Prosper did What?

It is the holidays, and I receive my fair share of automatic e-mail responses. Some are actually apologetic about taking a day off, or even leaving work for the day. And every once in a while someone breaks out of the mold. (Part 3 of 5 where I took the time to sniff out some of the more interesting ones.)

 Thank you for contacting me, I will be out of the office starting at 12:43. I will be returning Monday morning since I don't work every weekend.

 I'm off to Minnesota for my brother's wedding and will return on Tuesday.  I'll still be responding to all calls and emails. 

 I am currently out of the office the rest Friday the 4th. I will return Monday the 7^th after attending my company's sales award trip that I won. For Underwriting Scenario questions, please contact the Helpline...

 Hello! I am currently out of the office making my once a year trip to see my family.

 I am currently out of the office with limited access to e-mail since I am taking 1 day off out of the 10 I get every year. I will be returning to the office on Monday, December 7th.

Yes, the financial services sector continues to evolve, or devolve as the case may be. Certainly the wave of mergers and acquisitions continues, and just in the last week several were announced. In California BBCN Bank ($7.6B, CA) and Wilshire Bank ($4.7B, CA) will merge in a "stock for stock merger of equals" transaction. (BBCN will get 9 directors and its shareholders will own 59% of the combined company and Wilshire will get 7 directors and own 41 %.) First United Bank and Trust Co. ($201mm, KY) will acquire Bank of Ohio County, Inc. ($95mm, KY). Peoples Security Bank and Trust Co ($1.8B, PA) will acquire wealth management company Gilmartin Associates (PA) for an undisclosed sum. Security Bank of the Ozarks ($47mm, MO) will acquire Community Bank ($50mm, MO). Univest Bank and Trust Co ($2.8B, PA) will acquire Fox Chase Bank ($1.1B, PA) for about $244.3mm in cash (40%) and stock (60%). BOKF ($30.3B, OK) will acquire Missouri Bank and Trust Co of Kansas City ($584mm, MO) for about $102mm in cash (100%). In Minnesota Frandsen Bank & Trust ($1.5B) will acquire Provincial Bank ($83mm).

The Basel Committee on Banking Supervision is revising proposed rules for measuring mortgage risk to let banks prioritize a debt-servicing coverage ratio when making loan decisions. Sweden, Denmark, the Netherlands and Germany have argued against the original version.

While I am yammering about banks, non-banks have certainly cut into their market share for various services, frustrating regulators who aren't currently regulating them. Out in California a state regulator has opened an inquiry into the marketplace lending industry. I am sure that commercial depository banks don't mind as their business is threatened by the changes brought on by non-banks.

Bloomberg reports online lending platform Prosper arranged the loan terrorists took out before their deadly shooting rampage killed 14 in San Bernardino, CA. Law enforcement, Congress and the CA Department of Business Oversight are all reportedly now investigating lending practices of online lending portals and their business models.

Did someone say it is winter, and that there are changes coming down the drainage ditch regarding flood policies?

I received this piece from Debbie Hoffman, chief legal officer of Digital Risk. "Beginning Jan. 1, regulatory changes governing loans and flood insurance go into effect. The changes, implementing the Biggert-Waters Flood Insurance Reform Act of 2012 require, among other things, that for most residential loans originated or refinanced on or after the changes go into effect, the lender must escrow all premiums and fees for flood insurance.

"Consumers who currently pay their own flood insurance premiums as one lump sum annually will be required to contribute to a monthly escrow of the premiums.  In addition, the new escrow requirements may slightly increase closing costs/settlement charges, because they will add more money that will need to be deposited in escrow up front at closing.  

"Digital Risk is tracking these updates for our clients, specifically in the context of Servicing, as these new escrow requirements will impact many who come to us for quality control and compliance testing of their servicing practices.

"The final rule implementing the new escrow requirements was issued by the FDIC, the OCC, the Federal Reserve Board, the NCUA, and the FCA (the Agencies), thus amending each of these agencies' respective regulations regarding loans in special flood hazard areas. The new escrow provisions, among the other provisions of the rule, implement the Biggert-Waters and HFIAA provisions mandating the Agencies to issue rules regarding the escrow of premiums and fees for flood insurance on residential improved real estate.

"The final rule requires regulated institutions, including servicers acting on such institutions' behalf, to escrow premiums and fees for flood insurance for any loan secured by residential improved real estate or a mobile home that is made, increased, extended, or renewed on or after Jan. 1, 2016, subject to certain exceptions as established in the Flood Disaster Protection Act (as amended by Biggert-Waters and HFIAA).

 "It is important to note that the Agencies have specified that the receipt of a loan application does not trigger the requirements of the rule - a loan is 'made' or 'extended' upon closing, so even if a loan application is received before Jan. 1, 2016, if the loan is expected to close on or after Jan. 1, 2016, then the escrow provisions (among others) will apply.

"While these provisions are not surprising and largely in line with the statutory mandates of Biggert-Waters, the new escrow provisions are a significant change to the current regulations under National Flood Insurance Program, which require the escrowing of flood insurance premiums and fees only if the lender also requires the escrow of other amounts (such as taxes or other insurance).  

"The final rule also requires that, for loans secured by residential improved real estate or a mobile home that are outstanding on Jan. 1, 2016, a lender must give the borrower the option to escrow flood insurance premiums, subject to the same exceptions as the previous requirement.

"Exemptions apply: Lenders with total assets of less than $1 billion, as well as for certain loans, such as loans for business, commercial, or agricultural purposes; certain subordinate loans; HELOCs; nonperforming loans; and loans with terms of less than 1 year.

"It is important that nonexempt lenders ensure that they have the proper policies and procedures in place to implement these new requirements by the effective date. Such lenders will need to work closely with their third-party escrow services vendors to guarantee compliance." Thank you Debbie!

As a result of the Homeowner Flood Insurance Affordability Act, Franklin American Mortgage will require an escrow/impound account be established for the payment of flood insurance premiums on all properties located in a flood zone regardless of LTV. This requirement will be effective on loans closed as of January 1, 2016.

 U.S. Bank posted that insurance escrows will be required on all first lien loans purchased by Third Party Lending, regardless of the LTV for properties located in a special flood hazard area, loans closing on or after January 1, 2016, the life of the loan.

Effective for loans closed on or after January 1, 2016, Penny Mac will require flood insurance premiums to be escrowed, in compliance with the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters). Escrows for flood insurance premiums may not be waived, regardless of LTV, on loans secured by 1-4 unit properties (including PUDs and site condos).

Turning to the capital markets, up some, down some - so go rates. Yes, everyone expects the FOMC to raise short term rates today (they pretty much have to given all the Fed Governor's comments over the last few weeks) but the jury is still out about if the market will move. And the press is already talking about the next rate move. The news out yesterday (U.S. consumer prices were unchanged in November, as expected, and core prices which exclude food and energy grew slightly, also in line with expectations, homebuilder sentiment unexpectedly dipped in December, and the manufacturing sector improved in the New York Federal Reserve region) took backseat to the jawboning about the Fed.

Thomson Reuters points out that, "What is getting less attention but could be of importance to MBS investors given the impact on funding rates (and carry as a result) is the implementation of the rate hike, which will likely be released separately by the NY Fed shortly after the FOMC statement where the cap on the overnight RRP program (currently $300bn a day) is expected to be more than doubled (even tripled) with the spread between IOER and RRP likely to widen from the current 20bp to 25bp (causing the effective funds rate to rise less than 25bp from current levels)."

Today we've seen the MBA application numbers for last week (-1.1%, purchases -3% and refis +1%). Later this morning we'll have the November Building Permits and Housing Starts at 7:30 CST (expect an increase), November Capacity Utilization and Industrial Production at 8:15AM CST (expected at 78 and to drop, respectively), and the wondrous December FOMC Rate Decision and Press Conference at 1PM CST. We closed the 10-year at 2.27% Tuesday and this morning it is hovering around 2.28% with agency MBS prices roughly unchanged.