To wit: productivity growth slowed but has remained firm; labor costs are contained; the inventory adjustment has proceeded quickly; the labor market continues to tighten gradually, according to the weekly unemployment claims data; home sales are poised to remain elevated, according to the Mortgage Bankers Association’s Purchase Applications Index; consumer spending is healthy; and import price inflation outside of energy remains sanguine.

A risk factor for the outlook of economic growth is an increase in oil prices, which continued to set fresh records of more than $66 per barrel last week. Rising gasoline prices act as a tax increase on households. Record gasoline prices were likely the main the reason for the large drop in August consumer sentiment (besides lower stock prices and higher interest rates). The elevated or ever higher oil prices will potentially hurt consumer spending and the trade deficit in the coming months.

Between the two Federal Open Marketing Committee (FOMC) meetings of late June and last Tuesday, the yield long-term Treasury yields rose by nearly 50 basis points, in response to generally upbeat economic data. Bond yields did not respond significantly to the FOMC action last week. 

For the week, the 10-year yields were range-bound between 4.40 and 4.42 percent through Wednesday. Weaker-than-expected retail sales ex auto partly caused the yield to decline to 4.33 percent on Thursday. The soft reading in the consumer sentiment index sent the yield lower on Friday morning. The yield reached 4.27 percent by Friday afternoon, 15 basis points below Monday’s close. The yield had been above 4.30 percent since the start of August.

This week’s economic calendar heats up with potential market-moving reports on inflation both at the retail (Tuesday) and wholesale (Wednesday) levels. The FOMC remarked in its statement last week that core inflation has been relatively low in recent months, and thus the trend in core inflation will be the main attraction. 

Additionally, we’ll get a glimpse of August home builders’ sentiment (Monday) and July housing starts (Tuesday). Rising mortgage rates since the end of June should dampen home builders’ optimism and modestly slow housing construction from the high levels it has remained in since April.

(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 next most popular states in which people would like to live are Colorado (No. 4), New York (No. 5), Arizona (No. 6), Oregon (No. 7), Texas (No. 8), North Carolina (No. 9), and Tennessee (No. 10). Since Harris Interactive last asked this question in 2003, there has been surprisingly little change in the top 15 states, the company said. Oregon moves from No. 11 to No. 7, Virginia drops from No. 9 to No. 12 and Tennessee re-enters the top 15 after falling out of the top tier in 2003.

One interesting thing to note is that eight of the 15 states are in the West and six of them are in the South. New York is the anomaly, representing the mid-Atlantic region, and there are no states from the Midwest or Northeast in the top 15, Harris Interactive said.

Following New York City's lead as a top U.S. city people would choose to live in or near, San Diego took second place followed by Las Vegas. San Francisco took the fourth position followed by Seattle. The Midwest made the list with Chicago at No. 6 and rounding out the top 10 are Denver (No. 7), Honolulu (No. 8), Atlanta (No. 9) and Portland, Oregon (No. 10).

Returning to the list of the 15 top cities this year is San Antonio at No. 14 and Nashville at No. 15. Nashville has not been in the top 15 since 2000. Interestingly, in 2003, the cities from Florida that were on the top 15 list (Orlando, Tampa and Miami) have all dropped off.

The Harris Poll was conducted online with 2,339 U.S. adults between July 12 and 18.
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The Department of Commerce has asked the Mortgage Bankers Association and other trade associations to make their members aware of this trip and the application process. Individual companies are welcome to submit an application to the department to be considered as a participant on the trade mission.

As a member of the trade delegation, companies will receive:

• Prescreened government and business appointments tailored to your interests and market strategies;
• In-depth market briefings;
• Individualized counseling sessions;
• Full logistical support, including interpreters, reduced hotel rates, and in-counry transportation; and
• In-country market promotion.

CAFTA, signed August 2 by President George W. Bush after passage in the House and Senate, is modeled on the North American Free Trade Agreement (NAFTA) passed 10 years ago among the U.S., Mexico and Canada. CAFTA liberalizes trade policies among the U.S. and five Central American countries—Costa Rica; El Salvador; Guatemala; Honduras; and Nicaragua—as well as the Dominican Republic. The three countries scheduled for the trade mission visit—El Salvador, Guatemala and Honduras—have ratified CAFTA; the other countries’ approval of CAFTA is pending.

If your company would like to apply to attend this trade mission, please contact Teresa Dingboom at 202/557-2924 or tdingboom@mortgagebankers.org) to obtain the application request form. The application deadline is September 16.
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Even at historical cap rates, higher than the current cap rates, the report said investors will be able to achieve both current yields and leveraged internal rate of returns (IRRs) that are favorable relative to other property types.

Conditions that support the current pace of transaction activity seem likely to remain in place for a minimum of the next 12 to 18 months, according to the report. It said that as trailing 12-month performances begin to stabilize and spreads tighten to their shortest level possible, cap rate contraction is expected to moderate, although pricing will continue to remain strong as investors assert confidence in the short and long term growth prospects of the U.S. hotel industry.
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Plans for the office property were made in 2002, but when the market became sluggish, Skanska chose to finish the parking levels and wait for resurgence in demand from the rental market before moving forward.

Skanska said that with the foundation now complete, the project can be finish "considerably" quicker than normal and the property will be ready for tenants to move in by the start of next year. "A very high level of interest is being shown in Lindhagensterrassen and the efficient and flexible premises that we can offer there," Danielsson said. "During the past six months, both SL (Stockholm Transport) and the telecom company "3" [Hi3G] have chosen to relocate their head offices here. Consequently, the timing feels precisely right to commence a new office property on speculation.

Skanska planning to build modern office premises at Lindhagensterrassen covering a total of nearly 861,120 square feet.

The first two office buildings each make up 129,168 square feet. They were built in 1999 and 2001.

Two new office buildings are planned, in addition to the current building, and two older office properties. Skanska has also started construction of nearly 170 tenant-owner apartments at Lindhagensterrassen. These apartments have attracted substantial interest, the real estate firm said.
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The CDL Awards recognize mortgage banking companies that that have successfully incorporated diversity initiatives into their everyday business practices.

Awards will be given in two categories.  The Best Overall Corporate Diversity Program Award category recognizes the corporate diversity programs within real estate finance companies that best exemplify innovation and effectiveness, and include both employee- and customer-focused initiatives. The Diversity Champion of the Year Award category recognizes an industry professional who facilitates, advocates and promotes diversity within the industry, his or her company and the community.

Each category will also be divided into national impact and local/regional impact.

All entries must be postmarked by August 18 and be accompanied by an application fee of $100 ($150 for nonmembers). All fees are donated to the Path to Diversity Scholarship program. Visit www.campusmba.org/CDLawards to download the application.

Nominations will be reviewed by a selection committee comprising representatives from MBA’s Commercial and Residential membership, the chair of the MBA Diversity Task Force, a representative from the U.S. Department of Education and a representative from Department of Finance of Howard University.

Winners will be notified in September and award presentations will take place at MBA’s 92nd Annual Convention & Expo from October 23–26 in Orlando, Fla. All winners will also be recognized during MBA’s Commercial Real Estate Finance/Multifamily Housing Convention & Expo from February 5–8, 2006 in Orlando.
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Congress

FASB Issues Draft New Rules on Accounting for Servicing Rights
On August 11, the Financial Accounting Standards Board released an Exposure Draft, Accounting for Servicing of Financial Assets, to permit servicers to elect to report their servicing rights at fair value.

Specifically, the proposed Statement would (a) require all separately recognized servicing rights to be initially measured at fair value, if practicable, (b) permit an entity to choose between two measurement methods for each class of separately recognized servicing assets and liabilities, and (c) require additional disclosures for all separately recognized servicing rights.

This "elective" fair value approach was recommended by the Mortgage Bankers Association in a letter to FASB Chairman Robert Herz on March 12, 2004. If adopted, this accounting change will permit lenders that use derivatives to hedge their servicing rights to recognize offsetting changes in their values for financial reporting purposes, without going to the effort and expense of qualifying their hedging activities for hedge accounting treatment under FAS 133, Accounting for Derivative Instruments and Hedging Activities.

The FASB also released two additional Exposure Drafts: (1) Accounting for Transfers of Financial Assets, to clarify the derecognition requirements for financial assets and (2) Accounting for Certain Hybrid Financial Instruments to eliminate a temporary exemption from Statement 133 for certain securitized interests and to simplify the accounting for hybrid instruments. 

All three EDs would amend FASB Statement No. 140, Accounting for Transfers & Servicing of Financial Assets and Extinguishments of Liabilities. All three Exposure Drafts are available online at www.fasb.org. The Financial Accounting Standards Board invites public comment on these and all Exposure Drafts. The comment deadline for these Exposure Drafts is Monday, October 10.

For more information, please contact Alison Utermohlen at (202) 557-2864 (autermohlen@mortgagebankers.org).

Fannie Mae Delays Financial Reporting
In a Securities and Exchange Commission filing and during a conference call on Wednesday, Fannie Mae announced that it would file all of its revised financials for 2001-2004 at the same time, and said that is "not likely to occur" before July 2006, but Fannie Mae probably will file during the second half of 2006. It will not release 2005 financials until after the 2001-2004 statements are filed.

Fannie's late financials has called into question its listing on the New York Stock Exchange (NYSE). Although Fannie Mae's 10-K filing with the SEC will be filed later than the December 15 deadline, Fannie Mae described NYSE rules as permitting a company to remain listed for up to nine months after the due date. The NYSE then has discretion to extend the grace period for an additional three months. Thereafter, Fannie would have an opportunity to argue its case before the NYSE.

Fannie Mae also noted on the call that it sold from its portfolio $30 billion of fixed rate MBS during the second quarter due to strong market demand. This contrasts with Fannie Mae's previous policy of shrinking its portfolio through runoff. However, Fannie Mae has increased its portfolio purchases of non-prime and ARM private label securities.
 
During the course of trading on Wednesday, Fannie Mae's stock fell from $56/share to $52.64 at close. It closed Thursday at 52.00.  

For more information, please contact Chris Harrington at (202) 557-2863 (charrington@mortgagebankers.org).

MBA Sponsors Second Call on SEC Regulation AB
MBA sponsored a call last week involving nearly 70 members to discuss the requirements of Section 1122, "Compliance with applicable servicing criteria," and Section 1123, "Servicer compliance statement" of new SEC Regulation AB, Asset-Backed Securities.

Section 1122 sets forth requirements for reporting on management's compliance with specified servicing criteria and Section 123 sets forth requirements for reporting on servicers' compliance with transaction documents. The first reports to be filed under these sections will cover calendar year 2006 and will be required to be filed as exhibits to the Form 10-K as of March 31, 2007.
 
The call included some good discussion of Section 1123, including the implications of the SEC engagement to the MBA's Uniform Single Attestation Program or USAP. Given the high level of interest in these sections of the rule, MBA has established an Attestation Working Group and is preparing to hold a series of calls through September to continue our discussion of specific member concerns and questions.  The next call will occur on Tuesday, August 23 from 3:00 to 5:00 p.m. EDT. Minutes will be prepared for each call in order to produce a final document for the benefit of all MBA members.
 
For more information, please contact Alison Utermohlen at (202) 557-2864 (autermohlen@mortgagebankers.org).

MBA Staff Attends NCSL's Annual Meeting
This week, MBA staff will attend the National Conference of State Legislatures' (NCSL) annual meeting in Seattle. NCSL is a bipartisan organization that serves the states' and territories' legislators and staff and provides them with opportunities to discuss public policy issues.

During the meeting next week, Tim Doyle, MBA director of government affairs, will speak before the NCSL's Financial Services Committee panel on licensure of loan originators. In addition to this panel, during the annual meeting other issues relevant to the mortgage banking industry will be discussed including security breach, ID theft, and terrorism insurance. 

MBA staff has also been invited to participate in meetings with Del. John Hurson (Md.), the current NCSL president, Sen. Leticia Van de Putte (Texas), the incoming NCSL president, as well as with Sen. Steven Rauschenberger (Ill.), the current financial services committee chair.

In a joint effort with the Real Estate Advocacy Group for States (REAGS), a coalition of real estate and professional trade associations that has an interest in government relations at the state level, MBA will host a luncheon for the Economic Development Committee. Additionally, through its involvement with the State Government Affairs Council , a national association for multi-state government affairs professionals, MBA will be sponsoring a late night social event for all the legislators and legislative staff attending the meeting.

For more information, please contact Paul Richman at (202) 557-2899 (prichman@mortgagebankers.org).

MORPAC at MBA's 92nd Annual Convention & Expo
MBA's 92nd Annual Convention & Expo will take place in Orlando, Fla., from October 22-26 . MORPAC has three exciting events planned during the Convention: a golf tournament, a luncheon honoring Chairman-Elect Regina Lowrie, CMB , and a reception.

MORPAC Golf Tournament
Ameriquest is sponsoring this year's MORPAC Golf Tournament, which will kick off with a shotgun start at 8:00 a.m. on Saturday, October 22 , at the Grand Cypress Golf Course (www.grandcypress.com ) in Orlando. Check-in for the tournament is 7:15 a.m.

The award winning, Jack Nicklaus-designed Grand Cypress Golf Club offers players at all skill levels a grand playing experience. Please note that this event is not a scramble; participants will be grouped according to handicap. 

Please register for this event by October 14. To register, go to  www.mortgagebankers.org/documents/newslink/MORPACGolfRegistrationForm.pdf.
(please include your handicap) and fax back to MBA at (202)721-0251, attention Mary Goldsmith.

MORPAC Luncheon honoring Chairman-elect Regina Lowrie, CMB
Ameriquest is also sponsoring the MORPAC Luncheon honoring incoming MBA Chairman-Elect Regina Lowrie, CMB, on Tuesday, October 25 at 12:30 p.m. In appreciation of Lowrie's dedication and future leadership as the first woman to chair MBA, we hope that women members of MBA will join us in honoring her at this special MORPAC luncheon at the Walt Disney World Dolphin Hotel . 

Please register for this event by October 14. To register, complete the attached form and fax back to MBA at (202)721-0251, attention Mary Goldsmith.

MORPAC Annual Convention & Expo Reception
Finally, on Sunday, October 23, MORPAC will host its annual reception from 5:00-6:00 p.m. During the reception, representatives from the small, medium and large member companies that ran the most successful MORPAC company campaigns as of October 1 will be presented with a football signed by former NFL player and recent Hall of Fame inductee Steve Young. The reception will take place at the Walt Disney World Dolphin Hotel in the Australia 3 room on the lobby level.

For more information about MORPAC, please contact Julie Eddy at (202) 557-2808 (jeddy@mortgagebankers.org).
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