(Thank you to Ann M. for this
one.)
Grandma's Rules
Respect others.
No whining.
No back talk.
If asked to do something, do
it.
Grandpa's Rule
Don't make Grandma cranky!
Huh? There is now a robot that can build a house in two days? Sounds pretty
good to me... It is certainly a step toward lessening the labor constraint
problems that builders have. We've had a lot of builder and building news
lately highlighted below.
Monday I mentioned the
convention that residential mortgage regulators are having in Florida this
week. I received this note from AnneMaria Allen,
CEO of The Compliance Group. "We (TCG) and me personally have been
a member of AARMR since 1997. Back then there weren't too many Lender members
but there are quite a few Lender and Associate members now. This is an awesome
organization for industry folks to get to know their regulators. We generally
go every year. In fact, for several years in a row I was invited to attend and
train the regulators through AARMR at their AARMR school, part of the training
included teaching the regulators the overall process of our industry from A-Z.
AARMR is not only the annual conference but throughout the year they have
training schools for all state regulators. The schools are for regulators to
receive extra training on basic examinations, advanced examinations, fraud, and
licensing. I believe all states are now part of AARMR.
"I always encourage
all of our clients to join AARMR because it's important for them to spend time with
their regulators and this is the place to do it. This is one central
organization for all regulators to come together and work together not only
regulator to regulator but with their licensees. The AARMR conference is the
best conference to attend if you want to get to know your regulators in the
various states and have a voice. I strongly encourage all multistate Lenders to
be members and to go to the annual conference. Their compliance folks will
thank them dearly long term."
Here's a topic that comes
up once in a while: money laundering. No, not the kind where you find
loose change at the bottom of the washing machine. The kind like
"structuring" where someone has $30,000 in cash, pays off their
mortgage by $8,000 for three months and then another $6,000, and then
refinances to pull it back out. (Why $8 and $6k? Because banks are always on
the lookout for cash amounts of more than $10,000.)
Depository banks likes
Wells, Citi, Chase, and U.S. Bank occasionally see loans and transactions that
violate the Bank Secrecy Act and the Anti-Money Laundering Act (BSA and AML).
These loans may also violate a bank's internal policy, and then the
correspondent group sends the rejected loan back to the lender who asks,
"What the heck?" Depository and non-bank lenders need to train their
post-closing departments in the nuances of the BSA and AML.
Jonathan Foxx with Lenders Compliance Group was recently asked, "In
implementing our AML program, we recognize there are the basic requirements of
the law. But what is the difference between what is required by law and what
are best practices for an AML compliance program?"
He responded,
"Frankly, the law is very general, even vague at times, with respect to
distinguishing it and best practices. The result often leaves those who must
implement an AML compliance program with little practical guidance as to what
should be done.
"At minimum, an
organization should consider having a basic set of policies and procedures for
assessing its risks for money laundering and terrorist financing. The
institution should also have policies and procedures for conducting due
diligence on its customers, clients, employees and agents, vendors and
third-part service providers. In addition, the policies and procedures should
cover how the organization deters, detects and monitors for suspicious
activity. Other policies and procedures should be included to address training
and how the organization handles legal process, reports suspicious activity and
otherwise cooperates with law enforcement and other entities. [FFIEC Exam Manual, 33]
"An organization
that is affiliated with other types of entities should also consider adopting
policies and procedures that apply on an enterprise-wide or institution-wide
basis. Such procedures should permit organization within the enterprise to view
their customers' activity across multiply business lines and geographies.
[FFIEC Exam Manual, 160]."
While I am yammering on
about money, and banks, how big is Wells Fargo's market share compared to the
others? Here you go: The Coach. Share has dipped dramatically but it's still
"the big dog."
How about those home
builders? Rates are good, but they're scrambling for trained workers and decent
land in many markets. Yes, homebuilders can obtain construction loans, but have nowhere to build.
So homebuilders are finding constraints on construction financing easing but
little in the way of quality lots on which to put up their houses.
Confidence among U.S.
homebuilders declined in July from a five-month high, showing the construction
industry remains in a slow, if unspectacular, recovery as the busiest part of
the selling season comes to a close, according to data Monday from the National
Association of Home Builders/Wells Fargo.
Zelman Research
released a piece on trends for builders. "In 2Q16, land acquisition
and development activity continued to grind higher, with both acquisition and
development demand ratings increasing for a fifth consecutive quarter, which we
believe is indicative of a favorable long-term view of the housing cycle shared
by builders and developers. Importantly, the greatest increase in land and
lot demand has been experienced in the entry-level segment of the market,
aligning with broader homebuyer demand trends as detailed in our recent
proprietary analysis of new home inventory, whereas incremental demand for
move-up land has moderated as that segment has grown more saturated...stability
in the pace of land price appreciation, which has held roughly constant at 9%
year-over-year inflation for three consecutive quarters, and ongoing moderation
in development costs bode well for stabilization in builders' future gross
margins at elevated levels." (For questions, please contact Ryan McKeveny.)
Even going back to the
Spring we can see the trends shaping up. For example, while April housing
starts rose 6.6% M-o-M and declined 1.7% Y-o-Y, housing starts were flat for a
year. Since 4/15, the peak in monthly seasonally adjusted starts was a rate of
1.213 million in 6/15; the trough was 1.063 million in 5/15. However, this
stability exists because the 14% increase in single-family activity has been
countered by an offsetting 20% decrease in multifamily activity. Single-family
builders have it good.
And in the Spring Pending Home Sales shot up in April to over a 10-Year High,
increasing by 5.1% in as the sales index climbed to 116.3, the highest
level since February 2006. An index of 100 is equal to the average level of
contract activity during 2001, which the NAR considers a "normal," or
balanced, market for the current U.S. population. Houses remain in short
supply relative to steady demand, which has driven up prices, especially in regions
with strong job creation. And builders aren't adding new homes. NAR chief
economist said vast gains in the South and West propelled pending sales in
April to their highest level since February 2006 (117.4). "The ability to
sign a contract on a home is slightly exceeding expectations this spring even
with the affordability stresses and inventory squeezes affecting buyers in a
number of markets," he said. "The building momentum from the over 14
million jobs created since 2010 and the prospect of facing higher rents and mortgage
rates down the road appear to be bringing more interested buyers into the
market." "Even if rates rise soon, sales have legs for further
expansion this summer if housing supply increases enough to give buyers an
adequate number of affordable choices during their search."
What about the lack of starter
homes? Homebuilders are having a tough time making starter homes work
financially due to increased regulatory and compliance costs, mandated open
space, lower density, higher land prices, and fees imposed by counties and
cities. Indeed, the number of starter homes is at a historical low and falling.
Here are some industry quotes: "When you start with a high land basis,
it's very hard to end up with a purchase price that the first-time buyer finds
affordable," said Stuart Miller, CEO of Lennar. "No. 1, you see it in
just the pure requirements. Those requirements can be a very lengthy list of
things you maybe wouldn't have seen 10, 15, 20 years ago. But you're also
seeing it in fees that counties and cities impose on new home construction.
Fees can be anywhere from $50,000 to $100,000 per home to build," said
Taylor Morrison's Bodem. "Things like that ultimately get passed on to the
consumer and the price of housing. That's one reason why you see the cost of
housing so expensive, especially here in Southern California."
It isn't just starter
homes. We are starting to see weakness at the very high end of the real estate
market. A combination of fevered building of luxury urban properties and
waning overseas demand has created a glut of property in places like Miami, where
prices are sliding 6% - 8%. The top 10% of condos saw a 15% price decline.
In recent weeks, builders
have come out with their earnings. For example, PulteGroup's earnings beat estimates and the company
announced a new "value creation" plan: management will buy back up to
$1.5 billion in stock over the next 18 months and reduce land investment. This
is a bit of a surprise given that revenues increased 41%, and average selling
prices increased 11%. As iServe's Brent Nyitray points out, "Pulte has
been targeting the first time homebuyer pretty aggressively, and given the
pent-up demand, they probably should be investing in the business instead of
buying back stock." And D.R. Horton also announced its earnings which were in line
with expectations. Revenues increased 9% and earnings increased 13%.
Not much going on with
interest rates, which is fine by many. We did have a smidgeon of economic news
from the U.S. yesterday: personal spending data showed that U.S. consumers
continued to dip into their wallets without hesitation in June but combined
with ebbing income growth (spending +.4% versus income +.2%), the higher
spending pushed the savings rate down to 5.3%. Core PCE Prices showed
decelerating core inflation and will allow for some more complacency at the
Fed.
This morning we've already had
the MBA's survey covering 75% of retail application data for last week (-3.5%,
refis -4% and purchases -2%). We've also had the July ADP Employment Change
number (+179k topping forecasts, and June was revised higher); coming up at
10AM ET is some forgettable ISM Services number. Rate sheets can expect very
little change since the 10-year closed at a yield of 1.54% and this morning its
sitting around 1.55% with agency MBS prices nearly unchanged.
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