Revised Housing & MBS Forecasts; CRA Education; Impac's Alt-QM

By: Rob Chrisman • Wed, Jul 9 2014, 11:32 AM

Banks have plenty to think about and drink about: "Write-downs", "cutbacks", "plummeting profits"...you'd think we were talking about a bank here in the United States. But nope - all of that applies to the Vatican Bank! In other bank news, how about this story about the possibility of Citi ponying up $7 billion (yes, with a "b") to settle with the U.S. Government?

Are we going to hit $1 trillion in mortgage originations this year? According to FBR, maybe not.

Truckee, California's Clear Capital released its latest release on the mid-year forecast. In a nutshell, CC's mid-year forecast continues to support its initial 2014 projection: overall home prices are expected to end the year up 3.9%. In general, this is a good thing as we moderate towards historical rates of growth. However, there's no evidence we'll stop at 3.9% as we enter 2015.

And Barclays writes, "After bottoming in Q1 2012, home prices have staged a dramatic recovery. US home prices have appreciated more than 20%, with the recovery outpacing most expectations. For the past 12 months, US home prices have appreciated at a stable pace of 11-12% y/y. Although the pace has dropped in the last two months, it remains above 10% y/y." Their conclusion: US home prices are likely to slow, but not to collapse. The conclusion that we are not headed to another catastrophic housing failure is based upon sound reasoning. First, housing has remained resilient in early 2014 as US home prices have seen a dramatic recovery since 2012 Q1 and have rebounded by more than 20% since then. While the pace of recovery will likely slow in 2014, many of the factors that propelled recovery in the past two years should continue to support prices even as the recovery starts to slow down. Secondly, rising rates have hit sales and the effect on prices muted so far. While higher rates in the second half of 2013 have led to a 15% decline in sales we have not yet seen any appreciable effect on prices. While prices have historically lagged a fall in sales by about six months, falling prices have followed a spike in inventories historically, which has not materialized yet this time. Thirdly, supply is less of a concern, unlike in 2006; Barclays expects supply to stay muted with distressed share expected to continue to fall. Single-family housing construction has also remained relatively subdued, as some areas remain lower than historical levels on land share, which means that homebuilders are still unlikely to ramp up supply in these areas.

Lots of lenders engage in Community Reinvestment programs, and the government is here to help others learn about them. "Please join staff from the Federal Deposit Insurance Corporation, the Federal Reserve Board of Governors, and the Office of the Comptroller of the Currency for a discussion of the revisions to the "Interagency Questions and Answers Regarding Community Reinvestment" (Q&As) that were issued on November 15, 2013 and the revised interagency "Large Institution Community Reinvestment Act Examination Procedures" (CRA examination procedures) that were issued on April 18, 2014. The revisions to the Q&As and the revised CRA examination procedures primarily address community development issues. This "Outlook Live" webinar will take place Thursday, July 17, 2014, from 11-12:30PM PST. This webinar is part of an ongoing series of events focused specifically on consumer compliance issues. The "Outlook Live" Audio Conference is a Federal Reserve System initiative produced in conjunction with the quarterly newsletter Consumer Compliance Outlook.

The agencies have released the 2014 list of distressed or underserved non-metropolitan middle-income geographies. The Board of Governors of the Federal Reserve System, the FDIC, and the OCC announced the availability of the 2014 list of distressed or underserved non-metropolitan middle-income geographies, where revitalization or stabilization activities will receive Community Reinvestment Act (CRA) consideration as "community development." "Distressed non-metropolitan middle-income geographies" and "underserved non-metropolitan middle-income geographies" are designated by the agencies in accordance with their CRA regulations. The designations continue to reflect local economic conditions, including triggers such as unemployment, poverty, and population changes.

Some banks are focused on both the Volcker Rule and Basel III changes. The Volcker Rule, which went into effect July 1, requires U.S. banks with more than $50 billion in assets to disclose to regulators their trading metric. However, bank executives say they are unclear about the rules' exemptions for market-making and hedging. Learn more at SIFMA's Volcker Rule Resource Center. While we're talking about putting more weight on the shoulders of banks, the Basel Committee on Banking Supervision is considering tough new rules that would reduce the ability of banks to determine their own RWAs; the rule change could force the industry to raise billions in fresh capital. Basel wants to ensure banks aren't understating their assets. Sovereign bonds in particular could come under scrutiny - Basel recently has been looking into the possibility of changing the zero-risk policy and instead requiring banks to evaluate their sovereign risks in the same manner as other assets.

Last month, the Federal Reserve Board and the OCC separately released proposed rules that would push back by 90 days the start date of the stress test cycles and the deadlines for submitting stress test results. The regulators propose making the new schedules effective beginning with the 2015-2016 cycles. The FDIC proposed a rule to similarly shift the stress test cycles. The Federal Reserve's proposed rule would: modify the capital plan rule to limit a large bank holding company's ability to make capital distributions to the extent that its actual capital issuances were less than the amount indicated in its capital plan; clarify the application of the capital plan rule to a large bank holding company that is a subsidiary of a U.S. intermediate holding company of a foreign banking organization; and make other technical clarifying changes.

The OCC's semiannual list of supervisory concerns identified intensifying loan competition (could lead to lessening of underwriting standards); low interest rates (increasing earnings pressure and could lead to capital erosion in the future when rates increase); business strategy (banks moving into new products without proper risk management processes); cyber (evolving risks); and BSA/AML (control over these risks remains critically important). Community banks should be sure to discuss and review these risks and take appropriate actions as may be needed.

Impac Funding announced, "New Alt QM products to help increase your lending capability! Be one of the first to attend the exciting Alt QM Product Series Introduction and find out what all the talk is about! View our Alt QM Trailer here and get excited. Then, register for the webinar today. Simply click the link to register and receive your unique invitation. Three webinars available! For Friday, July 11, at 9 am PT, register here. For Friday, July 11, at 1 pm PT, register here. Wednesday, July 16, at 10am PT, register here."

Guaranteed Rate has announced that it has reached an agreement to purchase the assets of FirsTrust Mortgage of Overland Park, Kan. "Guaranteed Rate has grown from their inception in 2000 to become one of the ten largest retail mortgage companies in the U.S., funding nearly $16 billion in loans in 2013 alone.

Kinecta announced that "Piggyback HELOCs do not have to be fully drawn at closing. For the updated matrix and the Alert with matrix changes, click on this link."

Nationstar Mortgage Holdings, Inc. is leaving the reverse business, and announced that it will no longer originate reverse mortgages through its Greenlight Financial platform. It will, however, continue to service its Home Equity Conversion Mortgage portfolio, which is presently valued at nearly $30 billon.

Freddie Mac published a new bulletin on June 19th. Key changes include Originate & Underwrite, Sell & Deliver, and Servicing - ARMs with look back periods less than 45 days. In response to the Consumer Financial Protection Bureau's final rules on providing borrowers with payment adjustment notices, Freddie will no longer purchase ARMs with look back periods less than 45 days. In order to provide more flexibility, updates have been made to certain requirements for Relief Refinance Mortgages. Updates to requirements regarding student loans, open-end accounts, and paying off or paying down borrowers' existing debts have been made. Verifying large deposits clarification is included in the bulletin. When evaluating deposits on a borrower's account statements, documenting the source of a deposit that exceeds 50 percent of the total monthly qualifying income for the mortgage is required. This threshold is increased from 25 percent and applies only to certain transactions. Other requirements and guidance for evaluation of deposits have also been included. Read the Bulletin for the detailed information: Bulletin 2014-12

Rates: up a little, down a little. Last week the 10-yr closed in the low 2.60's, we began the week around there, and closed yesterday at 2.57% after rallying nearly .5 in price. (Agency MBS prices did not quite improve as much as Treasury prices, but they improved nonetheless by roughly .25-.375.) Thomson Reuters reported that, "Treasuries rallied today on increased risk aversion on a combination of equity investors turning cautious as the second quarter earnings season gets underway, weak data from Europe, and tensions in the Middle East." (When aren't there tensions in the Middle East?)

One thing to note is that prepayment speeds of existing pools, and therefore the mortgages contained therein, have increased. Analysts remind us that the summer is the traditional home buying season (which means some buyers are selling their homes and paying off the mortgage), and there was a notable decline in mortgage rates in May from April that stimulated refinancing activity. In addition, excess capacity at mortgage bankers may have helped shorten the lag time between application and closing suggested JPMorgan, while BNP Paribas thought certain lenders were likely pressured to process and securitize loans before quarter-end in order to improve their capital ratios.

Today we had the MBA's applications numbers for last week (+1.9%). Later we'll have a $21 billion 10-yr note auction and the minutes from the FOMC's June meeting. In the early going we're little changed with the 10-yr. at 2.57% and agency MBS prices off a shade.

Mortgage banker conferences don't sway the numbers too much, but the old saying, "People drink, even when they're broke," may be true. According to a recent U.S. Census Bureau report, the number of U.S. breweries more than doubled - from 398 to 869 - between 2007 and 2012. The breweries industry reported $28.3 billion in shipments in 2012, an increase of about 34% since 2007; and if that wasn't enough to make you put down your loan file and pick up a wort chiller, beer shipments in barrels and kegs rose 88% to $2.4 billion in 2012. In 2012, kegs represented 8.6 percent of beer shipments, up from 6.1 percent in 2007, in comparison, beer shipments in cans increased 32% between 2007 and 2012: $10.9 billion to $14.3 billion. Oh, you say "beer is for peasants"? Well, the wine industry employed 37,602 people in 2012, up from 33,390 people in 2007 and with an average payroll per employee of $46,482 in 2012. Total product shipments of wineries was fairly evenly split between red and white wine. What about my box wine, though?