Among the study highlights:

• Weighted average direct servicing costs (including foreclosure and REO unreimbursed expense) dropped to $80 per loan in 2004 from $91 per loan in 2003. Loan servicing productivity improved to 1,188 loans serviced per servicing employee in 2004 from 1,043 loans serviced per servicing employee in 2003.

• The primary line-item drivers of the cost decreases were: temporary labor costs (dropped 58 percent); permanent labor expense (dropped 12 percent); telephone, postal and supply charges (down 21 percent); and unreimbursed foreclosure and REO losses (down 32 percent). The functional areas showing the most improvement were post-payoff processing, cashiering, escrow administration, and default--areas that tend to benefit most from fewer setups and payoffs, or lower delinquencies. 

• Indirect costs and losses also fell in 2004 and contributed to a healthier financial bottom line for servicing. Interest expense paid on behalf of borrowers who prepay during the month dropped 56 percent to $34 per loan in 2004 from $78 per loan in 2003, as prepayments dropped. Mortgage servicing right (MSR) amortization and writedowns (net of hedging gains), averaged $397 per loan compared to a high of $511 per loan in 2003.

• While per-loan servicing revenues remained relatively constant, improvements in direct and indirect costs ultimately resulted in a turnaround for net servicing financial income. Unlike the 2001-2003 period, in which net servicing losses averaged between $59-$148 per loan, servicers were closer to "breaking even" in 2004, with average losses of $3 per loan.

In 2005, MBA also initiated a separate nonprime analysis to track nonprime company servicing income, expense, and operational practices. This nonprime servicing study represented an additional 13 percent of the total U.S. servicing market in 2004.

"Now in its seventh year of publication, this detailed operations study is a collaborative effort between MBA and its membership," said Marina Walsh, director of industry analysis in MBA’s Research Department. "Thanks to this collaboration, study participation levels have improved over the years. In the 2005 study, participating companies represented approximately 57 percent of the total U.S. servicing market." 

A comprehensive article on the MBA 2005 Cost of Servicing Study highlights will appear in the September issue of Mortgage Banking magazine. To subscribe, visit www.mortgagebankingmagazine.com. To order single back issues, contact Gloria McCullough at (202) 557-2944 or gmccullough@mortgagebankers.org.
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HB4050 would create a predatory lending database for all areas within Cook County designated by the state. Under the law’s provisions, a borrower would be required to seek credit counseling if deemed necessary based on information in the database and credit counseling standards to be promulgated by a forthcoming rule by the State. 

Furthermore, loan originators and brokers would be required within 10 days of taking a mortgage application to submit what the Mortgage Bankers Association described as “voluminous” information to the database, which, MBA said, would be a “major project in every case.” If counseling is required, it is mandatory and the borrower is not allowed to borrow money until he completes it.  If anything changes at any time in the process (e.g. interest rate, loan amount desired by the applicant, etc.), the whole process starts all over again.

Blagojevich said the legislation would “save neighborhoods by giving home buyers the right information to make informed decisions about home loans and about where they want to live.”

But MBA noted that 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,” said MBA Senior Vice President for Government Affairs Kurt Pfotenhauer. “The law restricts the flow of home financing capital and create a dearth of competition among legitimate lenders.” 
 
The new law takes effect January 1, 2006.
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The floating rate loan totaled $22 million. Jim Kirkpatrick and Jim Richards of Live Oak arranged the loan with PNC Real Estate Finance, a member of The PNC Financial Services Group Inc.

The project owner is The Sanctuary Lofts L.P., its partners include Sage Land Co., Momark Development, LLC and Tekoa Partners Ltd. Sanctuary Lofts GP, LLC is the general partner of The Sanctuary Lofts, LP. The general contractor for the project is Tellepsen Builders L.P. Capstone Real Estate Services Inc ., a full-service third-party management firm, has been selected to manage the property.

The Class A student housing community will be situated on 3.7 acres of land. Local analysts estimate that Sanctuary Lofts will grow by 18 percent by 2010. There are no plans for new construction of dormitories or residential units for the next ten years. Texas State University has 27,000 students enrolled.

Developers will build The Sanctuary Lofts on the former site of the First Baptist Church of San Marcos. Plans include the preservation of the original church sanctuary, built in the 1920s. The building will be used as the marketing office and recreational facilities, as well as some living units. The all-brick building with extensive stained glass windows will serve as a focal point of the new student community.

The Sanctuary Lofts will consist of two new buildings plus the renovated sanctuary. The new construction will be brick and stucco facades with pitched composition roofs. Amenities will include a large resort style pool, exercise rooms, business center, wireless Internet access and tanning rooms.

The community will also include a multi-story, 495-space parking garage, an essential element in crowded downtown San Marcos. The 202 units will be fully furnished and will include washer/dryers, patios and French style balconies.
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This exclusive program, designed for mortgage banking executives who make strategic financial decisions, consists of four two-day courses in which students work in teams on real-world case studies and computer simulations. The curriculum was specially developed by both CampusMBA and GWU.

"In this highly competitive mortgage industry with ever tightening margins, executives are consistently faced with new and challenging decisions that impact the future of their businesses," said Dan Thoms, vice president of education and business development at MBA. "By partnering with GWU, the Executive Institute provides mortgage industry executives with cutting edge management and strategic theories that they can bring to their companies and careers."

Each of the Executive Institute's four courses is led by Richard Green, George Washington University Oliver Carr Chair of Real Estate Finance and Professor of Finance. Green is a leader in the field of economics and housing, and his current research interests include the influence of housing tenure on neighborhoods and individuals, the distributional implications of tax and direct expenditures for housing, fiscal zoning and the measurement of housing costs.

To provide students with instructional content on special topics, industry leaders will be featured as guest lecturers during each program.

"This program really takes mortgage banking executives who make strategic decisions a step beyond their training," said Green. "It fills a niche that is not being met right now. It's like a mini-master's degree program in real estate finance."

The four advanced-level courses that comprise the Executive Institute are:

• Capital Markets and Mortgage Pricing;

• Market Analysis;

• Valuation Issues; and

• Mortgage Business Profitability Issues.

The first course, Capital Markets and Mortgage Pricing, will take place August 2-3 in Washington, D.C. at MBA Headquarters.

"We expect this series to become an industry model in senior level professional education and development," said Thoms.

Registration for all courses is now available.

For additional information, please visit the Executive Institute section of the CampusMBA Web site (www.campusmba.org) or call (800) 348-8653.
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Lenders must have a renewed focus on maximizing revenues, decreasing costs and improving productivity. This requires a disciplined approach to management that rewards careful planning and an unflinching focus on efficiency. In the long run, cost minimization equals profit maximization as our industry matures.

To help member companies with this impending challenge, the Mortgage Bankers Association and STRATMOR Group conduct a semi-annual peer group benchmarking program that offers participating companies an opportunity to share best practices and gain an insight into how other companies are planning for this new environment.

Consisting of detailed surveys and roundtable meetings, including the non-prime survey, the data collected and analyzed is comprehensive, timely and accurate. Participating companies have also derived great value from the Peer Group Roundtable program, where they consistently reap unparalleled value from the dialogue at the meetings, which are an integral part of the program.

If you would like to participate in MBA’s upcoming Fall peer group survey (data as of June 30) please contact either Marina Walsh, MBA’s director of industry analysis, at mwalsh@mortgagebankers.org or 202/557-2817; or Jim Cameron, partner with STRATMOR Group, at jim.cameron@stratmorgroup.com or 770/632-4445.
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Speaking on Wednesday before the House Financial Services Committee, and yesterday before the Senate Banking Committee, Greenspan repeated several words—“froth,” “exotic” and “risky”—that industry analysts, not to mention the media, will pick up, turn over, open inside-out and dissect over the next several days. And weeks. And months.

“The apparent froth in housing markets appears to have interacted with evolving practices in mortgage markets. The increase in the prevalence of interest-only loans and the introduction of more-exotic forms of adjustable-rate mortgages are developments of particular concern,” Greenspan said. “To be sure, these financing vehicles have their appropriate uses. But some households may be employing these instruments to purchase homes that would otherwise be unaffordable, and consequently their use could be adding to pressures in the housing market.”

Moreover, Greenspan said, these contracts could leave some mortgagors vulnerable to “adverse events. It is important that lenders fully appreciate the risk that some households may have trouble meeting monthly payments as interest rates and the macroeconomic climate change.”

Mortgage Bankers Association Chief Economist Doug Duncan said that in the context of housing, Greenspan's comments appear to be a "pretty straightforward warning to lenders to be diligent in their underwriting criteria.”

“By repeating the terms ‘froth’ and ‘exotic,’ this is Greenspan speaking in the role as regulator, which means we could see more regulatory guidance from the regulators in the coming months,” Duncan said.

According to estimates prepared by the Federal Reserve Board staff, a “significant portion” of the sharp decline in the 10-year forward one-year rate over the past year appears to have resulted from a fall in term premiums. Such estimates are subject to considerable uncertainty, Greenspan said.

“Nevertheless, they suggest that risk takers have been encouraged by a perceived increase in economic stability to reach out to more distant time horizons,” Greenspan said. “These actions have been accompanied by significant declines in measures of expected volatility in equity and credit markets inferred from prices of stock and bond options and narrow credit risk premiums. History cautions that long periods of relative stability often engender unrealistic expectations of its permanence and, at times, may lead to financial excess and economic stress.”

Such perceptions, many observers believe, are contributing to the boom in home prices and creating some associated risks, Greenspan said. “And, certainly, the exceptionally low interest rates on ten-year Treasury notes, and hence on home mortgages, have been a major factor in the recent surge of homebuilding, home turnover, and particularly in the steep climb in home prices.”

Greenspan did not use the word “bubble,” in his comments, but he clearly addressed the issue. “Whether home prices on average for the nation as a whole are overvalued relative to underlying determinants is difficult to ascertain, but there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels. Among other indicators, the significant rise in purchases of homes for investment since 2001 seems to have charged some regional markets with speculative fervor.”

Duncan said Greenspan was referring to certain housing markets along both coasts; where many analysts acknowledge that supply and demand are driving up house prices to artificial levels. But he said he was pleased that Greenspan did not use the word “bubble,” which he said isn’t informative or accurate in describing today’s housing market.

“What consumers and investors need to know are the fundamentals that are driving the market, and that is supply and demand,” Duncan said. “If you look at price appreciation by state, what you’ll see is that it’s a coastal phenomenon with a few exceptions, so that alters that argument a little bit."

The housing situation will settle down, Duncan said. Even with record numbers of new homes available on the market, inventories remain low. “So the question is—is there something that will suddenly curtail demand? The way we measure supply, is how many months it will take to sell all the properties on the market today at the current pace of sales,” he said.

The more important thing to look for from Greenspan’s comments, Duncan said was whether or not Greenspan saw any “fundamental structural changes” in the economy. The answer, based on Greenspan’s comments, is “no,” Duncan said. Although Greenspan noted that he could not “rule out” declines in home prices, it would need to be “substantial to trigger a significant rise in foreclosures, because the vast majority of homeowners have built up substantial equity in their homes despite large mortgage-market-financed withdrawals of home equity in recent years.”

“Greenspan accurately notes that despite some challenges, the U.S. economy has remained on a firm footing, and inflation continues to be well contained,” Duncan said. "The prospects point toward a favorable continuation of those trends, and that is what lenders should take to heart.”
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