MBA Releases Lender Profit Numbers for 2013 – Ouch!

http://globalhomefinance.com

Before plunging into the news, late last week the commentary had an update on unallowable origination fees. It actually applied to the Veterans Administration (VA) not the state/commonwealth of Virginia (confusingly also called VA). So the "unallowable origination fees" emanates from the Veterans Administration, not Virginia as several astute readers pointed out. Thank you! 

The industry knows that 2013 was the tale of two profitability profiles for residential lending: the first half and the second half. Now the MBA have given us the numbers to back it up. In the first half, 95% of small mortgage banking firms were profitable. In the second half, only 69% of surveyed lenders posted pretax financial profits. (Heck that is more than I thought!) The MBA report shows that the average profit per newly originated loan was $1,660 in the first half of the year, but fell to $517 in the second half. 

The MBA's headquarters are in Washington, DC (not a state or a commonwealth), and we also had some news out of DC that is important but did not make a big splash. In a second-term Cabinet reshuffle, President Barack Obama tapped 39-year old San Antonio Mayor Julian Castro to be the nation's next housing secretary, giving a prominent national platform to one of the Democratic Party's most celebrated up-and-comers. Obama also announced he was nominating current Housing and Urban Development (HUD) Secretary Shaun Donovan to run the White House budget office, a spot left open when Obama asked his former budget chief to take over the Health and Human Services Department last month. Political pundits believe that Friday's announcement gives another major boost to Castro's profile, just as Democrats are viewing him as a potential vice presidential candidate in 2016. 

The Department of the Treasury's Financial Crimes Enforcement Network ("FinCEN") finalized a Rule in 2012 which defines non-bank residential mortgage lenders and originators (RMLOs) as loan and finance companies, for the purpose of requiring them to establish anti-money laundering programs and report suspicious activities.  The Compliance Date for meeting this Rule was August 13, 2012. This new Rule (now almost two years old) requires that an Anti-Money Laundering (AML) program include an independent AML audit test.  An audit of the AML policy is referred to as one of the "four pillars" of an effective anti-money laundering program and is designed to test the RMLO's program for compliance with relevant regulatory requirements and mandates as well as its own internal AML policy. The scope and frequency of the testing is commensurate with the risks posed by the company's products and services, though most firms elect to be audited annually. An officer or employee may conduct the audit if he or she is independent from the firm's compliance department; otherwise a qualified third party must conduct the audit. 

EA Compliance, Inc. is a leading supplier of Anti-Money Laundering compliance training and AML audit services to the mortgage lending and mortgage origination industry. They conduct independent, online AML audits without the need for a site visit. Contact Larry Schneider at lschneider@eacompliance.com to learn more about lender's FinCEN responsibilities. 

"Economics: The science of explaining tomorrow why the predictions you made yesterday didn't come true today."

Last week seems like a long time ago, but as you recall, home sales and Fed chatter dominated last week's U.S. economic scene. April new home sales increased by 6.4% and April existing home sales increased slightly by 1.3%: some analysts believe that both better supply and lower prices, along with lower mortgage rates, job gains and better weather should be a foundation for continued gains in the housing sector. The minutes of the April 29/30 FOMC meeting show that an active discussion is going on within the Fed about how to renormalize interest rates. 

So why, if the economy is picking up some steam, do rates remain low? Well, it is not picking up that much steam, and the discussion among economists is centered on just how disappointing it is. Most data continue to show modest improvement but overall economic growth shows little indication of breaking out of the underwhelming trend from recent years. Blame it on the weather, on people being under-employed or dropping out of the labor force, on the Millennials not buying houses, on problems overseas, whatever. And housing is definitely not setting the world on fire: we are more than halfway through another disappointing spring selling season and we are beginning to hear more talk about new policy initiatives to boost home buying and new home construction. 

There might be some news this week to change minds. Today we'll have Durable Goods Orders (the number of new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods), Consumer Confidence, along with some FHFA House Price Index numbers and the S&P/Case Shiller numbers with their two-month lag. On Thursday, May 29th, besides the usual Jobless Claims we'll have the Gross Domestic Product (GDP) numbers. For anyone not familiar with them, GDP represents the total value of the country's production and is the all-inclusive measure of economic activity.  We'll also have Pending Home Sales. And lastly on Friday, May 30th, Personal Income and Consumption, the Chicago Purchasing Manager's survey, and the University of Michigan Confidence number. For actual numbers, Friday's closing yield on the 10-yr. T-note was 2.54% and in the early going we're exactly unchanged on that and agency MBS prices. 

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