A bank regulator spies a letter lying on
his doormat.
It says on the envelope, "DO NOT
BEND."
He spends the next 2 hours trying to figure
out how to pick it up
Our Census Bureau is at it again. Did you know that 5 million
U.S. veterans are living in areas designated as rural between 2011 and 2015 per
a new report? Rural veterans had median household incomes more like those of
rural non-veterans than urban veterans ($53,554 compared with $52,161 and
$59,674, respectively). The poverty rate for all rural veterans was 6.9 percent
but unfortunately increased by level of "rurality," to a high of 8.6
percent for veterans in completely rural counties.
XINNIX, The Mortgage Academy is offering a
complimentary Candidate Interview Guide, "10 Questions for Assessing Candidate Drive," designed
to help you find the right talent for your new loan officers. This powerful
guide will equip you with the best questions to identify top talent for your
sales team. Interested in learning more ways to grow your organization and
production in 2017? Sign up for the XINNIX LEADERSHIPProgram beginning March 8th or contact
us online for more information.
You can't tell the players without a program...
It isn't the first, and won't be the last
in 2017. Remember all those rumors about Stearns Lending, LLC? Well, they’re true. Flagstar Bancorp, Inc. announced the signing of
a definitive agreement under which it will acquire the Residential Mortgage
Delegated Correspondent Lending platform of Stearns along with certain
related assets. Things should wrap up by early March. Change is constant: it
wasn't that long ago - 2015 - that Blackstone took
control over Stearns.
"The acquisition
of Stearns' correspondent platform gives us a tremendous opportunity to expand
our market share in the delegated space," remarked Alessandro P. DiNello,
Flagstar's president and CEO. It will certainly shift some volume from the
non-bank to bank category. "Flag" is no slouch: for the nine-month
period ended in September, FBC produced $18 billion through its correspondent
channel of 729 counterparties, or 75% of total originations (this was the most
recent breakout for correspondent production). The company originated a total
of $34.5 billion in 2016. Stearns' business consists of approximately 250
correspondent relationships accounting for over $7 billion of agency and
governmental residential mortgage loan production annually. "Stearns'
employees and subcontractors associated with the delegated business will
transition to Flagstar."
Assuming A+B=C,
and not A+B= some portion of C, upon closing "the acquisition will make
Flagstar the 4th largest correspondent mortgage loan originator in
the United States, based on year-to-date volumes through September 30, 2016 as
reported by Inside Mortgage Finance." [Let's hope there was no overlap
of those 250 correspondent clients, right?]
Government & lending
"Well the good old days, may not return.
And the rocks might melt, and the sea may burn...
Well some say life will beat you down.
Break your heart, steal your crown."
I am positive that Tom Petty was not thinking about
regulations when he wrote those lyrics. But plenty of originators seem to want
the "good old days" back when it comes to regulatory reach and
expense. An administration official told reporters that Dodd-Frank "in
many respects was a piece of massive government overreach" and that some
of the rules within the law, passed in the wake of last decade's financial
crisis, "may have even been unconstitutional." Trump said at a prior
meeting that Dodd Frank had damaged the country's entrepreneurial spirit,
limited access to credit, been horrible for business and was a disaster.
"Disaster" may be a stretch.
So last Friday, Donald Trump signed an executive
order which directed a review of Dodd-Frank. There were the
expected breathless headlines in the business press (with a stroke of a pen, Donald Trump eliminates Dodd-Frank, he's "gutting" Dodd-Frank), however this is just
a "review and report back to me" order. A full repeal of Dodd-Frank
would be impossible, and probably would not be supported by the lending
industry: we have spent the past 6 years becoming compliant with Dodd-Frank -
do we really want to have to adopt some new system?
Trump has signed more than 20 executive orders,
presidential memorandums or proclamations since taking office a month ago. The
Constitution gives every president executive power but doesn't define executive
orders. Here is a primer on what Congress says about executive orders. They are not final, and they are not
automatically the power of the land. Barack Obama issued 277 orders during his
presidency, of varying degrees of success; Franklin Roosevelt issued over
3,700! The Administration's ability to mandate change with respect to
legislative and regulatory reform is limited, as many key financial regulators
are independent agencies. Particularly with respect to the CFPB, President
Trump's ability to push for reform is limited so long as Richard Cordray
remains director. But would a "CFPB board" be more difficult to
effect predictable and controlled change?
As Brent Nyitray, Director of Capital Markets with iServe
Residential Lending, observes, "The unintended consequences will be
addressed, but the structure will probably remain in place. These will turn out
to be addressing the CFPB and small banking regulation in order to get credit
flowing for smaller borrowers, addressing the Volcker rule to encourage market
making, and the fiduciary rule, which many financial advisors interpret as a
gag order and a limitation of the investment options menu. What does this mean
for the mortgage business? Probably not much, although the biggest potential
is in an easing of CFPB enforcement and an increase in mortgage products as the
private label securitization market returns."
The industry and the government arguably want changes to
parts of the financial system that result in better consumer choices, help
growth and competition, etc. But plenty of folks chomping at the bit should
remember that the system needs to pass legislation to accomplish much of
substance, though Trump's move is an effort at momentum. For example, the U.S.
Treasury has months to consult with all the agencies to meet the principles.
It's a study, and a process that must play out. Hensarling's Choice Act will
probably be re-introduced, but anything that impacts the budget will take time
and effort and creative thought.
From bank's perspective on their lending practices, if
there is any restraint on bank lending it is probably international capital
rules and not Dodd-Frank. Bank are making plenty of loans. "Higher capital rules
can slow lending but Dodd-Frank doesn't set capital requirements. Those are
decided internationally by regulators from 27 countries that gather at the
Basel Committee on Banking Supervision."
So President Trump issued an Executive Order establishing Core Principles for financial
regulation. Under the Order, the financial system will be regulated in a manner
consistent with those principles. The Core Principles are to: (a) "empower
Americans to make independent financial decisions and informed choices"
(b) "prevent taxpayer-funded bailouts" (c) "foster
economic growth and vibrant financial markets through more rigorous regulatory
impact analysis..." (d) "enable American companies to be competitive
with foreign firms..." (e) "advance American interests in
international financial regulatory negotiations..." (f) "make
regulation efficient, effective, and appropriately tailored" and (g)
"restore public accountability with Federal financial agencies and
rationalize the financial regulatory framework."
The Order requires the Secretary of Treasury to consult
with the heads of the agencies that are members of Financial Stability
Oversight Council (FSOC) and report to the President within 120 days of the
Order and periodically afterwards on the extent which laws, treaties,
regulations guidance, reporting and recordkeeping requirements promote and/or
inhibit the Core Principles.
The members of the FSOC, in addition to the Secretary of
Treasury, are agency heads of the Federal Reserve, OCC, CFPB, FHFA, SEC, CFTC,
FDIC, and NCUA. Dodd Frank reform efforts will be likely be led by White House
National Economic Council Director, Gary Cohn and it is hoped he will take a
deliberative and holistic approach and that substantial change might not occur
quickly. Changes are more likely going to target ways to cut compliance costs,
reduce pressure on smaller asset banks, and hopefully change enforcement
methods.
Capital markets update
Yesterday we had a rally where bond prices
improved and rates dropped. (Yes, they move inversely.) There wasn't much in
the way of reasons although ThomsonReuters attributed it to "risk off
fashion on renewed concerns about Europe, with a divergence amongst bond yields
between bunds and other EU members notably France and Italy (and Spain and of
course Greece) on jitters regarding upcoming elections and the increasing voice
from anti-EU parties." Of course, that could all reverse itself later this
week, right?
The 10-year note improved .625 and the yield ended Monday
at 2.41% whereas the 5-year note, which more closely mimics MBS prices, and MBS
improved .375. This morning we've already seen the December trade deficit
(narrowing to $44.3 billion). Coming up are second-tier numbers like the
Redbook Weekly Same-Store Sales Index, JOLTS job openings (Dec), and Consumer
Credit, but also the first leg of this week's quarterly Refunding when $24
billion of 3-year notes are auctioned. We find rates slightly higher with
the 10-year yielding 2.44% and agency MBS prices worse .125 versus last night.
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