After 5 Banks Shuttered, a Primer on CD and Savings Rates; How Old is the Average NAR Member?

Friday was not a good day for five very weak banks as, through various methods, the FDIC closed them. (Twenty two have closed in 2012.) In all but one of the failures, the FDIC found buyers who agreed to protect all depositors. InterBank FSB in Maple Grove, MN became part of Great Southern Bank (MO), Plantation Federal Bank (SC) became part of First Federal Bank (SC), HarVest Bank (MD) was absorbed by SonaBank of Virginia (both banks guilty of capitalizing middle letters of their names), and Palm Desert National Bank (CA)'s operations were absorbed by Pacific Premier Bank (CA). Bank of the Eastern Shore (MD) was not "absorbed" by anyone, so only the insured deposits were covered - another lesson in not having too much cash with one institution.

While we're talking about banks, I am occasionally asked about interest rates, specifically rates on savings accounts versus those of CD's. CD's should always be higher in a positively sloped yield curve environment: a) there is a time value of money, b) CDs are less flexible than savings and come with a certain, stable duration, and c) CDs require a certain minimum to open. So why do some banks occasionally offer higher rates on savings than on CD's, effectively inverting their local deposit interest rate structure? And why would a depositor ever choose a CD in that situation? Experts believe that there are four main reasons for this. The first is that people and organizations don't pay attention and constantly pay for convenience. In other words, at any given bank, an estimated 5% to 15% of customers blindly roll CDs over without ever researching alternatives. Why should a bank pay a premium for customers that simply want convenience? The second reason is that investors will pay for the discipline that the CD maturity imposes on them - like a forced savings plan. (My 89-year old Dad falls into this camp.)

The third reason is that some customers desire stable and set interest income that a CD provides, and knowing both a maturity and a rate gives the customer comfort, as does a monthly, quarterly or semi-annual interest payment. Since the savings rate can vary, some customers will pay a premium for certainty. "I don't want the volatility!" And the fifth reason is marketing. Yes, whether it is diamond ads on the radio or bank ads for CD's, apparently we're all susceptible to it. Banks that offer higher savings rates than CDs tend to spend more marketing and sales resources on their savings accounts, while keeping their CD options relatively quiet. Savings accounts, if done right, can have a longer duration than the bulk of a bank's CDs and some feel this is the better investment.

Here is some continued input on the aging of mortgage professionals, or lack thereof. (By the way, in the latest NAR Profile, the typical member reported they were 56 years old, up from 52 in 1999, and approximately 57% of NAR members are women; 90% of members have at least some college education. If you want to sniff around some more, here you go.

Patrick T. wrote, "I think there are 2 main reasons there aren't more people around my age and younger entering our industry. First is the media and our federal government have blamed mortgage  brokers, mortgage bankers, and bankers as the reason for the housing bubble and the crashing of the housing market along with painting those employed in these professions as money-hungry and without regard for the clients' well-being. With the younger generations being so tech savvy, they are bombarded with these false messages through multiple sources which bash and discredit these professions. The second re......2 - most public schools are echoing the same messages that the media is broadcasting.....when our youth are being indoctrinated that being a banker, or a mortgage banker, or a mortgage broker is a vile and disgusting, what else can we expect to happen? Remember when being a banker was considered a respected profession like a doctor or a lawyer (not the ambulance chasing kind)? Whatever happened to those days?"

And this note: "The scholarship program is actually just for the School of Mortgage Banking, which falls under CampusMBA. It is specifically designed for minorities who are already working in mortgage banking, as are most of the folks who attend the school.  It is tied to career advancement rather than entry level.  The scholarships are funded by voluntary contributions from various firms and a bequest from a former MBA president. The issue of who you see in the lobby at any conference is as much a problem of who companies decide to send to conferences. And I know that the MBA is working on expanding the content to bring in a wider range of attendees."

David O. writes, "On the issue of getting young people to enter the industry, it is all about the income. I entered the industry around 1989 because the average rebate was 3+ and I could make a good living if I worked hard and provided great service.  Even at 3% commission, my clients were getting great competitive rates at the time and felt very happy at the close and referred business.  Today, I log in 10 times the hours I did per loan in 1989, my average commission is closer to 1.25% and a much higher percentage of deals fall through. In 1989, I could easily do 20 deals per month and I did for quite a few years. Today, if I close 3-5 deals in a month, it takes all my time and resources. I just don't think the younger generation sees the real estate and mortgage industry as the big opportunity we did!  In the area of financial planning, it will be exceptionally difficult to get young people motivated to try and find people who have money to invest and are willing to trust someone with little experience. There are just so few people any more who have much cash left over at the end of the month to invest.  Financial advisors at most firms are responsible to market and get business themselves and that also costs money. I have seen a lot of young people over the last decade try to get into financial planning and they have almost all failed because they could not generate enough business to make any money."

How about some somewhat recent lender/investor/agency/MI updates? As always, it is best to read the actual bulletin, but this will give one a flavor for what is happening out there. In no particular order...

US Bank Wholesale will be changing the minimum borrower requirements for the Interest Only ARMs and Interest Only Fixed Rate programs such that the minimum acceptable household income will be $150,000 per annum and $250,000 in reserve.  The current requirement, which will no longer be in effect for new locks taken on or after May 1st, states that borrowers must have a minimum household income of $150,000 per year or reserves of $500,000.

As of April 23rd, Kinecta no longer gets its rates from mortgage insurance vendors.  A new rate sheet has been published, and the MI sections of Kinecta's matrices have been modified accordingly.  The new rate sheet is available via loankinection.com.

Citibank has made a number of adjustments to the credit overlay listings that were published in February.  For DU Refi Plus and LP Open Access loans, the payment increase limitation, mortgage payment history, and installment debt overlay listings have all been removed, while the maximum LTV/CLTV/HCLTV has been changed and an accrued/interim interest requirement has been added.  All investment properties now require a lease agreement.

All Open Access and DU Refi Plus loans submitted to Fifth Third submitted after April 22nd are subject to a 150% LTV limit if they're for detached properties; for attached properties, the LTV maximum is 125%.  This also applies to all applications currently in the pipeline.  Conforming, Super Conforming, and Agency Jumbo ARM products are subject to change as well and are now subject to a cap of 5/2/5.

Fifth Third clients are reminded that the streamline reduced doc code is no longer available for HASP Open Access and DU Refi Plus products (the correct doc type is full/alt doc type) and that Wholesale Connect will be down for maintenance on Saturday, May 11th.

As of April 23rd, Fifth Third has adjusted its HARP II pricing for HASP Open Access and DU Refi Plus loans with LTVs over 125%.  Conforming ARM products are capped at 105% LTV, while Fixed 30 Conforming products are subject to an additional 1.25, Fixed 20 Conforming to an additional 1.75, and Fixed 15 Conforming to an additional 0.75.  The pricing for DU Refi Plus Fixed 10 Conforming products has increased by 0.75 as well.

On the subject of mortgage insurance, Fifth Third will accept MGIC, Radian, United Guaranty, Essent Guaranty, and Genworth Financial as providers of monthly Borrower Paid MI, while Radian is approved to provide Lender Paid MI.  It is the Correspondent Seller's responsibility to price LPMI, and Fifth Third will only allow Single Premium LPMI on agency loan programs will full documentation.  HARP loans with MI may be transferred if the insurance is provided by Radian, MGIC, or Genworth, and Fifth Third will permit an MI transfer with an occupancy change.  Monthly LPMI is not allowed and cannot be switched to borrower paid. For HASP Open Access and DU Refi Plus LPMI, the MI certificate must be in the name of the Correspondent Seller, who should arrange for the certificate to be transferred to Fifth Third once the loan is purchased.

Unlike investor pricing and documentation changes which seem to be relentless, the markets are pretty quiet. Not that stock and bond markets don't have a lack of news, but interest rates seem very "content" where they are. The heavy focus will remain on Europe for the foreseeable future, especially with some elections coming up. Here in the colonies there is no supply this week but the Treasury will be announcing the May refunding package on Wednesday.

It will be a week filled with economic reports. Today is Personal Income & Spending (are folks spending or saving?), a measure of price inflation (PCE), and the Chicago Purchasing Manager's Survey. (With countries and states potentially crumbling, should a number like this move rates?) Tomorrow are more second-tier numbers: ISM Index, Construction Spending; Wednesday is the ADP private payroll numbers, along with Factory Orders. Thursday is Jobless Claims, and then Friday is the all-important unemployment data - every statistician's dream.

As you might recall, Personal Income continued its tepid pace in February, rising only 0.2 percent. Reflecting the pickup in employment, wage and salary growth, however, has improved in recent months, and economists such as those at Wells Fargo believe that we'll see +.3% for March, with consumer spending slowing slightly. I am heading off to the Dallas area for much of the week, thus the reason for the early commentary today, but in the early going the 10-yr is at 1.93% - pretty much unchanged as are agency mortgage security prices.

Instead of the usual joke, here's a short video for animal and music lovers: "Tweety Steals the Show!"