Both the production and the new order components of the index declined. The prices paid component spiked to the highest reading since April, suggesting that recent oil price increases have been passed through to manufacturers. The report raises concerns that the run-up in energy costs may have slowed the ongoing recovering in the industry from an undesired accumulation of inventories earlier in the year. 

In a separate report, personal income increased by 0.3 percent in July, while personal consumption expenditures (PCE) jumped by 1.0 percent, thanks to strong auto sales as well as healthy increases in nondurable and service spending. The strong consumption spending pushed savings into negative territory, with the saving rate standing at a negative 0.6 percent, the lowest on record. The lack of savings increases a downside risk for future spending growth in the face of soaring energy prices.

Inflation measure tied to PCE was modest outside of food and energy. While the overall PCE price index increased by 0.3 percent, the Fed’s favorite measure of inflation–the core PCE (excluding food and energy)–edged up by only 0.1 percent. From a year ago, the core PCE was up by 1.8 percent–the lowest gain since March 2004. 

Overall, the report confirms that inflationary pressures are still contained. Given recent surges in energy prices, however, core inflation may be trending up in the months ahead. The minutes of the August 9th Federal Open Market Committee meeting released on Tuesday noted that recent energy price increases probably would feed through, at least temporarily, to core measures of inflation.

In another report released yesterday, overall construction spending was flat in July, following a decrease in June. The decline in public sector spending offset the increases in both private residential and nonresidential spending. Despite the weak readings in recent months, spending was still up by 5.9 percent from a year ago.

Finally, home price gains strengthened in the second quarter, according to the Office of Federal Housing Enterprise Oversight Home Price Index, which uses data from Fannie Mae and Freddie Mac. Home prices increased by 13.4 percent from a year ago, accelerating from 12.9 percent in the first quarter. Existing home prices have shown no sign of cooling in July, with the National Association of Realtors’ median price of existing homes posting a remarkably strong year-over-year gain of 14.5 percent.

There was little reaction in the bond market from the various economic reports yesterday. Surges in gasoline futures as well as weaker-than-expected data continued to keep long-term yields low on economic growth concerns. After nose-diving to 4.01 percent on Wednesday, the yield on 10-year Treasuries hovered around 4.02 percent by mid Thursday afternoon.

(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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"This is the greatest increase in pessimism that we have seen," said Don Durfee, research editor of CFO magazine, New York. "We've found that this optimism index predicts future economic growth quite well. In a situation like this, where the growth in pessimism outweighs the growth in optimism, we expect to see a slowdown in economic growth."

The survey asked executives to choose the top three items, from a list of 15, that are concerns for their companies. CFOs said high fuel costs as the number one concern for U.S. firms, surpassing high health care costs for the first time since the survey has addressed these concerns. Other top concerns include rising interest rates, increased regulation and reduced pricing power.

More than two-thirds of CFOs believe that a decline in the U.S. housing market would harm their firms. Nearly 28 percent believe that a housing market correction would harm them moderately or greatly.

"One of the risks of any future Fed rate hikes is that they might increase mortgages rates sufficiently to burst the housing bubble," said John Graham, professor of finance at Duke's Fuqua School of Business and director of the survey. "CFOs are telling us that a housing correction will have spillover effects that will hurt corporate America."

[The Mortgage Bankers Association and other trade industry organizations, however, note that the term "bubble" is neither informative nor 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,” said MBA Chief Economist Doug Duncan. “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. Housing will continue to be a major contributor to economic growth."]

U.S. worker confidence also plunged 5.5 points to the lowest level on record as the New York–based Hudson Employment Index dropped below the base of 100 to 98.2. All five measures that compose the Index declined, reflecting inflated concerns about hiring plans, preoccupations with personal finances, heightened job security concerns and weaker job satisfaction. The latest drop brings the current Index ten points lower than last month’s reading of 108.4, the survey said.

Workers were noticeably less optimistic in all respects pertaining to their personal finances during August, the Index said. The percent rating their situation as excellent or good dropped two points to 42 percent. There was also a three-point decline in the percentage of workers who stated that their personal finances were improving. Further, those stating that their finances were getting worse jumped five points to 43 percent.

After holding steady near 31 percent for nine consecutive months, the number of workers expecting hiring slipped to 30 percent. At the same time, the percent anticipating job cuts rose from 16 percent in July to 18 percent, the same as one year ago. Job security concerns also climbed a point to 21 percent this month, as the percent reporting job satisfaction slipped from 74 percent to 72 percent.

"The dramatic decline is not a huge surprise, as permanent hiring typically slows during the summer peak vacation period," said Jeff Anderson, executive vice president of Hudson North America. "This year, that factor was exacerbated by record-breaking fuel costs that are directly reflected in the Index's personal finance readings."

In contrast to the national average, managers in the private sector were more optimistic, although not just because their firms' hiring plans were greater, which is often the case. They also showed positive movement in personal finances and job satisfaction, as well as fewer concerns about job loss this month.

Nearly three-quarters (74 percent) of a representative sample of more than 1,000 Americans are highly concerned (5 on a 1 to 5 scale) about gasoline prices over the next five years, according to a very recent national survey commissioned and released by the Consumer Federation of America, Washington, D.C. A recent CFA survey found less than two-thirds (65 percent) of Americans expressed this level of concern.
 
Households are conservatively estimated to spend an average of $1,948 this year on gasoline prices (assuming $2.25/gallon), according to a CFA economic analysis. That figure is up from $1,342 only three years ago (2002), an increase of 45 percent.
 
"As gasoline prices have risen, so have consumer concerns," said Jack Gillis, CFA director of public affairs and automotive expert. "As Katrina's devastation pushes up gas and oil prices even further, consumer concern about energy prices could turn from a priority to a preoccupation," he added.
 
Well over four-fifths (84 percent) of households with incomes under $25,000 are now highly concerned about the future of gasoline prices. That compares with great concern voiced by less than three-quarters (72 percent) of these households earlier in the year.
 
This concern among the least affluent can be largely explained by the economic impacts of rising gasoline prices on these households. According to CFA's economic analysis, households with incomes under $15,000—about one-fifth of all households—this year will spend, on average, more than one-tenth of their income (10.4 percent) just on gasoline. 
 
More than four-fifths (82 percent) of Americans living outside urban areas recently expressed great concern about the future of gas prices up from 76 percent earlier this year. Great concern was expressed by 71 percent of those in urban areas.
 
"Those with modest incomes living in rural areas are being hit especially hard by rising gasoline prices," said  Stephen Brobeck, executive director of the CFA. "They must drive the longest distances, cannot turn to mass transit, and cannot afford to move into more expensive urban areas," he added.
 
Opinion Research Corp., Princeton, N.J., conducted the recent survey of 1,004 representative Americans during August 25-28. An earlier CFA survey was conducted by ORC in February. The margin or error in both surveys is plus or minus three percentage points.
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T.D. Service Co., Santa Ana, Calif., offers a wide range of post-payoff and post-default services to the mortgage banking industry.  Since its inception in 1964, the company has become one of the nation’s largest independent trustee’s offering the following services nationwide:  non-judicial foreclosures, lien releases, assignments, document retrieval/research, imaging and electronic data interchange and technical solutions. The company is located at 1820 E. First Street, Suite 210, Santa Ana, CA  92705; phone 800-843-0260; Web site www.tdsf.com

Dale Dykema is T.D. Service Co.’s CEO.

Q: What trends are your company positioning for in the next few years?

DYKEMA: We see an increasing volume of non-judicial foreclosure activity over the next few years. We are beefing up our staff and putting a greater emphasis on training so that we will be in a position to handle the increased volume. We also anticipate a decrease in lien release activity which may induce more servicers to outsource this activity.

Q: Where do you see your company in five years?

DYKEMA: We will be growing over the next five years. This growth will come in different ways: some growth will come through acquisitions; some will result from increased foreclosure volume; and some will come through increased service bureau relationships involving lien release processing.

Q: What is the single most important issue facing your company right now?

DYKEMA: We, along with other trustee firms and law firms, who process foreclosures face severe pricing issues.

Q: Why did your company join MBA?

DYKEMA: T.D. has been a member of the MBA since the 1960s. We realized that the MBA provides excellent educational opportunities and would provide many opportunities or us to come into contact with companies which could benefit from our services.

Q: What advantages does your company’s MBA membership give you?

DYKEMA: Our membership has given our employees access to CambusMBA and its educational opportunities. As a result, we are better able to serve our customers. Having access to Mortgage Banking magazine and the various MBA internet communications helps us to keep up-to-date on what is going on daily in the mortgage banking industry. In addition, the many conferences, seminars and meetings, gives us exposure and access to our customers and potential customers.
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Wachovia, with $132.8 billion in CMBS primary and master servicing, leads all companies, followed by GMAC Commercial Holding, Horsham, Pa., with $118.9 billion; Midland Loan Services, Kansas City, Mo., with $84.3 billion; and Wells Fargo Commercial Mortgage Servicing, Des Moines, Iowa, with $52.5 billion. LNR Partners ranks as the number one CMBS named special servicer with $126 billion.

Only firms servicing at least $1 billion of total master, primary or special servicing for loans in CMBS issues are included in this special mid-year survey. MBA's full listing of third party commercial and multifamily loan servicers is released each February. The results reflect company data as of June 30. Any mergers or acquisitions that took affect after that date are not reflected in the results.

Breakouts include:

• Ranking by CMBS Primary and Master Servicing Volume
• Ranking by CMBS Primary Servicing Volume
• Ranking by CMBS Master Servicing Volume
• Ranking by CMBS Named Special Servicing Volume
• Ranking by Total (CMBS, Life, Others) Primary Servicing Volume
• Ranking by Total (CMBS, Life, Others) Primary and Master Servicing Volume

A primary servicer is generally responsible for collecting loan payments from borrowers, performing property inspections and other property-related activities. A master servicer typically serves in a fiduciary capacity and is generally responsible for collecting cash and data from primary servicers and then providing that cash and data, through trustees, to investors. A special servicer is an entity under contract to perform specific servicing functions in the event a loan defaults, such as managing the foreclosure or workouts plan. Unless otherwise noted, MBA tabulations that combine different roles do not double-count loans for which a single servicer performs multiple roles.
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The $3.45 million mortgage on The Sherwood Forest Apartments complex in Kankakee, Ill. was 98 percent leased up prior to closing. “The lender, Inland Bank, provided an interest-only loan, covering not only 100 percent of the cost of the acquisition, but also additional funds for capital improvements,” said Joel  Kaplan, senior production officer for Inland Commercial Mortgage Corp.
 
The apartment complex consists of five two-story buildings on five acres, with 56 two-bedroom and two-bath units, 12 three-bedroom, three-bath units, and 12 one- bedroom, one-bath units for 80 total units.

Inland Commercial also arranged financing of $11.2 million on a non-recourse loan at Wood Glen Pavilion, a 207-bed skilled nursing facility at North Avenue and Route 59 in West Chicago, Ill. Inland Commercial Mortgage Corp.’s correspondent lender, Column Financial/Credit Suisse First Boston, wrote a 3.5-year term, 25-year amortization acquisition loan.

The financing provided the borrower 90 percent of purchase price while the interest rate floats over 30-day LIBOR. Kaplan said.

Wood Glen Pavilion built in 1990, is a three-story, 68,060-square-foot facility laid out in three wings surrounding a central core. It also includes a full basement.
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Handling Fraud Files (http://www.campusmba.org/index.cfm?STRING=content.cfm?section=818), presented by CampusMBA, the education arm of the Mortgage Bankers Association, is a classroom-based course designed specifically for in-house counsel, paralegals, finance and accounting professionals, servicing supervisors and managers, secondary marketing professonials, and quality assurance professionals. Participants will learn about the nuances of dealing with misrepresentation in the lending process with topics solicited from general counsels at several member firms. 

This two-day workshop will take place September 20-21 in San Diego. Through group discussion, case studies and presentation, participants will address how quality assurance documentation, servicing activities, and early intervention all have significant impacts on recovery efforts and successful litigation. Topics include:

• Coordination of Internal Resources: Quality Assurance, Servicing, Secondary, Finance and Legal;

• Repurchase Requests and Demand Letters;

• Civil Litigation & Recovery Options: Who, What, Where, When and How;

• Working With Outside Counsel & Coordination With Other Outside Parties: Investigators, Federal and State Authorities;

• Strengthening Legal Documents to Hold Perpetrators Responsible;

• Exclusionary/Ineligible Lists: Maintenance and Sharing;

• Broker Eligibility and Licensing; and

• Correspondent Due Diligence and Training: Quality Loans Come from Quality Lenders;
 
This workshop will prove to be invaluable to your company’s bottom line. Come to San Diego and learn from industry experts, including Arthur Prieston, CMB, a pioneer in mortgage fraud recovery, members of the law firm of Lanahan & Reilley LLP, and professionals from other MBA member firms.

Attendees of this event will earn four points toward MBA's Certified Mortgage Banker designation.

Registration for MBA Members is $812, $1,015 for Nonmembers. Registration fees include seminar tuition, seminar materials, continental breakfast, and lunch. The course number is E2501766. To register, go to http://store.mortgagebankers.org/ProductDetail.aspx?product_code=E2501766%2fREGIS; to register, go to http://www.campusmba.org/pdf/regform_classroom_2003.pdf; or call (800) 348-8653. For more information, email CampusMBA at campusmbaeducation@mortgagebankers.org.
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Fannie Mae, Freddie Mac, FHA, Ginnie Mae and the Veterans Administration allow for disaster relief that includes temporary suspension or reduction of mortgage payments, or, in certain cases, modification of the terms of the existing mortgage. MBA asks that lenders and servicers consider implementing these options for affected borrowers, if this has not already been done.

"During these trying times, individual homeowners may feel overwhelmed by the issues they must address, the emotional toll of losing their homes, and the financial hardship the events have imposed," according to an MBA statement. "We, therefore, encourage MBA members to reach out to potentially affected customers to inform them of the relief options available to them and to assist them where possible."

MBA is matching a portion of staff contributions to the American Red Cross between now and September 9. Additionally, other MBA members such as a la mode, Oklahoma City, have announced donations to hurricane relief efforts.

Government and other officials now say Hurricane Katrina will shape up to be the most devastating natural disaster in the country’s history. Damage reports exceed $30 billion—more than the four hurricanes that struck Florida in 2004 combined—and the death toll is expected to be in the hundreds, possibly thousands. The city of New Orleans is being evacuated and is not expected to be repopulated for months.

Attached are announcements provided by Freddie Mac, Fannie Mae, FHA, Ginnie Mae and the VA  concerning their disaster relief and/or claim payment policies. Additionally, the Office of Thrift Supervision, the Federal Deposit Insurance Corp. and other federal banking agencies have issued guidance urging that their member banks do what they can to assist in the process.
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