People need to use their heads once in a while. Circulating in
the e-mail world is a claim: "This is the only time in your life you will
see this phenomenon: August, this year, will have 5 Fridays, 5 Saturdays and 5
Sundays. This happens only once every 823 years." Snort. Anyone who can
read and has a calendar, and a little common sense, knows that this is
incorrect, as every time a month with 31 days (January, March, May, July,
August, October, December) has the 1st day of the month on a Friday, this happens.
So stay tuned for May 2015 when it will happen again. Speaking of things that
are subject to skepticism, even if they're in writing, Al W. forwarded this
along about how LOs are #3 on a list of jobs
that make a person happy and rich.
Speaking of using your noggin, the GDP of Argentina is about the
same as that of Virginia, about $400-500 billion. Traders could use Argentina's
missing a debt payment as an excuse to buy US bonds. But instead of a flight to
quality which would push our rates lower, the "market" in its
infinite wisdom, decided to concentrate on economic data that sparked
concern the Federal Reserve could raise interest rates sooner than some have
expected. So yes, rates have moved higher, but are still within the range
we've been in since before Easter. And we once again have proof that stocks
and bonds don't always move in the opposite direction, since bond prices
and stock prices have fallen this week. Lots of smarter minds than mine see
this as an over-reaction and a buying opportunity for both.
Many banks are preparing for an eventual increase in interest
rates (take your pick: a stronger economy or the Fed scaling back
security purchases). And so many banks are adding floating rate loans in
order to have an increasing income stream when rates do rise. This is probably
a good idea given that typical community bank funding structures are positioned
for a rising interest rate environment. As bankers know, floating rate loans
are typically priced at a spread pegged to a benchmark. Over the years, though,
many banks have been shifting from Prime to Libor as they seek to better match
funding sources (large banks typically use Libor to price deposits).
I remember when it was correctly called LIBOR (London Interbank
Offered Rate) but I guess it is easier to type Libor. It is a global floating
interest rate that initially acted primarily as a benchmark for transactions
between banks, and especially for commercial loans. Possible manipulation and
lawsuits aside, or actually because of them, a new Libor administrator took
over from the British Bankers Association (BBA) called the Intercontinental
Exchange (ICE). But on July 1 of this year the ICE introduced new licensing arrangements
for the use of the index! A usage license is required for any party that
uses Libor rates in valuation and pricing activities, including collateral
calculations, interest rate fixing, pricing curves, etc., plus any party that
uses Libor rates as a reference rate in transactions which could include swaps,
mortgages and loans.
This is shocking in its broad reach and seems to require a
license for practically every bank, mortgage company, credit union, core
provider and servicer in the U.S. ICE indicates licenses cost $16,000 per year
- can the local mortgage company or credit union afford that? That may change,
however, as Pacific Coast Bankers Bancshares reports that currently the ABA and
the ICBA are actively communicating with ICE to help it achieve a better
understanding of how U.S. institutions use the index and to have this fee
eliminated.
Banks use their deposits to make loans, but US banks are
steeling themselves for the possibility of losing as much as $1 trillion in
deposits as the Federal Reserve reverses its emergency economic policies and
raises interest rates. JPMorgan Chase, the biggest US bank by deposits, has
estimated that money funds may withdraw $100 billion in deposits when the Fed
stops influencing supply and demand. And you know all those recently minted
MBAs in the ranks of Wells, Citi, Bank of America, Bank of New York Mellon and
PNC Financial Services are crunching numbers trying to gauge the potential
effect of the Fed's exit on institutional or retail depositors who might choose
to switch to higher interest accounts or investments. Of course banks love
paying roughly 0% on deposits and loaning the money out, thus earning the
spread. An outflow of deposits would be a reversal of a five-year trend that
has seen significant amounts of extra cash poured into banks thanks to the Fed
flooding the financial system with liquidity. Banks might have to pay higher
rates on deposits to retain customers - potentially hitting their profits and
sparking a price war for client funds.
What have a few states been up to recently with regard to
lending changes?
Pennsylvania recently modified provisions regarding
powers of attorney in House Bill 1429. The bill
requires a power of attorney to be dated, as well as signed by the principal or
by another individual on behalf of and at the direction of the principal if the
principal is unable to sign. The signature must be acknowledged before a notary
public who is not the agent designated in the power of attorney and witnessed
by two individuals, each of whom is 18 years of age or older.
Florida recently passed House Bill 413, which
enacts provisions regarding consumer collection practices. HB 413 states, "a
person may not engage in business in Florida as a consumer collection agency
without first registering in accordance with the law, and thereafter
maintaining a valid registration." The Financial Services Commission
may also adopt rules requiring electronic submission of forms, documents and
required fees as well as establish time periods during which a consumer
collection agency is barred from registration due to prior criminal convictions
of, or guilty or no contest pleas by, an applicant's control persons,
regardless of adjudication.
California amended provisions regarding mortgage loan
originator education requirements in Senate Bill No. 1459. Under
the law, an applicant for a mortgage loan originator license is required to
complete at least 20 hours of approved pre-licensing education. Pre-licensing
education courses must be reviewed and approved by the NMLSR. Education may be
offered either in a classroom, online or by any other approved means. Education
requirements approved by the NMLSR for any state other than California are
accepted as credit toward completion of pre-licensing education requirements in
California.
Rhode Island's Governor, Lincoln Chafee,
signed HB 7997 in July, which
extends the state's licensing requirements to include companies servicing a
loan, directly or indirectly, as a third-party loan servicer. As Buckley
Sandler write, "the new law expands the definitions for servicing and
third-party loan servicers, establishes for such servicers a $1,100 annual
licensing fee, and requires licensed servicers to: (i) maintain at least
$100,000 capital; (ii) obtain a bond; (iii) maintain segregated borrower
accounts; and (iv) maintain certain records." HB 7997 also establishes
prohibited acts and practices for third-party servicers, including, among
others: (i) knowingly misapplying loan payments to the outstanding balance of a
loan or to escrow accounts; (ii) requiring unnecessary forced placement of
insurance; (iii) failing to provide loan payoff information as required; (iv)
collecting private mortgage insurance beyond the date required; (v) failing to
timely respond to consumer complaints; and (vi) charging excessive or
unreasonable fees to provide loan payoff information. The new rules and
requirements take effect July 1, 2015.
Connecticut's legislature has passed House Bill 5514 providing
for an alternate method of foreclosure. The new bill establishes an additional
method of foreclosure that will support the Connecticut real estate market by
selling residential properties at market prices, encourage potential purchasers
eligible for first-time homebuyer and other special lending programs or who
wish to perform due diligence concerning a purchase to purchase a residence in
foreclosure, provide a measure of dignity to residential borrowers faced with
the prospect of foreclosure, reduce deficiencies by providing a procedure for a
market sale instead of a forced auction sale or lender possession of property
prior to sale and provide a speedy method of concluding a foreclosure when the
borrower and first mortgage lender agree on a sale.
New York has adopted regulations concerning shared
appreciation mortgage modification as Title 3 NYCRR Part 83. It permits banks
and mortgage servicers to reduce the amount of principal outstanding on a
borrower's mortgage in exchange for a share of the future increase in the value
of the home. The option is limited to borrowers who are 60 or more days past
due on their loan or whose loan is the subject of an active foreclosure action
and who are not eligible for existing federal and private foreclosure
prevention programs.
And a few somewhat recent lender updates to give us a
flavor for the trends out there...
The Federal Home Loan Bank of Des Moines and the Federal Home
Loan Bank of Seattle announced that they are discussing a potential merger of the
two Banks. A merger would require approval from the Federal Housing
Finance Agency, as well as member-owners of FHLB Des Moines and FHLB Seattle.
The combined institution would provide funding solutions for more than 1,500
member financial institutions in 13 states, as well as the U.S. territories of
American Samoa and Guam and the Commonwealth of the Northern Mariana Islands.
US Bank Mortgage posted its bulletin 14-045
regarding agency conventional overlays.
Due to an improved lending environment and the agencies
providing better clarity regarding their expectations, U.S. Bank Home Mortgage
will be eliminating all conventional agency credit overlays. "USBHM
continues to provide clarity when agencies are silent on a topic or when USBHM
chooses to use an alternative process to expedite loan approval." These
changes are effective immediately for all new conventional agency loans and
current loans in your pipeline. Agency guidelines must be followed.
Kinecta Federal Credit Union reminded clients that
it offers a 90% LTV Jumbo Arm program for loan amounts up to $250,000 above
agency high-balance limits, min 720 FICO and discounted MI. Conversely, if the
borrower wants to avoid MI, we also offer 1st and 2nd combos up to a combined
loan amount of $1 million. Also min FICO is 720.
Banc of California now offers Non-Warrantable Condos, Condotels &
HomeStyle Renovation loans in all 50 states to its correspondent clients;
Non-Warrantable Condos: Fixed Rate and ARMs; Loan amounts to $2.5M, 65LTV;
80LTV to $1.5M.
M&T Bank Correspondent's 2014-20 bulletin
included information regarding Homeownership Counseling disclosure forms audit
requirement on loan files submitted for purchase with application dates on or
after 7/10/14 to ensure compliance with the Dodd-Frank requirement. SONYMA
Conventional Plus income limits have changed with most of the State seeing a
decrease. VA appraisal fees have been revised applicable to all VA appraisals
ordered on or after July 2; Flood insurance minimum deductibles, for new or renewing
policies are in effect.
Turning back to the markets, take your pick (Ukraine, Argentina,
Israel, Libya, the possibility of the Fed raising rates in the first half of
2015 instead of the second half), volatility has increased. MBS prices got
whacked Wednesday and Thursday, and yesterday the 10-yr closed at a yield of
2.56% - still on the low side of the range we've been in since MLK Day.
Today we've seen the Personal Income and Consumption data, along
with payroll and unemployment data. Nonfarm Payrolls were +209k for July,
slightly lower than expected but the prior month revised higher to 298k, and
the unemployment rate inched up to 6.2%; average hourly earnings and workweek
were both unchanged as expected. We still have the July final University of Michigan
survey coming, as well as July's ISM Manufacturing results - but on a summer
Friday, they are unlikely to move rates. In early trading we're down to
2.54% and agency MBS prices are better by about .125.
July unemployment rate at 6.2% up from 6.1% in June
(expectations were for 6.1%); non-farm jobs up 209K against estimates of 230K,
private jobs +198K against estimates of 233K. Average hourly earnings up 0.1%,
less than _+0.2% expected; the labor participating rate 62.9% from 62.8% in
June. May and June non-farm jobs were revised up by a total of 15K more than
originally reported. The report had something for everyone; not excessively
strong, that took some of the pressure off stocks and bonds; not weak either,
keeping the longer outlook questionable and uncertain. There will discussions
all day, as was the case yesterday, whether the Fed will increase rates sooner
than what has been thought. Construction companies added 22,000 workers and
factory employment climbed 28,000 last month, led by a 14,600 gain in payrolls
at auto plants that was the biggest since April 2013. Employment at private
service providers increased 140,000 in July, the smallest gain in six months.
Yesterday a wave of stock and bond market selling on belief
inflation is gaining and the economy is accelerating more
rapidly than the Fed has been saying. In the policy statement from the FOMC
meeting the group, following Yellen’s take, said there is significant
underutilization in the labor markets. Today’s report does imply the Fed has it
right; that will not change the deeper thinking that the Fed is behind in its
plan to increase rates.
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