Volume 7 | Issue 159 | Thursday, August 14, 2008
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“There continues to be a glut of condominium units entering the multifamily rental markets, which should continue to keep multifamily property volatility on the rise.”
--Bob Vrchota, managing director at Fitch Ratings, New York.
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Top National News
Residential Finance News
Retail Sales Drop as Auto Sales Plummet
MBA Launches HERA Resource Center
Commercial/Multifamily Finance News
Report Shows Continued Volatility in Key Sectors
DealMaker of the Day
MBA News
MBA Human Capital Symposiun Sept. 11-12
MBA Members Advantage Program
MBA Doc Management/Custody Conference Sept. 21-23
Spotlight: Commercial/Multifamily
Developing Markets Overshadow Property Sales in U.S., Europe
Pipeline: Disappearing ARMs
American Banker (08/14/08) P. 8; Colter, Allison Bisbey
Freddie Mac reports an increase in prime borrowers refinancing one-year conforming adjustable-rate mortgages and opting instead for conforming fixed-rate mortgages to 97 percent in the second quarter from 92 percent in the first quarter. Over the same period, prime borrowers opting for conforming fixed-rate mortgages when refinancing conforming hybrid ARMs rose to 87 percent from 80 percent. According to Freddie Mac chief economist Frank Nothaft, "Even though refinancing borrowers who take out a one-year adjustable-rate mortgage today would save about three-quarters of a percentage point in rate, relative to a five-year ARM or 15-year fixed-rate mortgage, the concerns about . . . future interest rate increases may be causing borrowers to choose the safety and certainty of fixed rates." Also playing a role, he says, is the absence of teaser rates.
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Mortgage Insurers' Losses Mount
Washington Post (08/14/08) P. D1; Merle, Renae
Large mortgage insurers insist that they are adequately capitalized, although their losses have grown to $2.6 billion so far this year and they have paid more than $6 billion to cover claims on foreclosed homes. The industry is tightening its standards to stem its losses, meaning that buyers might need to have a larger down payment--up to 10 percent--and higher credit score as well as pay a steeper mortgage premium. The Federal Housing Administration could benefit if private mortgage insurers collapse, as the government entity requires only as little as 3 percent down, or the market could return to a 20-percent down payment standard. There are also concerns whether Fannie Mae and Freddie Mac will continue to buy their loans, as several insurers have been downgraded by credit-ratings agencies and have fallen out of compliance with the mortgage finance giants' requirements for doing business with them.
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U.S. Mortgage Applications Plunge
Denver Post (08/14/08); Svaldi, Aldo
The Mortgage Bankers Association says its application index hit eight-year lows on Aug. 8, with purchase-loan requests falling 32.2 percent and refinancing demand dropping 44.3 percent year over year. Experts attribute the decline in application volume to higher interest rates, stricter underwriting guidelines and a contraction in the kinds mortgage products as well as in money available to fund them. Steven Wood of Insight Economics says the decrease in applications took several months after the credit crunch to emerge because borrowers submitted numerous applications in the hopes that one would be accepted.
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Greenspan Sees Bottom in Housing, Criticizes Bailout
Wall Street Journal (08/14/08) P. A1; Wessel, David
Former Federal Reserve chairman Alan Greenspan disagrees with the federal government's bailout of Fannie Mae and Freddie Mac, adding that he expects U.S. home prices to begin stabilizing during the first six months of 2009. The economist insists that an end to declining residential prices is important not only to American homeowners, but is "a necessary condition for an end to the current global financial crisis." Greenspan's housing forecast is based on two sources of data, the first of which is the supply of vacant, single-family homes for sale; the second is a comparison of the current price of houses--he personally prefers the quarterly S&P Case Shiller National Home Price Index--with the U.S. government's estimate of what it costs to rent a single-family residence. Greenspan calls the Bush administration to task for its handling of the trouble at Fannie Mae and Freddie Mac, stating, "They should have wiped out the shareholders, nationalized the institutions with legislation that they are to be reconstituted--with necessary taxpayer support to make them financially viable--as five or 10 individual privately held units."
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Toll Brothers Is Seeing Signs of Hope for Housing Market
Wall Street Journal (08/14/08) P. B4; Benoit, David
Although Toll Brothers Inc. reports weak results in its fiscal third quarter ended in July, CEO Robert Toll says a drop in cancellations to 19.4 percent from 23.8 percent is evidence of "growing pent-up demand" among buyers who have been sitting on the fence since 2005. The company posted a 34-percent drop in revenue to $796.5 million, a 27-percent decline in signed contracts and a 35-percent decrease in the value of signed contracts to $469.7 million. Additionally, Toll Brothers recorded a 48-percent drop in its backlog during the quarter to $1.75 billion and a 47-percent decline in land holdings over the past two years to 48,500 lots. The report also shows pretax, land-related write downs of $100 million to $200 million.
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QBE to Buy PMI Asia, Australia for A$1.03 Billion
Bloomberg (08/14/08); Kelly, Stuart; Fenner, Robert
After recording a fourth straight quarterly loss, U.S. mortgage insurer PMI Group Inc. said it will sell its Asian and Australian operations to QBE Insurance Group Ltd. for US$896 million. Australia's largest casualty insurer has agreed to pay California-based PMI, the second-biggest U.S. mortgage insurance firm, 80 percent in cash with the remaining 20 percent comprised of a promissory note payable in three years. PMI is in the process of withdrawing from overseas markets to place more emphasis on its U.S. business, shutting down its Canadian unit entirely and closing sales offices throughout Europe. Mortgage insurers such as PMI have endured all-time record losses and have seen their ratings cut amid the worst U.S. housing slump in 70-plus years.
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Four Mortgage Companies Fined
Oregonian (08/14/08); Roberts, Michelle
Oregon's Department of Consumer and Business Services has issued a cease-and-desist order against Allegiance Mortgage LLC of Springfield, and owner Brian Fallini has been fined and permanently banned from owning a mortgage lending company or operating or working in the industry. The state has also issued cease-and-desist orders for 1st American Inc. of Portland and Pacific Crest Funding Inc. of Eugene and revoked the license of Tigard-based Diamond Financial Mortgage Group of America Inc., also barring former owner Kevin Covington from serving as an officer, director, or experienced person for a mortgage broker or banker. The mortgage companies engaged in unethical behavior, falsified loan documents and had lax training. Five mortgage lending licenses have been revoked and 30 enforcement orders have been issued this year in the state.
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| Retail Sales Drop as Auto Sales Plummet |
MBA (8/14/2008 ) Velz, Orawin
Retail sales decreased 0.1 percent in July following a 0.3 percent gain in June. This was the first decline since February. A 2.4 percent drop in auto sales was responsible for the decline in overall sales.
In terms of units, sales of cars and light trucks for the month dropped 8.3 percent to 12.5 million units (annualized pace), the weakest pace since 1993. Tighter lending standards have contributed to slumping auto sales. Excluding autos, retail sales increased by 0.4 percent, slowing from a 0.9 percent increase in June.
Sales increases were broad-based, including housing-related sales, such as those at building supply, appliance and furniture stores. Outside of sales at auto dealers, only sales at restaurants and sporting goods and hobby stores posted declines among major sales categories. Retail sales weakened in July as the boost from the tax rebates began to dissipate. Nearly 90 percent of the stimulus tax payments were already distributed by the end of July, with a small amount from revised returns projected for next year, according to the Treasury Department.
Retail sales account for about 40 percent of total personal consumption expenditures with spending on services accounting for the rest. Declining retail sales for July suggested that PCE growth may slow in the current quarter.
A separate report showed that higher energy and other commodity import prices continued to pose a threat to domestic inflation. Import prices rose 1.7 percent in July, the seventh consecutive increase, moderating from a 2.9 percent surge in June. On a year-over-year basis, import prices were up 21.7 percent, the largest on the record.
While energy prices led the increase, non-energy prices also posted a strong gain. Imported petroleum prices increased 4.0 percent, and imported natural gas prices rose 5.8 percent. Excluding fuels, import prices increased 0.7 percent for the second consecutive month and were up 6.9 percent on a year-ago basis, also a record high. Import prices would likely moderate in the coming months as crude oil prices have tumbled since mid-July and the dollar has recently strengthened.
(Orawin Velz is associate vice president of economic forecasting with the Mortgage Bankers Association. She can be reached at ovelz@mortgagebankers.org.)
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| MBA Launches HERA Resource Center |
MBA (8/14/2008 ) MBA Staff
Last month President Bush signed into law the Housing and Economic Recovery Act of 2008, a law cited by Mortgage Bankers Association Chairman Kieran Quinn, CMB, as “the most important piece of housing-related legislation in more than a generation.”
To help MBA members understand the legislation and its potential ramifications, MBA has launched a new Housing and Economic Recovery Act of 2008 Resource Center, at http://www.mortgagebankers.org/IndustryResources/ResourceCenters/
HousingandEconomicRecoveryActof2008ResourceCenter.htm.
The new resource center is the complete HERA resource for the real estate finance industry. This collection of resources houses the latest information on this major piece of legislation, including several initiatives of which MBA has long-advocated, including reform of the government-sponsored enterprises and FHA modernization.
The web site includes key downloads, including:
• A summary of HERA provisions;
• HERA frequently asked questions
• Implementation timeline on FHA provisions of HERA
• MBA HERA-related press releases;
• A complete text of HERA;
• FHA web pages;
• OFHEO links; and
• Other links detailing changes in federal law.
Additionally, the web site has information about an upcoming MBA/FHA LIVE Online Conference featuring senior staff of HUD who will discuss how HERA will impact FHA lending. The conference takes place Tuesday, Sept. 16 from 2:00-3:30 p.m. ET.
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| Report Shows Continued Volatility in Key Sectors |
MBA (8/14/2008 ) Murray, Michael
Higher volatility in multifamily and retail properties caused the the average cash-flow volatility score from Fitch Ratings, New York, to increase last year for the first time in four years, said Fitch’s Property Market Metric update.
Volatility in the multifamily sector rose to 2.50 in 2007 from 2.24 in 2006, ending a three-year streak of improvement, and retail volatility increased to 3.12 last year from 3.04 in 2006, the ratings agency said. The West and Southeast regions of the country accounted for the highest increase in multifamily volatility, the report said.
“There continues to be a glut of condominium units entering the multifamily rental markets, which should continue to keep multifamily property volatility on the rise,” said Bob Vrchota, managing director at Fitch.
Vrchota said the Northeast and Southeast showed the largest volatility rise among primary retail markets, based on new retail supply combined with the effects of cash-strapped consumers.
“Retail properties will likely continue to show increased volatility as softening macroeconomic conditions, high energy prices, a weak housing market and store closings are anticipated to impact retail performance this year and into 2009,” Vrchota said.
Fitch’s PPM said hotel properties improved slightly and office showed a modest drop in volatility levels—the fourth straight year of improvement. However, Fitch expects softening economic conditions will likely reverse the trend for both property types. Meanwhile, the industrial sector showed no change.
PMM evaluates 10 years of performance history and 10-year forecasts of cash flow volatility for each property type.
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| DealMaker of the Day |
MBA (8/14/2008 ) Murray, Michael
Sierra Capital Partners Inc., Irvine, Calif., closed $43 million in financing through Freddie Mac for two California apartment communities.
As a Freddie Mac Program Plus Seller/Servicer, Sierra Capital originated, underwrote, funded and will service a $36 million refinance loan of Shadowbrook Apartments, a 216-unit apartment complex in Sunnyvale, Calif.
The refinance loan was structured under Freddie Mac’s Fixed-to-Float program. The loan includes a 10+1-year term, with 10 years yield maintenance and 10 years interest only.
Shadowbrook Apartments, built in 1970, is in Santa Clara County. Landscaping throughout the property consists of waterfalls and streams, while amenities include two heated swimming pools. NASA Space Camp, Shoreline Amphitheater, Paramount’s Great America and the Intel Museum are nearby attractions.
Sierra Capital Partners also originated, underwrote, funded and will service $7 million in financing for the acquisition of Casitas Oxnard Apartments, a 96-unit garden-style apartment community in Oxnard, Calif.
The refinance loan, also structured under Freddie Mac’s Fixed-to-Float program, includes a 10+1-year term with 10 years yield maintenance but carries a 30-year amortization.
Casitas Oxnard Apartments, built in 1976, is in Ventura County. Newly constructed major retail and a major transportation corridor of the Ventura plain—Highway 1, Oxnard Blvd. and Orchard Place—are adjacent to the property.
“There have been some recent renovations to the pool and spa area along with the interior landscaping,” said Bryan Frazier, president of Sierra Capital Partners. “The private patios or balconies for each unit have been renovated as well.”
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| MBA Human Capital Symposiun Sept. 11-12 |
MBA (8/14/2008 ) Roundy, Alicia
Join the Mortgage Bankers Association at its new headquarters in Washington, D.C., for its inaugural Human Capital Symposium Sept. 11-12.
This program is the first in a new critical business issues series from CampusMBA, the education division of MBA. Participants explore critical human resource issues as they related to the real estate finance industry today, including new challenges for human resources professionals.
Register today to successfully navigate those challenges, including:
• Incentive plans
• Employment law update
• Training and development
• Corporate culture
• Benefits update
• Performance scorecards
• Recruitment and redeployment
The symposium includes a special session on Compensation Trends. This final session covers compensation trends as reported in MBA's Compensation Survey. This session is open only to those participants in the MBA Compensation Survey Programs, developed and administered by McLagan, will have an exclusive detailed review of survey results.
Who Should Attend:
• Executives
• Human Resource Professionals
• Training Professionals
• Operations Professionals
• Anyone with an interest in human capital
Venue:
This event takes place at MBA's bright new headquarters at 1331 L Street NW in Washington, D.C. The new offices include a professional conference center designed to offer timely and targeted programming to all areas of the real estate finance industry. The new building, which also offers other office and retail space, has been pre-certified at the Silver level through the U.S. Green Building Council's LEED for core and shell green building rating system.
To register, visit http://www.campusmba.org/products/default.aspx?product_code=E2801622/REGIS, or call 1-800-348-8653.
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| MBA Members Advantage Program |
MBA (8/14/2008 ) Murray, Venita
Members of the Mortgage Bankers Association have at their disposal a terrific resource: the MBA Member Advantage Program.
MBA helps you do your business better by providing exclusive discounts on products and services you use every day. From express shipping to office supplies, the Member Advantage Program can help you save time and money.
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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| MBA Doc Management/Custody Conference Sept. 21-23 |
MBA (8/14/2008 ) Roundy, Alicia
The Mortgage Bankers Association’s Document Management & Custody Conference 2008, Setting the Pace, takes place in Charlotte, N.C., September 21-23.
The conference, formerly MBA's Document Custody Conference, includes timely loss mitigation sessions. It’s tailored for both new and experienced document custodians, as well as anyone who may be involved in any aspect of the post-closing process, loan delivery, document control and/or servicing issues. The conference addresses a host of topics that are “setting the pace” for changes in the industry.
The Opening General Session features Kathleen Passanisi, who will discuss Humor at Work: Laughter as a Profit Center. Passanisi is a widely known speaker and humorist who is a recipient of a lifetime achievement award in the field of therapeutic humor.
The conference also focuses on the following topics:
• Secondary market challenges and impacts
• eMortgage technology
• Economic outlook
• Maximizing production through outsourcing and Lean Management
• Agency updates
• Reverse mortgages
• Data-driven processes and leveraging data
• Document exception clearing
Who Should Attend
New and experienced document custodians, quality assurance professionals or anyone else with a business that touches on any aspect of the post-closing process, loan delivery and document control or servicing issues, such as time management and customer service.
Participants can also earn up to 14 CPE credits by attending this conference.
Network with Attendees:
Conference sponsorship is the ideal vehicle to grab the attention of this important audience and position your company as a leader in the industry. All sponsorships include a tabletop exhibit opportunity, but space is limited. For more information contact Mark Brady at mbrady@mortgagebankers.org or call (202) 557-2790.
For more information about MBA’s Document Management and Custody Conference 2008, visit http://events.mortgagebankers.org/documentmanagementandcustody2008/default.html.
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| Developing Markets Overshadow Property Sales in U.S., Europe |
MBA (8/14/2008 ) Murray, Michael
The BRIC countries—Brazil, Russia, India and China—and other emerging markets posted gains in commercial property sales while sales activity plummeted in developed Western economies, said a mid-year Global Capital Trends report from Real Capital Analytics, New York.
Total investment volume still favors developed countries, but emerging markets accounted for 25 percent of all property sales this year, up from 10 percent one year ago. India, Brazil and Russia had double-digit increases in property acquisitions as China slowed to 7 percent growth, the report said.
“Developed markets throughout Asia Pacific generally performed much better than those in the United States or Europe. However Australia and New Zealand saw similar declines in property sales. Transactions in Japan grew 11 percent; Hong Kong was up 15 percent; Singapore was off 15 percent,” the report said. “China replaced the [United Kingdom] as the second most active country while Japan overtook Germany for fourth place. Combined with the growing investment in its emerging markets, Asia now accounts for a third of global property acquisitions, doubling its market share in just a year.”
However, unlike the Americas—Canada, the U.S., Mexico and countries in South America—and the Europe, Middle East and Africa region, the Asia Pacific region experienced falling average cap rates, dropping 5.4 percent for office properties, 6.6 percent for industrial and 5.2 percent in retail.
RCA reported that most property types were hit equally hard on a global basis, but Russia’s commercial property sales volume increased 411 percent and India’s sales volume jumped nearly 220 percent from mid-year 2007-2008. Overall, RCA reported Europe at more than $112.4 billion in commercial property sales at the mid-year point, Asia had $90.14 billion and the U.S. totaled nearly $87.2 billion in sales.
Global office and hotel property transactions dropped the most in the first half of this year—down 60 percent and 68 percent, respectively. The retail sector was off 54 percent and the industrial and apartment sectors experienced declines of 35 percent to 40 percent in volume.
Industrial activity in Asia, however, was up significantly as Singapore increased volume 1,082 percent in the past year while Japan jumped 132 percent, totaling $1.6 billion and $1.4 billion of investment, respectively.
“France, Canada and the U.S. had the steepest sales volume declines in the industrial sector, with volume down 68 percent, 66 percent and 53 percent, the report said. “Asia Pacific countries Singapore and Japan broke into the top five most active countries list [for industrial] for the first time,” the report said.
Tokyo—with $12.6 billion of office commercial real estate investment—passed London and New York as the most active sales market in the world for that sector, soaring 103 percent in investment volume during the first half of this year from the first half of 2007. The United States had the highest investment volume at $28.6 billion, but nearly 70 percent less compared to the first half of last year, RCA said.
“Japan vaulted over the U.K., France and Germany to become the second most active country in 2008. It is unclear whether Japan’s impressive showing indicates a fundamental shift in investment or simply a concentration of sales at a point in time. Japan’s growth was in sharp contrast to trends in other major economic powers,” the report said.
While India’s retail volume jumped 7,563 percent since the first half of 2007 to $1.5 billion and Hong Kong was up 144 percent to $3.3 billion, the U.S., U.K. and Germany dropped 65 percent, 50 percent and 36 percent, respectively, during the first half of the year.
“The Asia Pacific region was the brightest for retail property sales in [the first half of 2008]: sales there slipped a negligible 2 percent, while they fell 50 percent in Europe and plunged 71 percent in the Americas,” the report said.
Hotel sales showed the largest decline of all property types and across all regions, falling 68 percent.
“In contrast, most other property types saw volume hold up in the Asia Pacific region. But hotel sales there fell at a comparable rate to their descent in other regions,” the report said.
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 ABOUT MBA Newslink
Publisher: Cheryl Crispen, Senior Vice President - Communications and Marketing
Editor: Mike Sorohan 202/557-2855
MSorohan@mortgagebankers.org
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MMurray@mortgagebankers.org
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Advertising Opportunities: Bill Farmakis 203/834-8832
bill@jlfarmakis.com
Jonathan L. Kempner, President and CEO, Mortgage Bankers Association
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