A reading of 50 or above indicates an expansion in the manufacturing sector. This was the first reading above 50 since January.

The performance of the ISM index over the past several quarters is consistent with a stagnate economy that is not in a recession. The index showed that activity has not contracted as much as in a typical recession. During the 2001 recession, the ISM index averaged around 43, significantly lower than what we have seen the index perform since the fourth quarter of last year.

Although manufacturing has improved modestly over the past couple months, it remained weak. The index averaged 49.5 in the second quarter, compared with 49.2 and 49.6 in the first quarter of 2008 and the fourth quarter of 2007, respectively. It appeared that manufacturing was not a contributor to economic growth in the second quarter.

The ISM manufacturing index is based on a survey of purchasing executives at roughly 300 industrial companies. It includes nine different sub-indices: new orders, production, employment, supplier deliveries, inventories, prices, new export orders, imports and backlog of orders.

Forward-looking components of the index suggested little improvement in activity in the near term. New orders edged down to 49.6 from 49.7, while the production index rose to 51.5 from 51.2. Strong demand for capital goods overseas continued to support manufacturing activity. Although the export component fell one point to 58.5, it remained at a high level. Employment outlook remained gloomy, declining from 45.5 to 43.7, the lowest reading since May 2003.

The component related to prices continued to show a worrisome trend, with the prices that manufacturers are paying for inputs trending up. While the decline in the dollar has helped boost exports of manufacturing goods, it has increased imported input prices. The prices-paid index increased 4.5 points to 91.5 and has reached its highest reading since July 1979. While the overall inflation level is a lot lower now than in the late 1970s, the jump in the price paid component reflects the significant upward trend of the price of oil, a main raw material used by manufacturers.

A separate report showed that residential construction spending remained weak but healthy nonresidential construction spending continued to support overall construction spending. Total construction spending fell 0.4 percent in May. Private construction spending dropped 0.7 percent, as private residential construction spending declined 1.6 percent and private nonresidential construction spending edged up 0.2 percent. Public construction spending increased 0.4 percent. 

From a year ago, private residential construction spending has declined 27.0 percent. By contrast, private nonresidential construction spending was up 16.6 percent over the past year. Residential construction spending was likely a large drag to economic growth again in the second quarter of 2008. 

(Orawin Velz is senior director of economic forecasting with the Mortgage Bankers Association. She can be reached at ovelz@mortgagebankers.org.)
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The DataNote, Sources of Foreclosure Data, provides an overview of the main sources of foreclosure data receiving recent media and analyst attention.

“Definitions are fundamental to any data. When definitions are different, it is extremely difficult to compare data elements, let alone account for data that come from different sources and collected by different methods,” said Joel Kan, associate director of single-family research at MBA and author of the DataNote. “Each source of foreclosure data discussed has its respective strengths and weaknesses."

Kan said a single "best" measure of foreclosures in the United States does not necessarily exist, "but the context in which the data is used—whether compiling local foreclosure listings for individual investors or analyzing aggregated market foreclosure trends for policy development—can determine which sources of data are most suitable and which are not.”

In addition to MBA’s methodologies and research, including MBA’s quarterly National Delinquency Survey, the DataNote also looks at other players in the foreclosure data arena, including:

• DataQuick, a public records information service that has compiled data from county assessor and recorder offices since 1979;

• ForeclosureS.com, an established foreclosure web site with a database of more than 5.5 million property listings;

• LoanPerformance, now integrated into First American CoreLogic, a data cooperative for the mortgage industry, used by secondary market investors and mortgage originators and servicers;

• First American CoreLogic, a data and analytics company that collects property address level data from public records at county recorder’s offices, courthouse filings, tax assessors, sheriff’s offices, newspaper filings, proprietary sources and selected vendors;

• Moody’s Economy.com, an analytics and consulting firm; its foreclosure data are sampled data from the Equifax National Consumer Database, which is a credit bureau database and contains information collected from more than 60,000 contributors; and

• RealtyTrac, a real estate resource website that collects and processes home sales and foreclosure data.

Research DataNotes are a series produced by members of MBA’s research and economics group designed to explain and explore technical aspects of the real estate finance industry.

A link to the DataNote is at http://www.mortgagebankers.org/NewsandMedia/PressCenter/63432.htm.
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The Market Composite Index rose to 477.7, an increase of 3.6 percent on a seasonally adjusted basis from 461.3 one week earlier. On an unadjusted basis, the Index increased 3.2 percent compared with the previous week but fell by 22.8 percent compared with the same week one year earlier. The four-week moving average fell by 1.2 percent to 501.1 from 507.3.

The seasonally adjusted Refinance Index increased by 4.7 percent to 1269.2 from 1212.2 the previous week. The four-week moving average fell by 4 percent to 1370.5 from 1427.2. The refinance share of mortgage activity increased to 36.8 percent of total applications from 36.3 percent the previous week.

The seasonally adjusted Purchase Index increased by 2.8 percent to 342.8 from 333.4 one week earlier. The Conventional Purchase Index increased by 2.6 percent while the Government Purchase Index (largely FHA) increased by 3.4 percent. The four-week moving average rose by 0.7 percent to 353.2 from 350.8.
 
The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.33 percent from 6.39 percent, with points decreasing to 1.09 from 1.12 (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 5.90 percent from 5.95 percent, with points decreasing to 1.02 from 1.16 (including the origination fee) for 80 percent LTV loans.

The average contract interest rate for one-year adjustable-rate mortgages increased to 7.14 percent from 7.09 percent, with points decreasing to 0.31 from 1.59 (including the origination fee) for 80 percent LTV loans. The ARM share of activity remained unchanged from last week at 8.5 percent of total applications.

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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Das previously worked at Citi from 1991-1999 in various capacities in New York and Australia, including head of Citi’s Global Mortgage Product Group. In an internal memo, Citi’s recently appointed CEO of Consumer Banking North America Terri Dial said Das will work on matters for both CitiMortgage and the company’s Global Securitized Markets business.

“Sanjiv’s strong experience in securities as well as consumer banking will help position CitiMortgage for the future,” Dial said.

Das comes to Citi from Morgan Stanley, where he was managing director in its Institutional Securities Group. Earlier, he held posts at Bank One (First USA), including executive vice president and head of marketing and product development in the Mortgage and Home Equity Division.

In his previous stint at Citi, Das was head of its Global Mortgage Product Group. He also spent more than two years working for CitiMortgage as managing director of marketing and product development. In Australia, he was general manager of Citibank’s Consumer Mortgage Group and also worked in Citi’s Cards business.
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"Employment conditions in greater Boston are generally positive, however, so that neither a drop-off in demand nor a significant amount of sublease activity—both early indicators of a negative turn for the office markets—have occurred," Kelly said.

The report details occupancy and absorption statistics for the office/R&D market in Boston, Cambridge and suburban Boston. During the most recent recession, suburban Boston was hit with dot-com busts, but has since recovered, with Cambridge now hosting top tech firms Google and Microsoft. Other high-tech firms have settled in surburban  Waltham.

Despite the positive absorption, the addition of more than a half million square feet of new supply has kept the vacancy rate unchanged since the fourth quarter 2007 at 14.3 percent, Kelly said.

A report from Boston-based Property and Portfolio Research (PPR) said the city will handle the recession better than many metros because in the past two recessions Boston was at the forefront of factors that drove the recessions—including the dot-com bust. This time, however, PPR said the employment base remains stable with estimates of job loss at less than 1 percent.

“We don’t see any weakness in the dot-com, high tech sector this recession,” Mark Hickey, real estate economist at PPR. “Driving factors behind this recession are entirely different.”

The research firm called the first and second quarters of this year a "recession." It said job growth would slow through 2009—particularly in New York—but should return in 2010.

“New York is going to have more near-term weakness than Boston,” Hickey said. “It has more exposure to the lenders that have been impacted by the subprime crisis. Boston has not had that.”

PPR forecasts Boston office vacancies to move “sideways,” currently at 16.4 percent but staying within 50 basis points until new supply delivers in the central business district later. Hickey said financial sector layoffs will hit New York City harder than the Boston region because Boston represents “back-office” functions versus the “front office, volume-based financial jobs” in New York.

“Boston is primarily a back-office financial hub,” Hickey said. “Boston is where the mutual funds started and, still, where the custodial banks have a lot of presence.”

A mutual fund needs to have all of its securities held in a custodial bank, separate from the account manager—based on the fallout of the Great Depression, Hickey noted.

“As a result, Boston has always kept that banking presence for the mutual funds, and they also offer a [number] of services—legal, compliance [and] accounting. A lot of the companies like J.P. Morgan—for example—and Morgan Stanley, although they manage the fund out of New York, they keep the back-office operations in Boston.”

While Boston’s office returns weakened in the past year—1.8 percent as the credit crunch brought prices down—PPR forecasts stronger yields combined with the return of value gains in 2009 that would push returns to nearly 10 percent in 2010 with an overall forecast at 7 percent for total office returns.

In New York City, despite total employment growth of 1 percent year-over-year through March 1, PPR forecasts nearly 31,000 job cuts as a result of increasing financial sector losses. The research firm said these job losses would eventually cut into overall employment growth.

While vacancies in New York's office market increased during the first quarter for the first time since 2003, demand also fell flat in the first quarter this year, PPR reported. The drop in demand foreshadows “the tough times ahead for landlords,” the firm said.

PPR estimates vacancies to rise more than two percentage points in the next six quarters, as sublease space floods back to the market. However, from a long-term perspective, PPR called New York office “a safe bet” and that values would begin to rise again in 2009 as total returns average 8.1 percent.

Whether job losses cut into New York City retail could depend on severance packages and, perhaps, some employees “double dipping” and maintaining extra income during the summer and fall. Those packages, however, could lessen with more cuts.

PPR said overall job growth would fall to minimal levels in the near term, limiting the prospects for retail sales growth in New York City.
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The conference, Rise to the Challenge — Reporting Accurately in Volatile Markets, targets both residential and commercial/multifamily real estate finance professionals.

Upheaval in the mortgage markets, combined with changes in accounting and disclosure requirements, have created unprecedented financial reporting challenges for mortgage companies. MBA’s Accounting, Tax and Financial Analysis Conference 2008 offers a unique opportunity for mortgage finance professionals to share perspectives on the proper implementation of accounting and tax rules as well as prudent financial analysis and risk management. It also provides the opportunity to earn up to 16 CPE credits.

Register Now; Make Hotel Accommodations
Register online at www.mortgagebankers.org/conferences or call (800) 793-6222 (option 3) Monday–Friday, 9:00 a.m.–5:00 p.m. ET. You can also link directly to the registration form at http://www.mortgagebankers.org/files/conferences/pdf/M2902004_registrationform.pdf.

Accommodations are at the Mandalay Bay Resort and Casino, Las Vegas. Phone (702) 632-7777 or (877) 632-7800. Rates are $149/night standard. Cutoff date for this special rate is Nov. 10.

Sponsorship Opportunities
Conference sponsorship is the ideal vehicle to grab the attention of this important audience and position your company as a leader in the industry. For more information contact Phil Giorgianni at pgiorgianni@mortgagebankers.org or call (202) 557-2733.
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MBA offers member discounts on products and services in partnership with the following companies:

* Avis
* Dell
* DHL
* Hertz
* Hewlett-Packard
* InterCall
* Office Depot
* Pole-Kat Golf
* STDBonline

MBA also recommends Bankers Insurance for products designed specifically to meet the insurance needs of the mortgage industry.

For more information on how to take advantage of savings through MBA's Member Advantage Program, call 202/557-2845.
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“Operational risk is our biggest worry,” said Keven Smith, president of Mortgage Builder Software Inc., Southfield, Mich. “It’s about something unknown happening. We plan for as much as we can, but the concern is more over what we haven’t thought of—factors that would stop us from supporting clients since the whole business is built on service.”

Mortgage Builder’s two business models include one that is sold outright to clients and one that is hosted. In the hosted application service provider model, the company also hosts clients' data. To protect this information, the company has traditional onsite data backup as well as an offsite disaster recovery facility.

“We want to make sure that if something catastrophic were to happen to the headquarters, clients' data would continue to run from an offsite facility,” Smith said. “In the case of our clients who handle their own data, we can also help them in the event of a major disaster. They still rely on us for support, changes or developing strategy. We have the ability to continue to operate, which is a strategic advantage.”

A whitepaper from iJET Intelligent Risk Systems, Annapolis, Md., said that by harnessing disaster response and business continuity practices, many companies have shifted their approach to proactively protect themselves and increase revenues because of business disruptions. The paper also said that in light of business growth in emerging markets, multinational companies are increasingly adopting business resiliency practices to maintain continuity of business operations and promote growth.

“Risks are no longer solely limited to emerging markets,” said Steve Hoffman, CEO of iJET. “Now, more than ever, business leaders are challenged to not just grow value but to protect it. The combination of risk and opportunity is prompting organizations to rethink business continuity, corporate security, supply chain and enterprise risk management. As a result, an increasing number of organizations realize that business resiliency is a requirement for continued global operations, growth and success.”

For Tim Anderson, president of SigniaDocs, Jacksonville, Fla., the emergence of eMortgages reduces operational risk. He said the existence of data and the paper document must come together and merge. “Data is the legal, electronic representation of the information in the document—source data contained in the document that is the legal collateral,” he said. “The data and the document need to come together.”

Anderson said that while the document is an asset, having a complete electronic document will be a radical yet necessary change in the mortgage industry. “You can control data in a safe and secure environment,” he said.

However, Anderson believes that while different vaults exists for storing data, the processes that link the data do not always match, increasing operational risk. “With eMortgages, it isn’t the images, data or paper—it’s the processes that take place between these components. But more often than not, there is a disconnect," he said.

Anderson also said that there is a higher chance for loss of data integrity in paper-based processes, but that in eMortgages, the data and document cannot be treated as two different systems.

SigniaDocs, like Mortgage Builder, has triple-level data redundancy, having one "warm" site that is located at the corporate headquarters and two "hot" sites that are situated in different parts of the U.S.

“In eMortgages, it’s about trusting the source of the document that is seen, signed and received—that is the whole change of the business process,” Anderson said. He also said that in natural disasters, such as Hurricane Katrina , moving away from paper would keep records intact.

Smith said Mortgage Builder continually reviews and updates its systems as a result of SAS 70 mandates—a standard for auditing service organizations, enabling an independent auditor to review a service provider's controls for safeguarding its customer's data. “It involves a third party coming in to review the internal structure to find weaknesses and to find areas to improve,” he said. “We constantly try to fix the weakest link.”
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