Foreign appetite for U.S. Treasuries was largely unchanged from July, as foreigners bought a net $28.0 billion of Treasuries, following a purchase of $28.5 billion in July. The yield on 10-year Treasuries declined by two basis points from Monday, hovering around 4.48 percent by mid-Tuesday 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 average contract interest rate for 30-year fixed-rate mortgages increased to 6.09 percent from 5.98 percent on week earlier, with points increasing to 1.29 from 1.22 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. The 30-year rate has risen by 35 basis points over the past six weeks; the last time rates were this high was the week of June 25, 2004. 

The average contract interest rate for 15-year fixed-rate mortgages held steady at 5.62 percent, with points increasing to 1.29 from 1.19 (including the origination fee) for 80 percent LTV loans. The average contract interest rate for one-year adjustable-rate mortgages (ARMs) increased to 5.34 percent from 5.26 percent one week earlier, with points increasing to 1.00 from 0.96 (including the origination fee) for 80 percent LTV loans. 

The survey includes a half-day adjustment to compensate for the Columbus Day holiday on October 10.

The Market Composite Index stood at 737.5, an increase of 6.1 percent on a seasonally adjusted basis from 694.8 one week earlier. On an unadjusted basis, the Index decreased by 4.4 percent compared to the previous week but was up by 3.7 percent compared with the same week one year earlier. The four-week moving average for the seasonally-adjusted Market Index is down by 1.2 percent to 716.8 from 725.4. 

The seasonally-adjusted Purchase Index increased by 7.3 percent to 503.9 from 469.5 the previous week. The four-week moving average for the Purchase Index rose by 0.2 percent, to 482.6 from 481.7.

Refinances were up as rates rose; the seasonally adjusted Refinance Index increased by 4.5 percent to 2095.7 from 2004.9 one week earlier. However, the four-week moving average for the Refinance Index fell by 3.0 percent, to 2078.7 from 2143.2. The refinance share of activity increased to 42.8 percent of total applications, from 43.5 percent the previous week. The ARM share of activity decreased to 29.3 percent of total applications from 29.5 percent the previous week. 

Other seasonally adjusted index activity includes the Conventional Index, which increased by 6.0 percent to 1103.8 from 1040.9 the previous week; and the Government Index, which increased by 7.8 percent to 126.3 from 117.2 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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Additionally, nearly half of African Americans surveyed reported having no savings at all. The survey found that most consumers, regardless of race, are also worried about their level of savings and protecting their identities.

"Consumers have some real concerns about managing and protecting their finances. At the same time, some are missing basic steps they could be taking to turn those concerns into opportunities to enhance their financial futures," said Loretta Abrams, vice president of community development and consumer advocacy with HSBC-North America.

HSBC also revealed one-third of African Americans know their specific credit score. More than 90 percent of respondents know their credit score impacts their ability to make major purchases such as a home.

More than one-third of people who took advantage of the free credit report found errors. Of those consumers, 21 percent paid the extra fee to get the credit score. "Knowing your credit history represents the first step toward understanding and managing your financial well-being," Abrams said. "The second step is to develop a spending and savings plan that works for you."

Of the respondents to the savings survey, 25 percent of African Americans stick closely to budgets they set for themselves. In addition, more than 80 percent are concerned about the level of their savings.

"One of the most effective ways to reach your financial goals is to make regular contributions to a savings or investment account. Without some savings, you might have to take on unplanned debt when an emergency strikes," Abrams said. "The good news is that, armed with a solid financial plan, most people find ways to put aside a portion of their income for future needs and to meet long-term goals."

To help educate consumers on the home loan process, the Mortgage Bankers Association created Home Loan Learning Center. For more information, visit www.homeloanlearningcenter.com.
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New CMBS issuance in the U.K. $24 billion for the first three quarters, representing 26 deals. Total European CMBS issuance for the same period at nearly $39 billion, and U.K. issuance during the same period last year was $8 billion encompassing 10 deals. New issuance in Europe is set to reach €50 billion by the end of the year.

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Property & Portfolio Research Inc. (PPR) launched its European Service, with initial coverage of 21 major European office markets. PPR's service will initially cover office markets. It will add property types in the coming year. PPR said its European Service will include market-level reports and applied research by economists located in Boston and London. The reports will be written with a United States-based investor in mind, translating traditional European real estate metrics into those typically used by U.S. investors.

"U.S. investors have significant interest in European real estate today and require apples-to-apples forecasts of market trends," said Bret Wilkerson, CEO of PPR.

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Bridger Commercial Funding completed expansion of its nationwide commercial mortgage backed securities (CMBS) loan origination platform for commercial banks by establishing a new Northeast regional office in New Jersey and recruiting more than a dozen real estate professionals throughout the country. 

The company hired CMBS underwriters, analysts and closers in its headquarters and regional offices to accommodate the firm’s growing loan volume, which is on track to almost double over last year’s volume. Bob Schonefeld, CEO of Bridger Commercial, said the firm is broadening its regional staff to reinforce its local expertise and to further support its diverse network of commercial bank clients. “So far this year we’ve originated more CMBS loans with more bank clients—both old and new—than ever before, outpacing the industry’s growth rate by more than three times."

Bridger plans to increase its presence in the northeast by opening new offices and adding staff to its New Jersey and D.C. offices. The firm will also be hiring more staff in Atlanta to service its banking clients in the southeast. It appointed Gina Mackenzie vice president, relationship manager. Mackenzie heads the firm’s New Jersey office and will be working with Bridger’s bank clients in New York, New Jersey, Connecticut and northeast Pennsylvania .

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CoStar Group Inc., Bethesda, Md., signed seven of the North Carolina Triad's commercial real estate (CRE) brokerage firms as charter subscribers. CoStar Field Research teams have been working in North Carolina's Triad since May 2004, photographing and collecting information on office, industrial and retail properties. The Triad area database includes more than 14,000 properties totaling over 22 million square feet of available space.

The company signed license agreements to provide CRE information to charter subscribers Brown Investment Properties, CB Richard Ellis, Coldwell Banker Commercial Triad Realtors, Freeman Commercial Real Estate, The Meridian Realty Group, NAI Maxwell and Triad Commercial Properties.  CoStar also signed license agreements with Commercial Carolina Corporation, Hagan Properties, Liberty Property Trust, Parthenon Realty, LLC, Ramm Commercial Properties, Starmount Company and Twin City Commercial Brokerage.

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Calkain Companies, Reston, Va., formed a new brokerage division called Calkain Institutional Advisors. The new division will assist clients in procuring transactions that typically range above $10 million.

“Institutional real estate investing has elements that are much different than transactions normally participated in by private investors through Calkain Realty Advisors,” said Jonathan Hipp, Calkain Companies president. “We felt that it was important to institute a completely separate entity in order to accommodate clients in need of attention to their precise requirements in this very exclusive investment classification."

Calkain Institutional Advisors began its operations in the Net Lease market by bringing an 11-property, six-state portfolio to the open market in September. The portfolio, tenanted by Havertys Furniture Inc., is currently being introduced to institutional clients worldwide.
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In June, Somerset Partners announced the closing of its $100 million Somerset Multi-Family Fund I, currently supporting a $400 million acquisition campaign of Class-A multifamily housing nationwide. The next month, Somerset Partners acquired 85 Tenth Avenue for $300 million . The 600,000 square-foot office building in the Chelsea sub-market of Manhattan represented the first office acquisition for the company, which has built a $300 million portfolio of multi-family properties throughout the Southwest and Southeast U.S. in the last three years.

Somerset, however, recently sold the Arbors of Pleasant Valley, a 184-unit Class-A multifamily property in Little Rock, Ark., in a $13.1 million transaction. Somerset Partners acquired the asset in 2003.

According to Philip Welch, managing partner of Somerset Partners, the firm was able to purchase the asset at a favorable price back in 2003, which enabled Somerset Partners to realize a substantial upside as the Little Rock market improved over the past two and a half years.
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CC Pace is a financial services consulting firm whose clients include members of the Fortune 100, as well as industry entrants and mid-size firms. CC Pace's mission is to enrich its clients’ capabilities by providing phenomenal talent and solutions at the right time to overcome their critical business and technology challenges. This year marks CC Pace’s 25th year in business. Based in Fairfax, Va., the company has grown steadily in that time; today its workforce consists of nearly 200 consultants and annual revenues are in excess of $30 million.

While the firm provides services to several sectors of the financial services industry, including banking and capital markets, and is a world leader in working with lean-agile methodologies, CC Pace is best known for its focus on the mortgage industry. The company’s customer base spans more than 100 mortgage clients, ranging from top-10 lenders to start-ups.

"We take our clients' issues as our own, and feel that we are successful only when we can contribute to our clients' success," said CC Pace President and CEO Michael Gordon.

Craig Hughes, vice president of mortgage consulting, said, “CC Pace’s reputation is one of our most prized assets. We continually find word of mouth to be a critical part of our sales process. People hear about us and what they hear is that our track record for successful engagements is unparalleled. We work very hard to earn and protect that reputation.”

Key personnel include Gordon; Hughes; Bill Lehman, director of strategic engagements; Barbara Michels, director of implementation services; Joanie Cassens, vice president of staffing; Ed Neumann, director of banking; Philippa Fewell, vice president of capital markets; and mortgage consulting directors Rick Morelli and Debbie Shatz.

MBA: What trends is your company positioning for in the next few years?

HUGHES: Obviously the industry is in a different market dynamic today than we were in a year ago. We are currently focused on helping our clients to improve the efficiency of their operations in today’s market, while taking the strategic steps they need to position them to better handle the inevitable next refinance market. For many the reduced profitability in today’s purchase market stems from a failure to sufficiently convert fixed costs in their operation to a variable cost structure. CC Pace has developed an important offering around very powerful, but cost-efficient, business metrics that help our clients to better understand the costs of their operations. We couple the business metrics with our strong capabilities in process improvement to really make a difference to the bottom line. We have also developed an offering we call LOS Advantage that allows our clients to supplement, or even outsource, their internal capabilities for application enhancement and maintenance through a modestly priced subscription fee schedule.

For more than ten years, we have been predicting that mortgage systems would become increasingly fragmented as lenders seek out best of breed functionality over traditional monolithic systems. This shift in systems strategy is an active trend today, particularly in wholesale channels and non-prime lending. Web portals, pricing engines, document management systems, automated underwriting, vendor services, fulfillment systems, fraud systems and data warehouses are being integrated to form tomorrow's origination platforms. Today's technologies are making that approach increasingly viable through the Internet, Web services, xml and more. CC Pace has been active for several years in devising systems strategies for our clients and we are adept at implementing multi-vendor systems. As a result, we are well positioned for this growing trend.

Mortgage markets around the globe are evolving, creating intriguing opportunities. Just as the MBA’s membership has seen a fair amount of growth from the international community of late, so has CC Pace’s global presence grown. We have recently worked with clients in South America, Europe and Asia. Foreign mortgage markets are seeking to emulate many of the US mortgage industry's innovations while adopting them to their unique markets. CC Pace has been adept at applying our strong understanding of the market here in the States, while quickly assimilating those characteristics that are different in our international clients’ environments.
Finally, we truly believe that the pieces required to support an active e-mortgage marketplace are coming together at last. CC Pace has seen an increase in our business around e-mortgage strategy in the past year. We are actively ratcheting up our capabilities and involvement in this space to meet the demands we anticipate will be increasing steadily over the next few years.

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

HUGHES: We have just celebrated our 25th year in business and we are doing the things we need to do to ensure we’ll be around for the next 25. We are growing our banking and capital markets experience to extend across the full spectrum of consumer lending through to the securitization and trading of debt-backed, fixed-asset securities. CC Pace has grown at a steady, manageable rate fairly consistently for many years, but we believe that we are now organized appropriately and have put the right management team in place to grow more rapidly and aggressively in the near-term. We have a goal of doubling our size in the next three to five years, in terms of staff size, revenues and number of clients.

Within the mortgage industry, we have effectively evolved our model from that of an almost purely technology consulting company to one that has an active business and operations strategy component and we expect that will continue to develop over the next five years, and our services will broaden commensurately. Corporately, we are currently in the process of setting up satellite offices in New York and Richmond, Va.  We expect to increase our mortgage presence through geographic expansion with the opening of one or more additional offices in the coming years as well.

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

HUGHES: Growing our consulting staff sufficiently to meet market opportunities. We grew our mortgage consulting by 50 percent last year and are on a track to grow by 35 percent this year. We set high standards for our managers and staff and it is hard locating qualified employee candidates with a good understanding of the mortgage industry and live in, or are willing to relocate to, the Washington metropolitan area, where we are based. As a result, we have been increasingly willing to hire remote employees and have been discussing the feasibility of opening another location, most likely on the West coast.

MBA: Why did your company join the Mortgage Bankers Association?

HUGHES: We have been members since 1986. For us it was a no-brainer. We were in the process of trying to establish ourselves as a credible consulting firm in the mortgage industry and the Mortgage Bankers Association provided us with the opportunity to interact with lenders of all sizes and offered ready access to a wealth of information through conferences, publications and courses.

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

HUGHES: We are proud to be a Premier Associate member and believe we receive great benefit from that program. MBA goes out of its way to listen to the input of their Premier members and we are happy to participate in the Associates Advisory Sessions. We have been fortunate in having had several articles and one book published by the MBA and have spoken frequently at MBA conferences. We appreciate the opportunity to participate in industry work groups and help to chart the course for the industry through our active involvement with MBA.
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In an op-ed piece that appeared yesterday in USA Today, MBA President and CEO Jonathan Kempner called the panel’s proposal to reduce the mortgage size from which interest could be deducted from $1 million to just $350,000 a “tax increase” that would target middle-class households along both coasts and in densely populated areas.

“Enacting this proposal could turn a healthy housing market upside down, reverse the homeownership ‘wealth effect’ this country has enjoyed and curb the U.S. economy,” Kempner said.

In 2004, the mortgage industry made more than 1 million loans with initial amounts between $350,000 and $1 million. In California alone, that means 1-in-5 would be hit with a new tax. And, numerous borrowers in other high-cost areas such as Connecticut, New Jersey, Massachusetts, Florida and Washington, D.C., would see tax hits as well.

“The proposed change unfairly targets middle-class households along the East and West coasts and in densely populated areas of the country where land is scarce and regulations restrict growth,” Kempner said. “Those who argue that a deduction reduction affects only the very rich have obviously not looked at prices in high-cost areas. In 2004, the average home price was $435,000 in California, $376,000 in Massachusetts and $352,000 in New Jersey.”

In an October 17 letter to Sen. Connie Mack, R-Fla., chairman of the advisory panel, MBA said the proposal to reduce the mortgage interest deduction cap is “inconsistent with President Bush’s publicly stated principles for tax reform and could harm homeownership and the economy.”
 
“The mortgage interest deduction is consistent with America’s longstanding tradition of encouraging homeownership, a pillar of U.S. housing policy,” MBA said. “Since the enactment of the federal tax code in 1913, the mortgage interest deduction has remained one of the most powerful incentives for the expansion and preservation of homeownership.”
 
The benefits of homeownership and the mortgage interest deduction extend far beyond positive social effects; homeownership and the mortgage interest deduction strengthen the economy and play a key role in our nation’s accumulation of wealth, Kempner noted.

“During times of recession, the ability of households to refinance their homes and access home equity has been a substantial source of support for the economy,” Kempner said. “The president's first-term tax-cuts were a key to economic recovery in which—let's not forget—housing led the way. Foreseeing this benefit, the mortgage banking industry fully supported the Bush tax reform and cuts. While the mortgage industry supports the president's tax-reform principles, the commission needs to recommend specific proposals that meet these principles.”

The link to the USA Today article can be found at http://www.usatoday.com/news/opinion/editorials/2005-10-17-oppose_x.htm.
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