The market appeared unconcerned about the disheartening inflation news that the unit labor costs were much higher in the first quarter than previously reported, however. 

Speeches from two Federal Reserve officials did get a lot of attention, pulling the yields into a different direction. Earlier in the week Dallas Fed President Richard Fisher suggested that the tightening may soon come to an end, only to be contradicted by Fed governor Edward Gramlich that he didn’t know where we are in the tightening cycle.

Gramlich also echoed Fed Chairman Alan Greenspan’s remark in mid-February that low long-term bond rates are a conundrum. (The 10-year yield was around 4.10 percent then, compared with 3.97 percent last Friday afternoon).

With long-term yields falling over the past two months and remaining persistently low, we have revised our projections of mortgage rates and housing and mortgage activity. Fixed-rate mortgage yields are projected to rise to around 6.00 percent by the end of the year from slightly more than 5.60 percent according to the latest surveys. 

Based on the forecast of moderately rising mortgage rates and the strong sales pace thus far this year, the Mortgage Bankers Association projects that, for all of 2005, home sales would decline by only about 1 percent from last year’s record pace. This is a more moderate decline than our previous forecast of about three percent.

With a small slip in sales and still-strong home price appreciation forecast of about 6.5 percent, purchase originations are projected to increase by 7.8 percent from last year’s record level to $1.55 trillion. Modestly rising mortgage rates should cause refinance originations to drop off by about 10 percent to $1.04 trillion in 2005. Overall, this year’s mortgage originations should essentially remain unchanged from last year’s $2.59 trillion—nearly $100 billion more than our previous forecast.

Compared with the excitement of last week, this week’s economic data should take backstage to Greenspan’s testimony before the Joint Economic Committee. The market will be hopeful for some clues on the course of monetary policy.

(Orawin Velz is director of economic forecasting in the Mortgage Bankers Association’s economics and research department. She provides commentary and analysis on key monthly economic indicators. She can be reached at ovelz@mortgagebankers.org.)
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“We are serious about making [lenders] an integral part of the process,” said Gerald Kifer, supervisory appraiser with the VA Department, speaking at Mortgage Bankers Association’s first annual Government Housing Finance Forum. Kifer said many VA appraisers did not like the lack of protection, but the alternative would be to resign.

Kifer said VA will continue to appoint one appraiser to a lender but that appraisers will need to communicate more with the lenders rather than only with the VA Department. “We’re deadly serious about enforcing this,” Kifer said. “The appraisers are the people that most people think are the VA. It is the VA appraiser, so they should represent us in the manner that we would represent ourselves.”

VA appraisers now speak with a designated “point of contact” to ask if there is any other information on a property in case the property is coming in below the sales price. “Appraisers in the VA panel have been, basically, protected from everybody in the past,” Kifer said. “They were not allowed to talk to anybody except VA. That’s pretty ridiculous to say the least.”

Appraisers, by law, cannot disclose the price prior to the final appraisal report, but Kifer said VA appraisers can be open to comparable properties and attempt to attain more information if the appraisal comes in below the sales price.

“The change to allow [lenders] to communicate with the [VA] appraisers is a balancing act,” Kifer said. “We have to strike balance with the Uniform Standards of Professional Appraisal Practices (USPAP) which says an appraiser cannot start discussing values until he or she has delivered an appraisal report. We have restraints upon how much discussion there can be.”

However, the VA Department will start to crack down on staff appraisal reviewers (SARs) in the upcoming months.

“It’s time to get this more under our control,” Kifer said, noting that experienced SARs are no longer allowed to train a new SAR. Also all SARs, old and new, will need to take a six- to eight-hour long online training course, pass a final exam and then pass five case studies. Kifer said two-thirds of SARs are performing below expectations.

Kifer noted VA’s “timeliness standard” and VA appraisers should deliver their work in the same period as conventional appraisers, based on comparable appraisal fees. “We are now publishing our standards on our Web site by each RLC [regional loan center],” Kifer said. “It averages six days nationwide.”

VA, like HUD, will make it mandatory for their appraisers to adopt the new Fannie Mae appraisal forms. VA will adopt three new forms and HUD will adopt four new forms. The forms will be mandatory starting November 1 for VA and January 1, 2006 for HUD.
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“The [real estate] market in Staten Island has been good to residents,” according to Elad Kushnir, CEO and co-founder of Best Home Properties Inc., a Staten Island real estate development company. “People are looking for houses. People are bidding for houses like in auctions. We’re asking [as an example] $425,000 for a two-family home, we get two to four clients bidding on the same home and the price goes up.”

Many builders can’t build as much as they are used to in the past and supply has gone short, Kushnir said. As more buyers from the outer boroughs such as Brooklyn and Queens move onto the island, Staten Island’s home prices keep increasing as result of short supply homes.

The cost of living in Staten Island is the lowest of all New York City boroughs. This has and will continue to encourage increased migration into the island, Kushnir said.

The recent downzoning of many Staten Island parcels will continue to decrease the supply of housing on the Island, consequently maintaining or even increasing home prices. Kushnir cited the North Shore average of single-family homes range from the low-$300s to several million dollars.

On July 25, 2003, Mayor Michael Bloomberg (R) formed the Staten Island Growth Management Task Force. According to the “Staten Island Growth Management Task Force Final Report,” the Task Force is charged with examining the issues of overbuilding and development on Staten Island, and identifying short-term solutions, potential legislative changes and strategic long-term planning to protect and enhance the Island’s quality of life.

In the past decade, Staten Island has had the highest population increase of all of New York City boroughs, according to Kushnir. The Island’s population grew by 17 percent during that period, making it the fastest growing county in New York State, the report said. The addition of 65,000 people between 1990 and 2000 was accompanied by almost 23,000 new housing units—an increase of 14 percent. Population growth and new housing construction—a large portion of it in town house development—has exacerbated concerns about overdevelopment.

According to many Staten Islanders, the very qualities that make the Island’s neighborhoods so attractive are diminished by what they perceive as inappropriate and haphazard development, the report said.

“I think whoever comes into Staten Island and decides to live there usually sticks for the long run,” Kushnir said. “Everything is available very close and at the same time you’re still a 30 minute drive from New York City. Or, you can take the ferry and in 25 minutes you’re in Manhattan. It’s very comfortable.”

“We are working under the assumption that the market will continue to go for a short to medium time, Kushnir added. “In the next year, we believe the market is going go up. We also believe that for Staten Island, when the national market will show a more blunt stick in prices and time on market, Staten Island will slow down. It is indubitable. At the same time we believe the prices won’t go down they’ll just plateau because of the supply and demand. So many people are looking for home on Staten Island. There aren’t enough houses to fit all these people.”
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The white paper provides an educational outlook at mold and damp indoor spaces. It examines the evolution of mold in the commercial real estate industry and steps to effectively deal with mold and dampness issues.

"This serves as a basic guidance for the lending and servicing industry audience," said Donald Glitz, chair of MBA's Mold Working Group and vice president, manager and corporate risk manager of GMAC Commercial Holding Corp., Horsham, Pa.

The Mold Working Group took steps to fully research, draft and finalize this paper, asking several industry experts to thoroughly review, question and comment before releasing the final version to the public.

"The group went to great lengths to provide a complete resource document that serves as a tool for additional information on this important issue," Glitz said.

MBA members and the public are welcome to view the white paper later today at MBA’s Web site: http://www.mortgagebankers.org/cref/index.asp.
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Red Mortgage Capital arranged and placed a $13.5 million conduit loan for The Moors at Countryview, a multifamily complex 10 miles southeast of Columbus. The loan was structured as a 10-year term with a 30-year amortized schedule.

The Moors includes 416 one-, two- and three-bedroom units in 14 two-story and 13 three-story buildings. Amenities include a pool, clubhouse, nature trail and fitness center; individual units include central air, attached garages, balconies, decks and patios.

Red Mortgage Capital closed two FHA Insured Mortgage Loans totaling $9.5 million under HUD’s Multifamily Accelerated Process program to finance two existing skilled nursing facilities in Northeast Ohio.

Canterbury Villa Nursing Center in Alliance, Ohio, received a $5.2 million mortgage loan, with a 25-year non-recourse term, insured under FHA’s Section 232/223(f) mortgage insurance program. Canterbury Villa is a single-story, 92-bed facility with 47 private and semi-private rooms in four separate wings.

Oak Pointe Nursing & Rehabilitation Center, in Baltic, Ohio, received a $4.29 million mortgage loan, with a 25-year non-recourse term, insured under FHA’s Section 232/223(f) mortgage insurance program. Oak Pointe was built in 1983 and consists of a one-story, 94-bed facility. Francis Murphy owns both facilities. The loans were completed through HUD’s Cleveland office.

Red Capital Markets recently advised Brooke Credit Corp., Overland Park, Kan., on its fourth term securitization. Brooke Capital Co. LLC recently issued $32 million of Notes backed by loans to small-to-medium sized independent insurance agencies primarily for agency acquisitions and debt consolidations. The single class floating rate notes are credit enhanced by excess spread and over-collateralization. 

Brooke Credit was formed to provide loans to independent insurance agents, The Asset-Backed Securitization and Structured Finance Group ("ABS") within Red Capital Markets, Inc. served as structuring agent on this and three previous Brooke Credit transactions. To date, Red's ABS Group has advised Brooke Credit on securitizations totaling $83 million of securities backed by insurance agency loans/

Red Mortgage Capital also recently closed an FHA Insured Mortgage Loan under HUD's Multifamily Accelerated Processing program to finance a $4.15 million loan to Brentwood at Hobart, Hobart Ind. The loan is a 35-year non-recourse loan insured through FHA’s Section 232/223(f) mortgage insurance program.

Brentwood at Hobart is a two-story, 66-unit/80-bed facility located in downtown Hobart, 40 miles southeast of Chicago.  It is owned by Steven Garatoni of Hobart Retirement LLC.
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Transitioning from a paper to an electronic mortgage process can be a daunting task at first, but one that must occur in the current environment of increased competition and slim margins. To aid in understanding the components of such a transition, CampusMBA, the educational arm of the Mortgage Bankers Association, hosts a three-day eMortgage Technology Workshop June 15-17 in San Francisco.

This workshop is essential for anyone who is charged with procuring and deploying technology solutions to make their company’s mortgage process more efficient.  Session topics include the latest developments in eVaults, the systems that store electronic documents for safekeeping; eNotarization; applied cyberlaw; electronic records and signatures; and how to calculate your eMortgage return on investment (ROI). 

For more information and to register, please visit CampusMBA’s eMortgage Workshop Web site, at http://www.campusmba.org/index.cfm?STRING=content.cfm?section=254, or call (800) 348-8653.

Attendees of this conference earn six points toward CampusMBA’s Certified Mortgage Banker (http://www.campusmba.org/index.cfm?STRING=cmb_content.cfm) and Certified Mortgage Technologist (http://www.campusmba.org/index.cfm?STRING=content.cfm?section=142) designations.
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Illinois General Assembly Passes "Predatory Lending Database" Legislation
On May 31, the Illinois General Assembly passed HB4050, a troubling piece of legislation that would create a four-year predatory lending database pilot program. The pilot program area would include all areas within Cook County designated by the State of Illinois' Department of Financial & Professional Regulation (DFPR). The bill will now go to Gov. Rod Blagojevich (D), who has 60 calendar days to sign or veto the bill before it becomes law.

The bill would require loan originators, brokers, credit counselors, title insurance companies and closing agents to submit, within 10 days of application, the following information to the online database: loan terms, rate, amortization, fees charged by originator and yield spread premium payable outside closing.

Within seven days of receiving the information, the DFPR would compare the information to the credit counseling standards set by the DFPR and would alert the borrower, broker and loan originator whether the borrower needs credit counseling. If the DFPR deems credit counseling necessary, brokers and loan originators would be required to pay for costs incurred for credit counseling that falls under the pilot program, and the borrower would not be able to evade it.

As no other states have passed similar laws, the language in HB4050 would set a precedent. HB4050's requirements do not translate into practical day-to-day business application for operations of mortgage lenders, and are liable to push lenders out of the areas of Cook County governed by the new law. The bill would restrict the flow of home financing capital and create a dearth of competition among legitimate lenders. 

The Mortgage Bankers Association has already taken a number of steps to defeat this legislation, and is drafting an open letter to Blagojevich from allied trade groups opposing the bill, which will be placed in Illinois newspapers. The grassroots Capitol Assets Program has also set up a Web site that MBA members residing in Illinois and members of the Illinois MBA may visit to send letters opposing the bill to their state legislators. MBA is also working to schedule a meeting with the governor's deputy chief of staff for policy to discuss industry concerns.

For more information, please contact Beth Percynski at (202) 557-2866 (bpercynski@mortgagebankers.org).

MBA Meets FHFB on New Anti-Predatory Lending Guidelines
MBA staff met on May 31 with Ronnie Rosenfeld, chairman of the Federal Housing Finance Board (FHFB), and Steve Cross, head of the FHFB's Office of Supervision. During the meeting, the delegation discussed new anti-predatory lending guidelines that Rosenfeld hopes to create for the collateral and mortgages for the Banks' advancing and purchase programs. The guidelines would create standards that will make certain that the Banks' programs do not use predatory loans, while ensuring that an administrative obstacle to the use of those programs is not created. The FHFB has invited MBA to contribute and MBA's Federal Home Loan Banks Working Group will work with staff experts to create a plan.

For more information, please contact Kathy Gibbons at (202) 557-2870 (kgibbons@mortgagebankers.org).

Congressional Education Series Addresses HMDA
On May 23, more than 50 Senate staffers gathered in the Senate Banking Committee Room for MBA's monthly Congressional Education Series event. This month's lunch featured a presentation of the new Home Mortgage Disclosure Act requirements. 

Speakers included MBA's Ken Markison and Doug Duncan as well as Paul Leonard of the Financial Services Roundtable and Bill Himpler of the American Financial Services Association.

For more information, please contact Mary Goldsmith at (202) 557-2876 (mgoldsmith@mortgagebankers.org).

MBA Hosts Government Housing Finance Conference
This past week, MBA hosted its inaugural Government Housing Finance Conference in Washington, D.C. The conference highlighted the important role of government homeownership programs and fostered greater communication between lenders and policymakers. 

Speakers included Roy Bernardi, HUD deputy secretary; Frank Davis, HUD general deputy assistant secretary/deputy FHA-Housing commissioner; Keith Pedigo, director of loan guaranty services with the U.S. Department of Veterans Affairs (VA); Russell Davis, administrator of the Rural Housing Service with the U.S. Department of Agriculture; Michael Frenz, executive vice president of Ginnie Mae; and MBA Chairman Michael Petrie, CMB.

For more information, please contact Tim Doyle at (202) 557-2860 (tdoyle@mortgagebankers.org).

MBA Hosts Non-Prime Lending Conference
MBA will hold its 2005 Non-Prime Lending and Alternative Products Conference from June 8-10 in Washington, D.C. The conference will cover major industry issues, including predatory lending, HMDA, and new product innovations as well as business interests such as REITs.

Notable conference speakers include Rep. Bob Ney, R-Ohio, chairman of the House Financial Services subcommittee of Housing and Community Opportunity, Rep. Gregory Meeks, D-N.Y., and Paul Begala, host of CNN's Crossfire.

For more information, please contact Mary Jo Sullivan at (202) 557-2859 (msullivan@mortgagebankers.org).
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Keith Pedigo, managing director with the Veterans Administration, noted that the VA program, now in its 61st year, has made more than 18 million loans to vets since 1944, totaling $870 billion in mortgage money.

“As a result, the homeownership rate for veterans is 78 percent,” Pedigo said. “If you look at the typical profile of the veteran—89 percent male; average loan of $150,000, most made without a downpayment; 85 percent discharged and 15 percent active duty. One third are multiple users. Their median income is $53,000; but their median cash assets, only $4,900. With only $4,900 available, vets don’t have too many options. And these are good borrowers—the average veteran’s FICO score is 683.”

Pedigo said VA’s streamlined refinance program has been very active; since 2003, 67 percent of veterans have participated in streamlined refinancing loans, with 328,000 such loans alone in 2003. “The average reduction in the interest rate was 1-1/2 percent, saving veterans some $400 million,” he said. “With the average VA loan lasting eight years, that’s a savings of more than $3 billion.”

While VA’s overall foreclosure rate over the past 20 years has been around 7.58 percent—“high by [lenders] standards, but not bad for a zero-downpayment program,” Pedigo said—he noted that in recent years VA had cut by more than half its loans in foreclosures and delinquencies. “So our loans are really performing well,” he said.

Russell Davis, administrator of the Rural Housing Service, has one of the largest field operations of any government agency—more than 700 field offices. He said that the high number represents the department’s geographical orientation, targeting areas of populations of less than 10,000 people, and very-low, low- and moderate-income borrowers.

“What’s important about [our] portfolio is that we work with those lowest on the food chain,” Davis said. “Most of our borrowers are in new housing and are first-time homebuyers. We also have a very high percentage of minority homebuyers.”

RHS has two major programs—the Direct Program, which brings interest rates down to 1 percent as necessary—and the Guaranteed Program, made by participating lenders, which allows RHS to reach more people and achieve greater distribution.

“Rural areas have peculiar issues,” Davis said. “Most properties are very remote and hard to market to. That’s why our field offices work to bring in more lenders. Second, we have an out-migration issue in America right now. About one-third of our rural counties are seeing more growth, which is destabilizing the housing markets and making it difficult for our borrowers to find affordable housing.”

Davis said the average income of an RHS Direct program borrower is just $22,000—“so it’s a real stretch to become a homeowner,” he said. Under the Guaranteed Program the average income is just $38,000. “The Guaranteed Program is growing much faster. It only costs about $1,000 in budget authority to get a rural family into a new home, which is a very low investment on the government’s part,” he said.

RHS currently has nearly 500,000 loans outstanding; Davis estimated that the department will make 40,000 loans this year. “We have seen a slight slackening of demand in the Guaranteed Program—down by about 10-11 percent this year,” he said. “A large reason is that the private sector is getting better at picking up the loans that usually fall in the government realm. We applaud this—this is a healthy trend. It does mean that our budget authority should last throughout the year without the need for any special financing.”

Michael Frenz, acting president of Ginnie Mae, agreed. “Increased competition and greater consumer education benefits all borrowers and improves our program,” he said. “We’ve seen a decline in the government program market share and we think that’s good—as long as it’s because of those things and not because of barriers that the government programs are creating.”

Frenz said newer products, such as Ginnie Mae II, have reduced volatility for investors while bringing liquidity to the government loan sector. Since 1970, Ginnie Mae has securitized more than $2 trillion in government housing loans, of which 40 percent represent loans to minority borrowers and 70 percent to first-time borrowers.

“Our vision at Ginnie Mae is to be the premier organization of government housing,” Frenz said. “We’re not concentrating on market share so much as optimizing performance.”
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The conference features a keynote address from political strategist Paul Begala, commentary from MBA Chief Economist Doug Duncan and discussions on legislation and regulations at the state and federal level, as well as the viability of products and services aimed at the non-prime borrower. For more information, visit the conference Web site, http://events.mortgagebankers.org/nonprime2005/default.html.

MBA’s President’s Conference is underway in Palm Beach, Fla., and wraps up on Wednesday.

On Capitol Hill, Congress returns from its Memorial Day break today.

The House Financial Services subcommittee on Financial Institutions and Consumer Credit holds a hearing on Thursday, June 9 on “Financial Services Regulatory Relief: The Regulators’ Views.” The hearing takes place at 10:00 a.m. EDT in room 2128 of the Rayburn House Office Building.

The Senate also returns to action today, but the focus will definitely not be on finance. Floor action includes consideration of the nomination of Janice Rogers Brown to a judgeship with the D.C. Circuit Court—a nomination that could further trigger the contentious partisan debate over President Bush’s judicial nominations.

The Senate Banking Committee’s subcommittee on International Trade and Finance has scheduled a hearing on Tuesday, June 7 to discuss “Oversight of the International Monetary Fund.” That hearing begins at 10:00 a.m. EDT in room 538 of the Dirksen Senate Office Building.

Senate hearings can be heard live over the Internet at www.capitolhearings.org. House Financial Services Committee hearings can be viewed live over the Internet at www.financialservices.house.gov.

Upcoming Reports/Events:

June 5-8: MBA Presidents Conference, Palm Beach, Fla.
June 7: Consumer Credit, Commerce Department
June 8: MBA Weekly Application Survey
June 8-10: MBA Non-prime Lending & Alternative Products Conference, Washington, D.C.
June 8: Wholesale Trade, Commerce Department
June 10: Trade Balance, Commerce Department
June 10: Treasury Department Monthly Statement
June 12-17: CampusMBA School of Mortgage Banking Course II, Denver
June 14: Producer Price Index, Bureau of Labor Statistics
June 14: Advance Retail Sales, Commerce Department
June 15: MBA Weekly Applications Survey
June 15: CampusMBA: Creating New Customers, San Francisco
June 15: Consumer Price Index, Bureau of Labor Statistics
June 15: Housing Market Index, National Association of Home Builders
June 15: Beige Book, Federal Reserve Board
June 15-17: CampusMBA eMortgage Workshop, San Francisco
June 16: CampusMBA: Creating New Customers, Denver
June 16: New Residential Construction, Commerce Department
June 17: CampusMBA: Essentials on Employment Law, San Francisco
June 22: MBA Weekly Applications Survey
June 23: Existing Home Sales, National Association of Realtors
June 24: New Residential Sales, Commerce Department
June 27: MBA Commercial/Multifamily Regional Servicing Forum, San Francisco
June 28: Consumer Confidence, The Conference Board
June 29: MBA Weekly Application Survey
June 29: Gross Domestic Product, Bureau of Labor Statistics
June 29-30: Federal Open Market Committee Meeting
July 4: Independence Day Holiday (MBA offices closed)
July 10-15: CampusMBA Commercial School of Mortgage Banking I, San Diego
July 12: CampusMBA: Creating New Customers, San Diego
July 12-13: CampusMBA SPeRs and MISMO Workshop, Washington, D.C.
July 13: CampusMBA Audio Program: Making Maintaining Complex Rules Simple
July 17: CampusMBA: Essentials on Employment Law Compliance, San Francisco
July 17-22: Campus MBA School of Mortgage Banking Course I, Washington, D.C.
July 21: CampusMBA: Creating New Customers, Washington, D.C.
Aug. 2-3: CampusMBA: MASI--Capital Markets and Mortgage Pricing Workshop, Washington, D.C.
Aug. 9: Federal Open Market Committee Meeting
Aug. 14-19: CampusMBA School of Mortgage Banking Course III, Chicago
Aug. 21-26: CampusMBA School of Mortgage Banking Course I, San Francisco
Aug. 24-25: CampusMBA: Detecting and Avoiding Mortgage Fraud, San Francisco
Aug. 30-31: CampusMBA: Emerging Markets, Washington, D.C.
Aug. 31: CampusMBA Audio Program: Paper Pusher No More
Sept. 7-9: MBA Regulatory Compliance Conference, Washington, D.C.
Sept. 11-13: MBA Document Custody Conference, Miami Beach, Fla.
Sept. 18-23: Campus MBA School of Mortgage Banking Course II, San Diego
Sept. 19-20: MBA Quality Assurance Conference, Chicago
Sept. 20-21: CampusMBA: Handling Fraud Files, San Diego
Sept. 20-21: CampusMBA: Advanced Regulatory Compliance, Atlanta
Sept. 20: Federal Open Market Committee Meeting
October 21-22: MBA State & Local Workshop, Orlando
Oct. 23-26: MBA Annual Convention & Expo, Orlando
Nov. 1: Federal Open Market Committee Meeting
Nov. 7-9: MBA Accounting, Tax & Financial Analysis Conference, Boca Raton, Fla.
Nov. 10-11: MBA Residential Underwriting Conference, Coronado, Calif.
Nov. 30-Dec. 2: Legal Issues in Mortgage Technology Conference, San Diego
Dec. 4-9: CampusMBA School of Mortgage Banking Course II, Las Vegas
Dec. 7-9: CampusMBA Underwriting University, Miami
Dec. 13: Federal Open Market Committee Meeting

2006
Feb. 5-8: MBA Commercial Real Estate Finance/Multifamily Housing Convention & Expo, Orlando
Feb. 14: Servicing Management Workshop, Phoenix
Feb. 14-17: MBA National Mortgage Servicing Conference & Expo, Phoenix
March 29-April 1: MBA National Technology in Mortgage Banking Conference, San Diego
May 7-10: MBA National Secondary Market Conference, Chicago
May 16-19: MBA Commercial Asset Administration Conference, New Orleans

Information about MBA Events can be found at the MBA Web site, www.mortgagebankers.org; and at the CampusMBA Web site, www.campusmba.org.
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