The average contract interest rate for 15-year fixed-rate mortgages increased by nine basis points to 5.41 percent from 5.32 percent one week earlier, with points decreasing to 1.13 from 1.25 (including the origination fee) for 80 percent LTV loans.  The average contract interest rate for one-year adjustable-rate mortgages (ARMs) increased to 4.78 percent from 4.70 percent one week earlier, with points increasing to 1.00 from 0.98 (including the origination fee) for 80 percent LTV loans. 

The Market Composite Index stood at 752.1, a decrease of 0.3 percent on a seasonally adjusted basis from 754.3 one week earlier. On an unadjusted basis, the Index decreased by 0.3 percent compared with the previous week but was up by 20.7 percent compared with the same week one year earlier. The four-week moving average for the seasonally-adjusted Market Index is down 3.2 percent to 774.9 from 800.2.
 
The seasonally-adjusted Purchase Index increased by 1.9 percent to 494.5 from 485.1 the previous week. The Refinance Index decreased by 3.0 percent to 2250.3 from 2320.3 one week earlier. The four-week moving average is down by 1.3 percent to 489.3 from 495.9 for the Purchase Index and down by 5.2 percent to 2435.8 from 2570.3 for the Refinance Index.
 
Other seasonally adjusted index activity includes the Conventional Index, which decreased by 0.4 percent to 1130.1 from 1134.9 the previous week, and the Government Index, which increased by by 2.1 percent to 121.3 from 118.8 the previous week. 

The refinance share of mortgage activity decreased to 41.7 percent of total applications from 42.9 percent the previous week.  The ARM share of activity decreased to 28.5 percent of total applications from 29.4 percent the previous week.

The survey covers nearly 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990.  Respondents include mortgage bankers, commercial banks and thrifts.
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The development of quantitative tools to measure risk, however, reduces underwriting risk in residential loans. "Those types of tools have outperformed more conventional underwriting techniques," Wiener said. "These statistical risk measurement tools, we think, demonstrate a superior ability to differentiate and measure risk. They have been valuable in the underwriting and risk management processes."

Weiner noted technological innovation helps lenders improve the management, mitigation and pricing for risk. "That also has to do not only with the underwriting of the asset and placing it on a financial institution’s balance sheet but because most residential real estate loans go into securities, the ability to service and report on very complex securities is actually a help in the liquidity and demand of the underlying whole loan collateral," he said.

Risk management improvements in security servicing, trading, hedge strategies and derivatives depend on technology for residential real estate loans. Interest rate derivatives, such as swaps, interest rate options and forward contracts, help lenders hedge their interest rate risk. "Hedging risk is essentially taking an informed bet on the direction of credit," Wiener said. "The only reason to hedge risk is if the probability of a downside event is too significant for the balance sheet to bear it on its own."

Wiener said that if a financial institution’s risk position of their balance sheet is more transparent to the outside world, it exposes a market discipline on the types of risks they are taking, whether the risks on their balance sheet are appropriate and whether other players in the financial services space are better able to hold their grip. "All those things are facilitated by technology," he noted. "People would not have the level of transparency without technological innovation."

Wiener said with more information, the accuracy and transparency facilitated through the technology helps investors understand and have more comfort for [the assets] they are buying. "It allows for larger and more liquid markets in these securities," he said.

That result led to faster product innovation, including interest-only (IO) loans and option adjustable-rate mortgages (ARMs). "The ability to give consumers a wide range of products, including products that may be more risky, is facilitated by technology," Wiener said.

He noted that lenders are receiving appropriate compensation for their risk based on the underwriting but, in any downturn economic cycle, a few lenders will "undoubtedly" turn out as "aggressive" in their lending practices. "Even with prudent underwriting, there are going to be more losses in an economic downturn than there is now," Wiener said.

Based on Mercer Oliver Wyman’s industry experience, the firm does not believe there is going to be a systematic issue with industrywide losses due to products, such as interest-only loans. "Now if the cycle continues, and [lenders] loosen and loosen standards, that certainly can change," Wiener said.
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David Ross, senior director in Tremont Realty Capital’s Boston headquarters, structured a $9 million bridge loan for South Beach Resorts LLC to acquire and convert The Boulevard Hotel into hotel condominiums. The bridge loan represented 86 percent of the total cost of acquisition and renovation, including soft costs, and was structured as an interest-only floating rate loan that was priced over LIBOR.

The Boulevard Hotel is a 43-unit hotel and restaurant, located on Ocean Drive directly in South Beach Miami. "The location made this deal extremely viable in our eyes,” Ross said. “Everyone who has been to South Beach has walked under the restaurant's awnings at some point during their stay." 

While a hotel/condo conversion itself is by definition speculative, Ross convinced one of Tremont's close capital relationships of the strength of the transaction. The lender was able to very quickly recognize and determine the real estate play intrinsic in this location, provide a term sheet, and close on the transaction all in the short period of time, as proposed in the purchase agreement, he said.

 In Chicago, Tremont arranged the refinance and redevelopment of a 195-room, full-service Double Tree Club Hotel with nearly 6,300 square feet of meeting space in Palantine, Ill, a northwest suburb near the city. The property is to be redeveloped under the Hotel Indigo brand with the Intercontinental Hotels Group.

Michael Hart, a senior director in Tremont’s Chicago office, arranged the 36-month, $4 million mezzanine loan, funded through a correspondent investment fund and provided for nearly 85 percent loan-to-cost.

“The existing senior mortgage was restructured to accommodate the infusion of the fresh capital,” Hart said.  "The additional mezzanine financing allowed the borrower to renovate and re-flag the asset into a new boutique Indigo concept from Intercontinental Hospitality Group. The high leverage solution eliminated the need for additional partners and dramatically lowered the cost of capital."

The Chicago office of Tremont Realty Capital also arranged debt refinancing of a hotel portfolio in Lexington, Ky., which included the Baymont Inn, a Holiday Inn and a Best Western totaling more than 500 rooms.

Tony Kolomayets, a senior director with Tremont, arranged the 24-month, $13.75 million loan funded through an undisclosed Chicago-based bank. It provided about a 68 percent loan-to-stabilized value. The interest rate was 1.5 percent over the Bank of America prime rate.

"The key to the transaction was to accommodate the borrower with flexible financing, which accomplished several goals for our client such as, taking out the existing high-rate financing and providing a large amount of additional cash flow with the new loan," Kolomayets said.
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New Jersey’s complaint rate of 75.1 people per 100,000 was reported during 2004 compared to 68.9 people per 100,000 on 2003. Based on the complaints filed with the FTC, the incidence of identity theft in New Jersey is worsening, the white paper said.

An estimated 300,000 New Jersey residents (3.5 percent of the population) were victimized in 2004. Nearly one household in ten (9.8 percent) was victimized in 2004. The five New Jersey cities accounting for the highest FTC complaint levels during 2004 were Newark, 269 reports (4.1 percent); Jersey City, 254 reports (3.9 percent); Paterson, 113 reports ( 1.7 percent); Elizabeth, 93 reports ( 1.4 percent); and Trenton , 93 (1.4 percent).

Identity theft cost New Jersey enterprises and victims nearly $2 billion and more than 14 million hours in victim resolution in 2004, the paper said. Identity theft losses in New Jersey are 4.6 times higher than aggregate losses from burglary, larceny theft and motor vehicle theft.

"Identity theft—the fastest-growing crime in America—is a form of financial terrorism, pure and simple," said Adam Levin, chairman of Identity Theft 911 and former director of the New Jersey Division of Consumer Affairs. "This extremely serious threat has American consumers deeply concerned about the safety of their personal information. As the public begins to ask questions—and, more importantly, to demand answers—they're looking to the businesses and institutions they trust to take proactive steps to protect them against this crime."

Some businesses and institutions are already responding to this threat on behalf of customers, families, and communities: Affinity Federal Credit Union, based in Basking Ridge, N.J., will provide identity theft education and victim resolution at no charge to its 115,000 members. New Jersey Skylands Insurance Association entered into a partnership with Identity Theft 911 to provide identity-theft victim resolution and proactive education to its member owners. Rutgers University administrators are moving to phase out the use of Social Security numbers (SSNs) as default student identifiers and strengthen protection against data and identity theft at the same time. 

"This report is unique in that state-specific data has never been extrapolated from the national data collected and maintained by the FTC and other federal sources," said Steve Christenson, president of Identity Theft 911. "The good news here is that a number of organizations in the state of New Jersey are stepping up to the plate and putting into place the appropriate infrastructure to educate and protect their customers, members, and employees against identity theft."

"It's also noteworthy," Levin added, "that many of the organizations Identity Theft 911 is working with in New Jersey— including Affinity Federal Credit Union, New Jersey Skylands, Rutgers University, Credit Union of New Jersey, MetLife Auto & Home and many other leading businesses and institutions—are providing these services to their constituents free of charge. American consumers need help here and now in dealing with this epidemic. Addressing their needs first and foremost is essential for the fight against identity theft to succeed."
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