An
elderly man had a massive stroke and the family drove him to the emergency
room. After a while the ER doctor showed up with a long face.
"I'm
afraid grandpa is brain dead but his heart is still beating."
"Oh
dear God" cried grandma, "we've never had a politician in the family
before!"
It is
wrong to say that all Millennials are living with their parents watching reruns
of "The Wild Thornberrys." Many are out there accumulating wealth,
and according to Zillow, the city with the greatest share of wealthy Millennials
earning more than $350,000 per year with, 8.7 percent of households headed by a
Millennial is Arlington, VA. The second most populous city of "young and
rich" Millennials is San Francisco, as 7.8 percent of Millennial-headed
households earn more than $350,000 annually, followed by Huntington Beach,
Sunnyvale, and Seattle. When comparing popular places for young adults to live,
there are some similarities seen between Millennials and Baby Boomers.
Arlington also had the largest share of rich Baby Boomers, with 7.9 percent
earning more than $350,000 per year, followed by both Cambridge and Ann Arbor.
Nearly
every lender we speak with is either activity expanding their Consumer Direct
efforts, OR talking about the trends of others. Some think that CD is
taking off like a Rocket (pun intended) while others feel that it's still very
refi centric, and thus subject to pressure when rates go up. The reality,
however, is a bit more complicated, and that is why STRATMOR is running a
Consumer Direct Workshop May 10-11 in Denver CO. This popular event
allows CD executives to meet directly about the CD channel, and dig into the
performance metrics of the channel. For example, last year we learned
that over 40% of retail loans being produced were through direct efforts, but
also learned that purchase units through CD had doubled in the past five years.
Attendees of this workshop include CD executives, as well as bank executives
looking to expand direct cross sell to their bank customers. Garth Graham
and the folks at STRATMOR have even more insights this year: click Consumer Direct Workshop for more details.
Down in California the Greater Sacramento CAMP Chapter
is bringing back its annual Lender Fair and Trade Show. The 2016 Spring
Fiesta Lender event includes food and a hosted bar. Don't miss this opportunity
to mix and mingle with other professionals and meet many of the vendors who support
us in this industry. This event is FREE for CAMP members who pre-register, $10
for future CAMP members, and $20 at the door. The event is April 14th
at the Sacramento Association of Realtor Building, 2003 Howe Ave. in
Sacramento. For more information, contact CAMP Sacramento President Leo Whitton.
WMBA's
April 19th dinner meeting at The Overlake Golf and Country Club will
include a loan officer panel and honor past President's. Panelists include Mike
Dorman, Loan officer for The Dorman Team - Evergreen Home Loans, Danny Forbes,
Mortgage Loan Officer - Umpqua Bank, Loann Le - Bank of America, and Oleg Tkach
Senior Mortgage Loan Officer - Guild Mortgage Company. Registration deadline is April 14th at noon.
ABA will be
holding its annual Real Estate Lending Conference, April 17-19, 2016 at the
Grand Hyatt in San Antonio. The event is built by bankers, for bankers, and
features residential and commercial tracks. The agenda covers market
trends and practices, profitability, process engineering, underwriting,
appraisal issues, regulatory challenges, strategic choices, and much more. Complete program
details are available here.
The OMBA
Annual Convention will be held May 2-4, 2016 in Columbus at the Sheraton at
Capitol Square, 75 E. State Street. Speakers include MBA Chairman & Quicken
Loans CEO, Bill Emerson; "Lykken on Lending" radio talk show host and
mortgage banking consultant, David Lykken; myself, and many others. Additional information and registration are available here.
Disaster
updates?
Sun
West posted information regarding new counties in Mississippi
declared by FEMA as disaster areas for the incident date of March 9th.
For loans submitted with an appraisal dated on or before the incident period
end date or for those submitted without an appraisal, Sun West will require an
interior and exterior inspection prior-to-funding or purchase of any loans with
subject properties that are determined to be at risk. The inspection must
verify that the property is sound, habitable and in the same condition as when
it was appraised.
On 3/25/2016 FEMA identified 4 additional Louisiana
parishes as eligible for assistance to supplement individual recovery efforts
in the areas affected by severe storms and flooding beginning on March 8, 2016,
and continuing. Until an incident end date is declared, AmeriHome Mortgage
will require re-inspections for all properties in the affected parishes,
irrespective of appraisal date.
Hundreds
of residents of Flint, Michigan, filed a racketeering lawsuit yesterday
targeting Gov. Rick Snyder and other state and local officials over lead
contamination of the city's drinking water. Filed in U.S. District Court in
Flint, the suit is one of many arising from the decision to switch the Flint
supply from the Detroit water system to the Flint River in April 2014 to cut
costs. The move was supposed to be temporary, until Flint could join a new
water authority that would pipe water from Lake Huron.
Ditech
has posted specific requirements regarding the water contamination emergency in
Flint, MI. A water quality test for all properties located in Genesee County
serviced by the public water system, unless the appraiser states that the
subject is not serviced by the Flint Michigan Water District, to determine if
water is safe and potable. Water test must show that water quality is within
maximum contaminant level (MCL) standards set by EPA and local health
authority. Refer to investor links for FHA, VA, Fannie Mae and Freddie Mac additional
requirements and information.
Switching
gears to why some mergers and acquisitions work and others don't, one
area that has plagued deals in the past from seeing the best results is
culture. Is a lender or bank merging with another lender or bank that you've
been competing with, and despising, for decades? Is there too much
"history" to make it work, even if the financials and footprints work
perfectly?
Lenders
and banks may have differences from others in operating structure, hierarchy,
dictatorial management vs. more open styles, pay structures and other factors.
Here too, candidates should evaluate things very carefully before jumping into
the pool, if success is to be truly achieved over the short and long term.
Certainly
there are lots of factors to consider. A study done several years ago (Gubler)
looked at mergers across various countries during the 1980s and 1990s. It used
accounting data to compare post-merger profit performance 5 years after the
merger to control groups of firms in the same industry. It found that the most
common result, interestingly with common patterns across countries, was
increased profitability but reduced sales. Meanwhile, about 41% of all mergers
reviewed failed to have a positive impact on profits.
A
study out of Wharton discussed why mergers fail. (It is
about 10 years old, but nothing has changed.) The study notes that there have
been "hundreds of studies" looking at the long-term results of
mergers and that researchers estimate the failure range is between 50% and 80%.
That is downright ugly. Let's look at some other research by KPMG from 2015.
This survey of 100 community banks found the areas tagged as the three biggest
drivers of company revenue growth over the next 1 to 3 years are: asset and
wealth management (32%), mergers and acquisition activity (28%), cross-selling
(28%) and new market segments (25%).
And
the most recent 2016 bank M&A survey results from Bank Director found that
67% of banks say they need to grow significantly to compete in today's
marketplace. Further, the minimum asset size respondents indicated most
frequently was needed to be competitive were: $1B (32%), $500mm (22%), other
(17%) and $5B (16%). Other surveys have found while roughly 50% of banks are
interested in potentially acquiring another bank, close to 90% have no interest
in selling.
There
is the issue of staffing. What percentage of each institution is support staff?
There are challenges at the higher echelon levels too as there will be
duplication of positions. There will be multiple CEOs, heads of production,
CIOs, capital markets, CFOs, etc. who have to be sifted, and this will entail a
lot of pain as some may have to leave. Departments have to be realigned or
closed. The private sector is ruthless and the higher pay scales carry an
unemployment trade-off as they use euphemisms such as shareholder value for
downsizing. If one of the biggest benefits of an M&A deal is combining
staffs, or acquiring talented individuals, failing to lock in key personnel
through contracts before a deal is announced can result in the loss of some of
the very people that made a deal attractive.
There
will be plenty of mergers, and acquisitions, in lending and banking in 2016.
Doing homework and analysis is critical, and as Steve Brown from PCBB notes,
"It is also important not to fall in love with a given target because a
bad price or bad culture can blow up any deal and your own bank
post-deal."
With
a lack of new banks being formed, and others continuing to merge, it doesn't
take a rocket scientist to figure out that the number of institutions is diminishing.
Some say it is a fact of life, critics say that it is due to the burden and
cost of over-regulation. Just in the last week it was announced that in
Virginia Blue Ridge Bank ($267mm) will acquire River Community Bank ($114mm)
for about $12.4mm in cash and stock. Western Alliance Bank ($14.2B, AZ) will
acquire the US franchise finance hotel business from GECC. And in 'Bama First
State Bank of DeKalb County ($99mm) will acquire First Bank of the South
($84mm). And Chicopee Savings has agreed to merge into Westfield Bank to form
the largest bank headquartered in in Hampden County in a $110 million deal.
(The move continues a trend of bank mergers driven by technology needs and a
drive for market share.)
Many
say that the Federal Reserve is a lagging indicator of economic conditions
rather than a leading indicator. Yet we pay attention to their speeches and
minutes from their meetings to see if we can learn anything more. Yesterday's
release of the March meeting minutes showed that a few members wanted to
hike in March, but most share the views expressed by Yellen last week when she
said that the current situation warrants more caution. Certainly
policymakers were divided on what to do next. They look more unified than
anticipated, given some recent point/counterpoint from Fed speakers but there's
nothing in the Minutes that would suggest they'll delay a rate hike if economic
conditions improve--especially global economic conditions.
Fixed-income
securities declined/worsened slightly Wednesday. Blame it on the Fed, blame it
on the price of oil, blame it on the stock market, blame it on the anything you
like. But everyone admits that volatility in interest rates has been low, and
no one minds. Certainly the Minutes from the Federal Reserve's March meeting
suggest the central bank is unlikely to raise interest rates this month.
This
morning we've already had Initial Jobless Claims for the week ending 4/2 (267k,
down 9k). And that about does it for the day...except for another speech by Fed
Chair Yellen this evening after the markets are closed. When folks headed home
the 10-year was yielding 1.75% and this morning its at 1.74% with agency MBS
prices better by nearly .125.
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