Most
professional baseball teams still have 30+ games left in their season (out of
162), and there is plenty of jockeying in the media regarding the playoffs.
Baseball is filled with trivia, but there is one tidbit that sticks out in my
mind. See if you can stump your friends with this one: "What are the
only two days during the year when there are no professional sports games (MLB,
NBA, NHL, or NFL) played?" Please don't write me with the answer, but
given the overlap and lengthy seasons of basketball and hockey, my only hint
will be that those two days are during the baseball season. Baseball, and other
sports, is filled with numbers. So is lending, and Wall Street's reliance on
credit scores is legendary. And hey, if you don't like the credit scores coming
across your desk, change the credit scores! Seriously, Fair Isaac put in new scoring
with several adjustments - most notably to medical bills. Many consumers
will see their FICO credit scores increase - not due to their debt payment
habits, but instead due to changes of the credit-scoring model.
Overdraft
charges did not cause the credit crisis in the United States of America. But
the CFPB is hot on the topic anyway. The
CFPB reports the largest percentage of consumer complaints in 2013 for all
products were for mortgages (47%), credit reporting (13%), bank accounts or
services (12%), credit cards (12%) and debt collection (9%).
Those
interested in TILA-RESPA reform should tune in to the CFPB's webinar on
Tuesday the 26th to answer some frequently asked questions about the
TILA-RESPA Integrated Disclosure rule. The webinar will be hosted by the
Federal Reserve. This will be the second in a series of webinars to
address the new rule as creditors, mortgage brokers, settlement agents,
software developers, and other stakeholders work to implement it over the next
year.
While
we're on the CFPB, the MBA submitted a letter to the CFPB composed of
thoughts on the proposed changes to the Annual Privacy Notice Requirement.
(There is still privacy?) The MBA submitted a comment letter to the CFPB
regarding its proposed amendments to the annual privacy notice requirement
under the Gramm-Leach-Bliley Act. In the letter, MBA strongly supported the CFPB's
efforts to reduce the burden and costs to the industry associated with
providing annual privacy notices, while recognizing the importance of clearly
disclosing to consumers a financial institution's policies for the treatment
and sharing of nonpublic information. While supportive, the letter also
expressed concern that the ability to post a privacy policy online in certain
circumstances - rather than send annual notices - will not be as widely
available as it should be. MBA then went on to suggest that any notice that
complies with Regulation P should be qualified to use the proposed amendment's
alternate delivery method if the financial institution is otherwise eligible.
I
continue to be asked about the CFPB and HMDA. As another reminder, the CFPB proposed changes to
Regulation C, which implements the Home Mortgage Disclosure Act.
Comments are due on October 22.
What
to do with potential borrowers who have minimal trade lines on their credit
report, the so-called "thin file" borrowers? It's been suggested in
the past that remittance histories could be a possible source of evaluation
in establishing risk perimeters, and the CFPB has been tasked with its
research. The Bureau recently published a report on its study of the
use of remittance histories in credit scoring. I'll spare you from reading the
36 page report (although the link above directs you to the site); ultimately it
found that remittance histories have little predictive value for credit
scoring purposes, and that remittance histories are unlikely to improve the
credit scores of consumers who send remittance transfers. Buckley Sandler have a
terrific write-up on this report, they write, "The report follows a 2011 CFPB report on remittance
transfers, which was required by the Dodd-Frank Act and
assessed, among other things, the feasibility of and impediments to using
remittance data in credit scoring. At that time, the CFPB identified a number
of potential impediments to incorporating remittance history into credit
scoring, and noted the need for further research to better address the
potential impact of remittance information on consumer credit scoring." The
CFPB determined that for remitter sample members without credit records,
remittance histories likely would not allow those individuals to develop a
credit profile.
My
daily work plan is pretty straight forward most of the time: a little writing,
a little speaking, feed a pack of hungry cats every now and then; if required
to, my P&Ps would be a page and a half at best. It's nothing compared to
the Office of Inspector General's
work plan for ongoing and planned audit and evaluation projects, which is
updated bi-monthly and is over thirteen pages long. Recently, the OIG updated
its work plan to include audits of the CFPB's information security program, pay
and compensation program, and distribution of civil penalty funds. For the
CFPB's Information Security, the OIG will implement the statutory
requirements by auditing: the Bureau's compliance with FISMA and related
information security policies, procedures, standards, and guidelines; and the
effectiveness of security controls and techniques for a subset of the Bureau's
information systems. OIG will also evaluate the controls around setting
employee pay, which is mandated under Dodd-Frank as it requires the Bureau
to "provide employee compensation and benefits that are, at a minimum,
comparable to those of the Board of Governors of the Federal Reserve System
(must be nice, uh?)."
Ballard
Spahr
writes, "The CFPB issued a proposed rule
amending Regulation C to expand data reporting requirements for mortgage
industry participants. The proposed rule is 573 pages and our Mortgage Banking
Group will analyze the proposal and work with clients on its impact. Comments
are due on or before October 22...Dodd-Frank sought to address the issue (of
the absence of important loan and borrower data elements) by directing the CFPB
to expand the HMDA reporting categories. Proposed new data elements
include the credit score and age of the applicant, the property's value (which
provides for the determination of the loan to value ratio), the total points
and fees, the term to maturity, and the duration of any loan. The expansion
of HMDA data to include more and sensitive borrower and transaction information
presents serious privacy concerns. By combining HMDA data along with other
publicly available data, it is possible that the identity of specific consumers
can be determined from the Loan Application Registers of mortgage lenders that
must be made available under HMDA. With the expansion of HMDA data to include
credit score, age and other elements, the privacy concern will be
magnified. Addressing this concern in the press release
announcing the proposal, the CFPB states that it is "looking at ways to
improve how the public can securely use HMDA data to protect applicant and
borrower privacy." The industry and interested parties should insist on
the CFPB making consumer privacy a paramount concern in the consideration of
the proposed rule. In announcing the proposal, the CFPB also states that it
"views implementation of the Dodd-Frank Act changes to HMDA as an
opportunity to assess other ways to improve upon the data collected, reduce
unnecessary burden on financial institutions, and streamline and modernize the
manner in which financial institutions collect and report HMDA data." The CFPB
claims the proposed rule aims to: (1) improve market information, data access,
and the electronic reporting process; (2) monitor access to credit; (3)
standardize the reporting threshold; (4) ease reporting requirements for some
small banks; and (5) align reporting requirements with industry data standards.
Our Mortgage Banking Group will assess these aspects of the proposal."
There
are many areas in banking which require further clarification by the CFPB, and
mortgage servicing rules are one such area. The American Bankers Association recently
sent a letter to the CFPB
requesting several clarifications. Ballard Spahr write, "The
ABA asks the CFPB to make the clarifications part of "regulatory guidance
(or regulatory amendment where necessary) that is readily accessible to all
servicers, their vendors and advisors, as well as examiners from other
regulatory agencies that will examine banks for compliance with the CFPB
rules." In the letter, the ABA states that its members need regulatory
certainty regarding how to apply the "120-day rule;" Rather than
leave it to the courts to determine if a bank has correctly applied the 120-day
rule, the ABA wants the CFPB to specify how the rule applies to rolling
delinquencies. The ABA also restated its view that servicers should not be
required to provide periodic statements for charged-off mortgage loans. If the
CFPB continues to require periodic statements for charge-offs, the ABA suggests
there may be value in the CFPB adopting a provision that parallels the periodic
statement exemption for open-end credit. The ABA urges the CFPB to finalize as
published its interim final rule providing limited exemptions from the
servicing rules in situations where the borrower has filed for bankruptcy. The
ABA also recommends that if the CFPB elects to issue a final rule that does not
include the current exemptions, it engage in a notice and comment process that
will allow servicers to provide input on the rule before it is finalized.
It
is pretty interesting when you put an investor's (like a pension fund)
representative in a room, and ask them, "Did you rely solely on rating
agency ratings to buy your security?" If the answer is "no",
then how can they sue the rating agency? If the answer is "yes",
well, then why weren't they doing their job? I bring this up because Bloomberg
has a story about how banks are arranging a $1 billion commercial-mortgage bond
deal tied to the Atlantis resort in the Bahamas but are poised to skip
Standard & Poor's grades for most of the securities. "The ratings
firm, which is facing a potential enforcement action by the U.S. Securities and
Exchange Commission on commercial mortgage securities it rated in 2011, isn't
offering preliminary grades on $617 million of senior portions of the
transaction, according to a presale report from New York-based S&P. DBRS
Ltd. and Kroll Bond Rating Agency Inc. are offering rankings as high as AAA.
Bankers have been rethinking whether to hire S&P to rate
commercial-mortgage bond deals after its parent, McGraw Hill Financial Inc.,
disclosed the potential SEC action on July 23. The regulator is probing six
bond deals that S&P rated in 2011, including a $1.5 billion transaction
that Citigroup Inc. and Goldman Sachs Group Inc. were forced to abandon when
the firm yanked its grades after the notes were placed with investors."
This
week is another snoozer for scheduled economic news here in the U.S. But hey,
who knows what might happen in Iraq, Israel, Russia, Korea... There isn't much
until Wednesday the 13th with Retail Sales (the total receipts at
stores that sell merchandise and related services to final consumers -
reportedly accounting for 2/3 of economic activity). Thursday we'll have
Jobless Claims and some import price statistics. On Friday things pick up with
the Producer Price Index, Empire Manufacturing, and the Industrial Production
and Capacity Utilization duo. For the quantitatively inclined, the 10-yr
closed Friday at 2.42% and this morning we're sitting around 2.43 with agency
MBS prices roughly unchanged.
Executive Rate Market Report:
Unchanged
in the treasury market early this morning with US and Europe’s stock markets
looking better. No economic reports today. The Iraq/Islamic State;
still a concern but the Kurds did re-take some of the ground the militants took
last week with the help of US bombs. Iraq politics getting messy; the president
of Iraq appointed a different prime minister from the one presently holding the
job, setting up a major confrontation between the two politicians. The
president acknowledged Saturday that U.S. spies and policy makers had
underestimated the group, also known as ISIS and ISIL. "There is no doubt
that their advance, their movement over the last several months has been more
rapid than the intelligence estimates, and I think the expectations of policy
makers both in and outside of Iraq," he said. Ukraine/Russia, not much new over the
weekend. A
little less tension than last week, but the undertone is still alive and well
as it is in Iraq and the mid-east in general. The focus currently is in the
Islamic State attacking key Kurdish and Sunni positions but the situation in
Syria is beginning to re-boil. Geo-political conditions are likely to continue
to drive investors into the arms of US treasuries and help to keep mortgage
rates frm increasing. These global issues have a life of hours at times; one
day a lot of concern, the next not so much. As the various issues rise and fall
in the troubled spots, the bond markets here and globally, ride the waves.
At 9:30 the DJIA
opened +45 after increasing 186 on Friday, the NASDAQ opened +19 after jumping
36 on Friday, the S&P +7 after increasing 22 on Friday. The 10 yr note rate
unchanged frm Friday at 2.42%; 30 yr MBS prices +6 bps frm Friday’s close.
There are no economic reports out today. Last Friday the strong rally in the
stock markets was on optimism the tensions in Ukraine and Iraq are likely to ease.
That view is following through this morning but those positive views are built
on soft foundations and can, (will) change on a dime.
All the
technicals we track remain bullish for the bond and mortgage markets, the stock market
rallied Friday and so far this morning; good news for 401Ks but the volume on
Friday and likely today was very thin, low volume does take a little away from
the improvements; the last two weeks of August usually are slow in financial
markets so movements can be exaggerated somewhat. This week is Treasury
re-funding, it occurs every quarter with issuance of a new 10 yr note and 30 yr
bond, other than that there is little significant difference between the
monthly 10s and 30s other than re-opening the current on the run note and bond.
Demand will drive attention in this present geo-political bouncing ball. Market
volatility is possible this week on developing news out of the mid-east and
Ukraine.
This
Week’s Calendar:
Tuesday,
10:00 am June JOLTS (job
openings) (4.588 mil frm 4.635 mil in May)
1:00 pm $27B 3 yr note
auction
2:00 pm July Treasury budget
(-$96.0B)
Wednesday,
7:00 am weekly MBA mortgage
applications
8:30 am July retail sales
(+0.3%; ex auto sales +0.4%)
10:00 am June business
inventories (+0.4%)
1:00pm $24B 10 yr note auction
Thursday,
8:30 am weekly jobless claims
(+6K to 295K)
· July export prices
(-1.0%) July import prices (-0.2%)
1:00 am $16B 30 yr bond
auction
Friday,
8:30 am July PPI (+0.1%; ex
food and energy +0.2%)
· August NY Empire
State manufacturing index (20.0 frm 25.6 in July)
9:15 am July industrial
production and capacity utilization (production +0.3%, capacity utilization
79.2% frm 79.1% in June)
9:55 an U. of Michigan
mid-month consumer sentiment index (82.3 frm 81.8)
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