Recent State Mortgage Changes; Fed's Balance Sheet - Putting QE3 in Perspective; CFPB's Latest Penalty

Water water everywhere, but not a drop to drink. A growing number of Realtors are keenly aware of the increasing concern about water and its scarcity. And sure enough, along comes a list of U.S. cities most likely to run out of water - and they aren't all out west. I doubt they'll run out - but water will become more expensive.

And everyone is keenly aware of the CFPB's announcements of fines for various offenses. Last week it was $80 million for auto loans, but the latest came yesterday: "Feds Take Action Against National City Bank For Discriminatory Mortgage Pricing." In this case, PNC Bank, its successor, will pony up $35 million.

Originators know that unless there is demand for a given mortgage product, either by a portfolio lender or by investors, there is little use in offering it on any kind of large scale on rate sheets. Ten years ago, it was apparent that the demand by Wall Street and investors led to products being offered that perhaps should not have, or to relaxing underwriting or documentation guidelines that perhaps should not have been relaxed. Of course the demand by the Fed has led to higher prices, and lower rates.

Everyone (and their brother, as they say) knows that the Fed has, through QE3, been buying fixed-income assets. When we think of the Fed's current balance sheet in terms of dollars, the numbers can be quite large. Let's put this into perspective: the US Federal Reserve's current balance sheet exceeds the GDP of Germany, which is the fourth largest economy in the world. According to a recent Bloomberg News story, it's enough to cover all U.S. federal government spending for more than a year, and it could pay off all student and auto loans in the country with $2 trillion to spare. The central bank's assets are set to exceed the $4.1 trillion held by BlackRock Inc. (the world's largest asset manager). The third round of quantitative easing probably will total $1.54 trillion before it ends, bringing the balance sheet to $4.36 trillion. This has garnered the attention of elected officials, as risk versus reward rumblings have started. "This is a stimulus of the first order. It's just unprecedented," Alabama Republican Senator Richard Shelby said.

But in the last Fed meeting, a reduction of $10 billion a month in QE3 will kick in, reducing the pace of the purchases. 2013's word of the year, according to Oxford dictionary, was "selfie"; a strong case could have been made for "taper" however, as investors have been speculating on when the Federal Reserve will begin removing tax payers from the  billions of purchases per month in the fixed income markets. For months investors, and the financial press, have been paying close attention to the Federal Reserve, and specifically, to the time-line, and the when and if's of moving away from the QE programs, to a more supply/demand driven market. Morgan Stanley interest rate strategist Matthew Hornbach is tired of the incessant chattering about "the taper", and I don't believe he's alone. A few weeks ago Hornbach wrote, "Investors should stop talking about tapering and start talking about potential changes to the rate guidance framework. In our view, the exact timing of tapering should be a secondary concern. What matters is whether the Fed combines tapering with a reduction in the Unemployment Rate Threshold or an introduction in a new inflation floor. The thresholds are all about credibility, so the Fed must understand how each option will impact the market's perception of its commitments to remain on hold. Our economist's base case is that the Fed pairs a modest tapering with a 50bp cut in the URT. In our view, the risk to that base case is a more aggressive 100bp cut paired with a larger taper."

So where's the smart money flowing to these days? According to Bloomberg News, not into fixed income securities. Investors in November poured $31.6 billion into all equity mutual funds and exchange-traded funds (ETF's), favoring equities over bonds for a sixth straight month. However, flows into equities moderated from October, with flows into exchange traded funds picking up, and investors favored U.S. equity funds over offshore funds. Investors kept selling bonds, redeeming $21.8 billion from bond mutual funds and ETFs, the biggest outflow since $36.8 billion in August and the fifth-highest monthly outflow on record. Four of the six biggest monthly outflows from bond funds have occurred this year, no doubt part of the reason the S&P 500 is +27% YTD.

Let's jump into some recent state updates.

Georgia has made revisions to its Chapter 80 Regulations. The state Department of Banking and Insurance has issued final revisions to Chapter 80, which seeks to promote safe and fair mortgage lending. These revisions relate principally to branch manager qualifications, loan processors acting as brokers, and fees and charges. Zachary Pearlstein of Bankers Advisory writes, "The revisions regarding fees and charges state that the management fees and other charges payable to a bank holding company (or an affiliate thereof) may be paid by the banking or trust subsidiary- provided these fees do not exceed the subsidiary's pro rata share of the administrative overhead of the bank holding company, plus any direct expenses attributable to the subsidiary. In addition, it must be shown that the subsidiary has received direct benefit from its relationship with the holding company." Mr. Pearlstein's full blog posting can be found here.

Texas Senate Joint Resolution 18, which amends the Texas Constitution, passed last month to authorize advances under a reverse mortgage for the purchase of a residential homestead property, is now effective. SJR 18 was approved by the voters on November 5, 2013, and became effective on November 22, 2013. Full details on SJR 18.

The New Jersey Department of Banking recently issued two Bulletins concerning high cost home loans and Residential Mortgage Act 2014 licensing information. Bulletin No. 13-20 addresses the NJ Home Ownership Security Act of 2002's required annual review and maximum principal amount adjustment for determination of a high cost home loan. Effective for completed applications received by the lender on or after January 1, 2014 the maximum principal amount for a high cost loan will be $452,288.55. And in Bulletin No. 13-18 which outlines information concerning residential mortgage transaction license renewal. The bulletin notifies licensees that the ability to request license renewal will begin on November 1, 2013 and may be electronically submitted through December 31, 2013. In the event the Department's review is not completed by January 1, 2014 for a timely and complete renewal request; the licensee may continue to engage in residential mortgage lending activity until a decision has been reached.

Iowa has made amendments to their mortgage filing and transfer rules. The state's General Assembly has amended Iowa's Code relating to the execution, filing and recording of a mortgage release certificates, as well as revisions and clarifications to provisions and requirements relating to transfers of interests in real property by unincorporated business entities, including nonprofit organizations. Both state Senate File 445 and House File 556, including an expanded explanation to the rule changes, can be found here.

And let's see what vendors, lenders, and investors have been up to recently.

Secure Settlements announced that as January approaches, "we are experiencing increased interest in our services from lenders looking to develop a compliant vendor management program to meet OCC, CFPB, HUD and FNMA requirements for closing agent risk. To help lenders gain a better understanding of our program we are offering a special deal between now and January 10, 2014. Contact us for a FREE TRIAL of our vetting services. When lenders give us a sampling of their closing agents (or any other vendor) we will give them up to 15 free risk reports to sample our services. No commitment required.  Interested banks and lenders can contact us at info@securesettlements.com.

VonkDigital.com, an industry leading mortgage website company, announced a new centralized content deployment console for mortgage lenders. Vonk is "focusing solely on helping bringing remarkable mortgage websites to loan originators. The Vonk hosted website platform allows independent originators and companies to launch their new mortgage website quickly and without any technical knowledge. Some notable features include a testimonial engine with 5 star rating that encourages positive feedback on social sites like Yelp and LinkedIn, mobile sites, landing pages, blog, and multiple TCPA (Telephone Consumer Protection Act) compliant lead capturing forms.  If you are considering re-branding or launching a new mortgage website for 2014 you should consider Vonk digital." For the larger mortgage lenders with multiple braches that are trying to manage online compliance and originator trust; Vonk has developed a solution that will cater to both and make online web monitoring an easy process. (New customers can use the promo code: "ROB" to receive their first 30 days free.)

Homeowners Choice Property & Casualty Insurance Company, Inc., a Florida based provider of homeowners insurance and wholly-owned insurance subsidiary of HCI Group, Inc. (NYSE:HCI), has been approved by the Florida Office of Insurance Regulation to offer flood insurance coverage to its Florida policyholders. Many Florida homeowners, most of whom have never filed a flood claim, are anticipating substantial increases in their flood insurance premiums under the National Flood Insurance Program as a result of the federally mandated Biggert-Waters Flood Insurance Reform and Modernization Act of 2012. In some cases, rates under the federal program may increase by as much as 25% per year. To provide rate relief to its existing policyholders, Homeowners Choice plans to offer flood coverage as an endorsement to its homeowner's insurance policies. The additional flood coverage is expected to be priced similarly to what Florida residents were paying before the Biggert-Waters Act.

The good news, apparently, is that the economy continues to move along in the right direction. The bad news, of course, is that rates are sliding higher. This week, and next, is more "thinly" traded, due to the holidays. But rates are where they are, and anyone locking has to deal with them. Thursday's Initial Jobless Claims gave us yet another measure of the jobs market picking up: applications for unemployment benefits dropped by 42,000 to 338,000 as continuing claims rose. And those stock markets continue to do well and set records. Of course, stock and bond markets don't always in opposite directions, but in this case the belief is that the economy is improving, and therefore companies will do better, and therefore earn more revenue for their owners. And in theory the demand for capital increases, and so rates should go up.

This doesn't make it any easier to deal with LOs, brokers, or borrowers who didn't want to lock in a month ago, but it may help push some folks off the proverbial fence. Thursday's close showed the 10-yr. yield up to 2.99%, and in the early going today we're at 3.00% with agency MBS prices worse a shade.