Realtors and the CFPB; Flagstar and First Horizon Diverge; Viscal vs. Monetary Policy Primer
"Rob, when do you think that the CFPB will go after us Realtors?" I am not convinced that it will, although there are plenty of arguments why it might. But the usual inquiry I receive - "When is the CFPB going to go after those agents who get a 5 or 6% commission?" - isn't quite valid. A standard 5-6% might be considered high by many, but it is very transparent. And one of the CFPB's objectives is to stop non-transparent, misleading transactions. (And Realtors aren't involved in a refinance, so the sheer number of transactions is lower.) What the CFPB may concentrate on are agreements outside of the usual paperwork, or Realtors encouraging a buyer to look at a more expensive house, which is obviously very similar to any sales person's pitch whether it be cars, suits, sheets, vacations...the list goes on. Which is why the CFPB had better tread carefully - it is a dangerous and slippery slope to regulate, homogenize, and limit all sales-related compensation structures.
Continuing this discussion, I've heard from a couple sources that it was said that during the recent CFPB SBREFA panel on the Mortgage Originator Compensation Rule Proposal two items of interest emerged. The first involved the proposal of a flat fee. The CFPB clearly stated to an Affiliated Business that in an affiliated transaction the Realtor's compensation must be included in the Flat Fee. Second, supposedly one of the panel members asked if it was CFPB's intention to put every individual paid on basis point commission on a flat fee. CFPB seemingly ignored the question. (I hope not.) In many folks' opinions, at this point it is difficult to tell if the CFPB's opinions/direction is anti-small business, anti-large business, or neither and it just seems that way. Do I believe Realtors are a target? Yes, but first the CFPB will first focus on all the brokers and small bankers - and as we know many Realtors and loan officers are "small businesses."
Comstock Mortgage, headquartered in Sacramento CA, is statistically a small business but is expanding. Comstock is currently seeking experienced Retail Branch Managers, Senior Processors and Senior Underwriters to support its growth to $1 Billion in fundings. The lender is locally owned (by originators) and growing rapidly in Northern California. For more information on the company visit www.comstockmortgage .com and interested parties should send their resume in confidence to jobs@comstockmortgage .com.
In addition, Stearns Lending is searching for motivated and ambitious candidates for the following positions in all their Regional Operations Centers: Conventional & Government Underwriters, Funders, Account Managers, Registration, and RESPA Specialists. Their centers are located in Orange County, CA, Campbell, CA, Concord, CA, Santa Rosa, CA Portland, OR, Salt Lake City, UT, Phoenix, AZ, Denver, CO, Chicago, IL, Warwick, RI, Tampa, FL. (The Campbell Regional Center is also looking for an Operations Manager.) Stearns was founded in 1989 and is the 5th largest privately held lender nationwide, priding itself on product, price, and service as its growth continues. Please forward your resume to Yvonne Ketchum at yketchum@stearns .com.
There are a couple company-specific news items that indicate the state of flux in which we find ourselves. Recently shares of Flagstar Bancorp rose as much as 12% after it posted its first profit in nearly four years. Forget for the moment that its shares were at $107/share in late 2007 and now they are down to around $1/share - the company showed a profit! (The bank's bad loan provisions halved to $58.4 million.) But over at First Horizon National Corporation, it reported a 2nd quarter loss (following five consecutive profitable quarters) due to an increase in reserves for GSE mortgage repurchases. Besides the increased provisions for mortgage buybacks, the company also made litigation-related accruals. Also, provision for loan losses reported an increase to $15 million from $8 million reported in the prior quarter and $1 million reported in the year-ago quarter.
Out in the west, there are two news stories related to foreclosures that are worth noting. First, the number of California homes entering foreclosure is at five-year low. Attribute it to whatever reason you like (backlog, legal hassles, ensuring a thorough process, fewer borrowers in trouble, etc.), CA's NOD's in the second quarter fell 2.9% from the first quarter and 3.6% from a year earlier. DataQuick reported that the number of California homes entering the foreclosure process slipped to the lowest level since mid-2007. The number of homes lost to foreclosure plummeted. Still, the overall numbers are sizeable: 54,615 notices of default were filed on California homes and condominiums in the second quarter.
To California's north, last week the Oregon Court of Appeals struck a blow to the mortgage industry by ruling that the document-registry system (MERS) could not be used to skirt state recording law in out-of-court foreclosures. In a decision with implications beyond the MERS, the state's second-highest court also held that a lender must ensure a complete ownership history of the mortgage is filed in county records before it can foreclose outside a courtroom. MERS has racked up an impressive series of court victories, including many in Oregon, and this will be appealed. But this court found that the Oregon Trust Deed Act requires the party that receives loan payments to publicly record all changes in mortgage ownership before starting a so-called non-judicial foreclosure. MERS does not take loan payments and does not qualify as a "beneficiary" of a trust deed, so the digital registry cannot be used to avoid the recording requirement, the court ruled. Some banks already have decided to file some foreclosures in court (judicial foreclosure) that lenders say will take longer and cost more. For example, in Hawaii last year when a new law requiring judicial foreclosures went into effect, foreclosure activity dropped by more than half. Servicers are well aware that the average time to complete a foreclosure grew from 278 days in the second quarter of 2011 to 505 days a year later.
Greece, and much of Europe, has been relatively quiet for several weeks, but problems have reared up again. (They never went away.) Things once again are changing daily, but the German vice chancellor said Greece will miss their budget targets, and the flow of bailout funds will stop. That means insolvency. Does it mean Greece will exit? Spain isn't any better either - their yields, reflecting risk, are hitting new highs. Interestingly, Spain's 5-yr yield is trading above its 10-yr yield!
In this country, the "fiscal cliff" is starting to take hold in trader's/corporate's mindset, and QE3 is probably on its way. GDP and inflation are on a one-way street lower - could our rates be heading lower? There sure isn't much reason for them to go higher. At the June 20 post-FOMC press conference, Ben Bernanke said "Monetary policy isn't going to solve our problems." This quote says a lot. If Congress can't get fiscal policy in order, the U.S. economy will just continue with a "slow recovery."
But what is the difference between fiscal and monetary policy? Fiscal policy includes the government's range of taxation and expenditure options by which it can affect the course of a nation's economy. Fiscal policy tools include tax cuts and spending increases. The legislative and executive branches of government control fiscal policy. Governments often use fiscal policy tools in times of a weak economy. In times of an economic recession or depression, government policymakers hope that fiscal policy will provide a short-term economic stimulus that leads to long-term growth. Government spending, along with consumer spending and investment by firms, is an element in determining a nation's gross domestic product, or GDP. Many economists contend that government fiscal policy has a multiplier effect. As government increases spending or reduces the amount of taxes people pay, it increases the overall demand for goods and services in the economy. But fiscal policy does have a downside: higher government spending often leads to higher interest rates, which reduces investment and overall demand for goods and services by making it more expensive to borrow money, commonly referred to as the "crowding out" effect.
Monetary policy refers to the range of policy instruments by which a government tries to manage the nation's money supply. (I remember when money supply figures were released every Thursday afternoon, and moved the markets.) Monetary policy's goals include protecting the purchasing power of money by acting to control inflation. The Federal Reserve has control over monetary policy. Monetary policy instruments include the buying and selling of government bonds (known as open market operations), changing the proportion of reserves that banks are required to hold against deposits, and changing the interest rates that central banks charge member banks for loans. All monetary policy instruments can expand or contract the money supply, and all monetary policy tools strive to protect the value of money and prevent inflation. Expansionary monetary policy, such as buying government bonds from the public, reducing banks' reserve requirements or cutting key interest rates expand the money supply by putting more money into circulation or increasing the percentage of deposits that banks are able to lend. Central banks will use expansionary monetary policy in times when the economy is in a recession.
But as we know, the pace of economic growth has been frustratingly slow and the recovery has lost momentum in recent months. And we need jobs and housing, housing and jobs. It is nice to have low rates, but if a borrower's job and income are questionable, they won't qualify regardless of a 3.5% mortgage. The economy is weighed down by the ongoing European sovereign debt crisis and fiscal tightening in our own country. In these circumstances, it is essential that the Federal Reserve provide sufficient monetary accommodation to keep our economy moving towards the central bank's maximum employment and price stability mandates. Check it out
Sticking with the economy, Monday was a bit of a snoozer of a day, although we saw a few intra-day price changes from lenders. There was no data in the U.S. of note, so aside from watching stocks sell off there wasn't much exciting. Spain is in big trouble as many regions within the country are now asking an already broke government for bailout funds. The only thing good about Spain is that it is not as bad off as Greece (yet)! Both countries may be considered "too big to bail." (Actually "bale".)
As our 10-yr closed at 1.44%, agency mortgage-backed securities improved: 30-yr 3%'s (containing 3.25-3.625% home loans) are above 104 (4 point premium) and 30-yr 2.5% securities are above 101! For mortgages, "more buyers than sellers" is the name of the game.
Today could be more of the same, as there is no economic news here to move rates. We do, however, have the May FHFA house price index (seen +0.5 vs. +0.8 last), and a $35 billion 2-yr note auction. Keeping those eyes on Europe, in the early going the 10-yr is unchanged at 1.44% as are MBS prices.
RETIRE WHERE? We have choices - part 2 of 5:
You can retire to California where...
1. You make over $250,000 and you still can't afford to buy a house.
2. The fastest part of your commute is going down your driveway.
3. You know how to eat an artichoke.
4. You drive your leased Mercedes to your neighborhood block party.
5. When someone asks you how far something is, you tell them how long it
will take to get there rather than how many miles away it is.
6. The 4 seasons are: Fire, Flood, Mud, and Drought.