Like most banking institutions
in today's climate, small banks are not immune from regulatory concerns and
issues. "We can work to recover bad loans, but we can do nothing to alleviate
the cost of the increasing burden of compliance," said Fife Commercial
Bank CFO Mark Southwick. Most community banks are happy to accept the tag as
"customer oriented," however many found themselves expanding into
first lien lending over the past five years to meet demand from their customer
base. This expansion has recently become a cost-to-benefit concern as federal
regulations require more time to insure compliance, especially challenging for
banks with assets less than $100mm. The article continues with Hershey State
Bank's CEO Kenneth Niedan, "...with slightly more than $65 million in
assets and 17 employees, [the bank] got into mortgage lending four or five
years ago because of demand in the market. The fee income from that business
amounted to about 12% of the bank's gross this year. But the bank officer
overseeing that lending line also had to take on the burden of auditing loans
for compliance, which takes more than half of her time. She has concerns about
whether she can keep up with all the regulations. The Dodd-Frank Act's rules
on mortgage lending are "giving us the fits."
Shifting gears to the financial
markets, the U.S. Treasury Department recently released the International
Capital Data for November. The so-called "TIC" number is
basically a breakdown of which country is purchasing our debt. According to
Treasury, "The sum total in November of all net foreign acquisitions of
long-term securities, short-term U.S. securities, and banking flows was a
monthly net TIC outflow of $16.6 billion. Of this, net foreign private outflows
were $30.5 billion, and net foreign official inflows were $13.9 billion." Foreign
residents decreased their holdings of long-term U.S. securities in November,
while U.S. residents increased their holdings of long-term foreign securities.
You may be asking yourself right now, "why is this number important to me,
I'm just a mortgage broker/processor/underwriter/secondary trader or compliance
officer?" Because it is very important to know how willing
foreign investors are in purchasing U.S. debt. When TIC data is rising,
this traditionally indicates the net purchases of long-term securities is
increasing; you know that foreign investors are still interested in buying U.S.
debt and that interest rates will most likely remain low. If, however, TIC data
is decreasing, this traditionally indicates the net purchases of long-term
securities is decreasing; you know that foreign investors are losing interest
in buying U.S. debt and that interest rates will most likely need to rise in
the future to entice more buyers.
But the Fed's activities are
still very relevant. The latest report from the New York Federal Reserve Bank
which reported net purchases averaged $2.52 billion per day ($12.6 billion
total) for the week ending January 29, which compared to mortgage banker
selling that averaged $1.1 billion. So yes, on a percentage basis the Fed is
still buying more than originators are producing.
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