Robert Story Jr., CMB, executive vice president and COO of Seattle Financial Group, Seattle, will testify on behalf of MBA at the House Financial Services subcommittee on Housing and Community Opportunity in support of H.R. 2892, the “Reverse Mortgages to Help America’s Seniors Act,” introduced this year by Rep. Michael Fitzpatrick, R-Pa.

Among other provisions, the bill would remove the cap on FHA’s reverse mortgage product, the Home Equity Conversion Mortgage (HECM). The program has enabled thousands of seniors to gain access to the equity in their homes without having to make a mortgage payment until they move out.

The hearing takes place Wednesday, November 16 at 2:00 p.m. EDT in room 2128 of the Rayburn House Office Building. MBA NewsLink will provide coverage in its Thursday, November 17 edition; the hearing can be accessed live at http://financialservices.house.gov/.
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The survey also found that nearly half (49 percent) of respondents said they preferred to use technology that complies with standards approved by the Mortgage Bankers Association or the Mortgage Industry Standards and Maintenance Organization (MISMO).

“The market is bullish on e-mortgages, with an increasing amount of emphasis placed on the importance of collaboration,” said Greg Smith, president and CEO of Advectis. “As companies get more aggressive about technology, we expect to see the streamlining of loan processing continue to accelerate, as well as in the way the different parties work together.”

This is the second year the company has conducted a survey of mortgage industry professionals on the topic of paperless mortgage processing. Respondents identified the primary benefits of paperless processing as decreasing turnaround and processing time per loan, cost reduction and improved service. 

Enabling collaboration with other mortgage players was ranked very important or somewhat important by 85 percent of respondents, a 64 percent increase from responses to this question in the 2004 survey. A significant percentage of respondents indicated they believe the mortgage industry will be processing more than 50 percent of all loans as an e-mortgage, or totally paperless, in four years or less.

Respondents also largely believed they were ahead of the curve—by a 4-1 margin, they believed they would “aggressively” move to adopt eMortgages (39 percent) or adopt eMortgages “sooner” than most companies (41 percent).

Asked to provide a timeline as to when the mortgage industry would process more than 50 percent of mortgages as paperless, 8 percent said in 1-2 years; 37 percent said 3-4 years; 37 percent said 5-7 years; 15 percent said 8-10 years; and 4 percent said 10 years or more.

According to Advectis, 74 percent of the companies surveyed performed origination of loans, with 77 percent performing closings, 81 percent performing underwriting, 64 percent performing investing and funding and 45 percent performing servicing.
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The alliance, whose members and funding sources include Fannie Mae and Freddie Mac, said demand-side initiatives could assist aspiring homeowners in financing a new or existing home they might otherwise not be able to afford, while supply-side efforts could serve to increase the supply of affordable homes in a given area.

“Affordable housing is critically important to society and the economy. Chronic housing affordability problems make it difficult for companies and institutions to attract and retain skilled employees,” said Rick Davis, the alliance’s executive director. “Many local governments have enacted programs to help make homeownership more available and affordable.”

The best practices range from assistance with downpayment and closing costs to developer incentives for the provision of affordable housing. A number of these successful programs, based on case studies in more than 20 cities, also involve assistance by private or non-profit organizations.

Among the initiatives recommended:

• Homeownership Tax Credits of up to $5,000 in tax relief to low- and moderate/middle-income first-time homebuyers;

• Housing Cost Assistance Programs, in which agencies provide funds for eligible participants to use toward the cost of owning a home. Depending on the particular program, assistance can go toward loan downpayments, closing costs, mortgage payments or other costs associated with homeownership; and

• Voucher Assistance Programs, such as Section 8 vouchers, now in use by several localities to allow federally funded subsidies to be applied to mortgage payments.

Types of supply-side initiatives recommended include:

• Agency Development Initiatives, involving direct effort by a housing agency to increase the supply of affordable housing in its area. This could involve rezoning or annexing land specifically for the purpose of affordable housing development, investing in the development affordable housing or funding the rehabilitation of existing unoccupied housing properties; and

• Developer Incentives, including efforts by public agencies to encourage private developers to include or increase affordable housing opportunities.
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Parker Kennedy, chairman and CEO of The First American Corp., said "the acceptance and use of RE3W's application throughout the commercial real estate industry will revolutionize the way the industry does business. Our investment in RE3W is consistent with our commitment to constant innovation and helping make the best possible products available."

"Traditionally, property searches required a specific name, property address or parcel number, which could take many hours or days to gather and identify the right information," said Richard Frost, founder of RE3W, a Web-based software development firm for the commercial real estate industry. RE3W said using MSN Virtual Earth and the other services “dramatically shortens the search time to only a few minutes.” The current version of the application is commercially available today.

Grubb & Ellis Co., Chicago, is undertaking a national rollout of the RE3W application. Robert Osbrink, president of transaction services at Grubb & Ellis, said the tool helps Grubb & Ellis remain better connected to its clients. "The RE3W application has significantly improved our ability to collaborate, organize information and documents, automatically keeping property files up to date."

The new search feature from RE3W, Microsoft and First American allows its members to "fly" into the business district of any city through satellite imagery of MSN Virtual Earth. Members can identify parcels of land through a "bird's eye,”: 45 degree oblique aerial image from MSN Virtual Earth, and a tax assessors parcel map delivered by web services from The First American Corporation, superimposed on the same screen.

A user “draws a box” on the MSN Virtual Earth satellite image of a property and the software returns with a list of all property owners contained within the drawn box. Members can then select a property to reveal the owner's contact information and telephone number.

"Microsoft's technology and services coupled with our technology provides us with a foundation for a comprehensive application not found anywhere else, helping property owners, investors, sellers, brokers, attorneys, lenders and other participants of the real estate transaction to access, organize and instantly act on the information now available at their fingertips," Frost said. "The combination of Microsoft's client, server and now, MSN Virtual Earth, services enabled us to accomplish our vision."

The trend for faster commercial real estate searches continues with Bethesda, Md.-based CoStar Group and Google Earth, Mountain View, Calif. As CoStar Group plans to add 21 markets to its coverage of commercial real estate, it also plans to have more markets than office property in its database.

“Many people think of CoStar as the Class A office building information company, and we are really not just that,” said Henry Stoever, vice president of marketing at CoStar Group. “We are doing a tremendous amount to explode the breadth of our coverage.” Stoever said a “tremendous amount of activity,” especially in the retail market, will come out from CoStar.

The CoStar, Google product would not be in “real time,” but investors can look at the property and see its surroundings without a prospectus of the building, according to Neal Polachek, analyst at The Kelsey Group, Princeton, N.J.

“Now, that same investor can look at more around that building than just the printed document,” Polachek said “The ability to go through the Google box and get there just makes it appealing. I don’t know about the relationship.”

Polachek did not comment on a potential purchase by Google of CoStar Group, but he said some industry experts believe it is a possibility. Stoever said the combination between CoStar and Google provided comparable data nationally with updated listings for sale, lease or an inventory of commercial properties.

“The tools and the analytical capabilities allow our customers to look so professional in five minutes,” Stoever said. “The marriage of the two [unique technology and human perspective] is what makes a company-client relationship strong.”
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The Villas at Reunion Square will be constructed on a 48.8 acre parcel of land, and upon completion, will contain 798,500 square feet and 504 units, which were 100 percent pre-sold. Amenities include three 18-hole golf courses, horse stables and a water pavilion. The property will be located in southwest Orlando, near Disney World, in the 2,300 acre Reunion development, comprised of single-family homes and condominiums.

GMACCM Vice President Jack Martinez of the Orlando loan origination office arranged the transaction, and The Villas at Reunion Square LLC received the funding. Ginn Clubs & Resorts will manage the property. “GMAC Commercial Mortgage won this deal as a result of the ability to commit to the entire loan without participation,” he said.
 
GMACCM funded $35.5 million for hospitality properties in Alexandria, Va. and Birmingham, Ala. It provided $25 million in permanent, fixed-rate financing for an Alexandria, Va. Hampton Inn hotel. The 90,579-square-foot Hampton Inn, on 2.12 acres, contains 156 suites and 4,453 square feet of meeting space, an outdoor pool, exercise room and a gift shop. The loan will enable the construction of a seven-story, 41,464-square-foot addition that will contain 57 suites, a business center, management offices a breakfast area, shop and pantry. Upon completion, the hotel brand will change from a Hampton Inn to a Hampton Inn & Suites.

Alexandria Hotel Associates L.C. received the funding. GMACCM Vice President David Fishler, of the New York loan origination office, arranged the transaction through GMACCM’s Hospitality Industry Division. “This highly structured transaction represents the third hospitality-related loan between GMACCM and the borrower in 2005. To date we have funded more than $50 million in loans for this borrower,” Fishler said.

GMACCM also provided $10.5 million in floating-rate, acquisition financing for a Birmingham, Ala., hotel, The Courtyard Birmingham, a 74,600-square-foot, hotel with 22 guestrooms. Amenities include a 49-seat restaurant with a lounge, 2,032 square feet of meeting space, an exercise room, a business center, sundries shop and guest laundry.

The transaction was arranged and underwritten by GMACCM’s Hospitality Industry Division, and RLJ Birmingham UAB Hotel LLC received the funding. “As a result of our strong relationship with the borrower, we were able to complete the entire transaction in less than a month,” according to GMACCM Vice President Chris Clark.

GMAC's subsidiary, GMAC Institutional Advisors, acquired Towson Commons, a 322,753-square-foot mixed-use office and retail development in Towson, Md. The property was acquired on behalf of a GMAC Institutional Advisors affiliate, in joint venture with Western Development Corp., a real estate investment firm based in Washington D.C. GMAC Institutional Advisors is planning to warehouse the property for a value-added investment portfolio.

GMACCM provided $42 million in floating rate financing to the venture for a short term value enhancement strategy with a five-year time frame. GMACCM Senior Vice President Richard Bopp and Vice Presidents Fabrice Vasques and Jason Roach, all from the Washington, D.C., loan origination office, arranged the transaction. Western Development Corp. received the funding.

“In this transaction, we were able to leverage our presence and knowledge in the local market. Additionally, we met the borrower’s needs and provided the required flexibility and speed in terms of both investment capital and debt structure,” Bopp said.

Towson Commons, completed in 1992, consists of a 10-story office tower, with 227,607 square feet of rentable space, and four levels of retail space with 95,146 square feet. Robert Fabiszewski, executive vice president and managing director of equity real estate for GMAC Institutional Advisors, said, "A $30 million renovation and redevelopment of the property is planned and will focus on the repositioning of the retail pavilion. Additionally, we plan to warehouse the asset for a pre-specified, future value-added real estate portfolio." 

In Mount Laurel, N.J., GMACCM provided $52.15 million in permanent, fixed-rate refinancing for a 50.25 acre office property called Gateway Business Park. The office park consists of eight single-story buildings with 514,131 square feet of space. Tenants include AT&T, Pitney Bowes, Corporate Synergies, Bell Atlantic and Jacobs Engineering.

GMACCM Senior Vice President John Motzel, of the Red Bank, N.J., loan origination office, arranged the transaction, and Gateway Park LLC received the funding. “We initially closed a floating-rate bridge loan on this property in March 2004. The borrower has since increased occupancy from 65 to 92 percent enabling GMACCM to provide competitively priced permanent financing,” he said.
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But wait—there’s more. Throw in lending life cycles; housing “bubbles” (real or imagined); credit risks; prepayments; natural disasters and other risks. It’s a wonder some bankers sleep at all.

For the real estate finance industry, participants look at 2003 and 2004 and see some of the best years in industry history; Thomas Healy, CMB, senior vice president with Hanover Trade Inc., Ft. Lauderdale, Fla., seems more of a “glass half empty” kind of person—but his skepticism is based in hard realities.

“2003 was a horrible year for the industry; 2004 was better,” said Healy, speaking at the Mortgage Bankers Association’s Tax, Accounting and Financial Analysis Conference here. “But the origination windfall that we had was more than offset by the loss of servicing because of all the refinancings.”

Healy noted that over the past several years, origination fees have been fairly constant over time; but expenses have gone up as purchase originations have gone down. “We’re paying about 91 basis points on the outgo of the loan,” he said. “On the servicing side, we’ve done pretty well, and will probably be in pretty good shape.”

The real estate industry, like all industries and products, goes through a “life cycle,” Healy said—a product is introduced; it grows, it matures, and then, unless it receives new life, begins to wane. “I’m not sure where we are, but I would guess that we’re in a fairly mature industry. We’ve been maintaining profitability,” he said.

But Healy warned that warning signs exist. “We have in essence, many of us selling the same products,” he said. “We have branches and Web access all over the place. It’s hard to compete on product and positioning and we’re using pretty much the same systems, which makes it hard to compete on price. There’s a perception that we all look the same to our customers.”

The potential result, Healy said, is what business author Peter Drucker referred to as competitive convergence leading to attrition. “Because we all look alike, we are having wars of attrition—tremendous consolidation,” he said. “We’re at a paradigm shift. We’re not reacting yet to the warning signs. So we have to be more creative in how we do business.”

Healy identified a number of risks that industry leaders must confront. Among them:

Models and their limitations. “Models in and of themselves are a risk,” Healy said. “We tend to use them extensively. While they have tremendous value, they help us understand the big picture. But they only tend to work in fairly narrow bands of reality. Models by definition strive for stability, but throw in a variance and you cannot achieve stability.

Additionally, Healy said, models are only as good as the data that goes into them. “And with Sarbanes-Oxley, you have to be very mindful of your assumptions. SOX requires you to explain your calculations, how you came to them, and why they are correct. It’s not enough to say you bought your model from Hanover Trade—you have to demonstrate that you understand it.

Assumptions. One out of three Fortune 500 companies is gone after 20 years, and the average life span of the largest is 40 years, Healy observed. “We spend a lot of time coming up with assumptions,” he said. “Invariably, we spend a lot of time talking about inflation rates, for example. If you look at industries over time, most don’t fail because the interest rate was 4 percent instead of two. They fail because of catastrophic events—for example, Hewlett Packard’s decision to get into calculators, which doomed the slide rule industry.”

Prepayments. “Over time, prepayments have changed dramatically,” Healy said. “We need a better way of assessing prepayments. Prepay models have come great distances—they’re much less wrong than they were 10 years ago. But they need to get better.”

Credit risks. “Prepay risk was the biggest risk we’ve had over the past several years. In the next few years, credit risk will take over,” Healy said. “Credit risk is laying the siege. If you look at geographical areas that have the highest credit risk, there are several influences. First, a life-changing event—something that made the risk go straight to the top. People who tended to be chronically delinquent were always delinquent; it was the life-changing event that made them most vulnerable.”

Healy related the story of a cab ride he had in San Francisco. “The cab driver had just bought a house in San Francisco. He paid $750,000, and he was proud that he’d gotten such a good deal,” he said. But when I pressed him, he said it was an interest-only loan.

“He’d rented out all the bedrooms and lived in the basement—a disaster in the making. What happens after three years? He is planning to sell and make a profit. But what if the market falls out?”

Concentration risk. Healy said mortgage companies that have all their eggs in one basked—Los Angeles, for example—he’d be “worried.” “Here is where geographic diversification is key,” he said.

Franchise value and industry contraction. “Your company itself has a market value. The origination franchise has a value as well,” Healy said. “Over the past few years, we’ve had tremendous amount of originations, of which most has been in the refinance business. That doesn’t mean a lot. Investors are going to look at your origination volume. We’re just rechurning a lot of loans—stealing market share from each other at a cost of 91 basis points. That’s not great. There’s really nothing to sell if you’re a refi business, if you’re looking to sell.”

Natural disasters. “Lenders are looking at their loan portfolios and their servicing portfolios,” Healy said. “If you’re a servicer with business in New Orleans, you know that all too well. If you have geographic concentration, you have a risk.”

Healy recommended a “holistic approach” to managing risk. “We all know this is a very cyclical business. Rates go up, originations go down. Rates go down, refis go up; servicing goes up and down,” he said. “You have a lot of information available in your servicing system—you can capture information and be able to reconcile balances and plan.”
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