New home price appreciation continued to be weaker than that for existing homes—a trend that has started since the beginning of this year. The weakness was significantly more pronounced in July. The median price of new homes declined by 7.1 percent from June to $203,800 (not seasonally adjusted)—the lowest level since December 2003.

On a year-ago-basis, the median price declined by 4.0 percent—the first drop since December 2003 and the biggest decline since June 1991. By contrast, the median price for total existing homes increased by 14.1 percent in July from a year ago to $218,000. This marks the first time the median for existing homes exceeded that for new homes. 

Both the mix of sales and weak pricing power are likely to be responsible for the soft sales prices. The sale of relatively high-priced homes ($250,000-$300,000) decreased by 38.4 percent from June and by 20.0 percent from a year ago. The big pipeline of inventories may have also reduced builders’ pricing power. The record sales pace has kept the months supply (the inventory-sales ratio) historically low. While the months supply has steadily declined this year to 4.0 in July—the lowest reading since October 2004—the number of homes available for sale has been trending up to a record 460,000 units.

Another report yesterday surprised the financial market on the downside. Durable goods orders declined by much more than expected in July. New orders dropped by 4.9 percent—the first decline in four months. While the financial markets expected a modest decline in overall orders because of fewer Boeing orders, weakness in the July new orders was broad-based. The only increases in new orders were in the motor vehicles and primary metals components.

Orders for non-defense capital goods excluding aircraft (a proxy for future business investment) declined by 3.7 percent, following a 4.8-percent increase in June. The decline was the largest since October 2004.

Overall, the new orders report showed widespread weakness in demand for manufactured goods. The outlook for the third quarter is still positive, however, given the strong readings from regional Federal Reserve Banks’ manufacturing surveys for August. The new orders index from the New York Empire State survey increased to the highest reading this year, while the new orders index from the Philadelphia Fed survey jumped to the highest reading since April.

In addition, the July new orders report showed that unfilled orders increased for the third consecutive month. These reports suggest that orders should rebound in August and manufacturers will likely ramp up production in the coming months.

The yield on 10-year Treasuries has hovered around 4.20 percent since last Thursday. It edged lower yesterday on the weaker-than-expected durable goods orders data but rebounded after the strong showing of new home sales. The yield hovered around 4.16 percent as of mid Wednesday afternoon—two basis point below Tuesday’s close.

(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 purpose of the campaign is to raise awareness of the importance of financial literacy and personal fiscal health among consumers in target cities and motivate community leaders and activists to promote financial literacy among their constituents.

The events consist of one-hour presentations on the importance of financial literacy. The target audiences include community leaders from faith-based, consumer, minority, political/elected leaders and consumer/advocacy groups, as well as local media.

Topics covered at the events include:

• Basic Components of Financial Literacy
• Managing Your Money
• Getting Credit
• Using Credit
• Buying or Renting a Home
• Investing in the Future

The sessions touch on a number of resources, including MBA’s Home Loan Learning Center (www.homeloanlearningcenter.com), to obtain independent information on the home buying process. They also emphasize that all consumers have the right to access information that will help them understand their credit profile regardless of where they live, if they have computer access, or how much money they have.

Upcoming events will take place in the following locations:

• Miami – September 8
• Houston – September 13
• Philadelphia – September 15
• Washington, D.C. – September 20
• Detroit – September 21
• Chicago – September 22
• Baltimore – September 26
• Cleveland – September 28
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The research report covers developments from 2003-2004 in the housing sector and primary mortgage market, the secondary market activities of the Enterprises, and the financial performance of the Enterprises in 2004. It noted that despite a strong housing market, both Fannie Mae and Freddie Mac were “beset with accounting and related internal issues in 2004.”

In addition to internal difficulties at the Enterprises, changes in the mortgage markets “reduced growth opportunities” for Fannie Mae and Freddie Mac in 2004. New business volume declined sharply at both Enterprises compared to the previous year. In addition, the report said each Enterprise grew its portfolio at the “lowest rate in well over a decade.”

Nevertheless, the report noted, “underlying business fundamentals of both Fannie Mae and Freddie Mac remained sound in 2004.”

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A U.S. magistrate this week ruled this week in favor of Community Credit Union, Sherman, Texas, allowing it to convert to a mutual savings bank. The conversion had been challenged by the National Credit Union Administration, which asserted that Community Credit Union had failed to disclose information to members prior to the vote.

The magistrate, Donald Bush, ruled that the disclosure information was not regulated by NCUA and thus did not serve as a basis for rejecting the conversion. The members approved the conversion with 72 percent of those voting in favor.

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HSBC Mortgage Services, Lakewood, Colo., expanded its home equity product line to include new draw/repayment programs and a low introductory rate. The new products were launched in July.

HSBC Mortgage Services has used Guardian Mortgage Documents’ NGIS product for correspondent home equity documents.

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Nationwide TotalFlood Services Inc. and Nationwide Appraisal Services Corp., Los Angeles, announced an initiative to embed map detail into a host of products available within the Capital Title Group, Inc. family of companies.

Nationwide has created a single mapping platform to enhance its existing product offering with visual data, giving professionals who manage real property transactions options in assessing compliance and mitigate risk.

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Pictometry International Corp., Rochester, N.Y., a provider of digital, aerial oblique imagery, announced that C&S Marketing, Sacramento, a provider of property valuation, collateral assessment and fraud prevention services for the mortgage banking industry, has successfully integrated the company’s imaging database of U.S. homes as part of C&S’ collateral risk valuation and assessment services. C&S can access the visual information via Pictometry’s Server-to-Server Solution that enables C&S data servers to automatically incorporate Pictometry data as needed.
 
Pictometry’s software enables users access up to 12 different views of any property, building, highway or other feature in a county in a 3D-like format. The software also allows users to create measurements such as distance, height, elevation and area, directly from the oblique imagery as well as insert content from Geographic Information Systems (GIS) or other data.  Traditionally used by government agencies in a wide range of applications from 9-1-1 dispatching centers, public safety, and homeland security, to transportation, community planning, and appraisal services, Pictometry’s visual information provides C&S Marketing with a database of property information that can be used to streamline lending workflow and insurance processes required for mortgage approvals.

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Ellie Mae, Dublin, Calif., a provider of software and services for the mortgage industry, has announced that it is now distributing release of its latest Encompass Mortgage Automation System. Encompass 2.7 includes several major enhancements, including an integrated electronic document management solution, increased collaboration features, more reporting tools, new business development capabilities and more security compliance tools.

Another key enhancement to Encompass enables the integrated contact management system in Encompass to synchronize with Outlook and ACT! When a new borrower’s contact information is inserted into Encompass, it will automatically appear in the user’s contact database of choice, and vice versa.  Calendar events can also be synchronized, making sure that both programs have current information.
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Loans for Fannie Mae and Freddie Mac accounted for $21 billion of the total $55 billion of all multifamily lending reported in the listings (38 percent).

To learn more, order MBA’s Commercial Real Estate/Multifamily Finance Firms – Annual Origination Volumes. The listings are available for purchase through MBA’s Data-On-Demand Service at a special member/nonmember price. For more information or to purchase this product, e-mail cref@mortgagebankers.org.

The annual origination volume research covers 130 firms, ranging from local correspondent mortgage bankers to global financial services companies. It is the first of its kind to present a comprehensive listing of commercial/multifamily mortgage originators and the different roles they play.
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MMCC arranged $6.85 million of debt financing on a 45,000 square-foot office building located in Riverside, Calif. Constructed in 1993, the defunct Cityworks Theater, now an office building, is being reconfigured for Maric College, a subsidiary of The Washington Post.

The financing was provided through an undisclosed commercial bank at an 80 percent loan-to-value (LTV) ratio, with a 5.65 percent interest rate. The loan is fixed at seven years interest with a 30-year amortization. The property was a permanent construction loan by Cityworks LLC and the financing was arranged through Adam Petriella of MMCC's West Los Angeles office.

In Mesa, Ariz. an underperforming retail building will receive debt financing of $8.95 million. The 188,000 square-foot Factory Stores of America , built in 1987, is 22 percent vacant. The borrowers plan on repositioning the property through extensive capital improvements, rehab and aggressive management for anchor tenants.

The financing was provided through a commercial bank at an initial funding of 63 percent, with another 45 percent for construction improvements, for a total of 108 percent LTV. The interest rate is 1 percent over prime.

The adjustable/fixed loan has an initial rate of two years interest-only, then rolls to mini-permanent. The property was purchased by Infinity and the financing was arranged through Dan Litman of MMCC's West Los Angeles office.
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So what sets Servicing University above the rest? CampusMBA interviewed Dunbar and the training staff to present to you a case study of the winning program.

Company Name: GMAC Commercial Holding Corp. (GMACCH). GMAC Commercial Mortgage (GMACCM) is a subsidiary of GMACCH.
Learning Initiative: Servicing University
Staff size: Five
Staff Contacts: James Dunbar—vice president and manager of servicing staff development; Nancy Kirby—assistant vice president of communication dynamics; Stephanie Leftwich-Needham—education facilitator; Joanna Gardner—servicing media specialist; and Tim Viola—servicing media specialist

Company Info:  GMAC Commercial Mortgage Corp., (GMACCM), a wholly owned subsidiary of GMAC Commercial Holding Corp., is a premier financial services firm with extensive funding sources that, coupled with a broad menu of innovative financing programs, serve the needs of borrowers of commercial real estate debt as well as the providers of such capital. GMACCM is an industry leader in loan origination, servicing, asset management, investment management and technology services. The diverse lending and servicing specialist and its affiliates have more than 100 offices worldwide. GMACCM has a servicing portfolio of more than $263 billion and provides a variety of financing products and services including permanent, interim, mezzanine and construction lending as well as equity capital for commercial real estate. GMACCM has specialized lending units focused on healthcare, hospitality and construction lending.

Budget: GMACCM Servicing University is part of Servicing Communications in GMACCH’s Global Servicing division. Its budget consists of salaries and benefits, travel and entertainment, technology purchases (hardware/software), staff training and development and outside guest speaker expenses.

GMACCH’s corporate Learning & Development department provides a variety of professional training and consulting services to meet the needs of GMACCH employees domestically and internationally who want to improve their skills or take their careers to the next level.

Servicing University was founded in 2002 to supplement the resources provided by Learning & Development with business, industry and leadership education tailored specifically for employees in Global Servicing. Dunbar was chosen to lead this initiative, working with colleague Lorraine Lill Bryan, in February 2002. The department was given management support and creative freedom in developing the concept, designing courses and planning programs. “It was an exciting time and it still is,” Dunbar said.

Target Audience: As of July, the target audience consists of 901 servicing employees. The programs and resources of Servicing University are posted on the company’s Intranet under its own link, giving all GMACCH employees easy access to its digital library.

Challenge 1: “We wanted to keep our operation small, while making a big impact,” Dunbar said. “We wanted to use our resources to complement the company training program by providing additional content relevant to servicing, and we wanted to do it with style and quality.”

Challenge 2: How do we reach and educate a 900-person organization working around the world, while creating a cultural change from the bottom up? In 2002, Servicing employed 650 staff members on three continents. Its Ireland operation had fewer than 100 employees. Through acquisitions and company growth they have expanded to 901 servicing employees, with U.S. offices in Horsham, Pa., and Atlanta as well as in Ireland, Japan, Mexico and India. This global staff gives them the capability of conducting business 24 hours a day.

Solution: Servicing Communications was given the task of launching “a state-of-the-art corporate learning environment from a blank sheet of paper” with a staff of two. According to Dunbar, “We had good intentions, but how were we going to reach all the Servicing employees?” Dunbar looked outside the company, researching how large, brand-name international companies were training their people.

Dunbar’s study included Coca Cola, Apple, Intel, Xerox, General Electric, Wal-Mart, FedEx and Fidelity Investment Group. They were chosen because of their business reputations and international operations. He discovered that most were heavy users of technology and had satellite communication systems, but few were providing desktop training. Some had large training staffs and continued to use traditional classroom instruction. Dunbar knew that Global Servicing needed a different approach for its employees, so he looked to technology to help them reach more employees with speed and convenience.

“With only two people, we had to become better collaborators and tap into our company’s resources,” Dunbar said. “We had to be timely and flexible, because we live in a society that’s always waiting for the latest and greatest best thing. We had to learn how to ‘WOW’ people.” To do this, they knew there had to be an entertainment value to keep the employees focused. They began by looking at the “who, what, where, when, why, and how” of training. Dunbar says they became “info-educators.”

“We bring information to the employees and try to educate them through the process, and we began to bring in more and more people throughout the company into the mix.”

Implementation Process: To enhance the value of the servicing label, Servicing University brought in company and industry leaders. These speakers would talk about what’s happening in the industry and the business and discuss how business units interrelate.

“The heavy workload in many areas of the servicing world can create a great deal of frustration. Often the work seems thankless, which can lead to low morale,” Dunbar said. “In 2002, we recognized that our morale wasn’t where it needed to be, and so we introduced the FISH Initiative. We created catchy little programs that utilized formats such as Oprah, Good Morning America, and The View.”

These mock programs were presented as part of the rollout, and hundreds of people participated. "Supported by the FISH and GMACCH Goal Committees, we delivered special programs throughout the year, such as healthy lifestyle speakers and sports personalities, and we saw employee enthusiasm begin to grow," Dunbar said.

GMACCH has created many innovative ways to educate and motivate their staff including:

• Astudio environment enabling them to broadcast around the world. They also record sessions and post on the Intranet in streaming video.

• Year-long information series: Understanding Our Total Business . Key business unit leaders are brought together to share information on their lines of expertise. 

• Eight-part facilitated series examining how to improve the organization. Based on Good to Great by Jim Collins.

• Risk management program based on Sarbanes-Oxley, delivered by head of corporate governance for Tyco.

• Programs delivered by rating agency leaders to train staff.

• Small, group book studies to discuss leadership, execution and teamwork.

Obstacles Overcome: To reach this large group of 900 servicing employees with a training staff of five, they had to use various avenues.

“We felt it was important for our employees to understand how rating agencies rate our services, so we invited each of them (Fitch Ratings, Moody’s, S&P and DBRS) to our facility,” Dunbar said. “Our employees learned about the rating criteria, how the pools were surveyed and what impact problem loans had on upgrades or downgrades of the bonds, and how bond issues are rated in the first place.

“The programs were broadcast live and videotaped for subsequent access over our Intranet. We began taping with a staff member's home video camera and received assistance from the IT team to upload the video to the Web. Later, we purchased new, professional-quality cameras, hired two telecommunications interns, Gardner and Viola, and then brought them on as full-time employees upon their college graduation. They do a huge amount of streaming video on the Web site to accommodate busy staff members who need training across the world.”

Servicing University also launched an interactive book program in which employees discuss an assigned book in the live classroom group setting. Classes are limited to 10-12 people and are also delivered by video or audio conference.

“We found that people were saying, what’s next?” Dunbar said. “We had people recommending books, and we started small group discussions to see how it would work. We’ve facilitated these discussions for four or five semesters with growing interest each time. Execution: The Art of Getting Things Done and Five Dysfunctions of the Team, have been especially popular.” The Myers-Briggs personality test is also offered, administered and discussed by trained staff.

“Above all, Servicing University offers a great environment for people to share ideas and learn from each other,” Kirby said. “Now, three years since our beginning, we’re seeing results.”

This fall, they will discuss The Art of Possibility, a book focused on encouragement and morale lifting. They are expecting a large turnout for this program.

Dunbar said several things set Servicing University apart from other training organizations: “We use an entrepreneurial approach in our department,” he said. “We have free creative license to be where we want to be. It’s a wonderful thing to have the support of the organization and be able to try new things.”

Benefits of Program: “The program opened up communication throughout the company and stimulated a thirst for learning,” Dunbar said. “It has played a part in enhancing the company’s servicing ratings. The rating agencies want to know what’s going on in training, and since they have been involved in our training, they know the quality of our program and what we do here. We have heard that they even use us an example to other organizations.”

Global Servicing believes they are growing a more knowledgeable staff—not only in Servicing, but throughout the company—through this training program. Employees have access to a large digital library, and their hope is that someday students will find all of the training necessary to be successful online and at their command.

Measurement/Results: When Dunbar and Kirby were in Washington, D.C., at MBA’s Trainer’s Roundtable, they heard about other companies’ training programs. “Many of these companies train staff how to complete process or forms in a standard format,” Dunbar said. “These activities can be measured before training, and the results can be measured during and after training to see how productivity has been enhanced. However, most of what we do is not about forms; it’s about finding solutions and answering questions. It is acquiring the ability to educate borrowers and investors about processes in companies. We can teach employees about facts and figures, but the attitude piece is even more critical.”

While they currently do not measure these results, Dunbar says they are working on a method to do so in the future. While some of their employees are shy, others are ready and willing to be involved in the programs. As a result, he feels that customer service ratings have probably improved.

Lessons Learned: Dunbar cites the following:

• We never stop listening.
• We never stop learning or communicating.
• We never stop challenging employees to become stakeholders.
• We never stop encouraging employees to learn more.
• And, we never stop searching for new and innovative ways to communicate and educate.

Feedback: The feedback that means the most to the Servicing University employees are from those who have been more timid and for the first time are breaking out. They love to hear “this course opened my eyes.”  
     
Advice to Others: They agree that wherever you can get your leadership involved, do it. It is a challenge, but a real benefit to the employees. “At FedEx, they require members of their executive team to take six months off every few years to work with and mentor their future leaders,” Dunbar said. “They have 120,000 employees and they make huge use of their Intranet. We should all move that way.”

Some organizations, such as Wal-Mart, have a very successful training program and culture behind their business. “They exhaust all resources to determine how to make themselves more effective,” Dunbar said. “As an organization, we are focusing on how to improve efficiency and effectiveness in all our processes. Our teaching programs help to support those efforts. The only way we become more valuable is by learning more and applying what we know. A company has to be smarter and be more technologically advanced. They have to challenge their staff to think in terms of being the best. Determination, passion, and the freedom to dream and act upon those dreams have allowed us to be what we are today and what we will be in the future.”

“It’s important to know that we wear two hats, an education hat and a motivation hat,” Kirby said. “You have to juggle those hats effectively. Education without motivation is a big problem. Motivation without education is even a bigger problem. They key is to balance motivation and education in all of our programs.”

Dunbar said it’s important to have a good diversity of staff in order to bring creativity to the table. Their team consists of media specialists, a former professor and industry trainers. Their different styles work well together to bring a quality product to the table.
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Institutional respondents expect continued strength for real estate, but lowered their outlook for the economy by rating it at 5.8 on a 10-point scale (last quarter survey respondents rated it 6.2 on the same scale), according to the RERC survey that will be released next week.

Despite healthy corporate balance sheets, liquidity, business investment, and low interest rates, respondents see a great deal of risk associated with the high cost of oil/energy, the trade deficit, housing prices, geopolitical concerns and terrorism, and other factors.

“It appears that the commercial real estate market is heading into a more challenging capital market setting, as will all investments,” said Ken Riggs, managing principal and CEO of RERC. “Once a new plateau is reached, investors will shift their allocations to alternative investments and commercial real estate will lose some relative advantage.”

However, the global environment changes in places where commercial real estate retains strong investment appeal, “real estate will continue to be a necessary element to investors’ overall target performance,” Riggs said.

Investors also said they are willing to continue to accept lower returns, as indicated by the continued decline in RERC’s required pre-tax yield rates for all property types. RERC said investors accept lower returns because of further unease in the investment environment and evidence that many of the changes in the economy are structural rather than cyclical. Required going-in and terminal capitalization rates continue to flatten as well, according to the report. RERC expects capitalization rates to remain low as long as long-term rates hover in the low 4-percent range.

For hotels, the required going-in and terminal capitalization rates remain the highest for all property types tracked by RERC, despite a drop off to 9.3 and 9.9 percent, respectively, on a national level. Those rates hit their lowest points since RERC began keeping this data on a quarterly basis in late 1992.

Hotels in stronger markets are trading below eight percent and, in some examples, below seven percent in cities like Washington, D.C. and New York City. But the hotel sector remains at the bottom of returns after adjusting for risk (a risk-adjusted return of 1.4 on a four-quarter rolling return basis, and 1.3 on a 10-year average return basis).

RERC tracked apartments as lowest in going-in and terminal capitalization rates of all the property types, at 6.8 percent and 7.5 percent, respectively. One institutional survey respondent noted that the acquisition of failed residential condominiums to convert to apartments was among the best investment options. “Given the low volatility of returns within the apartment sector, it is not surprising that apartments are outperforming the other property types with respect to risk-adjusted returns [a risk-adjusted return of 6.6 on a four-quarter rolling return basis, and 4.6 on a 10-year average return basis],” Riggs said.
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