Subprime Lending

Applications Fall July 23, 2008

The Market Composite Index, an overall measure of mortgage applications, fell from 522.2 to 489.6 on a seasonally adjusted basis during the week ended July 18, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey.

MBA Mortgage Application Survey (Seasonally Adjusted Index Levels)
	Wk Ended July 18	Wk Ended July 11
Market Composite	489.6	522.2
Purchase Index	335.6	359.7
4-Wk Moving Avg	351.0	350.5
Refinance Index	1392.7	1474.9
4-Wk Moving Avg	1379.0	1333.9
Source: Mortgage Bankers Association

The Purchase Index fell from 359.7 to 335.6 on a seasonally adjusted basis, while the Refinance Index declined from 1474.9 to 1392.7. Refinancings represented 39.4% of total applications, up from 39.2% the previous week, while adjustable-rate mortgages accounted for 8.5%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages rose from 6.22% to 6.59%, and points (including the origination fee) decreased from 1.21 to 1.05 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Report: Most B&C Loans Went to Nonminorities July 23, 2008

The majority of subprime loans originated in 2006 were made to non-Hispanic whites and upper-income borrowers, according to ComplianceTech, an Arlington, Va.-based provider of technology and business intelligence. The report concluded that a disproportionate share of loans to minorities and low-income borrowers were subprime loans, but that non-Hispanic whites received 56.2% of the more than 1.9 million subprime loans originated in 2006. Upper-income borrowers got 39.4%, while only 7.6% went to low-income borrowers. Maurice Jourdain-Earl, co-founder and managing director of ComplianceTech, said the problem with portraying the foreclosure crisis as a minority and low-income issue is that it affects the development of possible solutions. "There could be a tendency to write off the subprime lending debacle as a type of affirmative action gone bad," he said. "We must acknowledge that the foreclosure crisis affects broader and more demographically diverse segments of society. This politically responsible approach will likely change the tone, climate, and context of how solutions are crafted." The company can be found online at http://www.compliancetech.com.

BoA 'Committed' to Countrywide's TPOs July 21, 2008

Bank of America confirmed Monday that it is committed to maintaining the wholesale and correspondent platforms of Countrywide Financial Corp., which it purchased on July 1. According to the Quarterly Data Report, the Calabasas, Calif.-based Countrywide was the nation's largest correspondent lender and second-largest wholesaler in the first quarter, with production volumes of $31 billion and $9 billion, respectively. In a presentation released along with its second-quarter earnings, the Charlotte, N.C.-based BoA noted that the Countrywide mortgage franchise would discontinue the origination of certain types of nonconforming loans, including payment-option adjustable-rate mortgages. It reported that Countrywide will "significantly curtail" its use of low-documentation loans. Countrywide is no longer funding subprime loans of any type. In the first quarter, Countrywide's subprime servicing portfolio had a delinquency rate of 33%.

Abacus CDO Classes Downgraded July 18, 2008

Eight classes of notes issued by Abacus 2005-CB1 Ltd., a synthetic collateralized debt obligation based primarily on subprime residential mortgage-backed securities, have been downgraded and removed from Rating Watch Negative by Fitch Ratings. The downgrades were as follows: class A-1, from A-minus to CCC; class A-2, from BBB-plus to CCC; class B, from BBB to CC; class C, from BBB-minus to CC; class D, from BBB-minus to CC; class E-1, from BB-plus to CC; class E-2, from BB to CC; and class F, from BB-minus to CC. The downgrades were attributed to "significant" collateral deterioration of subprime RMBS in the portfolio. Fitch said the synthetic CDO was created to enter into credit default swaps with Goldman Sachs Capital Markets. The rating agency can be found on the Web at http://www.fitchratings.com.

Citi Takes Mortgage-Linked $2.5B Loss July 18, 2008

Citigroup Inc., New York, took $6.67 billion in largely mortgage-related writedowns in the second quarter and has reported a net loss of $2.5 billion that it said marked a relative improvement given that it was half the size of the first-quarter loss. The company said $3.4 billion of its writedowns stemmed from subprime-related direct exposures, $2.4 billion was related to exposure to monoline insurers, $545 million was linked to commercial real estate positions, and $325 million was tied to alternative-A credit mortgages, net of hedges. "The cost of credit increased by 20% from the first quarter, but writedowns in our securities and banking business dropped by 42%," said Vikram Pandit, Citi's chief executive officer. "Additionally, headcount and expenses declined sequentially. While there is still much to do, we are encouraged by our progress in delivering on our commitment to the re-engineering efforts." Citigroup can be found on the Web at http://www.citigroup.com.

Merrill Reports $4.7B Mortgage-Related Loss July 18, 2008

Merrill Lynch has reported a $4.7 billion net loss in the second quarter and saw more than $9 billion in writedowns and losses that were partly mortgage-related, but says it is making progress in reducing its problem assets and bolstering its liquidity. Writedowns and losses during the quarter included $3.5 billion related to U.S. super-senior asset-backed security collateralized debt obligations, as well as credit valuation adjustments of negative $2.9 billion related to hedges with financial guarantors, about half of which were linked to U.S. super-senior ABS CDOs. Other losses and writedowns included $1.3 billion from "certain residential mortgage exposures" and $1.7 billion from the investment portfolio of Merrill's U.S. banks. "Our core franchise continues to perform well despite the extremely challenging market environment," said John A. Thain, chairman and chief executive officer. "Against this backdrop, we increased our excess liquidity pool to a record level of $92 billion and significantly reduced our exposures in key asset classes." Merrill can be found online at http://www.ml.com.

FBI Eyeing IndyMac for Mortgage Fraud? July 17, 2008

The FBI had launched an investigation of IndyMac Bank for possible mortgage fraud shortly before the insolvent Pasadena, Calif.-based thrift was closed by regulators and placed into receivership, according to news reports. The $32 billion thrift, which specialized in alternative-A lending, is apparently one of 21 companies under scrutiny for possible mortgage fraud. "The FBI is currently investigating 21 companies involved in the mortgage/subprime industry," the bureau said in a statement in response to news reports about IndyMac. One month ago, FBI Director Robert Mueller told reporters that his agency had initiated 19 subprime-related corporate fraud investigations. Many of these investigations are coordinated with the Department of Justice and the Securities and Exchange Commission. In testimony July 15, SEC Chairman Christopher Cox told Congress that his agency has over four dozen law enforcement investigations in the subprime area. The Federal Deposit Insurance Corp. is operating IndyMac as a conservatorship and offering banking services to depositors and borrowers.

Applications Rise July 16, 2008

The Market Composite Index, an overall measure of mortgage applications, rose from 513.4 to 522.2 on a seasonally adjusted basis during the week ended July 11, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Purchase Index fell from 365.8 to 359.7 on a seasonally adjusted basis, while the Refinance Index climbed from 1379.3 to 1474.9. Refinancings represented 39.2% of total applications, up from 37.3% the previous week, while adjustable-rate mortgages accounted for 9.1%, the MBA said. The average contract interest rate for 30-year fixed-rate mortgages fell from 6.43% to 6.22%, and points (including the origination fee) increased from 1.06 to 1.21 for loans with 80% loan-to-value ratios, the association reported. The MBA can be found online at http://www.mortgagebankers.org.

Correction: Moody's Revises FF MBS Ratings July 15, 2008

Moody's has corrected a rating action affecting securities issued by First Franklin Mortgage Loan Trust on April 21, noting that 282 tranches from 30 transactions were downgraded rather than 286 as the ratings agency originally reported. "Certain specific features of the cash waterfall and loss allocation were not fully accounted for," Moody's said. The ratings agency said the collateral backing the residential mortgage-backed securities are first-lien, subprime adjustable-rate mortgage loans. "The ratings were downgraded, in general, based on higher than anticipated rates of delinquency, foreclosure, and REO in the underlying collateral relative to credit enhancement levels," Moody's said.

Council Proposes 'Responsible' B&C Standards July 11, 2008

The White House Council on Financial Literacy is recommending underwriting standards for "responsible" subprime lending in an effort to encourage lenders to make this form of mortgage credit available again in low- and moderate-income communities. The council's report highlights the differences between responsible and irresponsible subprime mortgage lending. It also recommends parameters for fixed- and adjustable-rate subprime mortgages that the council says would benefit borrowers. Council Chairman John Hope Bryant said one feature recommended by the council would benefit borrowers who have made their payments on time but suddenly face the loss of a job or death in the family. "Nobody loses, the person gets six months to deal with their change-in-life event, and those payments go to the back of the loan -- principal and interest," Mr. Bryant said at a recent Federal Deposit Insurance Corp. forum on mortgage lending to low- and moderate-income households. Wells Fargo Home Mortgage, Banco Popular, the Office of Thrift Supervision, and the Office of the Comptroller of the Currency have endorsed the council's recommendations. The report says responsible subprime lending has done more to help the poor out of poverty than anything else in the past 50 years, and that the subprime mortgage crisis is a result of irresponsible, predatory, and greed-based lending, not subprime lending itself.

Subprime Lending

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