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	“The huge volume of refinance activity has obscured the fact that the mortgage industry has added over 80,000 jobs in the last 18 months.”— Doug Duncan, chief economist at MBA, on the job growth in the mortgage banking and broker industry.

Top National News
Refinance Boom Is Still Going Strong (Detroit Free Press)
Low Mortgage Rates a Help and a Hindrance (Copley News Service)
Labor Data Back Fed's Steady Course (Wall Street Journal)
Apartment Vacancies Increase, But Market Shows Signs of Life (Wall Street Journal)
HUD Vows to End 'Sticker Shock' (Inman News Features)
Manufactured Homes Financed as Real Estate (New York Newsday)
Curbing Predatory Home Loan Scams (New York Newsday)
The Housing Boom's Dark Side (Business Week)

Residential Finance News
Southwest Remains Low Risk for Nonprime Mortgages

Commercial/Multifamily Finance News
Commercial/Multifamily: War Might Affect Hotel Turnaround
Multifamily DealMaker of the Day

Spotlight:
Job Growth Continues for Mortgage Bankers and Brokers
Career Politician and Banker Vie for Newly Created Seat in Colorado
Washington: The Week Ahead

Refinance Boom Is Still Going Strong
Detroit Free Press (10/07/02) ; Tompor, Susan
The still-weak economy will keep interest rates at record lows for the remainder of the year; but with so many homeowners rushing to take advantage and refinance, borrowers should expect delays. Because loans are taking longer than the usual 30 days to close, mortgage experts urge homeowners to lock in their new interest rate for 45 to 60 days and find a lender that will not further delay the process. Meanwhile, cash-out refinances are winding down; and lenders like Fannie Mae are imposing stricter rules on these transactions to curb the rising default rate. Pacific Investment Management Co. managing director Bill Gross says that refinancing is responsible for "creating wealth where there was no other wealth to be found," but he believes there could be problems if the refinancing frenzy dies down before the start of a new investment boom.
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Low Mortgage Rates a Help and a Hindrance
Copley News Service (10/07/02) ; Woodard, James M.
In some of the country's geographic markets, low mortgage rates are turning an increasing number of rental housing tenants into homeowners. Consequently, low demand is making it more difficult for owners of multifamily properties and developers of rental apartment complexes to succeed, resulting in a slowdown in both building permits and construction starts for apartment projects and rental units. The Meyers Group reports that today's historically low mortgage rates are causing weakness in other sectors, as well, and investors are worried as more funds flow from stocks to bonds and as companies post weaker profits. While the number of consumers planning to purchase a home dipped to 3.3 percent in September from 4.5 percent the previous month, analysts say the residential property market remains strong overall and will continue to be that way for at least the near future.
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Labor Data Back Fed's Steady Course
Wall Street Journal (10/07/02) P. A2; Ip, Greg
Though a recent Labor Department report says total non-farm employment fell by 43,000 jobs from August to September, the rate of joblessness actually slipped from 5.7 percent to 5.6 percent, supporting the general Federal Reserve consensus that economic growth is sufficient enough to leave the short-term interest rate unchanged at 1.75 percent. A majority of Fed officials believe the risks of further corporate scandals or an impending war with Iraq do not present enough of a threat to lower rates at the present time, but others insist a cut may be necessary if these risks could further hinder recovery through plunging stocks or lagging business investments. Moreover, some officials say rates should be cut before deflation can occur, which would make it difficult to foster economic recovery. However, the Fed does not see deflation as an immediate problem and is not likely to cut rates at the upcoming Nov. 6 meeting.
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Apartment Vacancies Increase, But Market Shows Signs of Life
Wall Street Journal (10/07/02) P. A20; Smith, Ray A.
Reis Inc. reports that the apartment-vacancy rate for the nation's top 50 metro areas rose to 5.9 percent in this year's third quarter, compared to 5.8 percent in the previous quarter and 3.9 percent in the same period a year ago. Asking rents, meanwhile, climbed 0.6 percent from the second quarter to average $901 per month nationwide. The U.S. multifamily sector continues to be hit hard by various economic factors that have not been in property owners' favor, with more and more analysts pushing back their time frames for a likely rebound. The lowest interest rates in decades have hurt the apartment market by luring potential renters into homeownership in such areas as Atlanta, Denver, and Phoenix; however, other locales--including the District of Columbia, other regions in the U.S. Northeast, and parts of Southern California--have benefited from inflated single-family prices that have kept many prospective homebuyers in the rental market.
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HUD Vows to End 'Sticker Shock'
Inman News Features (10/04/02)
U.S. Department of Housing and Urban Development (HUD) Secretary Mel Martinez recently testified before the House Financial Services Committee, underscoring the need for changes to the Real Estate Settlement Procedures Act (RESPA) to protect borrowers from today's complex, expensive, and confusing mortgage process. HUD's RESPA reforms would force mortgage brokers to disclose the yield-spread premium--a fee that borrowers pay in the form of a higher interest rate in exchange for the lender assuming payment of the closing costs--and require lenders to provide an improved "Good Faith Estimate" that would spell out all settlement charges, let borrowers shop around, and keep lenders from hiking their fees at the settlement table. In an effort to minimize costs, HUD's proposal would also allow lenders to offer a guaranteed interest rate and bundled settlement services at a set price.
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Manufactured Homes Financed as Real Estate
New York Newsday (10/04/02) P. C2; Lewis, Holden
Over 90 percent of manufactured homes were financed last year, and some states are beginning to let buyers purchase them with traditional mortgages. Three quarters of these homes, however, were titled and taxed as private property rather than real estate, forcing owners to assume loans with interest 2 percent to 3 percent higher than conventional financing. With Freddie Mac making inroads in the manufactured housing market by purchasing loans of modular homes that are titled as real estate, many more states have stopped considering them personal property. When looking to finance a manufactured or modular home, buyers can look for mortgage brokers or lenders that deal with Freddie Mac; but since many lenders have ditched the market or tightened standards due to a high number of delinquencies, the dealer may be better able to help them locate funding.
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Curbing Predatory Home Loan Scams
New York Newsday (10/04/02) P. C3; Roel, Ronald E.
The Bond Market Association and other industry groups have criticized a bill passed last week by the New York City Council that would end the municipality's business relationships with banks and financial institutions that practice predatory lending, whether directly or indirectly. Critics also say the measure--which would hold banks responsible for the lending practices of their affiliates--may cause institutions to abandon the subprime mortgage market, making it more difficult for borrowers with imperfect credit to secure financing. The bill requires financial institutions to certify that they do not originate or purchase predatory loans, that they are not predatory lenders, and also that their affiliates are not predatory lenders. The predatory lending bill has been sent to Mayor Michael Bloomberg.
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The Housing Boom's Dark Side
Business Week (10/07/2002) ; Vickers, Marcia; Timmons, Heather
Interest rates that are at their lowest level in four decades have attracted large numbers of consumers to the housing market, which also has enticed unscrupulous and shady lenders into the marketplace. Predatory lenders increasingly are targeting consumers with scams that range from inflated interest rates; eye-popping high fees at closing; collusion rings with developers, appraisers, and mortgages brokers to sell overpriced homes; and house-flipping. The FBI says mortgage- and housing-related scams are up more than 25 percent over the past year; and Kurt Eggert, a law professor at Chapman University in Orange, Calif., says aggressive lending practices have cost borrowers $9 billion more for loans than what they should have paid. Mortgage Bankers Association of America chief economist Douglas G. Duncan adds that even when current lending laws are enforced, consumers ultimately pay for the fraud in the form of higher rates and fees that mortgage companies would charge.
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MBA (10/7/02) Murray, Michael
Three states in the Southwest and three other states in the country are the most risk-averse place to lend in the country for nonprime mortgages, according to a Summer 2002 report released by University Financial Associates (UFA) LLC, Ann Arbor, Mich. The concentration of states in the Southwest, however, is the key finding in the report.

Texas, Oklahoma and Louisiana have been rated “above average” in the Southwest while Alaska, North Dakota and West Virginia received the same rating outside of the Southwest region.

“Both borrowers and the underlying housing collateral in these areas are situated more favorably to withstand the consequences of the slower economy,” said Dennis Capozza, professor of finance at the University of Michigan Business School and a principal in UFA.

Some analysts speculate that, in the Southwest, there could be a pickup because of the energy price increases. Also, the locations might make it easier to make payments because of a better relation between income and home prices.

“Some places have gotten ahead of themselves,” said one analyst who did not wish to be named, in reference to rapid increases in home prices possibly creating more risk for lenders.

“When assessing risk for lenders, you’re really assessing downside risk,” Capozza said. “Homebuyers might assess both upside and downside risk.”

According to UFA officials, economic conditions are the most important factor since a recession causes a drop in borrower and collateral performance. But while borrowers are more likely to be subjected to financial shock, such as unemployment, the Fed’s easing of interest rates has the opposite effect.

Some of the practices used in the report include economic variables, such as income, growth of income, employment and unemployment; demographic information such as population growth and distribution; political data that includes property taxes and growth control; and topographical information, such as cities that might behave differently than others. One example might be San Francisco, with difficulty in expansion based on the water and mountainous terrain.
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MBA (10/7/02) Murray, Michael
Hotel researchers are showing that a war with Iraq could shift hotel revenues noticeably downward but a year without war could be solid for chain-affiliated sectors of the hotel industry. But some industry analysts say that chain-affiliated hotels, as with all lodging, will follow an overall economic recovery.

The forecasts are based on hotel performance levels through the second quarter of 2002, compiled by Smith Travel Research (STR), Hendersonville, Tenn., and developed using proprietary forecasting models from the Hospitality Research Group (HRG), Atlanta, Ga., and Torto Wheaton Research (TWR), Boston, Mass.

“Despite the frustrations that many are feeling about securities market performance and slow growth of lodging demand, the prospects look quite favorable for chain-affiliated hotels in 2003,” said Jack Corgel, managing director, HRG. “The unanticipated consequences of a war in Iraq, however, shift hotel revenue forecasts noticeably downward.”

Revenue Per Available Room (RevPAR), without war, is forecast to become positive in 2003 for chain-affiliated hotels and increase 6.8 percent by the end of next year. If there is no war, forecasters say that occupancy and average daily rate (ADR) will also increase during 2003.

If war should occur, however, the HRG and TWR analysis shows RevPAR growth for chain-affiliated hotels to be significantly reduced in a “short war” scenario lasting for one quarter, and turn negative in a “long war” scenario lasting for at least one year.

Hotel analysts, however, are not as optimistic about the lodging industry overall and project lodging to recover as the economy and gross domestic product (GDP) recovers.

“Our quarterly lodging forecasts for the nation and metropolitan areas come directly from econometric models, which convert forecasts of economic activity into forecasts of demand, supply and financial performance,” said Petros Sivitanides, vice president of research at TWR.

However, according to Corgel, the chain-affiliated hotels have been impacted the most during the economic downturn and would benefit by the end of 2003 from momentum building in the economy.

“These properties will likely experience the earliest and strongest rebound in percentage terms,” Corgel said.

But Jim Butler, chairman, global hospitality group at the Los Angeles law firm of Jeffer Mangels Butler & Marmarro, said that the general consensus in the lodging industry has been that hotels will remain flat from the rest of 2002 through 2003 with a possible turnaround in 2004 and possibly 2005.

“I don’t see the difference [between chain hotels and the overall lodging industry] as far as recovery is concerned,” Butler said.

HRG and TWR economists estimate the effect of war on the nation’s full-service hotels by using the percent of room nights lost in the first quarter of 1991 during the Gulf War to the quarterly demand forecast for 2003. The loss of business was independent of the 1990 to 1991 recession, according to researchers.

“The effects of this war on the economy, should it occur, hopefully will be moderate because of so much advanced warning,” Corgel said.

The researcher expectations are for an economic recovery in 2003 with the August 2002 Blue Chip consensus forecasts indicating 3.5 percent growth rate for real GDP during 2003 versus 2.6 percent for the third quarter of 2002 and 3 percent for the fourth quarter of 2003.
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MBA (10/7/02) Murray, Michael
Guaranty Bank, Austin, Texas, has financed a 3-year term, $21 million construction loan with a floating rate over LIBOR for Austin City Lofts, a 14-story, 82-unit residential high-rise in an area of downtown Austin. The area has been evolving into a 24-hour city with retail, restaurants, galleries and high-end residential properties. Despite increasing vacancies in the office sector in Austin, there does appear to be a need for this condominium project.

In addition to the $21 million of financing, Fremont Investment and Loan, Anaheim, Calif., is also a financing partner with mezzanine debt. The amount of mezzanine debt and the interest rate could not be disclosed.

Ron Cibulka, partner at CLB Partners, the developer of Austin City Lofts, said that two condominiums have been completed this summer but there should not be any other new product like Austin City Lofts built in the area in the next 18 months. Some analysts have said that overconstruction in multifamily is a concern, but Cibulka pointed out that it is not the case for condominiums in Austin.

“We’re going to be the only ones bringing [condominium] product to the market for the next year and a half,” Cibulka said.

The $42 million development site is adjacent to Shoal Creek and the completion of the condominium project is expected for the summer of 2004. When completed, Austin City Lofts should contain a mix of one-level and multi-level luxury lofts, ranging in size from 1,000 to 3,500 square feet. The high-rise homes will range in price from $200,000 to $1.5 million, according to CLB Partners, Dallas, the developer of Austin City Lofts.

"We have already sold ten of the homes prior to starting construction, and our buyers, both young professionals and empty-nesters, consistently say that they desire a lifestyle that includes walking to the parks, Town Lake, the nearby restaurants, the shops and galleries,” said Bobby Nail, partner with CLB Partners. “All of our buyers and the prospective owners we are currently working with say that the maintenance free living and living within walking distance of the cultural, entertainment and recreational amenities of downtown Austin are the main factors in moving to downtown.”

Austin City Councilman Will Wynn, a long-time downtown advocate, said that CLB Partners is familiar with the city’s areas of interest to the site’s various development issues, including the addition of retail space in the building's first floor as well as addressing the creek scape.

“Mixed-use residential development downtown is exactly what Austin needs,” Wynn said. “A 24-hour downtown with a healthy mix of uses creates a place where people want to be, increases our tax base and, in this case, actually improves Shoal Creek. To see properties such as Austin City Lofts breaking ground is promising for Austin’s long-term future.”
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