of over 5 basis points from 2.759% in September, putting COFI at its second-lowest point ever, according to data from the Federal Home Loan Bank of San Francisco.The all-time low for the index was set in March at 2.653%. Given that COFI lags other rates by three to six months, it is quite likely that a new low will be set before the index turns around and starts a sustained rise. Nationwide interest rates on certificates of deposit fell 30-40 bp in November, according to data published by the Federal Reserve Bank of St. Louis. The interest paid out by FHLB-SF members on deposits is one of the calculations in COFI.

Cendant Mortgage, one of the biggest players in private-label funding, has snagged Fleet National Bank, Boston, as a client.The Mt. Laurel, N.J.-based Cendant will provide mortgage services to Fleet's customers throughout the bank's nine-state imprint. Under the alliance, which was announced Dec. 2, mortgage products with Fleet's name on them will be available to customers through the bank's 1,500 branches as well as its website. In June 2001, Fleet sold its mortgage subsidiary, Fleet Mortgage Group, Columbia, S.C., to Washington Mutual, Seattle. The bank, though, continued to fund home mortgages. Cendant is a private-label originator for several financial institutions, including Merrill Lynch.

The bull market in home prices appears to be coming to an end, at least for now. According to a new report released by the Office of Federal Housing Enterprise Oversight, average home prices increased by just 0.84% in the third quarter, compared with 2.34% in the second quarter.OFHEO, the regulator of Fannie Mae and Freddie Mac, noted that seven states and 33 metropolitan statistical areas (of 185 tracked) actually experienced a decline in home values during the quarter. On the other hand, some MSAs continued to have stellar home price growth. Nassau-Suffolk (in Long Island) saw values rise 4.08% in the quarter, ranking first among all MSAs. Yolo, Calif., ranked second in appreciation (3.8%), followed by Redding, Calif. (3.65%), Fresno, Calif. (3.61%), and Riverside-San Bernardino, Calif. (3.22%). OFHEO's analysis is based on Fannie/Freddie transactions. Freddie Mac chief economist Frank Nothaft said the rate of home price growth will continue to ease in 2003, adding, "We still do not see a national housing bubble anywhere in the foreseeable future." (See the Dec. 9 issue of National Mortgage News for more details.)

Prime Retail, Baltimore, is selling two Colorado retail properties for a total consideration of $96 million.The two properties (located in Castle Rock and Loveland) together have approximately 808,000 square feet of leasable area, the real estate investment trust said. The properties are part of a group of 15 properties that secure a major nonrecourse mortgage loan with an outstanding balance of approximately $338.9 million for Prime Retail, the REIT said. Prime expects to use the net proceeds from the sale partly to make a "required partial defeasance payment" on the major mortgage loan. Any balance from the proceeds will be used to pay down the company's mezzanine debt, which has an outstanding principal balance of $31.1 million. The sale is expected to close in the current quarter, and the parties have agreed to "liquidated damages" amounting to $500,000 under certain circumstances if the undisclosed buyer does not proceed with the purchase.

The Detroit City Council will delay until at least mid-December a decision on a proposed ordinance that would, among other things, restrict points and fees paid to local lenders, industry sources say.The postponement of a decision on the proposed ordinance may give mortgage lenders and brokers time to convince city officials to make industry-friendly changes to the proposal, but the city appears set on pressing ahead with an ordinance of some kind, said Murray Brown, director of development for the Michigan Mortgage Lenders Association, and Anthony O. Kellum, president of the Michigan Mortgage Brokers Association. "The lender coalition, including the Michigan Mortgage Brokers, may [now have time to] come out with a better ordinance … that speaks more to industry and also consumers without denying access to credit to folks," Mr. Kellum said.

Washington Mutual, Seattle, has reported that it plans to leverage its home lending operations as it enters Denver's retail banking market, one of six markets nationwide where the company is expanding.According to a presentation by chairman, president, and chief executive officer Kerry Killinger at the Lehman Brothers Financial Services Conference Dec. 2 in New York, WaMu will open at least 20 sites in Denver, a market it is entering for the first time. In addition, WaMu has plans to enter the Chicago market for the first time starting next year and is also adding offices in the New York/New Jersey area, Atlanta, Phoenix, and Las Vegas. WaMu can be found online at http://www.wamu.com.

While sales of newly constructed homes are on a pace for a record year, the National Association of Home Builders is forecasting that sales of new single-family homes will decline by only 2.3% next year.NAHB economists expect sales to total 958,000 by the end of this year. "That is a record, but we do expect some erosion as we go forward," said Stanley Duobinis, the NAHB's director of forecasting. The NAHB is forecasting that new-home sales will decline to 936,000 in 2003. Meanwhile, the Federal Reserve Board's Beige Book picked up some weak spots in new-home sales, but overall residential real estate markets continue to be "strong" in most Federal Reserve Bank districts. "In the Chicago and Dallas districts cancellations of house-construction contracts have increased," the Beige Book says.

Fitch Ratings has upgraded GMAC Commercial Mortgage's master and primary loan servicer ratings.GMACCM's master servicer rating was increased to 'CMS2-plus' from 'CMS2'. It's primary servicer rating was raised to 'CPS2-plus' from 'CPS2'. Fitch said the upgrade reflects enhancements made to the company's primary servicer processes and technology improvements. The master servicer rating upgrade reflects GMACCM's ability to effectively monitor and report CMBS transactions as well as oversee primary servicers, Fitch said. Fitch also cited GMACCM's investor website as a factor in the new ratings. GMACCM currently serves as either primary or master servicer on 246 commercial mortgage-backed securities transactions with a cumulative balance of $64.5 billion.

Despite the busy home purchase and refinancing market, mortgage insurance volume dropped 3.4% in October from the month before.The Mortgage Insurance Companies of America reported that 186,361 borrowers used private mortgage insurance to buy or refinance a home in October. Insurance-in-force declined 1.09% to $724.7 billion industrywide, according to MICA. On a positive note for the industry, the number of applications for MI policies increased 4.4% in October. The association's website is www.micadc.org.

Home loan applications decreased slightly in the week ending November 22, according to the Mortgage Bankers Association of America.The trade group's index of all mortgage loan applications fell 5.8% to 1131 during the week. However, the lending index was still up 79.8% from the same week a year earlier. The MBA's home purchase index actually increased during the week, while the refinancing index fell to 5672. It was the eighteenth consecutive week that the refinance index was above 4000, and refinancing still accounted for nearly 77% of all loan applications. The MBA's website is at www.mbaa.org.

The average mortgage commitment rate rose 10 basis points this week, according to Freddie Mac.The average 30-year, fixed rate mortgage had a commitment rate of 6.13% for the week of Thanksgiving. The average for 15-year FRMs was 5.57%, up from last week's average of 5.44%. Frank Nothaft, Freddie Mac's chief economist, said "borrower-friendly rates" continue to support high levels of refinancing.

Loss levels on high-yield senior subordinated notes have jumped to 84% from an already high 63% three years ago, according to data from Standard & Poor's.The rating agency says it believes the rise is tied to an increasing use of specialized investment pools, such as collateralized loan obligations, as a result of banks' decreased appetite for loans. "Unlike banks, these investors usually don't have the time or resources to work out distressed debt, or the legal flexibility to keep defaulted securities in their portfolios," S&P director Steve Bavaria explained. "When there's a default, they often have no choice but to sell the notes into the distressed debt market, and take whatever the market offers, which may differ markedly from the ultimate recovery for those who hold the paper until it is worked out or emerges from bankruptcy. Vulture investors, who specialize in buying distressed debt, can take advantage of this potential arbitrage opportunity." Mr. Bavaria said he believes that this results in "a geometric increase in portfolio credit losses for fixed-income investors." S&P can be found online at http://www.standardandpoors.com.