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GSEs Overshadow Mortgage Sector

GSEs Overshadow Mortgage SectorRecent corporate activity

July 10, 2008


As the mortgage sector grapples with stormy financial markets, all eyes are on Fannie Mae and Freddie Mac — which saw their shares traded at their lowest levels in more than 15 years. Meanwhile, a bank executive is retiring, a secondary lender has a new chief and a mortgage banking cooperative is growing.

Jeffrey D. Kelly will retire as vice chairman and chief financial officer of National City Corp. effective Sept. 30, a news release yesterday said. A search for a replacement is underway. Kelly spent 29 years with the Cleveland-based company.

Joseph J. Murin was sworn in as the 16th president of the Government National Mortgage Association on Monday. Murin was confirmed by the U.S. Senate as Ginnie Mae’s president last month.

Thornburg Mortgage Inc. said today a majority of participants in the principal participation agreement component of its recent financing transaction have agreed to reduce the required tender of the aggregate liquidation preference of each series of its outstanding preferred stock to two-thirds from 90 percent. Thornburg is a real estate investment trust.

Another REIT, Luminent Mortgage Capital Inc., issued a forecast Wednesday indicating principal and interest cash flows on its portfolio of mortgage-backed securities is estimated to be $84.3 million over the next 5 years.

The PMI Group Inc. issued an update today indicating paid claims of $370 million during the first half of this year were in line with its guidance, and it still expects full-year paid claims to be no more than $975 million. During the second quarter, average FICOs were 721, average loan-to-values were 90 percent and 92 percent of its business was full documentation.

Fitch Ratings downgraded IndyMac Bancorp Inc.’s long-term issuer default ratings, reflecting its weakening capital position and the likelihood that capital will not be raised from external sources. IndyMac shut down its conventional mortgage operations Monday and disclosed that federal banking regulators have advised the company that it is no longer “well capitalized.”

Fears of massive upcoming losses and the need for a possible government bailout sent shares of Fannie Mae down 14 percent today to $13.20, while shares of Freddie Mac sank 22 percent to $8.00. Shares of the two government-sponsored enterprises have reportedly not traded this low in more than 16 years.

The two companies, which together own or guarantee more than $5 trillion in mortgages, are under pressure from falling home prices, rising foreclosures and stormy financial markets.

James B. Lockhart, director of the Office of Federal Housing Enterprise Oversight, tried to reassure investors in a statement today indicating the two government sponsored enterprises “are adequately capitalized, holding capital well in excess of the OFHEO-directed requirement.” He noted they have large liquidity portfolios, access to debt markets and more than $1.5 trillion in un-pledged assets. He also said they recently raised $20 billion in capital.

U.S. Treasury Henry M. Paulson Jr. also tried to calm investors, testifying to the House Committee on Financial Services that he has been assured Fannie and Freddie are adequately capitalized, according to transcript of his statement.

Lenders One, a national alliance of independent mortgage bankers, announced Tuesday that its ranks have grown by 24 this year, bringing total membership to 121. Among its newest members are Century Mortgage Corp., Henger Rast Mortgage Corp., Churchill Mortgage Corp., VanDyk Mortgage Corp., NJ Lenders Corp. and Wealthbridge Mortgage.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of


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