$650,000 is a lot of money for many companies. That was the
amount of the latest fine levied by the
FTC on a Pennsylvania home builder. Yep, one day you're riding high with the
slogan "Zip, Zero, Nada," as Heritage Homes Group claimed
in ads on websites, and in newspapers, flyers, and direct mail, that consumers
could finance their homes without a down payment or closing costs, and the next
day your name is splashed all over the press. But borrowers were actually
required to pay a "good faith deposit," settlement costs, and an annual
fee, according to the complaint. Yep - be careful with those ads, folks -
the FTC is committed to holding mortgage advertisers accountable.
Companies are certainly looking to expand their correspondent
divisions. "Looking for innovation? Colorado's Mortgage Solutions
Financial just announced its Certified Loan Program - removing risk for fraud
and manufacturing defects from correspondent customers for only 10 basis
points. This means a correspondent customer can take advantage of their
incredible product offering - with no fraud or manufacturing defect risk - at a
pretty minimal investment. Mortgage Solutions is a direct
seller/servicer to Fannie, Freddie, FarmerMac, and a Ginnie issuer, and offers
products with zero overlays lending as FHA and VA intended it to be. Need
an IRRRL or Streamline with no score, no appraisal or AVM? MSF offers these.
What's the catch? None we have found." Check it out at MSF Correspondent Lending.
And MSF continues to look for wholesale/correspondent AE's and retail
branches across the country - as well as a mortgage industry recruiting
specialist, who can help it continue MSF's growth. Contact industry
vet Greg Grandchamp at greg.grandchamp@msfhome.com.
"MSF is obviously doing something right over there."
In an effort to reduce expenses
given sluggish conditions, U.S. Bank announced they have frozen all new
hiring, cut nonessential travel and told employees in a technology unit they
will have to take 1 week off without pay. And the CFO of Fifth Third Bank
reported at a conference that the rollout of high-tech kiosks at its branches
over the past 15 months has allowed the bank to cut 1,000 jobs (about 19% of
retail banking employees.
(While we're on employment, obtaining a job at Goldman Sachs
is difficult...let me rephrase that. Landing a job at Goldman Sachs is
statistically improbable. I've been told only the most qualified candidates are
even considered for openings in their analytics groups; groups which analyze
and evaluate everything from bonds to equities, from political climates to
actual climates, Goldman and their people do important quantitative work. Oh,
and in their spare time they run regression analysis to determine the upcoming World Cup winner too.)
Bank management is certainly trying to stay ahead of the
cost-cutting and efficiency curve, and mergers and acquisitions continue at
an astounding rate. (Research firm Coalition reports large banks in Q1 saw
revenue from many activities drop 37% from Q1 2010. Experts say securities
firms are likely to lay off large amounts of staff in coming quarters as they
cut costs to adjust to the new reality of higher capital requirements and lower
profitability. UBS has already announced it will close its fixed income
business and lay off 10,000 employees.) Every week there seem to be more and
more. In Ohio Community Savings Bank ($43mm) will acquire The Home Building and
Loan Company ($38mm). Eagle Bancorp, Inc., the parent company of EagleBank and
Virginia Heritage Bank announced that they have entered into a definitive
agreement where VHB will be merged into EagleBank, with EagleBank being the
surviving institution. National Bank of Commerce ($751mm, AL) will acquire the
four branches of United Legacy Bank ($229mm, FL). Bank of North Carolina
($3.2B, NC) will acquire Harbor National Bank ($306mm, SC).
I am often accused of Premature Articulation: the act of
speaking/bragging too soon before all the facts are in, the game is over, etc.
("Dude, I totally jinxed the Cardinals by talking about how well they were
doing, and then they lost the game. For the first time since high school, I
experienced premature articulation!") But for months I have been
discussing the cost of compliance, and how overall margins have been sliding. By
now everyone and their brother has seen the latest report from the MBA
showing that independent mortgage bankers reported net production losses in
the 1st quarter of 2014. "The significant overall
production volume decline in the first quarter hurt mortgage bankers,"
said Marina Walsh, MBA's Vice President of Industry Analysis. "Purchase
volume did not pick-up, while refinancing volume dropped and costs continued to
rise. Given these conditions, companies that managed to break even in the first
quarter should consider that a reasonable outcome." Average production
loss was 8.31 basis points (BP) in 1Q 2014, compared to an average net
production profit of 8.72 BP in 4Q, the sixth consecutive quarterly
decrease. The MBA's group had average production volume of $274 million
per company in the 1Q, down from $367 million per company in the 4Q, with the
volume by count per company averaged 1,238 loans in 1Q, down from 1,641 in the
4Q. Secondary marketing income increased to 277 BP in the 1Q, up from
248 BP in 4Q. Total loan production expenses - commissions, compensation,
occupancy, equipment, and other production expenses and corporate allocations -
increased to $8,025 per loan, up from $6,959 in the 4Q. First quarter 2014
production expenses were the highest recorded in any quarter since the
Performance Report was created in the third quarter of 2008.
And as the commentary has discussed, housing is not going
through the roof either. Fannie Mae's May 2014 National Housing Survey
might be of interest to those looking at nationwide trends. The share of
respondents who believe the economy is headed in the wrong direction remained
at 57 percent last month. The percentage of respondents who expect their
personal financial situation to get better over the next 12 months fell
slightly to 42 percent. Fabled economist Doug Duncan observed, "Consumers'
lukewarm income expectations and reticence about the economy seem to be holding
back housing demand. This year's spring and summer home buying season has
gotten off to a slow start, even as mortgage rates have trended lower over the
past two months. Our National Housing Survey data show that economic conditions
continue to be the top concern among consumers who think it's a bad time to buy
or sell a home. While recent housing activity suggests that the worst of the
housing slump may be behind us, this caution among consumers supports our
expectation that the rebound in home sales will likely be too modest to pull
sales for all of 2014 ahead of last year."
Illinois has changed its provisions regarding
consumer fraud and deceptive business practices act by modifying Section 2MM of
the Consumer Fraud and Deceptive Business Practices Act with the passage of House Bill 3380. The
amendment provides that a guardian of a disabled person appointed under the
Guardians for Disabled Adults Article of the Probate Act of 1975 or a parent or
guardian of a minor may request that a consumer reporting agency place a
security freeze on the credit report of the disabled person or minor by sending
a request to the consumer reporting agency. The new legislation took effect on
June 1st.
Minnesota has modified its provisions regarding
mortgage foreclosures. The "mosquito state" modified its provisions
relating to mortgage foreclosure by amending the definition of a "small
servicer" and clarifying the Foreclosure Curative Act in House Bill 2213. Under
the amended law, "small servicer" means a servicer that is either: a
small servicer, as defined in Code of Federal Regulations, title 12, section
1026.41, a Housing Finance Agency, as defined in Code of Federal Regulations,
title 24, section 266.5; or a servicer that has conducted 125 or fewer
foreclosure sales during the preceding 12 months. The legislation is effective
the day following final enactment.
Oklahoma's Department of Consumer Credit has informed
NMLS that in accordance with the state's Secure and Fair Enforcement for
Mortgage Licensing Act, and effective November 1, 2013, a
licensed MLO in the State of Oklahoma is required to complete annual continuing
education in a classroom setting at least every two years. The OK-DOCC on April
16, 2014 issued an Official Declaratory Ruling stating that "a MLO may
satisfy the requirement for completing annual CE in a classroom setting at
least every two (2) years by completing a classroom or classroom equivalent
course as approved by NMLS." The requirement for an MLO to complete CE
in a classroom or classroom equivalent setting may be met during calendar year
2014 or calendar year 2015. NMLS has posted an Education Notice explaining in
detail the new education requirements.
Maryland's legislature has recently enacted
provisions found in Senate Bill 1091 which
creates an expedited licensing process for certain mortgage home loan
originators. By adding 11-612.3 to its financial institutions article, Maryland
has altered the way in which background checks may be required. As part of the
application process, mortgage loan originators are required to undergo a state
criminal history background check before being issued a license in Maryland.
Under 11-612.3, the Commissioner of Financial Regulation must waive the state
criminal history check for applicants who are employed as a registered mortgage
loan originator within forty five days prior to the date on the application for
a license. Additionally, the new section gives the Commissioner the power to
adopt regulations in order to carry out the expedited licensing process. These
provisions become effective on October 1, 2014, just in time for my Ocean City,
MD trip.
Louisiana has amended and reenacted provisions
relating to mortgage servicers, requiring that mortgage servicers be licensed
and regulated pursuant the Louisiana Secure and Fair Enforcement
of Mortgage Licensing Act of 2009. These amendments bring
Louisiana mortgage servicers under the same licensing and educational requirements
as mortgage lenders, brokers and originators. In this chapter, mortgage
servicing refers to collecting or remitting payment for another or the right to
collect or remit payments for principal, interest, tax, insurance or any other
payments made in connection with a mortgage loan.
Turning to rates, it all seems pretty steady. The risk-free
10-yr T-note continues to sit in the low 2.60's (yesterday closing at 2.64%
after starting off the day at 2.63%). But could rates go lower? You'd think so,
especially after the World Bank lowered its global growth outlook for 2014 to
+2.8% from an original projection of 3.2% at the start of the year. (2015,
however, was unchanged at 3.4 %.) But is the news that the World Bank used to
change its outlook already incorporated into the bond market? Apparently: on
the day the 10-yr barely budged, and agency MBS prices didn't move either.
We have a little more for bond
traders to chew on this morning. We've had the weekly Jobless Claims number
(expected to drop by 2k, it was +4k from a revised 313k), May's Retail Sales
(expected +.6%, it was only +.3% but there were some back-month revisions), and
Import Prices for May (expected +.2%, they were +1.%). And just to give those
traders something to talk about later today, we have a $13 billion 30-year bond
auction at 10AM PST. Early on rates are down slightly with the 10-yr at
2.63% and agency MBS prices better by about .125.
Weekly jobless claims were slightly
worse than expected; claims increased 4K to
317K, estimates were for a decline of 3K. Since the beginning of the year
claims have averaged 324K. Employers are not firing but equally not hiring at a
pace necessary to grow the economy to the levels most continue to expect.
Claims are the best since 1999, a stat you may hear touted through the day, but
it the level of wages in the new hires is very low and is still an impediment
for the strong economic outlook investors continue to expect. The four-week
average of claims, a less-volatile measure than the weekly figure, climbed to
315,250 from 310,500 in the prior week. The number of people continuing to receive
jobless benefits increased by 11,000 to 2.61 million in the period ended May
31. The unemployment rate among people eligible for benefits held at 2% during
that period, today’s report showed.
May import and export prices; expectations were for both to have increased 0.2%; both were up
just 0.1%. Yr/yr import prices +0.4%, yr/yr export prices +0.5%. No signs of
inflation in those numbers.
At 9:30
the DJIA opened -10, NASDAQ -8, S&P -6; 10 yr 2.63% -1 bp and 30 yr MBS
prices +9 bps from yesterday’s close.
At 10:00, the final data for today, April business inventories; expected to be up 0.4%. As reported
inventories increased 0.6% after increasing 0.4% in March. Higher inventories are
a positive influence on GDP.
At 1:00 this afternoon Treasury will auction $13B of 30 yr
bonds; yesterday’s 10 yr
note auction didn’t experience the kind of demand that it has had recently.
The US has been caught flat-footed on the news Iraq is being
over-run by what has been described as ‘ragtag’ Islamist militia. Talk of civil war is being bandied about. The
Administration is shocked how easily Islamists have taken cities and are
marching toward Bagdad. According to reports now, Iraq officials and US
military trainers have been warning that the Iraq military was not ready to
assume control after the US took ground troops out of the country. Difficult to
anticipate what will develop but traders and investors now have another
geo-political situation to monitor. So far there isn’t any noticeable move to
safety in US treasuries; some chatter that yesterday’ sell-off in the DJIA may
have been partly driven by the situation. There is a big move in the
price of crude oil, up $1.61 this morning at $106.01/barrel.
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