In response to a question on the issue of housing finance and the government-sponsored enterprises (GSEs), Greenspan said that he preferred that Congress not pass any bill to reform the regulatory regime of the GSEs, rather than pass the bill that was reported out of the House Financial Services Committee in late May.

The dollar strengthened following the testimony. The yield on 10-year Treasury notes edged up to 4.22 percent during Wednesday morning from 4.20 percent on Tuesday. By late Wednesday afternoon, however, the 10-year yield edged down to 4.17 percent. Although long-term yields have trended up in recent weeks, the current 10-year note yield is about the same as the yield on February 16th of 4.16 percent, when Greenspan referred to the low long-term yields as a conundrum for the first time.

(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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The Bush Administration announced a new partnership to reduce household energy costs by 10 percent over the next decade. The Partnership for Home Energy Efficiency will provide energy saving options for households across the country and will support research and the implementation of new energy efficiency technologies.

The Department of Energy (DOE), the Department of Housing and Urban Development (HUD), and the Environmental Protection Agency (EPA) will provide Americans, including homebuilders, with the latest home energy savings information at www.energysavers.gov/

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MortgageFlex Systems Inc., Jacksonvillle, Fla., received certification from Freddie Mac, McLean, Va., which will process investor loans through a Internet communications channel between the government-sponsored enterprise (GSE) and its customers.

As part of the certification process, MortgageFlex tested the new communications protocol enabling the loan processing. As a result, standards were developed that will be used for years to come, according to both companies.

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Portellus Inc., Irvine, Calif., announced that Alliance Mortgage Banking Corp., Levittown, N.Y., signed with the company to provide point-of-sale (POS) automated underwriting  for Alliance’s broker network and to implement Portellus’ Web-based loan origination system (LOS) and Business Rules Management System (BRMS).

Portellus’ entire platform is built on an open mortgage framework allowing the use of service-oriented architecture (SOA) for integration and communication with disparate applications and third-party vendor services. According to company officials implementation will take under four months.
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"The underlying credit fundamentals of the U.S. CMBS market are strong," said credit analyst Kim Diamond, a managing director in Standard & Poor's Structured Finance Ratings group. Issuance in 2005 could exceed $100 billion "by a fairly significant amount," which would be a record level of volume for the sector, she said.
    
U.S. CMBS also benefits from its outperformance compared with other fixed-income sectors, Diamond said. For the past two years, U.S. CMBS has been one of the best-performing fixed-income sectors for total return. Because commercial real estate returns tend to lag behind economic rebounds, the performance of the CMBS market's underlying commercial mortgage collateral has improved due to the recent recovery of the U.S. economy, she said.

"It took a while for real estate fundamentals to rebound after the recession ended," Diamond said.

”Rating performance of U.S. CMBS is expected to remain strong for the rest of the year as property markets continue to improve and real estate remains an attractive investment vehicle," said credit analyst Roy Chun, a managing director in Standard & Poor's Structured Finance Surveillance Group. "Upgrades, which are outpacing last year's levels by 45 percent, are expected to continue on a positive track as more loans come out of their prepayment lock-out period, defeasances continue at high levels, and loans come due for refinancing."
    
Lower credit standards for some mortgage originations are a potential concern, Diamond said.

"Some of the loans being contributed to CMBS transactions are not being underwritten to the highest standards," Diamond said. These lower standards stem from the intense competition among CMBS lenders and the high level of liquidity afforded by the broad CMBS investor market.

"Borrowers are wielding the most power these days," Diamond said. Investors are not able to influence the market right now because there are so many of them. While lower credit standards may be a concern, it is difficult to predict where a potential dislocation for the U.S. CMBS market could originate. In the future, the U.S. CMBS market may face competition from another lending source or fixed-income sector, but Diamond noted that it is difficult to predict if or when this will be the case.
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The borrower and purchaser of the 352 rental unit project is Audubon Villas at Hunter’s Creek LLC in Delaware. Its managing members include Investors Capital Group, and RB-GEM Management, LLC., of Miami. The purchase price of the property was $45.5 million or $129,261 per unit, and the closing took place earlier this month.

Jim Perry, president of the mortgage company, said the first mortgage/acquisition financing was funded through a southeastern based commercial bank who James F. Perry & Co. serves as a loan originator. The condo-conversion financial transaction was the eighth condo conversion loan which Perry’s mortgage company arranged for the principals, totaling $227 million during the last eleven months.

The loan term of 18 months carries an interest rate of one-quarter percent over prime, with a six month extension option. The loan represented 80 percent of total cost including an interest reserve, renovation funds in the amount of $530,000, and it provides individual releases for condominium purchases.

The Audubon rental project, built in 1997, contains 352 rental units in 16 two and three-story buildings with a net rentable area of 377,920 square feet, located on 24.8 acres.

The borrower has plans for renovation improvements of $530,000 and will start marketing the sales of individual units within 30 days with sale prices ranging from $170,000 for the one bedroom/one bath units to $199,875 to $244,400 for the two bedrooms/2 baths units.

The projected sell out of the condominium conversion is $68.5 million or an average sales price of $194,600 per unit. The total cost for the conversion project is $53 million including renovations, remodeling, closing expenses and marketing. The amenities for the project include a leasing office/clubhouse/exercise room with an indoor racquetball court, a large swimming pool, a tennis court, and 644 parking spaces. The interior units have ceramic tile, modern cabinets, dishwasher, garbage disposal, and a laundry closet with a washer/dryer.
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Named at an award ceremony at MBA headquarters, the 2005 CTE awardees are:

Best Overall Corporate Training Program
• BB&T Mortgage Lending/BB&T University (organizations with more than 1,000 employees). BB&T considers their employees and their knowledge as key to its competitive advantage. The training program developed for the mortgage group is comprehensive—from training managers to interviewing and hiring the best candidates to work in the group and from initial education and on the job training to a six-month management development program.

• GMACCM Servicing University (organizations with fewer than 1,000 employees). GMACCM Servicing University was developed to take a fresh approach to servicing-specific training and education through collaboration with internal and external business and industry leaders. Servicing University has opened channels of communication throughout the company, thereby strengthening everyone's understanding of roles, responsibilities, and how their business works.

Education Advocate of the Year
• Lisa Weaver of Genworth Financial (organizations with more than 1,000 employees). With 25 years of industry experience, Weaver has been a leader in training and development. Among other accomplishments, she developed a nationally recognized professional underwriting designation program with three levels of learning that lead to standardization within the industry.

• James Dunbar of GMACCM Global Servicing (organizations with fewer than 1,000 employees). Dunbar nearly single-handedly created GMACCM's Servicing University, after being selected by senior management to fill a gap in overall employee training. He uses creative delivery methods to keep students engaged, and ensures comprehensive training by reaching out to all segments of the company.

"Through the years, these individuals and companies have organized and promoted innovative educational programs that foster professional development within the industry," said Wendy Tucker, vice chair of MBA's Residential Education Committee and customer director for OptionOne Mortgage Corp., in Irvine, Calif. "Because of their successes, we have a new generation of qualified real estate finance professionals to offer quality service to our country's homeowners. That's something to feel proud about."

In addition to the awardees, Argent/Ameriquest and Silver Hill Financial received Honorable Mentions in the Best Overall Corporate Training Program Award, and Patricia Walsh of GreenPoint received an Honorable Mention in the Education Advocate of the Year Award.

The CTE Awards program, launched in May 2005, recognizes distinguished mortgage banking company training programs and education advocates whose commitment to and advancement in real estate finance education have helped raise the corporate training standards for all mortgage banking professionals. The judging panel consisted of representatives from MBA's Residential Education Committee, the Society of Certified Mortgage Bankers (Commercial CMB), MBA's State and Local Leadership and non-mortgage industry education and corporate training leadership. Entries were categorized by organization size. First place awards and some honorable mentions were awarded.

To learn more, visit www.campusmba.org/cte or contact Krista Sabol at (202) 557-2794 or ksabol@mortgagebankers.org. For more information on CampusMBA, winner of the 2004 Best Virtual Corporate University/Best Use of Technology CUBIC Award, visit www.campusmba.org or call (800) 348-8653.
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“Giving Underserved Consumers Better Access to the Credit Systems: The Promise of Non-Traditional Data ,” identified several consumer demographics that have little or no credit histories. They include youth  ages 18-21 years old and Latino populations--nearly 6.7 million consumers.

Experian estimates nearly 18 million Americans have files too thin to score and that another 17 million have no files at all. Other surveys have found that this market is concentrated among minorities (notably African-Americans and Latinos), the poor and other low income segments, the elderly, recent widows and new immigrants. Nearly, 10 percent of households in the United States that do not have a bank account, over half of those are African American and Latino.

The study also found that the majority of those with unscorable thin-files or without files at all do in fact engage in activities that can be thought of as credit-like, such as payment of rent, utilities (such as electricity, gas, telecommunications, and cable) and auto insurance.

While these activities are not traditional credit agreements, the regularity of these payments could be an indicator of how risky the prospect of lending to the consumer might be. Although serious negative information from these transactions is already often reported through collection agencies, positive information such as on-time payment is not, the report said.

"Data from utility companies, especially telecommunications firms and energy companies, possess 'credit-like' attributes, and are potentially very useful in helping bring underserved Americans into the mainstream credit system," said Michael Turner , president of the Information Policy Institute and lead author of the report. "Because utility payments are required in almost every consumer's life and almost all consumers are responsible with managing these payments, there should be more merit given to this data by the mainstream lenders."

The study also identified by using non-traditional data technological and regulatory hurdles could arise. Two barriers were unearthed in the study as 22 out of 50 respondents said that economic and statutory prohibitions would be a problem for alternative data reporting. Competition and transition costs for IT systems were also at the top of the list.

“The real challenge is getting this data reported right now it is substantially underreported,” Turner said. “First, we need to demonstrate that it is helpful in bringing people into the credit mainstream second those that report, the benefits of reporting outweigh the costs of reporting. There has to a substantial education effort to exhort data furnishers to report in a voluntary system because they cannot be compelled to do so.”

"We have many initiatives underway that serve as first steps in extending the current credit reporting infrastructure to accomplish two things:  Give lenders greater insight into the underserved segment and reward many consumers by potentially enabling access to credit previously unavailable to them," said Laura DeSoto , senior vice president of marketing with Experian. "Telecommunication and utility company data has the most promise for benefit to consumers, and draws attention to the crucial importance of industry, public and regulatory support for data reporting by these companies."

“We have been working with financial institutions and data furnishers to investigate methods that would allow financial institutions to consider transaction from alternative data sources in addition to traditional credit data when making decisions,” DeSoto added. “Currently, alternative data is largely not included in credit risk models. However, this study and analysis that we have undertaken indicated that the inclusion of positive recurring payments could help underserved consumers develop positive credit histories and become a more active participant in the economy,” she said. “Our goal is to develop a method to seamless incorporate predictive, accurate alternative data into the current information reporting system in a way that allows lenders to use that information as a tool for granting responsible consumers credit.”

Consumers, particularly those with lower income levels have felt the impact of credit scoring, especially those seeking to purchase a home. “For many lower income consumers establishing a credit history based on traditional credit scoring methods is problematic, said Sherrie Rhine, senior economist with the  Federal Reserve Bank of New York . “Individuals with no credit history or limited financial information are often unable to participate in the financial mainstream. Something as opening a checking or a savings account is precluded for those who do not have a credit history. Without [an] established credit history, people are unable to obtain credit or will pay a higher cost for the credit when purchasing items such as durable goods, vehicles and homes. Buying a home is often a family’s largest credit obligation but perhaps more importantly it is the family’s primary source for building wealth.”

“I think there have been numerous housing initiatives that have been underway for at lest the last 5 to 10 years and they had recognized that traditional credit scoring models were not useful for this purpose of underwriting for mortgages,” Rhine added. “This lead to Fannie Mae and Freddie Mac and some of the others into looking more directly at what we need to know on the underwriting side of the business. They started talking to the financial institutions about looking more directly at payments whether it be how well or how consistent these families were in making their rental payments, their utility payments—the monthly activities that take place.”

“It’s this idea that we traditionally have a certain way of looking at credit scoring models, and now as we see the changes in technology for example to electronic payments, we have this underserved market that may use cash or use non-traditional data: What if we were to look at that and determine if we were to open up that credit scoring mechanism if in fact we can find good predictors so it’s very consistent with the affordable housing area,” Rhine said.

The Information Policy Institute is also currently undertaking a project to assess the predictive power of various types of non-traditional data and its impact on consumer access to credit. The research could be completed by the end of 2005.
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