In legal
news, in Denver, the state's high court has ruled that HOAs can't
necessarily sue in construction
defects disputes. A couple thousand miles away, the odds of
passage are slim but Congress has finally moved forward with a bipartisan
amendment that could allow
banks to do business with marijuana companies. I don't know how
high it is on the priority list...
Bank
news
As
mentioned in yesterday's commentary, SoFi applied with the FDIC on
June 6 to obtain a de
novo bank charter. The application is open to comment through
July 6. Good news!
Now
for the bad news: now we have the new term "stealth
modification." Wells Fargo is accused
of making changes to loans it services without telling the
borrowers. "The changes, which surprised the customers, typically
lowered their monthly loan payments, which would seem to benefit borrowers,
particularly those in bankruptcy. But deep in the details was this fact:
Wells Fargo's changes would extend the terms of borrowers' loans by
decades, meaning they would have monthly payments for far longer and would
ultimately owe the bank much more. Any change to a payment plan for a
person in bankruptcy is subject to approval by the court and the other
parties involved. But Wells Fargo put through big changes to the home loans
without such approval, according to the lawsuits."
But
"The Coach" says, "Not so fast." Bloomberg writes that,
"'Wells Fargo strongly denies the claims in these lawsuits,'
spokesman Tom Goyda said in an emailed statement.’The terms of these
modification offers were clearly outlined in letters sent to the customers
and/or to their attorneys, and the payment change notices sent to the bankruptcy
courts.' Goyda said modifications help customers in distress to meet
their mortgage payments, and that such moves have enabled more than 1
million families to stay in their homes since 2009. The bank doesn't
finalize changes without getting signed documents from customers and, where
required, from bankruptcy courts, he said."
The
National Mortgage Servicing Association (NMSA) announced the
appointment of Jim Taylor, SVP of Property Preservation with Wells Fargo
Home Mortgage Asset Management, to lead the organization's effort to
mitigate the threat that vacant and abandoned properties pose to homeowners
and communities.
TIAA's
acquisition of EverBank is now
complete. TIAA's existing banking business, TIAA-CREF Trust
Company, FSB (including its division "TIAA Direct"), has been
combined with EverBank to form one full-service bank, headquartered in
Jacksonville, Florida. The legal name of the combined bank is TIAA, FSB,
but for now, we will continue using the EverBank® brand name in
a variety of materials.
Yet
S&P Global Market Intelligence reports the number of US bank and thrift
M&A deals has declined from 284 in 2014 to 278 (2015) and 243 (2016).
And so far this year, based on data through early June (98 transactions),
the total would be about 235 (2017).
In the
last week or so several bank M&A deals were announced. Four-bank
holding company QCR Holdings ($3.4B, IL) will acquire Guaranty Bank and
Trust Co ($267mm, IA) for about $44.2mm in cash (21%) and stock (79%) or
about 1.40x tangible book. In New Jersey BCB Community Bank ($1.8B) will
acquire Indus American Bank ($235mm) for about $20mm in cash (20%) and
stock (80%). 14 bank holding company Glacier Bancorp ($9.6B, MT) will
acquire Collegiate Peaks Bank ($469mm, CO) for about $73.9mm in cash (22%)
and stock (78%) or about 1.92x tangible book. CresCom Bank ($2.2B, SC) will
acquire First South Bank ($1.0B, NC) for about $162mm in stock (100%) or
about 1.92x tangible book. In Texas Southside Bank ($5.7B) will acquire
First Bank & Trust East Texas ($1.0B) for about $218.8mm in cash (11%)
and stock (89%) or about 2.28x tangible book.
Banks
lend money - usually their depositors. There is other lending, however
(look at mortgage banks, for example): Amazon.com says Amazon Lending
service has surpassed $3 billion in loans to small businesses since it
was launched in 2011. In the last 12 months alone it has loaned over $1
billion to small businesses. Hiking up the sales for third party merchants
is a plus for Amazon, as the company gets a piece of the transaction.
"We created Amazon Lending to make it simple for up-and-coming small
businesses to efficiently get a business loan, because we know that an
infusion of capital at the right moment can put a small business on the
path to even greater success," Amazon Marketplace VP Peeyush Nahar
said. Over 20,000 small businesses have received a loan from Amazon and
more than 50% of the businesses Amazon loans to end up taking a second
loan.
Banks
are certainly watching the potential changes to the regulatory environment.
Bloomberg's Matt Scully reports that, "Wall Street's mortgage-bond
business could benefit from regulatory rollbacks outlined by Treasury
Secretary Steve Mnuchin earlier this week that would allow lenders to
gradually loosen underwriting standards, according to analysts at Goldman
Sachs Group Inc. Cutting back or revising rules imposed on mortgages after
the 2008 financial crisis would likely boost sales of privately issued
bonds that finance home loans, analysts led by Marty Young wrote in a note
to clients Wednesday. Possible changes recommended by the Treasury
Department include repealing or revising rules on risk retention and
lifting caps on points and fees that lenders can charge.
"'The
Treasury report describes potential changes to mortgage and bank regulation
which could be enacted without legislative action, and which thus stand a
good chance of eventual implementation,' Young said. While the changes
could boost issuance, they still would not bring bond sales back to
pre-crisis levels because lenders will remain wary of legal and
reputational risks, he wrote.
"The
report recommended changes to several complex rules that push banks to
avoid riskier versions of mortgages and ensure borrowers actually have the
ability to repay. It also suggested regulators either repeal or revise
so-called risk-retention requirements that force issuers of private-label
mortgage bonds to hold a piece of the securities that they issue, which was
an effort designed to align lenders' interests with investors."
Capital
markets
This
morning we've had our usual read on initial jobless claims. But employment
in residential specialty trades is way up compared with the end of 2011,
when the job market for home renovators bottomed out in the aftermath of
the housing crash and recession. Employment in the category has risen
32 percent since then, to just under 2 million jobs in May.
Private employment overall rebounded 12 percent in the same period.
Yesterday
volatility picked up in the U.S. Treasury & MBS markets. They finished
with large gains for long-dated Treasuries and much smaller gains at the
front end of the curve. In the morning, the Consumer Price Index inflation
numbers missed expectations for the third-straight month in May. And retail
sales coming up short. The shortfall in inflation sparked a lot of buying
and short-covering interest when few traders wanted to commit to big
positions ahead of the Fed rate decision. Then we had the Fed announcement
(more below); the median expectation of the FOMC participants is for one
more hike this year and three hikes in 2018.
As
expected, the Federal Open Market Committee voted to raise the federal
funds rate's target range to 1.00-1.25%. Of more interest to LOs and
mortgage folks, the Committee unexpectedly agreed to a plan for balance
sheet reduction. Sometime "later this year", the Fed will
begin allowing a reduction of a maximum of $10 billion of securities ($6 B
of Treasuries and $4 B of mortgage securities) every month. That cap will
increase by $10 billion of securities every quarter until the balance sheet
is declining by $50 bln/month. Put another way, the Fed is maintaining its
existing policy of reinvesting principal payments from its MBS and agency
debenture holdings, but added "The Committee currently expects to
begin implementing a balance sheet normalization program this year,
provided that the economy evolves broadly as anticipated." Also, the
Committee said it would be prepared to resume reinvestments if there was a
material deterioration in the economic outlook where a reduction on the fed
funds rate was not enough.
Yet
bond prices improved and rates dropped - another day where someone would
have lost their shirt if they'd know the information ahead of time. Most of
the rally was based on the weak economic data, and the removal of
uncertainty in the markets by the FOMC addressing the balance sheet
question. The 10-yr yield hit its lowest level since November 10 and the
2s10s curve the flattest since early September. The 10-year note closed Wednesday
yielding 2.14% and agency MBS prices improved .125-.375 depending on coupon
and maturity.
Looking
at today we've already had initial jobless claims (-8k to 237k), the
Philadelphia Fed's manufacturing index (27.6), the Empire Manufacturing
number from New York (up to 19.8), and May import & export prices (-.3%
& -.7%). Coming up are the Industrial Production and Capacity
Utilization duo. We start the day giving back some of yesterday's gains: the
10-year is yielding 2.16% and agency MBS prices are worse about .125 versus
last night's close.
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