Hey, those rumors about next week’s MBA conference being
“clothing optional” seem to be totally unfounded - or maybe
someone is trying to play a joke on me. But here is something
for real: a couple firms are advertising some free meeting
room space at next week's convention. MERS
always has a room, this time in the Columbus Hall G-H. And
this time around DigitalRisk is offering up a place to
hang out. It has free WiFi, refreshments, and a changing
station. (Okay, "charging" station, I misread it, but at first
I thought I could bring a baby.) "The Lounge" is also in the
Columbus Hall near the registration desk. The meeting rooms
beat scrambling for a seat in the bar, and then feeling bad
about not ordering something from the waitress.
For something totally non-mortgage related on this autumn
Friday, after 79 years chronicling American life, Newsweek
magazine will publish its last print edition at the end
of December and become digital-only. Darned digital media
stuff!
Where
is
the CFPB hiring its staff? I am sure from multiple sources,
but definitely some right out of school – kind of like the Big
8 Accounting firms do. So here I am, visiting my son at
business school at UT in Austin, when I see on the bulletin
board: "Interested in a career at the nexus of finance,
government, and law? Discover the CFPB Director’s Financial
Analyst Program at our information session. At the session:
Learn the unique challenges and opportunities you’ll encounter
as an analyst at the CFPB. Current analysts and CFPB staff
will be on hand to answer all your questions. About the
program: The Director’s Financial Analyst Program gives
outstanding college graduates the opportunity to work on
behalf of American consumers while gaining financial market
experience, training, and developmental opportunities that
rival those of Wall Street banks. Analysts rotate through 2-3
different CFPB divisions over 2 years. About the CFPB: The
CFPB is a 21st century Bureau that is changing the way
consumers are treated in the financial marketplace. In the
process, we’re changing what it means to be a government
agency. For more information visit www.consumerfinance.gov.”
One
thing I am often asked about is the status of FHA
Streamline investors on the correspondent side. I
received this note, “The interest in Streamlines that mirror
FHA guidelines remains high as borrowers and correspondents
alike seek alternatives to major investors, who require high
FICO scores and full property appraisals. For borrowers whose
property values remain ‘underwater’ due to depreciation yet
have made on time payments for the past year and would like to
reduce their payments, there are options. First Mortgage is a
California-based lender/investor with no overlays to FHA
Streamline guidelines, and no same-servicer requirement. With
no appraisal or AVM requirement and only a mortgage rating (no
credit score) on subject property, FMC will now accept, in
lieu of the occupancy inspection, two forms of occupancy
identification such as two current utility bills reflecting
subject address or current utility bill and current driver's
license or bank statement reflecting subject address. FMC
buys closed loans in the following non-judicial states: AZ,
CA, CO, ID, IN, NC, NM, NV, OR, TX, UT, and WA.” (If you’d
like to learn more or schedule an appointment in Chicago at
the Annual MBA conference, the correspondent rep for FMC is
Sharon Magnuson, and she can be reached by email at: smagnuson@firstmortgage.com.)
Who
should care about the “Fiscal Cliff”? How about everyone!
Whether Congress “kicks the can down the road” or whether it
actually resolves the issues remains to be seen (there are
rumors that some in Congress are taking breaths between
campaign speeches and actually addressing the issue), but the
issues created by the government bear some elaboration. In
fact, unless measures are taken some believe that if the
“worst case scenario” happens, Jan. 1 may see the biggest
shock to the economy since the financial crisis four years
ago. On that day, policy changes will cause federal spending
to fall, and federal taxes to rise, by a combined $607 billion
in 2013 alone. The magnitude and abruptness of the changes
gave rise to the name "fiscal cliff." This isn't the result of
new laws – it is the result of poorly thought out impending
changes reflecting how existing laws, some passed more than a
decade ago, were designed to play out.
First,
we have the expiration of the Bush-era tax cuts.
Congress and President Bush signed tax cuts into law in 2001
and 2003. The legislation was championed as tax reform but
came with a distinct limitation: Rather than being made
permanent, each round of cuts was designed to expire at the
end of 2010 to conform to budget rules. In late 2010, Congress
and President Obama extended the tax cuts for two years to
avoid the looming expiration. Now both are set to expire again
on Jan. 1. If they do, federal taxes will increase by $221
billion next year, according to the Congressional Budget
Office.
Second,
we have the expiration of the payroll tax cut. A
one-year payroll tax cut was passed in Dec. 2010, reducing
taxes on the majority of working Americans by 2%. The cut was
extended for an additional year last December and expires
again on Jan. 1. It will raise taxes by $95 billion next year.
Third, we have budget-deal spending cuts. As part of
last summer's deal to raise the debt ceiling, both parties
agreed to form a bipartisan "super-committee" tasked with
cutting $1.2 trillion in spending over a decade. If the
committee failed that task, $1.2 trillion in automatic
spending sequestration would take effect over nine years. The
sequestration slashes indiscriminately across government
programs in an attempt to prod legislators into action. Alas,
it didn't work. The super-committee didn't reach a deal, so
sequestration begins Jan. 1. The White House estimates it will
reduce federal spending by $109 billion in 2013. And on
top of all that there is an expiration of extended
unemployment benefits, a big cut to Medicare providers, and
a laundry list of expiring tax deductions are set to hit
Jan. 1. Add it all up, and we're talking policy changes
equal to about 4% of the economy.
What
is the impact on mortgage rates and housing of this Fiscal
Cliff stuff? Most analysts think that we would avoid most of
the scheduled rise in payroll tax rates set for early next
year. But as time has passed that assumption is now looking
less tenable: leaders in both political parties have voiced a
desire for the payroll tax holiday to expire as scheduled at
year-end. If there is an increase in payroll taxes in the
first quarter, it will lead to a decline in disposable
personal income. That would be a negative for our economy – do
we really think that the government is more efficient than
individuals in spending? If there is a significant
adverse effect on consumption growth in the first half of next
year, watch for a slow-down in the economy. Typically this
would lead to lower rates. But the disappointment in the
marketplace, and in the U.S. Government, may cause monies to
flow elsewhere, especially if Europe seems to be making
headway with its problems, eventually pushing rates higher.
How
about some vendor and investor news?
Capital
Markets
Cooperative formed a strategic alliance with New
Jersey-based firm Secure Settlements, an independent evaluation and
risk management firm. Under this new alliance, Secure
Settlements will offer CMC members its third-party
closing-agent risk management program at special terms.
In
Kansas, American State Bancshares ($628 million in assets)
will acquire First National Bank of Holcomb ($57
million) for an undisclosed sum.
In
Wisconsin, Associated Banc-Corp announced that it will
close 12 branches in WI and IL as it seeks to boost
efficiency and reduce overhead costs.
Last month Wells Fargo announced has updated the
reserve requirements for Non-Conforming loans such that the
required liquid reserves will be based on combined loan
amounts. For combined loan amounts up to $1 million,
borrowers will need 9 months’ PITI; for loan amounts between
$1 and 2 million, 12 months’ PITI. Combined loan amounts
between $2 and 4 million will require 24 months’ PITI, and
anything over $4 million will require 36 months’ PITI. These
policy changes went into effect on October 15th.
The
bank earnings continue. BB&T reported earnings
climbed 28%, as revenue surged. Improving credit conditions,
strength in mortgage banking (up 63% YOY), a lower loan loss
allowance, and loan growth (average loans climbed 8.4% YOY)
helped although net interest margin declined from 4.09% to
3.94%. KeyCorp reported profit increased 0.9%, as
higher revenues were offset by increased loan loss provisions
($109mm vs. $10mm prior year). Fifth Third Bancorp
reported profit of $363 million (down 4.7% YOY), amid one-time
charges and flat revenue. It did see a 13% increase in
mortgage banking revenue, and NIM fell to 3.56% from 3.65%.
Turning to the markets, yesterday we saw the previous week’s
Jobless Claims rise 46k to 388k from a revised 342k the prior
week. We also the Philadelphia Fed General business activity
index rise to 5.7 from -1.9 in September, moving into
expansion territory. And the Conference Board’s Leading
Economic Index increased 0.6% in September to 95.9, following
a 0.4 % decline in August, and a 0.4% increase in July. What
does all that mean? It means an economy that is
fluctuating around a slow growth trend.
But
why have mortgage rates headed higher? The simple answer is: more sellers
than buyers. Yes, the Fed is buying $4 billion a day. But
servicers are selling 3.5% securities, containing higher note
rates, due to fears of prepayment risk. There is also chatter
about loan officers “front loading” their lock submissions
earlier in the month than usual and locking earlier. Lastly,
and perhaps the reason most heard, is that the next gfee
increase is looming. This reason makes sense since the
10 basis point (.5-1.0 in price, depending on the
buy-up/buy-down schedule) will be effective for loans sold for
cash as of Nov 1. and for loans exchanged for MBS as of Dec 1st.
(Here's the original FHFA release: http://www.fhfa.gov/webfiles/24259/Gfee083112.pdf.)
So smart secondary marketing personnel are selling commitments
early to not be hit with the price change and avoid as many
loans going into the higher gfee pools as possible. Who
eventually pays? The borrower, of course!
So
the 10-yr closed at 1.83% Thursday, but is down to 1.79%
this morning, and MBS prices are perhaps .125 better. The EU Leaders Summit on the
whole wasn’t very important although the final conclusions
were a bit more constructive than anticipated as officials
agreed to have the legal framework for a banking union in
place by Jan ’13 with implementation to occur next year. The
Spanish question is still unclear although there may be some
more clarity on that matter following the Sunday regional
elections. In Greece, no formal decision was made at the
Summit (this was expected) although increasingly it appears
that a deal will be struck and Athens will get the next aid
tranche sometime in November.
(How does business work?)
A
Chinese guy goes into a Jewish-owned establishment to buy
black bras, size 38. The Jewish store keeper, known for his
skills as a businessman, says that black bras are rare and
that he is finding it very difficult to buy them from his
suppliers. Therefore he has to charge $50 for them.
The Chinese guy buys 25 pairs.
He returns a few days later and this time orders fifty.
The Jewish owner tells him that they have become even harder
to get and charges him $60 each.
The Chinese guy returns a month later and buys the store's
remaining stock of 50, and this time for $75 each.
The Jewish owner is somewhat puzzled by the large demand for
black size 38 bras and asks the Chinese guy, "Please tell me -
what do you do with all these black bras?"
The Chinese guy answers, "I cut them in half and sell them as
skull caps to you guys for $200 each."
If
you're interested, visit my twice-a-month blog at the STRATMOR
Group web site located at www.stratmorgroup.com.
The current blog discusses the looming fiscal cliff brought on
by Washington DC. If you have both the time and
inclination, make a comment on what I have written, or on
other comments so that folks can learn what's going on out
there from the other readers.
