Basel III Update; Training and Events; M&A Continues; Lending Standards and Credit Risk in 2015
At this time of year mortgage bankers everywhere are asking the same critical question: "Is it acceptable to make an entire lunch out of Girl Scout Cookies?" (The answer, of course, is yes, and rests on creating a wholesome meal out of various combinations of cookies, like Savannah Smiles, do-si-dos, and Samoas, with perhaps a Thin Mint or three for dessert, and letting your body draw out the key nutrients and amino acids.)
In terms of events and training, FHA Connection (FHAC) users responsible for entering HECM case information into the FHAC system should plan to join one of the two following webinar sessions on March 11. These webinars are hosted by FHA and Salient, FHA's technology provider for FHAC. Sign up for either session 1 or session 2.
The WMBA Northeast Chapter Event - "Preparing for New TILA-RESPA Integrated Disclosures webinar" - is scheduled for Wednesday, March 11th. For information and registration, click here
MBA's second annual Strategic Markets and Diversity Summit taking place June 24-25, in Washington, DC, delivers the strategies you need to develop today to thrive in the market of tomorrow. As homebuyer demographics change, a diverse workforce and supplier base, coupled with inclusive practices and policies, lead to innovation, opportunity and success. To register, click here.
The OMBA is gearing up for its annual convention May 12-14, 2015 in Columbus. To view the complete conference agenda, click here.
As usual, there is a lot of company-specific bank and mortgage bank movement out there. First, Doral Bank, San Juan, Puerto Rico, was closed last Friday and then became part of a purchase and assumption agreement with Banco Popular de Puerto Rico, Hato Rey, Puerto Rico. (Remember eLoan?) Pacific Western Bank ($16B, CA) is creating a far-flung empire and will acquire Square 1 Bank ($3.1B, NC) for about $849mm in stock. State Bank and Trust Co ($2.9B, GA) is rounding out its product line and will acquire insurance agency Boyett Agency (GA). In The Great State of Texas First Bank & Trust ($740mm) will acquire First National Bank of Colorado City ($42mm). In the Garden State OceanFirst Bank ($2.4B) will acquire Colonial American Bank ($144mm) for $11.3mm or about 1.16x tangible book. Wintrust Financial ($20B, IL) will acquire Community Bank-Wheaton/Glen Ellyn ($343mm, IL) for about $42mm in cash (50%) and stock (50%). Wilmington Savings Fund Society ($4.9B, DE) will acquire Greater Delaware Valley Savings Bank ($421mm, PA) for about $92mm in cash and stock.
Sterling National Bank ($7.4B, NY) will acquire payroll funding company Damian Services Corp. - it provides payroll services, tax preparation and invoicing to staffing firms. In Maryland Howard Bank ($691mm) will acquire The Patapsco Bank ($227mm) for about $10.1mm in cash and stock. Springleaf Holdings Inc. will acquire Citigroup's subprime lending company OneMain Financial for about $4.25B in cash. (The combined company will have 1,967 branches in 43 states and nearly $14B in consumer finance receivables.) Pan American Bank ($38mm, CA) will acquire Finance and Thrift Co ($122mm, CA) - both entities are Community Development Financial Institutions serving low to moderate income consumers and businesses. Up in Big Sky Country First Security Bank ($694mm) will acquire Teton Banks ($202mm). American Commerce Bank ($103mm, GA) will acquire ProBank ($47mm, FL). After a 3-year study of foot traffic The Milford National Bank and Trust Co ($291mm, MA) announced it will close 1 branch. (It took them 3 years to figure that out?) First Bank ($518mm, VA) will acquire 6 branches from Bank of America.
While I am yapping about bank news, the Fed gives us the bank stress test results today, weather permitting. The Basel Committee on Banking Supervision says top banks in the world have already met the tougher capital rules of Basel III. They go into effect at the beginning of 2019. "Data as of 30 June 2014 show that all (98) large internationally active banks now meet the Basel III risk-based capital minimum requirements," according to the committee. However, about 20% of the 210 banks that are monitored by the regulator would face a shortfall if the rules were in place now.
But a consequence of the massive number of rules & increased regulations aimed at making the biggest banks safer is that they are making banks shrink. The impact of increasingly strict capital rules is being felt and lenders, unable to use borrowed money to fund as much of their business as they once did, have cut profitability targets and are weighing more drastic actions to meet them. Pacific Coast Bankers Bancshares writes that, "HSBC Holdings Plc, Europe's biggest bank by market value, said this week it's considering 'extreme solutions' for some of its units. Royal Bank of Scotland Group Plc is reducing its U.S. trading staff and getting out of two-thirds of the countries where it operates. Deutsche Bank AG is weighing job cuts, winding down business lines at its investment bank and selling assets. JPMorgan Chase & Co. is closing branches, raising fees on some institutional deposits and looking for ways to shrink its trading businesses. (And did anyone notice the huge portion of Chase's latest earnings that were due, not to making money, but bringing back reserves as income?)
Banks are dealing with minimum capital ratios, stress tests, and demands that more bank assets be the types that are easy to sell in a crisis. And when these are combined with tepid economic growth, well, things change for institutions trying to improve their return on equity. (Bank of America and Citigroup, each with more than $1.8 trillion in assets, haven't topped a 7 percent return on equity since the financial crisis. And ROA - return on assets, which measures how much profit a bank can make for every dollar of assets it holds - has also fallen. For 10 of the largest European and U.S. banks, profit on each $100 of assets on the balance sheet fell to 22 cents last year from 81 cents in 2006.
Bankers are getting ready to file their first call reports using the new rules. Capital is the focus of Basel III, along with new risk weightings, and this differs from the previous two Basel accords which focused more on loss reserves. Regulators have increased the Tier 1 capital requirements from 4% to 6%. In addition, fewer items now qualify under Tier 1. Regulatory capital measurements will be more risk-sensitive as the final rule increases the risk weighting requirements for certain assets. Regulations currently require 100% risk weighting for all commercial real estate (CRE) loans and for most loans that will remain the same. However, for the newly-created CRE subset of high-volatility CRE (HVCRE), the requirement will increase to 150%. And Basel III zeros in on 90 day past due exposures and non-accrual loans which will also require 150% risk weighting. (Past due loans had previously not required any change in risk weighting.)
But how 'bout lower lending standards and higher credit risk in 2015? Well, according to Wells Fargo we've already started to revisit 2006. "Eased lending standards by firms in 2014 could lead to higher default rates and volatility in the market moving forward. According to the Office of the Comptroller of the Currency (OCC), 2014 was strikingly similar to 2006 in terms of the credit market....the percentage of firms tightening lending standards fell to 10 percent or less-a rate not seen since 2006, the last "normal" year prior to the housing crisis. In comparison to 2013, more banks eased commercial loan standards, while retail loans were unchanged." WF is referring to the OCC's December release of its 20th Annual Survey of Credit Underwriting.
Yesterday the only news of substance - the Federal Reserve's Beige Book - didn't move rates and bond yields and prices ended nearly exactly where they began the day. No Capital Markets person minds that! The Beige Book, a collection of anecdotal observations from each of the Federal Reserve's 12 business districts regarding the current economic outlook in their region, shows that the economy continues to expand at a moderate pace. The report also showed that wage pressure was modest and limited largely to skilled jobs, home sales were mixed, banking conditions generally improved, while agricultural conditions generally worsened and oil and natural gas drilling declined.
Today is Challenger job cuts (they dipped slightly), Nonfarm Productivity, and Initial Jobless Claims - some of which may be delayed by weather issues. Analysts are focused on the weather but also on tomorrow's set of employment data. Tune in tomorrow! In the meantime the 10-yr had a 2.12% close Wednesday and today we're at 2.13% with agency MBS prices worse a shade.
Jobs and Announcements
Angel Oak Home Loans LLC is currently seeking a Corporate Trainer to be a valuable member of its support team. In this role, the corporate trainer will be responsible for new hire orientation, ongoing associate training, and continuing education for an established mid-size direct retail lender. Please visit Careers to view a complete job description. If you or anyone you know is qualified for this position please contact, Elizabeth Hayden, HR Director. Angel Oak Home Loans (AOHL) is located in the financial district of Atlanta, GA. Its retail division is a traditional, relationship-based platform that earns its business from the recommendations of a loyal referral network. The company is currently licensed in 13 states across the southeast, IL, CA, TX, LA, CO, AZ, ND, and will continue to rapidly expand its license footprint in 2015. Who is Angel Oak Home Loans?
MegaStar Financial Corp., a FNMA and GNMA approved lender headquartered in Denver, Colorado is seeking part-time or full-time senior underwriters. "Our well established, financially strong 15 year old company has branches from coast to coast and lends in 23 states. Additionally, our advanced technological systems allow you maximum efficiency in our paperless workflow environment. If you have at least five years of underwriting experience, have your DE, SAR, and USDA designations, we would like to talk to you about joining our fast paced progressive team." Work from home or our Denver office. Please forward your confidential resume to Meagan Pieper.
On the servicing side of things, congratulations to LoanCare, the second largest subservicer, due to Fitch Ratings, Inc. assigning it two new third-party ratings. It is now has a "Primary servicer rating for prime product 'RPS2-'" and a "Specialty sub-servicer rating assigned at 'RPS2-'." According to Fitch, these are based on "LoanCare's established servicing platform, the servicer's comprehensive and highly integrated servicing technology, effective internal control environment, and experienced senior management team." Established in 1983, LoanCare, a ServiceLink Company, is a leading national provider of full-service residential subservicing to the mortgage finance industry. It has over 550,000 loans in 50 states with more than $110 billion in loan balances. As a company focused on customer satisfaction and loyalty, LoanCare leverages its exemplary service, technology and best practices to assist lenders, servicers and investors reach their business objectives. For more information, please visit www.LoanCareServicing. com.
And Optimal Blue is looking for a Business Development Manager responsible for the development of Secondary Services customers and accounts in the Real Estate Mortgage Lending Industry resulting in increased profitability and market share in the assigned geographic territory. Responsibilities include advising prospects and clients on the introduction and efficient use of products and services to maximize profitability and acts as liaison between sales, other departments and customers on products, services and technology. The ideal candidate has relevant sales experience at a correspondent/wholesale mortgage institution in a relationship management/business development capacity or at a mortgage insurance company or other information technology firm in a B2B sales capacity. BDM's are expected to work from a "home" office and candidates will ideally be located in Iowa, Michigan, Minnesota, Ohio, Indiana, Wisconsin, and Kentucky. Optimal Blue delivers loan product eligibility and pricing solutions coupled with sophisticated secondary marketing automation tools for mortgage bankers. Visit OB to learn more and interested parties should apply via careers@optimalblue.com.
Nine of the nation's top producing loan originators are continuing to share their insights and best practices at the upcoming Top Producer Round Table event series that continues March 13-20 in New York, Boston, Philadelphia, Washington DC and Baltimore. The events are from 10:00am - 1:00pm local time, and feature a packed agenda with back-to-back presentations and live Q & A. Top Producer Round Table is designed to inspire originators with best practices from top producing loan originators from different parts of the country, and a 60-day plan of action to implement. Topics include how to save time and create more efficiency in your loan process, how to grow Realtor relationships in light of the CFPB's recent rulings on MSAs, and how to diversify your sources of business to include CPAs, attorneys and financial advisors. Registration includes audio recordings of all the presentations at all the events. Learn more and register at http://TopProducerRoundTable. com.