Originations

During May, the Eleventh Federal Home Loan District Cost of Funds Index continued its decline, falling by over 2 basis points to 4.881%.In April, the index was 4.903%. [Click here to see the chart.] This is the fourth consecutive month COFI has fallen, after peaking in January at 4.987%. This index is considered to be a lagging indicator and will continue to decline for a period after other rates have started to rise. Freddie Mac's Primary Mortgage Market Survey found that the average commitment rate for the one-year adjustable-rate mortgage increased by 2 bp between April and May to 5.69%; for January the average commitment rate was 5.54%. For 30-year fixed-rate mortgages, the survey found the average commitment rate remaining at 7.14% for the second straight month, although the weekly findings of the survey put the average commitment rate at under 6.96% for the week ended June 26.

Wilshire Financial Services Group, Portland, Ore., has announced the closing of two securitizations totaling $330 million.The first transaction, Series 1998-WFC1, was a $169 million deal backed by $24.2 million of fixed-rate and $144.7 million of adjustable-rate residential mortgage loans. Issued by Wilshire's wholly owned subsidiary WMFC 1997-4 Inc., the deal was underwritten by Salomon Smith Barney. The second transaction, Series 1998-WFC2, was a $161 million deal backed mainly by fixed- and adjustable-rate closed-end loans secured by mortgages on residential one- to four-family, multifamily, and commercial properties and unimproved land, Wilshire said. Issued by another wholly owned subsidiary, Wilshire Mortgage Funding Co. VI Inc., the deal was underwritten by Credit Suisse First Boston Corp. Both deals consisted of seven publicly offered investment-grade classes and a private placement of non-investment-grade securities.

Mortgage applications fell 13.4% for the week ended June 26 as the Refinancing Index lost the 200 points it had gained the previous week, according to the Mortgage Bankers Association of America's weekly Mortgage Application Survey.The Purchase Index fell 12.5%, the Refinancing Index dropped 14.5%, the Conventional Index declined 12.4%, and the Government Index decreased 17.1%, the survey indicated. On a seasonally adjusted basis, the Market Index fell from 440.6 the previous week to 382.2; the Purchase Index declined from 274.6 to 241.3; the Refinancing Index nosedived from 1406.2 to 1202.0; the Conventional Index tumbled from 557.3 to 489.0; and the Government Index fell from 245.9 to 204.1. Refinancings represented 44.6% of total applications, down from 45.2% the previous week, while adjustable-rate mortgages accounted for 8.8%, down from 10.1% the week before. Overall, applications were up 57.6% compared with those for the same week last year. The address of the MBA's website is http://www.mbaa.org.

Star Banc Corp. of Cincinnati and Firstar Corp. of Milwaukee have announced plans to merge in a deal valued at $7.2 billion.While the company will be headquartered in Milwaukee and have the Firstar name, the consumer banking and specialized lending operations will be based in Cincinnati. Star Banc has spent the last couple of years building its mortgage banking operations up, first through the acquisition of Great Financial Corp., Louisville, Ky., and its mortgage banking operation in Owensboro, Ky., and most recently through its pending purchase of Trans Financial Inc., Bowling Green, Ky.

Class certification in yield spread premium cases may now be out of reach for plaintiff attorneys due to a long-awaited clarification by a U.S. Appeals Court in Atlanta.Plaintiff attorneys have filed scores of class action lawsuits against wholesaler lenders since January when the appeals court ruled in Culpepper vs. Inland Mortgage that the payment of a YSP in table-funded transaction violated the Real Estate Settlement Procedures Act. The class action lawsuits contend that YSPs are by definition illegal. But the clarification issued by circuit judges last week stresses that "our decision was highly dependent upon the facts in the current record about this table funded financial transaction." The judges also said that in "certain circumstances" YSP are legal. The clarification eliminates the class action attorneys' arguments that YSPs are per se illegal, said Inland's attorney, Robert Pratte of the Minneapolis law firm of Briggs and Morgan. He predicted that this will kill the class action cases. "I think the yield spread cases will be dead a year from now," Mr. Pratte said.

Activity at private mortgage insurance firms remained very high for May, although there was a slight dropoff in business when compared with April's numbers, according to data compiled by the Mortgage Insurance Cos.of America. There was $14.5 billion in net primary new insurance written in May, a decrease of 2% from April, while the net number of applications was 160,904, down 6.4%. [Click here to see the chart.] This is the third straight month that the number of applications has declined. Even so, for the first five months of 1998, application volume is nearly 60% ahead of where it was at this time last year, while the dollar volume of new insurance written is 50% ahead.

The AFS Title Search Index fell 1.4% to 205.4 for the week ended June 26 from 208.3 for the previous week, according to Advance Factor Service.[Click here to see the chart.] The index averaged 211.1 over the previous four weeks, up 1.4 points from the prior week's four-week moving average. A year ago, the index stood at 144.3, 70.2% of the current level. "With 30-year mortgage rates below 7% for the second straight week, the AFSTSX has not moved appreciably higher," said AFS manager Paul Descloux. "However, the recent stability of the index over the past three and a half months at elevated levels, combined with the continued affordability of credit, portends that mortgage prepayments can remain rapid."

Bank United, Houston, has formed an alliance with New York-based Salomon Smith Barney to securitize commercial real estate loans originated by Bank United and other sources, Bank United has announced.Anthony J. Nocella, the bank's vice chairman, touted Salomon Smith Barney's "expertise in pricing, structuring, and distribution" and Bank United's "securitization experience and ability to originate large volumes of quality commercial real estate loans." The partnership should be "an important player in the real estate finance and commercial mortgage-backed securities market," he said. Lewis Ranieri, chairman of Bank United's parent company, Bank United Corp., was vice chairman of Salomon Brothers in the 1980s when he built mortgage-backed securities into "a Wall Street powerhouse business," Bank United said.

Norwest Asset Securities Corp., Frederick, Md., has announced an approximately $350 million securitization of fixed 20- and 30-year relocation mortgage loans.Credit enhancement for the deal will be provided via a senior/subordinated structure. The underwriter for the transaction, which is scheduled to close July 30, is PaineWebber Inc. NASCOR is a wholly owned subsidiary of Norwest Mortgage Inc.

With delinquencies rising, the Mortgage Bankers Association of America is urging homeowners to establish an emergency fund equal to three months' income to handle unexpected financial hardships and home maintenance costs.The MBA said the emergency fund should include money for making mortgage payments in the event of illness or loss of income. While unexpected repair bills contribute to financial problems, MBA executive vice president Paul Reid said that illness, loss of employment, and marital problems cause more people to lose their homes than all other reasons combined. The MBA's website address is http://www.mbaa.org.

General Motors Acceptance Corp., Des Moines, Iowa, has entered the real estate services market by establishing a new unit, which is acquiring the assets of a real estate franchise network, GMAC has announced.The new unit, GMAC Home Services, will be headed by Dick Schlott, formerly president of ERA Real Estate. GMAC Home Services, Horsham, Pa., will acquire from Meredith Corp. the operating assets of Better Homes and Gardens Real Estate Service, a national franchisor of real estate offices with a network of 800 firms and 1,500 offices. The terms of the acquisition were not disclosed. Under the agreement announced Monday, GMAC Home Services will license the Better Homes and Gardens brand name. GMAC Home Services chairman Michael O'Brien -- who is also president of GMAC Mortgage Corp., also based in Horsham -- said the purchase of the network would better position the new GMAC unit to carry out a long-term strategy of offering customers "a more complete array of products and services." GMAC's website addresses are http://www.gmacfs.com and http://www.gmacmortgage.com.

Sales of new homes inched their way to a new record high in May and it looks as if 1998 will be a banner year, eclipsing the previous sales record set over 20 years ago.New home sales rose from a seasonally adjusted annual rate of 887,000 units in April to 890,000 units in May, according to a U.S. Commerce Department report. [Click here to see the chart.] At this year's current pace, new home sales could top the previous record of 819,00 units sold in 1977, according to Michael Carliner, an economist with the National Association of Home Builders. Last year, new home sales totaled 804,000 units. The Commerce Department report shows that the inventory of unsold homes remains low, and it confirms reports by homebuilders that they are having difficulty keeping up with demand, Mr. Carliner said. In May, 78% of the new homes sold were sold before the foundation was laid or during construction. The remainder were sold once construction was completed. The NAHB is also finding that the increase in new home sales comes mainly in the "built-for-sale" category, as opposed to custom homes built on an owner's lot. This trend reflects homebuilders' ready access to construction financing and a recovery in the East and West Coast housing markets, the NAHB economist said.

Southern Pacific Secured Assets Corp. -- a wholly owned subsidiary of Southern Pacific Funding Corp., Lake Oswego, Ore. -- has completed a $105 million securitization of fixed-rate mortgage loans with high loan-to-value ratios.The mortgage loan asset-backed pass-through certificates, Series 1998H-1 consisted of nine classes (plus an interest-only certificate that raised more than $1.1 million) with fixed-rate coupons ranging from 6.31% to 9.02%. The coupon on the A-1 floating-rate class was 9 basis points above the London Interbank Offered Rate. The transaction was underwritten by Greenwich Capital. Southern Pacific Funding's website address is http://www.sp-funding.com.

Republic Bancshares Inc., St. Petersburg, Fla., has completed a private offering of $228 million of securities backed by home equity and debt consolidation loans.Republic Bank Home Loan Owner Trust 1998-1 consisted of various classes with interest rates ranging from 6.61% to 8.87%, the company said. Republic chairman and chief executive officer John W. Sapanski said the company expects to package some of its home equity and debt consolidation loans on a quarterly basis. The website address for Republic Bank, a subsidiary of Republic Bancshares, is http://www.republicbankfl.com.

The average 30-year fixed mortgage rate for the week ending June 26 crept up to 6.96% from 6.94% the previous week, according to Freddie Mac's Primary Mortgage Market Survey.The average 15-year fixed mortgage rate rose to 6.64% from 6.62%, while the average rate for one-year Treasury-indexed adjustable-rate mortgages was unchanged, at 5.68%. Fees and points averaged 1.0 for the fixed-rate mortgages and 1.1 for the ARMs. "Mortgage interest rates remain incredibly affordable," said Robert Van Order, Freddie Mac's chief economist. "This has been a boon to the housing industry, as witnessed by the rise in existing home sales in May." A year ago, the average 30-year and 15-year fixed rates were 7.58% and 7.13%, respectively, and the average one-year ARM rate was 5.66%. Freddie Mac's website address is www.freddiemac.com.

Capstead Mortgage Corp., Dallas, has reported that the recently completed repositioning of its mortgage securities portfolio has resulted in losses of approximately $255 million and a reduction in the company's earnings potential."Due to the continued high level of mortgage prepayments and the possibility of further declines in long-term interest rates, we concluded it was prudent to substantially reduce the company's exposure to mortgage prepayments," said Capstead chairman and chief executive officer Ronn K. Lytle. The company sold its entire $977 million investment in interest-only securities, as well as $659 million of Fannie Mae and Freddie Mac adjustable-rate mortgage securities and $656 million of Ginnie Mae ARM securities, Mr. Lytle said. In addition to the loss of $255 million, the company said it expects to take an impairment charge of about $45 million on its mortgage servicing portfolio due to high prepayment rates. "The total charge will reduce total stockholders' equity from $857 million at March 31, 1998 to approximately $705 million at June 30, 1998," Mr. Lytle said. He said the company's net interest margin is "unlikely to improve" in the near future. "Additionally, the decreased asset levels and the disposition of the interest-only securities, while prudent from a risk management perspective, have diminished the company's earnings potential," he said. Capstead's third-quarter dividend is expected to be "considerably lower" than the previous estimate of 40-45 cents, Mr. Lytle said.

The House Appropriations Committee Thursday night approved an increase in the Federal Housing Administration loan limit as part of a comprehensive VA-HUD spending bill.The legislation raises the FHA loan ceiling from $170,362 to $197,620 for high-cost areas and the loan floor from $86,317 to $109,032. The new limits proposed in the House by Rep. Mark Neumann, R, Wis., mirror increases recently approved by the Senate Appropriations Committee. The Appropriations Committee considered a second amendment by Rep. Neumann that would have directed HUD to issue a policy statement on the legality of yield spread premiums. However, the amendment was withdrawn. Appropriations Committee Chairman Rep. Robert Livingston, R, La., promised to discuss the YSP issue with Mr. Neumann when the House and Senate bills reach the conference stage. The full House and Senate must now vote on their respective VA-HUD spending bills, but that likely will not occur until the middle of July.

The delinquency rate for Federal Housing Administration-insured mortgages rose to a record high in the first quarter of 1998.According to data released Friday by the Mortgage Bankers Association, the FHA delinquency rate stood at 8.35% -- a 20-basis-point increase year over year. MBA executive vice president Paul Reid said a sharp rise in adjustable-rate mortgage delinquencies contributed to the overall increase in the number of troubled FHA loans. The delinquency rate for FHA-insured ARMs rose 100 bp over the past 12 months. Year over year, the FHA fixed-rate mortgage delinquency ratio increased 57 bp, MBA data show. Meanwhile, the overall delinquency rate for conventional and government-backed residential loans rose 13 bp to 4.47% in the first quarter -- the highest rate recorded by the MBA since the third quarter of 1995. Mr. Reid told reporters that an increasing number of the MBA's members are originating subprime mortgages and loan data collected from these lenders are inadvertently being mixed with data gathered from "A" paper mortgage companies. "Subprime delinquencies are starting to show up in our data, which is one reason why the overall rate is higher," Mr. Reid added. "We are working to separate out the B&C data."

The second-quarter earnings of Haven Bancorp Inc., Woodhaven, N.Y., will be affected by a one-time revenue reduction tied to its subsidiary CFS Bank's acquisition of the assets of InterCounty Mortgage Inc., Haven has reported.Under the terms of the purchase agreement, Haven was initially unable to recognize certain servicing release premiums from InterCounty's loan pipeline, but it will begin realizing the SRPs starting July 1, the company said. Haven said it does not expect the transaction to be dilutive to earnings per share in the first 12 months of operation, and believes it will be accretive thereafter.

First Alliance Corp., Irvine, Calif., has announced an approximately $4.5 million writedown in the value of its securitization residual interests for the second quarter.Prepayments of the company's adjustable-rate loans increased about 20% in the second quarter, First Alliance said. However, the delinquency and loan-loss experience of mortgages in First Alliance's servicing portfolio "continues to be among the lowest in the subprime sector," the company said. In other company news, First Alliance announced the appointment of Richard Taylor as legal counsel and corporate secretary. He replaces Ed Summers, who has resigned to take a post with a manufacturing company.