Excluding food and energy prices, the core index was unchanged, following a 0.4-percent increase in July, as July’s jump in auto prices was largely reversed. Core prices were up by 2.5 percent from a year ago, moderating from a 2.8-percent increase in July. The August data are devoid of impacts of Katrina, which made landfall late in the month.

Inflation further back in the production process also moderated. The index for intermediate goods increased by 0.7 percent, following a 1.0-percent gain in July.  The core intermediate PPI—a leading indicator for inflationary pressures at the finished and consumer levels—fell by 0.1 percent, led by the declines in lumber and steel mill products. 

Overall, the report shows no evidence of developing price pressures at the wholesale level. While energy prices have remained high after the spikes in the aftermath of Katrina, the pass-through of energy prices to core PPI inflation remains an upside risk, however. In their post-Katrina speeches, Federal Reserve officials emphasized the risks of the pass-through of surging energy prices to core inflation, as the slack in the economy is diminishing. 

Thursday’s Consumer Price Index report will give another piece of evidence on underlying inflation trends heading into the Federal Open Market Meeting next Tuesday, when an interest rate hike is still widely expected.

The fed funds futures market currently places the odds of a 25-basis point increase in the funds rate at about 80 percent. Signs of tame inflation pushed down long-term yields, however.  The yield on 10-year Treasuries fell by four basis points from Tuesday’s close to 4.13 percent by mid-Wednesday

(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 increased last week by 8 basis points to 5.72 percent from 5.64 percent on week earlier. Points increased to 1.18 from 1.13 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.  

The average contract interest rate for 15-year fixed-rate mortgages increased to 5.29 percent from 5.18 percent one week earlier, with points increasing to 1.31 from 1.14 (including the origination fee) for 80 percent LTV loans. The average contract interest rate for one-year adjustable-rate mortgages (ARMs) increased to 4.82 percent from 4.81 percent one week earlier, with points decreasing to 1.04 from 1.05 (including the origination fee) for 80 percent LTV loans. 

The survey’s seasonally adjusted Market Composite Index stood at 760.6, a decrease of 1.4 percent on a seasonally adjusted basis from 771.6 one week earlier. On an unadjusted basis, the Index decreased by 12.3 percent compared with the previous week but was up by 26.4 percent compared with the same week one year earlier. The four-week moving average for the seasonally-adjusted Market Index is down by 0.1 percent to 752.7 from 752.9. 

The seasonally-adjusted Purchase Index increased by 2.9 percent to 513.4 from 499.1 the previous week. The four-week moving average is up by 0.7 percent to 492.9 from 489.4.

The seasonally adjusted Refinance Index decreased by 6.7 percent to 2198.7 from 2357.1 one week earlier. The four-week moving average for the Refinance Index fell to 2264.4 from 2286.1. The refinance share of mortgage activity decreased to 42.9 percent of total applications from 44.8 percent the previous week, while the ARM share of activity increased to 28.2 percent of total applications from 26.5 percent the previous week. 

Other seasonally adjusted index activity includes the Conventional Index, which decreased by 1.6 percent to 1142.8 from 1161.1 the previous week, and the Government Index, which increased by 0.8 percent to 122.7 from 121.7 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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Community investing—which targets individual and institutional investor funds into such community-based programs as first-time homebuyer programs, small business and micro-enterprise job creation, sustainable agriculture and vital community services—is on the rise, accounting for the single fastest-growing segment of socially responsible investing (SRI), according to the 2003 SRI Trends report issued by the Social Investment Forum.

A comparison of 2005 and 2003 Calvert Foundation surveys shows that community investors are only slightly more female (55 percent) than male. According to the 2005 survey, community investing is also a solidly middle-class phenomenon, with close to 42 percent earning $51,000 to $100,000 and nearly 32 percent earning less than $50,000.

"Interest in Community Investing Notes is up over the last two years, with more assets flowing in every day,” said Shari Berenbach, Calvert Foundation executive director. “The heightened interest we are seeing is an encouraging sign of more people wanting to invest in their own communities, and in other towns and cities around the U.S. and the world."

Community Investment Notes offer investors a modest interest rate (2 percent for one-, two-, and three-year notes, and 3 percent for five- seven- and 10-year notes) and uses investor principal to create a loan portfolio that funds affordable housing, micro-enterprise, and community development all over the world.

The areas with the most investments for community investors are: environment (17 percent); job creation (15 percent); homelessness (14 percent); women's issues (12 percent); and cooperatives (11 percent). All other issues attracted less than double-digit expressions of interest from those surveyed.

Respondents also preferred microcredit and housing to non-profit and small business. When asked in which order of investor preference using a range of onme to five where one was “very interested” and 5 being “not interested”—microcredit (1.51), affordable housing mortgages (1.79) and affordable housing developments (1.96) were among the very interested categories.

According to the survey results, a concentration of investors is located in the West leading at 25 percent of respondents; mid-Atlantic at 19 percent; and the North Central region following at 17 percent.

The population of investors is aging, the results said. A declining portion of investors in the 30 years to 49 years old range and an increasing portion in the 50-plus range was reported. Of the respondents, 68 percent of Calvert Foundation CI Notes investors hold post-graduate degrees and another 29 percent with at least undergraduate education.
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The bill would enable the FDIC and NCUA to work in accordance with guidance issued by the Board of Governors of the Federal Reserve System regarding Katrina.

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American Guardian Home Loans, Lake Forest, Calif., reported an increase in origination volume in the first half of 2005. The lender received an influx of requests from mortgage brokers and homebuilders seeking non-prime products, and in August recorded more than a 100 percent increase in funding volume from July.

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Empire Bancorp, Rancho Cucamonga, Calif., selected and implemented San Diego–based Del Mar Database’s DataTrac as its back-office mortgage banking technology product. DataTrac is an automated back-office product built specifically for small and medium-sized lenders.

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Dallas-based MRG Document Technologies (MRG), announced that Irving, Texas–based First Horizon Home Loans Corp. selected MRG to provide document packages to support its correspondent lending channels.

MRG’s loan products include A-paper, nonprime and option adjustable-rate mortgage(ARM) lending programs as well as home equity lines of credit (HELOCs) for First Horizon Home Loan’s parent company, First Tennessee Bank.

MRG provides document preparation services including customizable interfaced systems, Web and email delivery and real-time automated compliance testing.

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Countrywide Financial Corp., Calabasas, Calif., announced it will make initial cash contributions of up to $1.6 million for immediate relief and long-term rebuilding in the region impacted by Hurricane Katrina. The company also announced that it is suspending for up to 90 days the mortgage payment requirement for customers in hurricane-impacted areas that have uninhabitable homes, have lost their jobs or are unable to work because of the impact of the storm. The company will review further customer hardship circumstances on a case-by-case basis and help reinstate the dream of homeownership for its customers wherever possible.

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LaSalle Bank Corp.'s Michigan-based subsidiary is officially branded LaSalle Bank. The initiative puts the LaSalle Bank name on 260 branches and more than 1,000 ATMs in Michigan and Indiana formerly branded Standard Federal Bank.
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Fitch said banks could potentially face lower capital charges by investing in rated securitization structures rather than by directly holding a comparable pool of unsecuritized assets, particularly for CMBS [commercial mortgage backed securities], RMBS [residential mortgage backed securities] and ABS [asset-backed securities] structures.

“For CDOs [collateralized debt obligations], we saw a pretty close alignment between the Basel II unsecuritized charges versus the Basel II securitized charges,” said Martin Hansen, director of credit policy at Fitch Ratings. “For CMBS, we saw that the unsecuritized charges actually appear to be a bit higher than the securitized charges. There could well be differences that emerge across different securitization products.”

Stuart Jennings , managing director of European structured finance at Fitch in London, said banks could seek out structured transactions to reduce capital requirements. “Looking ahead, we may see banks looking for opportunities to reduce their Basel II capital requirements by investing in the credit card ABS, CMBS and RMBS markets,” Jennings said.

Fitch’s report explored the quantitative impact of the Basel II capital charges on a “small but representative number” of deals in the marketplace. The twelve transactions consisted of three different risks, high, medium and low, for each securitized category. The categories included CMBS, RMBS, ABS and CDOs.

“Banks that are active players in the securitization markets are carefully anticipating the implementation of Basel II, given its potential impact not only on their appetite for structured products but, more broadly, on the way they manage their credit portfolio,” Hansen said

The ratings agency compared the amount of Basel II capital that banks must hold on an unsecuritized pool of assets versus a securitized structure of the same assets. According to Fitch, the results provided some insight into how the new capital framework can affect investment flows within structured product markets. “Under Basel II, securitization charges do not differentiate between RMBS, CMBS, CDOs and ABS,” Hansen said. “All of those different types of assets are treated under the same measurement framework.”

Fitch noted that Basel II could influence how banks structure their securitization deals. “Banks will face strong pressures under Basel II to minimize their exposure to sub-investment grade tranches, given the significant amount of regulatory capital they will have to hold against these positions,” said Krishnan Ramadurai, senior director of financial institutions at Fitch.

But the ultimate effect of Basel II on the securitization markets will depend in large part on how banks identify and respond to the new regulatory capital incentives, according to Kim Olson, managing director of algorithmics at Fitch. “The impact of Basel II on a bank's decision to securitize a portfolio of assets will depend on a complicated interplay of factors, including, for example, the inherent default risk and recovery rates of the underlying assets, the type of asset or product being securitized, the tranching of the resulting securitization structure, and the features or conventions of the structuring process, such as excess spread and reserve funds,” Olson said.

“A lot of it is going to come down to the features of a specific transaction,” Hansen said, noting default and recovery rates assigned to underlying collateral, the product and asset class, conventions and features of the deal and the securitization structure. “It is going to be a fairly complicated assessment to see whether or not a given transaction will result in more capital as a securitization than as an unsecuritized pool of assets."
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The sale consists of 159 real estate mortgage loans, representing the majority of loans in the Trustreet portfolio. Trustreet has interests in 2,800 properties in 49 states and the District of Columbia with assets valued at more than $2.6 billion, including brands in quick service and casual dining. Moving the loans allows Trustreet to focus more on sale-leaseback financing, the company said.

"GE Commercial Finance, Franchise Finance gave us a very good offer on the loans and, in the matter of a couple of days, had a team of 18 people here making the deal happen," said Curtis McWilliams, president and CEO of Trustreet. "For GE Commercial Finance, Franchise Finance, the loans become an ongoing part of their business, and from our perspective, selling them allows us to redeploy our capital into our core net lease business."

Trustreet Properties Inc. closed last month on a $36.5 million sale-leaseback transaction with the Nath Companies, a 90-unit Burger King franchisee based in Minnesota. Nath Companies ranks as the fourth largest franchisee of Burger King restaurants in the U.S. as the deal consisted of 35 properties in five states.

According to Diane Cooper, president and CEO of GE Commercial Finance, Franchise Finance was an “ideal partner” for GE Commercial because Franchise Finance’s concentration within the restaurant industry and its experience in real estate mortgage loans. Cooper said GE Commercial Finance continues to expand its presence in real estate mortgage lending, a major aspect of its business. “This deal was successful largely because each side recognized the opportunity to strengthen its business in a core area," Cooper said.

This month, GE Commercial Finance closed on nearly $19.4 million in commercial mortgage backed securities (CMBS) transactions for a shopping center and two apartment complexes. In August, GE Commercial Finance formed a joint venture with Equus Realty Advisors to form Equastone, which purchased a two office building in Carlsbad, Calif. under GE Commercial Finance Real Estate Partners Group.
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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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The analysis also showed that the vast majority of the differences in loan pricing and approval are explained, even in the absence of detailed credit factors.

The Mortgage Bankers Association said it will conduct its annual analysis of the HMDA data. The data, collected and analyzed by the Fed, provide a marketplace overview. But while for the first time a subset of the data includes pricing information, MBA noted that the data do not contain measures that convey important information regarding the credit risk associated with a loan and these are important elements in pricing decisions.

“The information in the report is valuable to the mortgage industry, but it will take time to fully assess its contents,” said Doug Duncan, MBA senior vice president and chief economist. “MBA annually reviews and analyzes HMDA data as it helps our members better serve the communities in which they operate as well as identify new marketplace opportunities. This, in part, offsets the burden of the reporting requirements.”

“It is important to point out, however, that HMDA data cannot be used to draw conclusions about why a loan was refused or made at a particular rate,” Duncan added

MBA said it and the mortgage lending industry will continue to work with regulators, legislators, community and consumer groups to ensure that home loans are provided fairly and as broadly as possible. It is MBA’s belief that the record-high level of homeownership reached in the U.S. in recent years, is because of the industry’s outreach to all borrower groups.

"While the report acknowledges that the public focus concerning the new data will be on the incidence of higher-priced lending among minorities, particularly African Americans, as compared to non-Hispanic whites, the report makes clear that most of the difference can be explained by differences in the groups' distributions of income, loan amounts and other borrower-related characteristics included in the HMDA data," said Kurt Pfotenhauer, MBA's senior vice president of government affairs. "The report specifically warns against making unwarranted accusations of illegal bias, which could discourage lenders from participating in the non-prime segment of the market."
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