Product News, How Many Banks Were There in 1921?

By rchrisman@robchrisman.com

The wise old Mother Superior from County Tipperary was dying. The nuns gathered around her bed trying to make her comfortable. They gave her some warm milk to drink, but she refused it. Then one nun took the glass back to the kitchen. Remembering a bottle of Irish whiskey received as a gift a few weeks ago at Christmas, she opened and poured a generous amount into the warm milk.

Back at Mother Superior's bed, she held the glass to her lips. Mother Superior drank a little, then a little more. Before they knew it, she had drunk the whole glass down to the last drop. "Mother", the nuns pleaded, "Please give us some wisdom before you die."

She struggles and raises herself up in bed, and with a pious look on her face whispers, "Don't sell that cow."

This morning we've had the Challenger layoff data and the usual Thursday's weekly Initial Jobless Claims (and its 4-week moving average). Things aren't great out there. Aside from the Arch MI layoffs this week, after seeing sales drop during the holidays, Macy's said it has either closed or will shutter 68 stores and cut an additional 6,200 positions at a time when shoppers are going online to buy... everything.

 And in product news American Advisors Group (AAG) announced the expansion of the new AAG Advantage Jumbo Reverse Mortgage Loan to wholesale partners in Colorado for properties valued up to $6 Million. "Colorado will be the seventh state to welcome this unique financial product which is also available on some non-FHA approved properties and features no upfront or ongoing mortgage insurance with full-draw at closing. Your opportunity just got bigger, the AAG Advantage Jumbo Reverse Mortgage Loan is also available in the following states: CA, CT, HI, FL, VA, & TX. New to reverse? Transitioning is easy, TRID doesn't apply to reverse mortgages and there is typically no additional licensing necessary. Join the AAG family and get started in just 30 days: for industry professionals only. American Advisors Group, NMLS #9392." License information available on www.aag.com/disclosure.

  Many banks know a thing or two about servicing. Banks are always in the news, and here are some numbers for anyone who likes them. The number of American banks reached its peak in 1921 with 31,076. At the end of the Depression in the 1930's we had 14,771. In 1996 we still had 9,528. We are now down to about 5,100 commercial banks. But just imagine what total asset size has done since 1921!

 And although it doesn't directly impact residential lending, in a sign of regulatory trends, Reuters reports that, "Big U.S. banks are set on getting Congress this year to loosen or eliminate the Volcker Rule against using depositors' funds for speculative bets on the bank's own account, a test case of whether Wall Street can flex its muscle in Washington again."

 Remember that The Volcker Rule refers to § 619 (12 U.S.C. § 1851) part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, originally proposed by American economist and former United States Federal Reserve Chairman Paul Volcker, to restrict United States banks from making certain kinds of speculative investments.

 "Lobbyists said they plan to present evidence to congressional leaders that the Volcker rule is actually bad for companies, investors, and the U.S. economy. While an outright repeal of the Volcker rule may not be possible, small but meaningful changes tucked into other legislation would still be a big win, they said...There will be four years of regulatory evolution."

 "Proponents of the Volcker rule say lenders that benefit from government support like deposit insurance should not be gambling with their balance sheets. They also argue such proprietary bets worsened the crisis and drove greedy, unethical behavior across Wall Street. Bankers intend to counter that proprietary trading had little to do with the root causes of the crisis. They say Volcker is inherently flawed because it can be challenging to tell whether a trader is speculating or filling customer demand. In making arguments to roll back the rule, bankers and lobbyists plan to avoid talk of industry profits. Instead, they intend to lean on the idea that Volcker is reducing market liquidity, thereby hurting companies, investors and the economy."Shifting back to mortgage banking, let's see what kind of training and events are coming up, some very valuable but a little off the beaten path.

   I continue to be asked about what the smartest guys in the room think about 2017's volumes. No one knows for sure, but many rely on the MBA's projections that purchase originations will total $1.1 trillion in 2017,  an 11% increase from 2016. In contrast, refinance originations are anticipated to decrease by 40 percent, "We expect that the 10-Year Treasury rate will stay below three percent through the end of 2018, and 30-year mortgage rates will stay below 5 percent over the same period...rate volatility will continue to be the norm in coming months. While we expect the purchase market to improve further, refinance activity will likely decline with rates having stayed low for an extended period, and fewer borrowers left to benefit from the rate environment."

 Rates? Ah, who needs 'em? The LOs who were doing 1-2 loans a month last year and hoping for lower rates this year to boost production...well, it may not happen. Yesterday agency MBS pricing did slightly worse than the unchanged Treasury security market, perhaps due to tight nominal valuations, not much in the way of NY Fed purchases, investors buying corporate bonds instead of MBS, or computer models driving hedging or investment decisions... who knows!? But for those playing along at home 5-year and 10-year T-notes were unchanged on the day whereas MBS prices were worse a few ticks by the end of the day.

 Jobs and housing drive the economy, and this morning we've had the latest layoff data for December from Challenger (33,627 unfortunate folks, but the 2^nd lowest reading in 16 years). December ADP employment was +153k, slightly low versus forecasts, and weekly Initial Jobless Claims came out (-28k to 235k). Coming up are a couple 2^nd or 3^rd tier economic stats with December's Markit Services PMI and ISM Non-Manufacturing PMI. Currently the benchmark 10-year is sitting around 2.42% with agency MBS prices better by nearly .125 versus last night's close.