Mortgage Bankers Association

In a letter to Gateway employees, Lowrie said she would “continue to work on behalf of the housing finance industry to promote diversity, increase homeownership for minorities and low- and moderate-income borrowers. Also I will continue to help fight fraud against mortgage lenders.”

The agreement does not affect Lowrie’s involvement with MBA. She will continue to serve as MBA chairman through October 22, at the MBA Annual Convention & Expo, and will serve the 2006-2007 year as past chairman (John Robbins, CMB, will become MBA chairman in October).

Lowrie told MBA NewsLink that her experience with MBA over the past three years as chairman broadened her view on the potential for opportunities that exist within the industry. She noted that her commitments as an MBA officer over the past three years had reduced her day-to-day presence at Gateway.

“It’s been 12 years,” Lowrie said. “I started Gateway from the ground up, from seven employees to where it is today. I think it’s time to move on to a new challenge and a new opportunity. I wish Gateway continued success. It’s been a great company and I wish them well.”

Lowrie, a Philadelphia native, founded Gateway Funding in July 1994 with partners Karp and Paul Catinella. Today, Gateway has 800 employees, 56 branches and $3 billion in originations, with operations in 41 states.

Lowrie has been involved with MBA for nearly 20 years. Before assuming the chairmanship—the first woman in the 93-year history of MBA to do so—Lowrie served as chair of the Residential Board of Governors (RESBOG); chair of MORPAC, MBA's political action committee, for three years; and as a member of MBA's Strategic Planning Group, Audit Committee, State Legislative & Regulatory Committee, Board of Directors Technology Committee and Residential Loan Production Committee. She has also been active in the Mortgage Bankers Association of Greater Philadelphia, serving as its president in 1996.

Lowrie led development of MBA’s Council to Shape Change, an industry “think tank” charged with creating a blueprint for the mortgage industry and to help frame the industry’s outlook for the next decade and beyond. The Council, which began meeting earlier this year, will issue its “Outlook for the Industry” in September.

“I cannot think of another industry in this country that can claim recognition as the pillar of the U.S. economy; driving economic growth by providing the American Dream and helping Americans build wealth,” Lowrie said.
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A separate report from The Conference Board showed that consumer confidence unexpectedly increased in July, with the index increasing to 106.5 from 105.4 in June.  The improvement is inconsistent with the University of Michigan consumer sentiment measure, which declined in July. Improvement in households’ job market assessment helped bolstered confidence. The share of households that said jobs were currently plentiful rose to 28.6 percent in July from 28.0 percent in June. The percentage who said jobs are hard to find fell to 19.9 percent from 20.0 percent in June.

Long-term interest rates increased slightly following the consumer confidence report.  The yield on 10-year Treasuries increased 2 basis points to 5.06 percent on Tuesday.

(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 Market Composite Index fell to 533.8, a decrease of 1.3 percent on a seasonally adjusted basis from 540.8 one week earlier. On an unadjusted basis, the Index decreased 1.2 percent compared with the previous week but was down 28.2 percent compared with the same week one year earlier. The four-week moving average for the seasonally-adjusted Market Index rose by 0.2 percent to 550.6 from 549.6. 

The seasonally-adjusted Purchase Index decreased by 2.4 percent to 389.0 from 398.5 the previous week, tying a three-year low first noted five weeks ago. The four-week moving average remained unchanged at 406.7.

The seasonally adjusted Refinance Index increased by 0.6 percent to 1385.2 from 1377.6 one week earlier. The four-week moving average increased 0.5 percent to 1396.8 from 1389.5. The refinance share of mortgage activity increased to 35.6 percent of total applications from 35.0 percent the previous week, compared to The adjustable-rate mortgage share of activity, which decreased to 28.6 percent of total applications from 29.0 percent.

Other seasonally adjusted index activity includes the Conventional Index, which decreased 1.3 percent to 788.0 from 798.2 the previous week; and the Government Index, which decreased 1.6 percent to 109.9 from 111.7 the previous week.
 
The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.69 percent from 6.73 percent, with points decreasing to 1.07 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 decreased to 6.31 percent from 6.38 percent, with points increasing to 1.07 from 1.02 (including the origination fee) for 80 percent LTV loans. The average contract interest rate for one-year ARMs decreased to 6.25 percent from 6.28 percent, with points decreasing to 0.83 from 0.85 (including the origination fee) for 80 percent LTV loans.

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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“Insurance coverage is a critical and necessary part of the process of protecting our companies from risk, especially risk that can produce catastrophic losses. Terrorism is one of those risks that presents catastrophic exposure to companies. Accordingly, it is vital that terrorism insurance continues to be available to buyers of commercial insurance in a comprehensive and affordable manner when the Terrorism Risk Insurance Extension Act (TRIEA) expires,” Terry Fleming, director of external affairs with the Risk and Insurance Management Society, told a joint hearing of the House Financial Services subcommittee on Oversight and Investigation and the Homeland Security subcommittee on Intelligence, Information Sharing and Terrorism Risk Assessment.

The hearing, Terrorism Threats and the Insurance Market, focused on the efforts of the insurance industry to model terrorism risk and market for terrorism risk insurance. After the September 11, 2001 terrorist attacks, many reinsurers and primary insurers withdrew from the market of offering terrorism risk insurance, citing a lack of data on or modeling of terrorism risk. As a result, many businesses were no longer able to purchase terrorism insurance as it became unavailable or extremely expensive.

“We must always remain proactive in addressing potential risks while protecting our nation from terrorism,” said subcommittee chair Sue Kelly, R-N.Y.

Fleming said the availability of adequate insurance for acts of terrorism to be not simply an insurance problem, but a national security and an economic issue.

“The inability to acquire sufficient insurance for terrorism coverage could result in the inability to secure financing for future construction projects, could affect existing construction projects that require evidence of terrorism coverage, and could result in major uninsured losses in the event of an of terrorism,” Fleming said. “The last four years have demonstrated that the private insurance market alone will not be able to respond nor provide adequate coverage for acts of terrorism. Acts of terrorism are too difficult to predict and therefore exceedingly difficult to price.”

To be insurable, Fleming said, expected losses must be reasonably estimable, and terrorism losses simply do not fit this criterion. “For this reason, the private market has not provided adequate coverage without the federal government acting as a reinsurer of last resort. With the federal government acting as a reinsurer, there is at least some level of certainty for private carriers in predicting their maximum exposure,” he said.

From the policyholder perspective, obtaining adequate terrorism insurance is critical to developing, financing or transferring business property, said Jeffrey DeBoer, president and CEO of The Real Estate Roundtable.

“The amount of needed terrorism insurance is typically dictated by lenders and rating agencies that have historically taken the position that “all risk” coverage includes terrorism insurance. This position has been supported by the courts and in effect, creates high demand for the product,” DeBoer said. “In our view, the risks to the economy posed by the inability of private insurance markets alone to provide adequate terrorism insurance capacity to our nation’s businesses is a logical consequence of the nature of the risk itself. We view this inability of private markets alone to meet the needs of our economy as a major risk to our homeland security. Without adequate terrorism insurance capacity, economic transactions will be smothered and jobs will be at risk. Moreover, without adequate terrorism insurance capacity, the ability of the economy to quickly recover following a terrorist attack will be dramatically impeded and our nation’s homeland security will be weakened.”

TRIEA, DeBoer said, has been a worthy short-term solution; however, he noted that it is set to expire at the end of 2007–in less than 17 months. “We share the view that the threat of terrorism is not on the decline, and as a consequence the real estate industry has invested vast sums on various mitigation activities and undertaken an unprecedented multi-sector initiative to share information locally and nationally on terror related risks, vulnerabilities and mitigation strategies with government at all levels,” he said.

DeBoer urged support for a voluntary mutual reinsurance entity that would be capitalized by insurer premiums and would in turn offer reinsurance coverage for a broad range of terrorism risk. “By creating a layer of private capital between primary insurers and the federal government, this entity would provide continuity to the marketplace so that policyholders could get the coverage they need while diminishing the role of the federal government–and taxpayers–in the terrorism risk insurance market,” he said.

Christopher Lewis, vice president of alternative market solutions with The Hartford Financial Services Group Inc., said the nature of terrorism demanded a permanent federal response to insurance and reinsurance.

In the case of terrorism…the origins of the terrorist threat obviously are not in the control of individual policyholders, but emanate from terrorist groups intent on launching strikes against the United States,” Lewis said. “With responsibility for countering the threat of terrorism in the hands of the U.S. government, the alignment of cost and responsibility only can be achieved at the federal level, especially since government counterterrorism actions are unobservable. If left unaddressed, these unintended costs can shift production away from high risk areas to locations that are less efficient, creating a drag on the overall economy.”

Without the ability to model the likelihood of terrorist events, insurance companies cannot determine an actuarially-fair price to charge for terrorism insurance, Lewis said. “Instead, insurance companies are forced to manage the risk of terrorism by limiting exposure concentrations in potential ‘high target areas.’ If terrorism exposure concentrations get too high relative to surplus, some insurance companies are forced to non-renew entire commercial policies to reduce the terrorism exposure–often creating hardships for the underlying policyholders. These exposure concentrations are especially difficult for certain lines of business like workers compensation and fire following coverage in certain states where exclusions for nuclear, biological, chemical and radiological attacks are not admissible.”
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“With increasing uncertainty about the near-term outlook for the U.S. economy and interest rates weighing on the stock and bond markets, real estate should remain relatively attractive over the second half of 2006,” according to PREI’s July Quarterly Report. “However, while property market fundamentals continue to improve and new supply remains very limited, transaction activity and leasing appear to have slowed modestly in the second quarter as rising interest rates begin to exact a toll on the economy and on demand for commercial property from leveraged buyers."

Borrowing rates for short- and long-term debt have climbed above initial cash yields for many core properties, which means that buyers using debt today are relying more heavily on improving fundamentals and rent growth to achieve their target returns, the report said. "Improving property income and continued demand from investors should keep property values from falling sharply and likely will push values even higher in select markets. But the property market recovery will not be evenly distributed across all markets, and with today’s low initial yields, asset and market selection will become much more important as the cycle advances.”

Higher rates are slowing deals for properties in secondary markets and "inferior-quality assets" in particular, the report said.. Anecdotal reports noted that deals falling apart at the last minute are becoming more common.

The report, however, said buyers are beginning to gain an advantage over sellers as easier underwriting standards and availability of i nterest-only loans  provide some relief from rising interest rates. With little room to compete on pricing, lenders attempt to win deals with more generous terms, including higher loan-to-value ratios, falling debt-service coverage ratios and waived tenant improvements and leasing commissions if possible, according to the report.

“Although borrowing costs increased, higher rates have not materially affected borrowers’ proceeds,” the PREI report said. “Interest-only loans and looser underwriting standards have insulated borrowers so far from the full force of the higher rates.”

PREI noted that any underwriting mistakes made today likely will not become apparent for some time. In the first quarter, however, the American Council of Life Insurers (ACLI) showed little, if any, deterioration in underwriting standards for new originations in insurers’ commercial mortgage portfolios. CMBS upgrades outnumbered downgrades by 28 to one, according to Fitch Ratings, New York, and Morgan Stanley, New York, showed delinquencies among seasoned commercial mortgage-backed securities (CMBS) dipped below 1 percent for the first time since third-quarter 2000.

“Although easier underwriting so far has allowed borrowers to secure sufficient proceeds for acquisitions and for refinancing, the trend cannot continue indefinitely, especially if higher interest rates put upward pressure on cap rates and borrowing costs,” PREI said. “While we do not foresee a sharp deceleration in debt market activity, we would not be surprised if the pace slows over the second half of the year as transaction activity and appreciation slow.”

Investor demand for CMBS and real estate collateralized debt obligations (CDOs) continued to drive lending activity in the first half of the year, as CMBS and CDO growth expanded the size and scope of the real estate debt investor base, the report said.

However, increases in commercial defeasance, replacing property assets with securities on CMBS loans to refinance a property, suggested refinancing has been an important driver of origination volume this year as PREI noted the fallback to structured transactions is a lower spread over comparably-rated corporate issues.

“The strong demand is due partly to structural changes in the CMBS and CDO markets and partly to cyclical forces,” the report said. “But it is their relative attractiveness versus the broader corporate bond market, where the cash-flush position of many companies has weighed on new issuance, and that continues to attract a wide range of investors, from traditional fixed-income portfolio managers to hedge funds.”
 
The report noted that borrowers, lenders and investors are betting more heavily on the property market recovery than before, and the first place to look for distress would be the condominium market. Market fundamentals continue to strengthen across all major property types, but long-term interest rate hikes appear to affect the multifamily market more than other major property types, according to PREI’s report.

After several years of strong home-price appreciation, more echo boomers who entered the housing market chose to rent, leading to higher tenant demand and double-digit rent gains in a growing number of markets, particularly in coastal areas. Higher land and construction costs kept supply modest as tenant demand increased and rents rose in more markets, the report said.

However, higher rates also put upward pressure on apartment cap rates, PREI said, and investors appeared to demand higher yields in multifamily, especially in secondary markets where the outlook for rent growth is less promising. According to Real Capital Analytics (RCA), New York, the average apartment cap rate in primary markets dropped 20 basis points to 5.3 percent in the first quarter while the average cap rate in secondary markets increased nearly 50 basis points to 6.1 percent.

“Today’s low yields for stabilized properties leave no room for positive leverage,” the PREI report said. “More importantly, condo conversion activity has slowed dramatically as rates have climbed, except in a few markets where demand continues to outstrip supply.”
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The property, 1900 St. James Place, was built in 1973 with major renovations completed in 1998. It is in the Galleria area of Houston and consists of nearly 140,000 square feet with a four level parking garage. St. James has a 61 percent occupancy rate and includes Barrett Burke Wilson Castle, Petris Technology Inc., Suzanne Bruce and Associates and Gebbia Holding Co. as tenants.

"In this particular deal, the leasing wasn't enough to get it securitized," said David Aaronson, principal at Live Oak Capital. "The lender was creative in structuring a deal on this...They did some creative things to get the loan closed."

The deal included a non-recourse loan and prepayment flexibility.

"The lender funded the borrowers enough money to pay back their existing loan, repay some equity and fund the balance of the tenant improvements for the remaining space," Aaronson said. "The borrowers plan to lease it up and enjoy the cash flow."

1900 St. James LP is the ownership entity of the property and Rockwell Management Corp. is the property manager. Rockwell manages 21 multifamily properties totaling nearly 7,000 units throughout Houston, and it manages three commercial office buildings in the Houston market totaling nearly 400,000 square feet.
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The convention breaks into two types of sessions: General and Workshop. General sessions allow registrants the opportunity to hear speakers who have been an integral part of the past and present and will most likely have an influence on the future. General session speakers for this year's convention include the former President Bill Clinton, HUD Secretary Alphonso Jackson and MBA Senior Vice President and Chief Economist Doug Duncan.

Workshop sessions include four tracks, led by outside and internal industry experts who will impart their knowledge and present educational information. The tracks are management, business strategies, international and technology.

The management track presents a variety of speakers with topics focusing on leadership challenges, business growth and the future of opportunity, business acceleration and how ethics and values can contribute to long-term success. Speakers on the track will include Rebecca Shambaugh, president and CEO of Shambaugh Leadership, McLean, Va.; Steven Littler, senior consultant with Inc. Magazine, New York; Dan Coughlin, president of The Coughlin Company Inc., Fenton, Mo.; and Frank Bucaro, business owner, author and speaker.

The business strategies track is designed with choice in mind. Each session will feature at least two choices of meetings to attend. Speakers will discuss cultivation of mortgage lending best practices, adaptation to the changing landscape of the mortgage lending industry, summary of state and national licensing, progress of introducing new credit scoring and underwriting models, wholesale lending and how to capitalize on emerging broker to banker trends and the potential impact of fraud on a mortgage operation.

Other sessions will consist of panels answering questions from the audience on topics ranging from government housing programs to experiences with MBA.

The international track involves panelists talking about a variety of issues that focus mainly on security. Topics will include different entry strategies to maximize growth opportunities in Canada and Mexico, discussion of recent North American Free Trade Agreement (NAFTA) updates and the operational risks in support of multi- national lending and servicing enterprises. Discussions on fraud detection, data movement, security and data privacy and overall costs of managing multiple geographic markets will also be included in these sessions.

The technology track will present topics on the present and future of industry technology. Discussions will include adoption of MISMO standards, enhancing developments in wholesale, retail and correspondent production channels and protecting customer and business data. Speakers will also discuss business intelligence, technology outsourcing, software-as-services, dual-core and computing technologies and intelligence-based workflow.

Special events include the annual Chairman’s Luncheon, featuring author Bob Woodward; the Sports Luncheon, featuring National Football League Hall of Fame defensive end and former Los Angeles Raider Howie Long; and Club MBA, featuring long-time Saturday Night Live cast member Darrell Hammond and Grammy award-winning singer Michael McDonald.

The Expo allows for exploration of products and services designed with business participants needs in mind. Representatives from more than 200 companies will be on hand. The expo will host the annual MBA Tailgate Party featuring former Chicago Bears running back Gale Sayers and Super Bowl XVIII MVP and former Los Angeles Raider Marcus Allen.

For more information on MBA’s 93rd Annual Convention & Expo, call (800) 793-6222, or visit http://events.mortgagebankers.org/93rd_annual.
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HUD officials also praised passage of H.R. 5121, "When FHA was formed in 1934, it was an historic event that made homeownership possible for people who had nowhere else to turn,” said Assistant Secretary for Housing/FHA Commissioner Brian Montgomery . "We are now closer to another landmark—a modernized, flexible FHA that can respond to the needs of today’s low and moderate-income homebuyers who need a helping hand.”

The bill would simplify the downpayment process and offer borrowers a flexible downpayment option. Additionally, the bill would raise FHA mortgage limits to 100 percent of an area’s median home price and extend mortgage term authority to 40 years from the current 30 years. (The Congressional Budget Office estimated that FHA reform could raise $2.3 billion.) The bill would also, with respect to home equity conversion mortgages (HECM), eliminate the current 250,000 loan count cap on FHA’s HECM originations, explicitly authorize the use of the HECM program for seniors purchasing a home and establish a single, national loan limit for the HECM program equal to the conforming loan limit.

The focus now moves toward the Senate where a similar bill, S. 3535, the "Expanding American Homeownership Act," introduced by Sen. James Talent, R-Mo, is in play. The bill has three co-sponsors: Sens. Mel Martinez, R-Fla.; and Georgia Republicans Saxby Chambliss and Johnny Isakson.

MBA also supports S. 3535 and is part of a coalition of organizations that represent the real estate construction, marketing and finance industries that have encouraged Senate passage.

“We thank the House Members for their commitment to empowering FHA and thus empowering affordable housing in this country, and we hope that senators will consider similar action in their chamber soon,” Lowrie said.
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MBA Senior Vice President for Government Affairs Kurt Pfotenhauer wrote House members urging support for H.R. 1956, the “Business Activity Tax Simplification Act,” sponsored by Rep. Bob Goodlatte, R-Va.

BATSA would clarify the constitutional requirement for a physical presence nexus standard governing state assessment of corporate income taxes and other direct taxes on a business. Specifically, the bill would articulate a physical presence standard that includes owning or leasing any real or tangible property, or assigning one or more employees, or using the services of agents to perform certain activities in the state for more than twenty-one days in a taxable year.

In addition, the bill would modernize Public Law 86-272, which prohibits states from assessing net income-based taxes against an entity whose only contact with the state involves the solicitation of orders for tangible personal property. Under BATSA, this law would apply to intangible property and services and to all direct taxes on a business, not just those based on net income.

“BATSA would ensure fairness, minimize costly litigation and create the kind of legally certain and stable environment that encourages businesses to make investments, expand interstate commerce and create new jobs,” Pfotenhauer said. “At the same time, the bill would ensure that businesses continue to pay business activity taxes to states that provide them with direct benefits and protections.”

The House is expected to consider the bill this week.
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