Housing starts declined by 0.1 percent to 2.042 million units (seasonally adjusted annualized rate) from an upwardly-revised June figure. The decline was solely a result of a 3.2-percent drop in multifamily starts; single-family starts rose by 0.5 percent. Year-to-date single-family starts were ahead those during the same period last year by 5.7 percent, compared with 3.2 percent for multifamily starts.

Leading indicators for homebuilding activity remain generally positive. Permits increased by 1.6 percent in July to 2.167 million units–the fastest pace since February 1973. Permits have continued their increases since May, and the number of units authorized but not yet started (the so-called backlogged starts) is near a record high. Housing demand also remains robust, according to the Mortgage Bankers Association Purchase Application Index, which set its third consecutive monthly record in July.  

On the negative side is a less optimistic home builders’ sentiment. The National Home Builders Association Housing Market Index dropped to a four-month low in August. The decline was largely a result of weaker current sales conditions (as recent unusually hot weather may have helped dampen activity), while expectations for sales for the next six months remain elevated and unchanged from July. Overall, homebuilding activity is likely to have reached its peak but the decline for the rest of the year should be modest.

News on the inflation front remains positive outside of energy. The consumer price index (CPI) rose by 0.5 percent in July, led by a jump in gasoline and other energy prices. So far, the persistently-high energy prices have not yet triggered underlying inflation pressures, however. The core CPI, which excludes the volatile food and energy items, rose by a weaker-than-expected 0.1 percent–the third consecutive month of such gains. On a year-over-year basis, core inflation rose by a tepid 2.1 percent. Declines in apparel prices and new vehicle prices (induced by aggressive discount incentives) were among the largest drags on the core index. 

Finally, another report yesterday also surprised the financial markets on a downside. Industrial production increased by only 0.1 percent in July, the weakest gain in three months. Capacity utilization declined to 79.7 percent, indicating more slack in the industrial sector.

The soft readings in the core CPI and industrial production caused long-term yields to decline. The yield on 10-year Treasuries fell by 6 basis points from Monday’s close to 4.21 percent by mid Tuesday afternoon, the lowest level since late July.

(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 average contract interest rate for 30-year fixed-rate mortgages fell to 5.79 percent from 5.91 percent, with points decreasing to 1.22 from 1.24 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.  

The average contract interest rate for 15-year fixed-rate mortgages decreased by nine basis points to 5.40 percent from 5.49 percent one week earlier, with points decreasing to 1.25 from 1.29 (including the origination fee) for 80 percent LTV loans. The average contract interest rate for one-year adjustable-rate mortgages (ARMs) dropped by three basis points to 4.85 percent from 4.88 percent one week earlier, with points increasing to 1.01 from 0.99 (including the origination fee) for 80 percent LTV loans. 

The Market Composite Index stood at 761.3, an increase of 2.2 percent on a seasonally adjusted basis from 745.0 one week earlier. On an unadjusted basis, the Index increased by 1.3 percent compared with the previous week and was up 10.6 percent compared with the same week one year earlier. The four-week moving average for the seasonally-adjusted Market Index is down by 1.3 percent to 753.2 from 763.1.

The seasonally-adjusted Purchase Index increased by 0.1 percent to 499.3 from 498.8 the previous week. The four-week moving average is up by 0.5 percent to 494.4 from 491.8 for the Purchase Index.

"The overall number of applications is up 10.6 percent over the same time last year while the dollar volume of applications is up 26.1 percent. This increase is true for both purchase and refinance applications, no doubt reflecting the increase in home values over the past year," said Michael Cevarr, MBA’s director of member surveys.

The seasonally adjusted Refinance Index increased by 5.0 percent to 2285.5 from 2176.5 one week earlier. The four-week moving average for the Refinance Index is down by 0.3 percent to 2335.3 from 2341.3.

Other seasonally adjusted index activity includes the Conventional Index, which increased by 2.2 percent to 1146.9 from 1122.2 the previous week; and the Government Index, which increased by 2.3 percent to 117.9 from 115.3 the previous week. 

The refinance share of mortgage activity increased to 42.4 percent of total applications from 40.9 percent the previous week. The ARM share of activity decreased to 28.9 percent of total applications from 29.7 percent the previous week.

The survey covers 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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Likewise, total existing-home sales were at the highest pace on record in the second quarter, with 42 states showing higher sales in comparison with a year earlier, according to the National Association of Realtors. NAR reported that national seasonally adjusted annual rate was 7.22 million units in the second quarter, up by 4.6 percent from the previous record of 6.90 million in the second quarter of 2004.

Continued low mortgage rates spurred sales. However, tight home inventory levels available for sale in many markets appear to be on the rise, FAR said.

Among Florida’s larger markets, the Miami metropolitan statistical area (MSA) homes sold 3,721 during second quarter 2005 compared to 3,702 homes during the same period a year ago for a 1 percent increase. The median sales price rose 29 percent to $351,000; a year ago, it was $271,900.

Jay Chernoff, chairman of the Realtor Association of Greater Miami and the Beaches and district sales manager with Keyes Company Realtors in Aventura, Fla., said that the strong business economy in the Miami area is a major influence on home sales. "Our location also draws buyers," he said. "With Fort Lauderdale nearby, there are two seaports and two major airports very close together in this area, which makes it very attractive."

On the national level, the strongest increase in existing-home sales was in West Virginia, where the second-quarter sales activity rose 21.7 percent compared with the second quarter of 2004. Washington existing-home sales increased 19.8 percent from a year earlier, and Vermont was up by 19.6 percent. At the same time, seven other states recorded double-digit increases. Five states and the District of Columbia posted declines but remained historically strong, one was unchanged and complete data was not available for two states, NAR said.

Home sales are stimulating the U.S. economy, NAR said. Regionally, the Northeast reported the strongest annual increase, where the second quarter existing-home sales rate of 1.21 million units rose by 7.5 percent from the second quarter of 2004. After Vermont, Connecticut experienced the strongest increase in the region with sales activity 14.7 percent above a year ago, while New York resells increased by 6.8 percent, NAR said.

The South recorded an existing-home sales pace of 2.73 million units in the second quarter, up 6.3 percent from a year earlier. After West Virginia, the strongest increase in the South was in Arkansas, up by 15.8 percent from the second quarter of 2004; followed by South Carolina, where existing-home sales rose by 14.4 percent; and Alabama, which increased by 14 percent.

Existing home sales in the West rose 1.8 percent to 1.66 million units in the second quarter from the same period in 2004. After Washington, the next highest increase in the region was in Montana, where total existing-home sales rose by 13.9 percent compared with a year earlier; Wyoming sales activity was up by 13.7 percent, while Utah increased by 9.7 percent.

In the Midwest, total existing-home sales in the second quarter increased 1.6 percent to a 1.62 million-unit annual pace in comparison with a year ago, according to NAR. North Dakota led the region, up by 7.5 percent from the second quarter of last year, followed by Iowa, posting a 6.2 percent gain, and Indiana , with an increase of 6.1 percent.

The Florida existing home sales data was based on a survey of MLS sales levels from Florida's Realtor boards/associations.
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The Mortgage Bankers Association has been anticipating and preparing for the release of these documents for many months, as they have important implications for mortgage companies' financial reporting practices.
 
The first ED, Accounting for Transfers of Financial Assets, includes guidance that would amend FAS 140 to clarify when legal opinions are required to support an assertion that transferred assets have been "legally isolated" under paragraph 9.a. of FAS 140, which is one of the requirements that must be met for a transfer of a financial asset to be deemed a sale, rather than a secured financing transaction, for financial reporting purposes. 

MBA multifamily DUS lenders, in particular, have been anxiously awaiting this guidance to determine whether they must provide their auditors with "true sale at law" opinions to support sale accounting treatment for their future loan transfers to Fannie Mae. MBA is concerned about this new guidance generally as it could impact the accounting treatment of many types of loans, including multifamily DUS loans. 
 
A second ED, Accounting for Servicing of Financial Assets, includes guidance that would amend FAS 140 to permit servicers of financial assets to "elect" to report their servicing assets at fair value, as opposed to lower of cost or market value. MBA recommended this elective approach in a March 12, 2004, letter to FASB Chairman Robert Herz as a means for reducing some mortgage companies' mortgage servicing hedging costs without penalizing companies that oppose a mandatory fair value standard on the ground that it would introduce unwarranted volatility into their income statements.

Under the proposed "elective" fair value approach, companies that use derivatives to hedge their servicing rights will be permitted to mark to market their servicing rights and their hedge instruments without having to go to the time and expense of qualifying their hedging activities for hedge accounting treatment under FASB Standard No. 133, Accounting for Derivative Instruments and Hedging Activities.
 
The third ED, Accounting for Certain Hybrid Financial Instruments, includes guidance that would amend FAS 140 as well as FAS 133 to clarify that Interest Only and Principal Only strips are not subject to the requirements of FAS 133 and to permit retained hybrid financial instruments that are accounted for at fair value to avoid bifurcation for the purpose of accounting for the embedded derivative at fair value. Although considered less critical to MBA members than the other proposed EDs, MBA is nevertheless concerned about the potential implications of this ED to members, including those that retain residual interests in transfers of assets in securitization transactions.
 
All three documents have comment deadlines of October 10. The FASB is encouraging constituents to provide feedback on all the EDs which can be downloaded at http://www.fasb.org/draft/index.shtml.

MBA is currently studying the documents in preparation for commenting on them. If you have an interest in contributing to MBA's work on the EDs, please contact Alison Utermohlen, who is CPA and a senior director in MBA's Government Affairs Department, at 202/557-2864 or autermohlen@mortgagebankers.org.
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George Mitsanas, principal of Newmark Realty Capital in the Los Angeles office, arranged long-term financing of $44 million for CNET Networks Inc. World Headquarters building, a Class A office built in 2001. Newmark originated the “highly structured financing” on behalf of its correspondent, ING Investment Management, Toronto, Ontario. Newmark will service the loan.

Specific terms of the ING loan were not disclosed. Bill Monheit, also a principal at Newmark in the San Francisco office, assisted Mitsanas in local market investigation.

The six-story office building has nearly 280,000 square feet, all occupied by CNET. The property’s location is in an area of downtown currently undergoing major development. It is walking distance to transportation outlets such as BART and the new Trans Bay Transportation Center.

Timothy Storey, in the Phoenix office of Newmark Realty Capital, arranged permanent financing of $11.4 million for a 71,150 square-foot retail shopping center located in Mesa, Ariz. The financing was arranged with Morgan Stanley Mortgage Capital Inc., New York.

Mercado Fiesta Shopping Center, adjacent to the 1.3 million square foot Fiesta Mall, is within 15 minutes of downtown Phoenix. The property constructed in 1981, is on seven acres of land and leased out to a mix of national and local tenants

Terri Slocombe, in Newmark’s San Francisco office, arranged financing in the amount of $7.485 million for a single tenant industrial building in Panorama City, Calif. The financing was arranged with State Farm Life Insurance Co, Bloomington, Ill., on behalf of St. Dominic Associates LP.

Zodax Industrial was built in 1999. It is located within a recently developed industrial park, once a GM production plant, in the San Fernando Valley town of Panorama City. It sits on 6.39 acres. The property has 98,773 square feet of space leased to one tenant. The building has 26 feet clear height, with seven dock-high doors and one grade level door. It is primarily a warehouse/distribution location. Office build-out is nearly 13.5 percent.
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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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The resolution, put forth by NCSL’s Financial Services Committee, calls on Congress to reauthorize TRIA to “assure that the property and casualty insurance industry can protect Americans from financial losses associated with terrorism and to ensure an available and affordable insurance market for American consumers and businesses.”

The NCSL resolution also states that any reauthorization of TRIA should recognize the temporary nature of the program, and therefore encourages efforts to further promote development of the private insurance markets. “Any federal plan for a temporary and limited federal backstop for terrorism insurance coverage must not adversely impact a state’s ability to levy premium taxes, regulate the business of insurance and set solvency standards for property and casualty insurers,” the resolution states.

TRIA, set to expire this December 31, provides a temporary federal “backstop” to ensure the widespread availability and affordability of property and casualty insurance for terrorism while preserving state insurance regulation and consumer protection. A key aim of TRIA was to provide a transitional period for markets to stabilize, to develop effective terrorism pricing models, and to build private sector capacity to afford future losses. TRIA has strong support from the Mortgage Bankers Association.

Bipartisan legislation to extend TRIA was introduced in the Senate in February by Senate Banking Committee members Robert Bennett, R-Utah, and Christopher Dodd, D-Conn. The bill, S.467, has the support of most of the members of the committee, and would reauthorize TRIA for two years beyond the current expiration date, as well as establish a commission to recommend a long-term solution to the terrorism risk problem. A similar bill in the House, H.R. 1153, was introduced in April by Rep. Steven Israel, D-N.Y.

The Bush Administration has shown reluctance to extend TRIA in its current form. Treasury Secretary John Snow told Congress in July that the Administration would support an extension of TRIA, so long as the “event size” that triggers coverage increased to $500 million, and deductibles and co-payments increased. House Financial Services Committee Chairman Michael Oxley, R-Ohio, said he supported the findings of a Treasury report from June 30, which, among other things, asserted that continuation of the program in its current form would likely hinder the further development of the private insurance market.

MBA, however, asserts that TRIA must be extended. “The failure to extend TRIA in the short term, to permit more time for the development of a thoughtful long term solution, could result in significant breakdowns in the commercial real estate finance industry and other markets,” MBA wrote in a July 13 letter to Senate and House leaders. “When commercial insurance carriers excluded terrorism insurance coverage prior to TRIA’s enactment, the risk of a catastrophic terrorism loss shifted from the commercial insurance industry to the commercial real estate finance industry. For this reason, lenders and loan servicers who bear a fiduciary responsibility, as described in transaction legal documents, to investors and funding sources, have the greatest 'standing' among all industries in assuring broad availability and affordability of terrorism insurance."

Commercial real estate lenders and their servicing firms are likely to experience “operational difficulties with regard to their existing portfolios” if TRIA is not extended, MBA said. “The extension of TRIA is needed urgently, well before its December 31, 2005 expiration date.”

The NCSL resolution calls for the following:

• No pre-emption of state regulatory or legislative authority;
• Sunset at a date certain and of limited duration;
• Make use of expertise of state insurance regulators with respect to such areas as licensing of insurers, solvency surveillance, oversight of rates and forms, licensing producers, assisting policyholders and consumers during the claim settlement process and performing market conduct examinations;
• Include representatives of the National Association of Insurance Commissioners (NAIC) as members of any governing body established to administer the federal program;
• Supplement but not replace other private and public insurance mechanisms;
• Include clear and non-ambiguous definitions of terrorism;
• Encourage loss reduction and hazard mitigation efforts;
• Maintain state jurisdiction over insurer claim settlement practices.
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