Testifying before the House Financial Services’ Subcommittee on Housing and Community Opportunity, J.K. Huey, senior vice president of home loan servicing for IndyMac Bank, Pasadena, Calif., and chairperson of the MBA’s Residential Loan Administration Committee, outlined steps the mortgage industry has taken to assist victims of Katrina and addressed efforts that MBA’s commercial members have taken to help businesses reopen and thrive. She also recommended steps that Congress could take to further help homeowners and renters get back into their homes, or in some cases, into new homes.

“Our focus, as an industry, is on our customers and to provide the services they need,” Huey said. “As with everyone in the country, we want, and in many instances can provide, immediate assistance to those who need it. For those who have mortgage loans—residential, multifamily or commercial—with MBA member companies, we want to ease their burden as much as possible and stimulate economic revitalization.”

HUD said Katrina directly affected 436,800 units of public housing; MBA estimates that owners of more than 360,000 mortgages are affected as well, valued at up to $48 billion.

Huey’s testimony summarized what the mortgage banking industry is currently doing for affected borrowers, despite the enormous challenges that exist. Those efforts include:

• Providing extended grace periods to those with home or commercial mortgages;
• Waiving late fees during this period and the reporting of derogatory information to credit bureaus;
• Waiving delinquency notices;
• Placing outbound calls and emails to customers to discuss their needs for extended forbearance and loss mitigation; and
• Postponing foreclosure actions.

“Servicers are also assisting borrowers in other ways, including providing long-term loss mitigation solutions, second mortgages, renovation loans, and refinance mortgages,” Huey said. “As so many hurricane victims have been displaced, MBA recently launched a public service campaign urging those who have been impacted to contact their mortgage lender to discuss mortgage relief options. The bottom line is that MBA and its member companies want to work to help hurricane victims.”

Huey also provided recommendations to Congress for addressing both the short-term and long-term housing needs for those who have been displaced. Short-term suggestions include removal of restrictions for federal low-income housing and government programs, utilization of the HOME Program and use of government-owned real estate for rental housing. Long-term proposals consist of enhancements to FEMA-provided assistance programs, FHA programs, Rural Housing Service programs and methods to increase low-income housing stock.

Huey said reconstruction and renovation of commercial spaces in the affected areas would require a multi-disciplinary team of experts and public/private cooperation at all levels to revitalize these communities suffering from vast devastation. MBA strongly encourages investment in these communities and recommends that immediate measures be taken by Congress to spur community and economic development, in order that these areas may once again be vibrant places to live, work, shop and be entertained. 

“Our goal, as an industry is not only to provide for the immediate relief of hurricane victims, but to restore the economic health of affected communities as well. Part of that community includes the very mortgage companies that provide mortgage credit to, and employ people from, these communities.” Huey said.

MBA and its members have urged consumers to call their servicer to confirm the length of the grace period and to discuss additional or long-term solutions. Most lenders have toll-free phone numbers for consumers to call. A list of top mortgage servicers that are servicing loans in the affected areas is at http://www.mortgagebankers.org/documents/NewsLink/misc/090705katrina1.pdf. Additional information can be also found on MBA’s Web site at www.mortgagebankers.org and at the site of MBA’s Home Loan Learning Center, www.homeloanlearningcenter.com.

MBA is also working with federal, state and local organizations to get this information out on Web sites and distributed to shelters. MBA is also posting information on charity and other private sector Web sites as it sends out public service announcements in newspapers across the country.
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The data, which did not yet incorporate the effects of Katrina, showed little sign that higher energy prices has been passed through to core consumer prices. Given the spikes in energy prices after Katrina, core inflation will likely be higher in the coming months. 

Regional Federal Reserve Banks’ manufacturing surveys, which provided the first glimpse of the economy after Katrina, showed a slowdown in the expansion in manufacturing in September. The surveys also showed that prices paid by manufacturers surged because of rising energy prices over the past month, and manufacturers were able to pass through some of the higher input costs.

The New York Fed’s Empire State Manufacturing Index slipped to 17 in September from 23 in August. (Readings above zero indicate expansion). The prices paid component jumped to the highest reading since March and the price received index also surged. The Philadelphia Fed survey showed that the manufacturing expansion in the region lost momentum in September, with the index plunging to 2.2—the lowest reading in three months—from 17.5 in August. Prices paid doubled while prices received increased from the previous month.

The impact of Katrina has started to show in the latest data on first-time filings of unemployment claims, which were for the week ending September 10th. Initial jobless claims increased to 398,000 from 327,000 in the prior week. The Department of Labor attributed 68,000 of the increase to the dislocation caused by Katrina. Claims will continue to rise in the coming weeks, as state workers have not been able to process the bulk of Katrina-related claims. Thus, recent numbers do not reflect the actual numbers of claims filed because of the large backlog and thus these numbers may be subject to large revisions.

The federal funds futures market continues to expect that the Federal Open Market Committee will raise the fed funds rate to 3.75 percent on September 20th. Long-term yields rose on concerns that the surge in prices paid by manufacturers could pass through to core inflation. The yield on 10-year Treasuries rose by 5 basis points from Wednesday to 4.22 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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The survey found that 31.7 percent of respondents did not know or responded incorrectly when asked to define a good credit score (700). Fifty-four percent of those surveyed wrongly stated that age is a factor considered in determining credit scores.

Only 13.6 percent of the 1,002 men and women aged 70-plus years responded correctly when asked to if a score of  700 was a good credit score. More than 43 percent of respondents in their thirties correctly identified the 700-score as a good credit score.

"Given the growing importance and influence of credit scores on purchasing decisions, it's startling that the majority of Americans do not understand what constitutes a good credit score," said Ken McEldowney, executive director of Consumer Action.

According to other findings of the survey, More than one-third (36.1 percent) of respondents reported that they do not use a budget to manage their family's expenses. Of the respondents, 80 percent between the ages of 18 to 19 years, use a budget compared to only 46.6 percent of those 70-plus years in age.

Findings of another survey said affluent Americans are more concerned about identify theft than other major issues such as terrorism and Social Security.

More than half (52 percent) of affluent investors said they view identify theft as a concern, according to a report, "Privacy Concerns of the Affluent Investor,” by Chicago–based Spectrem Group. Identity theft ranked No. 1 ahead of another act of terrorism seriously affecting the economy and investment returns (38 percent). The ability of Social Security to make promised lifetime payments (42 percent); poor investment performance over the next 1 years to 3 years (24 percent) and 3 years to 15 years (31 percent); and a slow economy causing a household member to lose his or her job (24 percent).

"Barely a generation ago, few Americans had even heard the term identity theft. Today, it is ubiquitous. Affluent individuals, in particular, are expressing considerable fear about identity theft and its potential impact. Indeed, the fact that they are more concerned about identity theft than terrorism is an eye-opener. The vast majority of those polled believe financial institutions should be doing more to protect them from identity theft, underscoring the need for banks, investment firms, insurers and others to take action and deal with this significant concern," said Catherine McBreen, managing director of Spectrem Group.

The survey found that three-quarters (75 percent) of affluent Americans believe their financial institutions should be doing more to protect their clients from identity theft.

The Spectrem Perspective report is based on a Spectrem Group survey of 500 affluent households, defined as those with more than $500,000 in investable assets. The survey was conducted in June and July.

The Consumer Action-Capital One survey found that respondents are missing an opportunity to preventing credit card fraud and identity theft by obtaining a copy of their credit report. The study found that almost two-thirds of the people surveyed said they rarely or never received their credit report. Only 35 percent of people polled reported that they check their credit report the recommended once a year.

The survey also found that 52 percent do not regularly review their credit report each year while 23 percent of Americans have never reviewed their credit report. Respondents also lacked the knowledge of the factors that impact credit scores and many did not realize they could obtain a copy of their credit or that they can now get one free.

"Obtaining a credit report is simple and easy and can be done in a matter of minutes by phone or online," said Diana Don Colby , director of financial education at Capital One. “Yet, many still neglect to take this simple step to protect their credit and their finances.".

Consumers can request free copies of their credit report, on an annual basis, due to the Fair and Accurate Credit Transactions Act of 2003. The Mortgage Bankers Association believes that making this information readily available to consumers is a good way to encourage personal financial responsibility. As part of its continued outreach efforts, MBA helps to educate consumers on the importance of credit reports and other aspects of the home buying process through its consumer-friendly, educational Web site, www.homeloanlearningcenter.com, where various tips for consumers are highlighted.
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Noel Webster, president of McCracken Financial Software, said McCracken will integrate DealCentral with its commercial loan servicing solution, Strategy, to create “an origination-through-disposition solution system”  and reduce data reentry.

McCracken, a wholly owned subsidiary of GMAC Commercial Holdings Inc., Horsham, Pa., has a client base servicing 60 percent to 70 percent of the $1.4 trillion commercial market of loans. Its large commercial servicer clients include GEMSA, Houston; GMACCM, Horsham, Pa.; and Wachovia Securities, Charlotte, N.C. McCracken said 80 percent of Fannie Mae and Freddie Mac multifamily loans go through the company’s servicing technology as well.

“We will provide a tighter integration,” said Tim Mueller of Deal Central, previously with MortgageRamp. “Everybody has different implementations of McCracken Strategy just like they will have different implementations of DealCentral. But we will be able to make sure that the communication between those two products is smooth and efficient as well as allowing our clients and customers to have a single point of contact and vendor to deal with as they move across the entire loan life cycle from beginning to end.”

According to the Commercial Mortgage Technology Survey released by the Mortgage Bankers Association last month, respondents said servicing transfers (originator to servicer and servicer to servicer) continues to challenge the industry because data is not presented in a standardized format or it has questionable quality. However, servicers said they need to re-key information twice without a front-end system.

Mueller said the integration of DealCentral and McCracken would begin with a loan boarding file to transfer data automatically to Strategy and then pass back updated information on a nightly basis with updated outstanding principal balances, escrows, paid through dates and, if securitizing a loan, all updated information.

Dave Bodi, chief technology officer of Midland Loan Services , said Midland uses an XML (extensible markup language) interface to transfer data between its DealFlow front end system and its back end Enterprise Loan Management System. “[Servicers] need the ability to feed data back and forth with some kind of standard interface,” Bodi said.

Mueller, however, said standards are usually best and most important when communicating across different entities as opposed to within one entity. “It is across entities that [companies] do not want to go through a big implementation and integration effort by using a standard file that is already defined,” Mueller said.

MBA’s Commercial Mortgage Industry Standards Maintenance Organization (MISMO) continues to put together data standards to form a common interface that would transfer data from origination and closing, the front end, to servicing, the back-end. With a common XML standard originators would not need to rekey information, saving time, and not need to pay for another interface, saving in costs. “There is a tremendous amount of benefit that will be gained with the one-way transfer,” Bodi said.

The benefit not only to take information from an origination system to an existing servicing system but when servicers transfer a loan from their system to a new servicing system, Bodi added. “MISMO is addressing those two major components,” he said. 

Midland uses XML, similar to Commercial MISMO’s transfer vehicle, and its own XML schema to transfer data from the servicer back to the front end. The interface is important to commercial mortgage backed securities (CMBS) servicers but also to life companies who review assets on an annual basis. Servicers need to view cash flow data in the case of default or to re-underwrite and extend new funds on a matured loan. “All of that information is sitting in the servicing system, [including] all the current financial information, all the rent rolls,” Bodi said. “[Commercial real estate companies] want to be able to take that out of the servicing system and bring it back to the front end system so that [the firm] has that data available and [the company] does not need to rekey it.”

Despite full end-to-end platforms, Bodi said they will not push out the companies who make commercial origination software. “[Originators] want a custom environment,” Bodi noted. “Some [software] they develop in house and some they buy and modify. We are offering a package and it can be customized in some degree, but there are always going to be people who want to control their origination software completely because of proprietary reasons around their origination process…There will always be custom origination software or software purchased and customized for the particular environments.”

Shawn McKenna, president of Analytic Solutions Inc., Englewood, Colo., said Analytic Solutions’ ProLinkCMO system performs a number of different functions from Deal Central’s software. “Our system is more of a framework so we customize it for each client,” McKenna said. “We do the automation of the underwriting, deal packaging and all the processes involved in lending.”

Past Analytic Solutions clients include GMAC Commercial Mortgage, John Hancock Life, Collateral Mortgage Capital and McCracken Financial Systems. In June, the California Housing Finance Agency (CalHFA) awarded Analytic Solutions with a contract to implement its new loan origination, underwriting and database management system for a multifamily loan origination system. CalHFA said the new system will provide a framework for all parties involved in the loan to share data electronically and to provide CalHFA with origination data to its “enterprise-wide data repository” for asset management.

According to industry participants, McCracken clients who use the Strategy servicing systems are comfortable with the technology, but those firms also build around the system with newer solutions because Strategy is a mainframe product. McCracken Financial has already created the ability to communicate with DealCentral in XML, Mueller said.

“We are going to do information flows back and forth and we might put reporting structures around [Strategy],” Mueller said. “All of that type of work would be done in either dot-net or java. It would really depend on the right solution for the problem.”
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• California Credit Union, Glendale, Calif. (Regular)
• Captiva Software Corp., San Diego (Associate)
• Carver Federal Savings Bank, New York
• Edgewood Capital, Southport, Conn. (Regular)
• FBOP Corp., Chicago (Regular)
• Financial Specialty Risk Management Inc., Dallas (Associate)
• Hartford Investment Management Co., Hartford, Conn.
• Millman Surveying Inc., Hudson, Ohio (Associate)
• Nevada Pacific Realty Capital LLC, Irvine, Calif.
• Results Engineering, Neosho, Wis. (Associate)
• West Coast Commercial Mortgage, Huntington Beach, Calif. (Regular)
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“CharterMac has approximately $24 billion in real estate assets under management, which means we are active in virtually every market and have access to tremendous real time data,” said Daryl Carter, CEO of CharterMac Mortgage Capital “That knowledge often allows us extraordinary expediency when it comes to loan approval, a factor that was of utmost importance to our borrower in this case.”
 
Marcus & Millichap reported that the Oakland apartment market shows solid job growth in financial services, business services and hospitality with expectations of an additional 16,000 jobs to the area this year. Oakland’s relative affordability compared to the rest of the Bay area also spurs rental demand. Meanwhile, researchers said the Reno apartment market shows rapidly escalating home prices fueling greater interest in apartment rentals as condo conversions leave fewer options.

Each property was rate-locked individually but underwritten as a combined portfolio. That approach allowed for the rapid approval but permitted the borrower with flexibility in the future to refinance individual properties but not the whole portfolio. Charter Mac Mortgage Capital said apartment owners with large holdings, and good cash-out opportunities from specific properties, want that flexibility.

Refinancing involved 913 apartment units with all properties in strong apartment markets and in very good condition.  The Reno properties have occupancy rates that top 97 percent, higher than competing properties, with area rents rising as Reno continues to see growth and condo conversions tap into existing rental supply. The Oakland area apartments have roughly 96.5 percent occupancy rates. 

Each of the four individual loans have a ten-year term, 30-year amortization, and are rate locked at 4.805 percent.  Loan to value (LTV) ratios range from nearly 74 percent to 79 percent and debt service coverage varies. The loans were originated by Richard, Krage and Matt Olrich in the firm’s San Rafael, Calif. office.

Creekside Commons, a 224-unit property with a mortgage totaling $14.8 million, was originally built in 1988. It features one- to three-bedroom apartments ranging in size from 717 square feet to 1,233 square feet with asking rents starting at $635 per month.  Units are in 18, two-story buildings.

Club Ambassador Apartments, with $17.5 million in mortgage financing and built in 1991, includes one to three bedroom apartments, ranging in size from 736 square feet to 1,216 square feet and rents starting at $680 per month. Residences are located in 38, two-story buildings.

The two California properties are both include Austin Commons Apartments, a 208-unit property in the city of Hayward.  Mortgage financing totaled $17.3 million on the property.  Built in 1987, Austin Commons has one- to three-bedroom residences from 605 square feet to 1,100 square feet with asking rents starting at $900 per month.  Apartments are in nine buildings, each three stories in height.

Gateway Apartments, total 236 apartments in the city of San Leandro.  The mortgage on the property is $19.9 million with one to three bedroom residences ranging from 671 square feet to 1,108 square feet and rents starting at $900 monthly. The residences are situated in eight, three-story buildings.  Both properties are in the East Bay area of Oakland.
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MBA’s support will enable Habitat’s rebuilding efforts in the Gulf Coast area to begin with its "Home-in-a-Box" program and evolve into traditional on-site volunteer-driven construction of permanent housing.

MBA’s commitment to Habitat’s rebuilding efforts follows its recent donation to the American Red Cross last week in the amount of $100,000 towards their relief efforts and individual staff contributions of $8,600.

In addition to the significant financial support MBA has extended, MBA and its members are reaching out to individual consumers affected by Katrina with servicing information, contacts and instructions.  Public service announcements and ads are also running to reach as many affected consumers as possible. Both www.mortgagebankers.org and www.homeloanlearningcenter.com are providing a number of resources for victims of Katrina as well.

Additional relief efforts will be considered as the reconstruction work progresses in the Gulf Coast.
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Bring a new vision to your team and attend MBA's Management Track sessions.

The Disney Approach to Leadership Excellence
October 24, 2:00-3:15 p.m.
Take the fundamental leadership philosophies guiding the success of the Walt Disney World Resort and adapt them to your organization. Combining classroom sessions, application exercises, field experiences and interaction with Disney leaders, this session guides you in discovering the leadership principles that are at the core of Disney's organizational strength.

The Art and Science of High Performance
October 24, 3:30-4:30 p.m.
Andrew Bennett, founder of Bennett Performance Group, weaves together a compelling case about the need for inspiration in our work, and how it is closely linked to financial success. He discusses how inspiration builds enduring, positive energy into your organization's culture, connects the hearts and minds of customers, employees, suppliers and communities, and creates compelling reasons for staff members to work with their organizations. Walk away from this session with six tools for building inspiration-driven, high performance into your organization.

Four Generations in the Workplace: Searching for Common Ground
October 25, 11:00 a.m.-12:15 p.m.
For the first time in history, four distinct generations-Matures, Boomers, Xers and Millennials-are employed side by side in the workplace. In this session, retention and generations expert Cam Marston discusses common generational characteristics, specific leadership needs of each generation, the new definition of company loyalty and fresh guidelines for team building. And, he provides valuable advice about the common ground employees share-the intensity with which each generation holds fast to its value systems.

Organizational Change and Performance
October 25, 2:45-4:00 p.m.
Corporations often struggle in creating a common vision and in communicating that vision throughout their companies. In this session, executive coach, John Parker Stewart provides senior managers with guidance on organizational structure, personnel placement and identifying company needs. He specializes in melding together corporate cultures and uniting people with differing backgrounds and heritages.

Register Today
Join the largest gathering of residential real estate finance professionals at MBA's 92nd Annual Convention & Expo. The convention offers strategies so you can adapt and adjust your business to thrive in a constantly changing marketplace. While providing opportunities to network with your peers, the convention also offers the opportunity to gather valuable information on innovative business practices, learn about winning products and services, get updates on the latest technology, and to meet and exchange ideas with industry leaders.

For more information, visit the Convention Web site at http://events.mortgagebankers.org/92nd_Annual/default.html.
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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 survey showed the percentage of loans in the foreclosure process at 1.00 percent at the end of the second quarter (June 30), a drop of 18 basis points from the previous year and down by 8 basis points from the first quarter. The seasonally adjusted rate of loans entering the foreclosure process stood at 0.39 percent in the second quarter, down by 1 basis point from the previous year and down by 3 basis points from the first quarter.

Meanwhile, the seasonally adjusted delinquency rate for mortgage loans on one-to-four-unit residential properties stood at 4.34 percent at the end of the second quarter, down by 22 basis points from the second quarter of 2004 but up by 3 basis points from the first quarter.

“Broadly based, the quality of the outstanding base of loans has continued to improve,” said MBA Chief Economist Doug Duncan.

Duncan said growth in the U.S. economy and improving unemployment rates contributed to the stable numbers. “The U.S. economy grew at almost 3.3 percent in annualized real terms during the second quarter, adding 205,000 payroll jobs per month,” Duncan said. “Combined with the low interest rate environment, consumers improved their household finances and the percentage of homeowners making their mortgage payments on time increased to nearly 96 percent.”

Seasonally adjusted delinquencies for adjustable-rate (ARM) and fixed-rate products are generally down from last year and last quarter, the survey found. Over the year, the seasonally adjusted delinquency rate for prime ARM products fell by 7 basis points (from 2.26 percent to 2.19 percent), while the percentage among prime fixed-rate products decreased by 9 basis points (from 2.11 percent to 2.02 percent). Since the second quarter of 2004, the seasonally adjusted delinquency rate for non-prime ARM products has decreased by 8 basis points (from 10.12 percent to 10.04 percent), while the rate for non-prime fixed-rate products dropped by 72 basis points (from 9.78 percent to 9.06 percent). 

Since the second quarter of 2004, the seasonally adjusted delinquency rate for prime loans decreased by 20 basis points (from 2.40 percent to 2.20 percent), by 14 basis points for non-prime loans (from 10.47 percent to 10.33 percent), by 17 basis points for FHA loans (from 12.54 percent to 12.37 percent) and by 66 basis points for VA loans (from 7.57 percent to 6.91 percent). Since the first quarter, the seasonally adjusted delinquency rate for non-prime loans decreased by 29 basis points and by 25 basis points for VA loans. The rate increased by 3 basis points for prime loans and by 64 basis points for FHA loans.   

The foreclosure inventory percentage decreased for all loan types over the year: by 7 basis points for prime loans (from 0.49 percent to 0.42 percent), by 111 basis points for non-prime loans (from 4.40 percent to 3.29 percent), by 30 basis points for FHA loans (from 2.59 percent to 2.29 percent) and by 20 basis points for VA loans (from 1.45 percent to 1.25 percent). In addition, the foreclosure inventory percentage declined from last quarter among all loan types: by 4 basis points for prime loans, by 20 basis points for non-prime loans, by 27 basis points for FHA loans, and by 13 basis points for VA loans.

Over the past year, the seasonally adjusted percentage of new foreclosures was down by 1 basis point for prime loans (from 0.19 percent to 0.18 percent), by 19 basis points for FHA loans (from 0.95 percent to 0.76 percent), and by 11 basis points for VA loans (from 0.50 percent to 0.39 percent), while increasing by 8 basis points among non-prime loans (from 1.18 percent to 1.26 percent). Since the last quarter, the percent of new foreclosures decreased by 28 basis points for non-prime loans, by 10 basis points for FHA loans, and by 1 basis point for VA loans, while remaining unchanged for prime loans (0.18 percent).

The seriously delinquent rate, defined as the non-seasonally adjusted percentage of loans that are 90 days or more delinquent or in the process of foreclosure, was down from last year and last quarter. This additional measure conforms to a number of standard definitions and is designed to account for inter-company differences on when a loan enters the foreclosure process. In the second quarter, the percent of loans that were seriously delinquent was 1.83 percent, 20 basis points lower than second quarter of 2004 and 6 basis points lower than first quarter of this year.  

Duncan said MBA expected an “uptick” in delinquency rates over the next few quarters in states directly affected by Hurricane Katrina, especially Louisiana and Mississippi. 

“The first effects of Katrina on delinquencies should be seen in the 30-to-59 days delinquent category reported in the third quarter, with more complete impacts reflected in the fourth quarter numbers, which you do not see them in this quarter’s data,” Duncan said. “In addition, higher energy costs may exacerbate delinquency rates starting in the fourth quarter.”

Real gross domestic product growth is projected to be lower than expected in the second half of the year, but should increase in 2006, Duncan said. Additionally, the unemployment rate is expected to rise slightly in direct correlation to jobs that were lost or disappeared from Katrina. Nonetheless, economic growth should accelerate in 2006 in response to dropping energy prices and an increase in construction in the affected areas. Housing will remain strong, despite a slight setback from the effects of Katrina. The number of mortgages directly affected by Katrina has been estimated at 360,000 with a value of $48 billion, he said.

Duncan said he also expected the Federal Open Market Committee to continue to raise key interest rates, which will likely have an effect on the volume of adjustable-rate mortgages.

This quarter’s NDS results cover nearly 39.9 million loans—29.7 million prime loans; 5.3 million non-prime loans; and 4.9 million government loans).
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