Compliance For Small Lenders; Credit Unions Scooping up Millennials

For me last month’s domestic travels included Texas, Montana, Colorado, Kansas, and California. The mood among residential lenders is very good. Yet despite many lenders having a fabulous production month in August (with decent margins) the residential lending industry continues to be on edge. It, and the CFPB, waits patiently for the CFPB/PHH court case ruling in order to give clarity to the MSA question, as well as other issues. And the feeling out there is that waiting for the next court case, or enforcement action, to set precedent, continues to be a crummy way for lenders to help consumers. But hope springs eternal…

How long will everyone take to realize that Millennials - per our Census Bureau those born between 1982 and 2000 - are in no hurry to marry, have kids, or save up enough money and then finance a house? It will happen eventually. Still it doesn't stop the fascination with their every move but the ones that I talk to aren't too excited about constantly being under the microscope.

Let's see what people age 16 to 34 are up to. First off, many people have sent me this video titled "You've  Gotta Love Millennials" by Micah Tyler. And from Northern California CB sent along this site for the person who has everything: software that turns the word "Millennials" into "Snake People." What will they think of next?

On a more serious note, Fannie Mae did a piece on home ownership among this age group. "The young-adult homeownership decline has been associated with several housing market shifts, including low shares of first-time home buyers and suppressed starter home construction....cohort analysis can be used to determine if Millennials have started to advance into homeownership at a faster pace as the economy and housing market have recovered, thereby beginning to reduce the homeownership rate deficits with prior generations that are evident in age group comparisons...the cohort analysis shows that homeownership rate gains for young adults aging through their late twenties and early thirties accelerated 'significantly' during the early housing recovery."

One would think that coming out of college with mountains of debt the millennials in the 18-25 age range would be the ones leading the charge of living with their parents, and you would be right... before 2012. In a new study by Zillow they found that it is actually the 26 to 34 age range of millennials that is driving the increase in young adults living at home. (34 years old? Living at home? That actually happens? They don't get kicked before 34?)

Don't let this number fool you, 18-25-year-olds still have a much higher percentage living at home compared to 26-34. Both groups reached their peaks in 2012, with 18-25 reaching a 55.5% and with 12.9% of 26-34-year-olds still living in the nest. However, in the years since 2012, the share of 18 to 25-year-olds living with a parent has started to decline, while it has continued increasing among 26 to 34-year-olds.

It is tough to speculate the cause of this, Zillow claims that it could be "younger adults may be finding stronger job prospects in a largely recovered labor market even as their older peers continue to struggle, perhaps scarred by tough employment prospects in their early working years." However, what I believe is a more likely explanation is that the mere idea of leaving the twin XL bed you've grown so accustomed to since you were 5 is merely too much to handle. The breeze you get on your feet as half your legs hang off the bed is too wonderful to give up.

Between the eve of the recession in 2005 and 2012, young adults between the ages of 18-34 living with their parents had a three times larger increase than the increase in the share of young adults living with their parents during the early 1980s recession. Cue the "boomerang-these-people-don't-know-how-to-work- generation" naysayers. But fear not because at least you're not 35 and still living at home.

The lack of inventory is going to get worse, as we aren't building enough homes to keep up with population growth, let alone obsolescence. Brent Nyitray with iServe calculates that "we should be hitting 2 million starts a year given the shortage and the need to house Millennials. This is the difference between 2% GDP and 3% GDP. Unfortunately, Washington seems to think the biggest problem is that we aren't slugging the banks hard enough."

Credit unions are certainly tuned into demographics. TransUnion research has found that credit unions continue to grow at a faster rate than other financial institutions, and millennials are both a key driver and target market for sustained loan growth. TransUnion found that in the first quarter of 2016, credit union membership grew at more than three times the rate of credit activity among consumers across other lender types, such as regional banks or finance companies, and that 25% of credit union members in Q1 2016 were millennials. In Q1 2013, millennials made up only 20% of credit union membership. Millennial growth for non-credit unions grew at a slower pace, up to 25% in Q1 2016 from 23% in the first quarter of 2013. This is indicative of credit unions' strategic focus on millennial growth.

Nidhi Verma, senior director of research and consulting for TransUnion, observes, "Credit unions are actively building their millennial membership, and in fact have experienced growth in this segment every quarter since 2010. Millennials are likely candidates for new mortgages and other credit products as they age, offering credit unions a way to further their market share. Credit union executives are strategically focused on gaining membership growth through mortgage originations, as well as offering products such as credit cards to their existing member base."

Credit union memberships via mortgage origination have increased in recent years. In Q1 2016, credit unions had 3.8 million mortgage members, an increase of 4% from 3.67 million in Q1 2015. Compared to five years ago, credit union mortgage memberships have grown 13% from 3.29 million in the first quarter of 2011.

Has anyone asked Millennials what they think about business and debt? Wells Fargo did, and the information could help banks and other lenders. About 67% of millennial small business owners say that some amount of business debt is necessary for growth and they are willing to take financial risks in order to grow their business. By contrast, roughly 50% of older small business owners hold these views. Notably, 21% of millennial small business owners polled said they plan to take on some form of debt in the coming year.

Wells Fargo's findings suggest that millennial business owners need help managing their personal finances. In addition to business debt, 43% of millennial small business owners say they have taken on personal debt to finance their businesses such as carrying a balance or maxing out personal credit cards or opening a personal line of credit. What's more, 30% of millennial small business owners report having student debt, with these individuals owing on average about $30,000. These statistics tell us banks have ample opportunity to do much more than provide loans for millennial business owners and can also serve as a great resource for these newbies.

Millennials need both personal and business advice and banks are well-positioned to provide both. But The Cassandra Report published in October 2015 found that 58% of young adults said they would opt to borrow money from friends or family over a traditional institution. One reason is because many millennials claim to be turned off by banks who fail to offer appealing products and services.

Well, finally there's a little juice out there in the securitization market. Hedge fund Premium Point Investments has sold a $6.2 billion mortgage bond portfolio, the largest sale of its kind in nearly two years. ThomsonReuters/IFR reports that, "The sale is the biggest auction of non-agency mortgage bonds since October 2014, when banks sold a $5 billion list." This sale included mortgage bonds backed by jumbo home loans created by WinWater Home Mortgage, an affiliate of the hedge fund founded in 2013 to buy up loans for securitization, and riskier subordinate issues that WinWater initially retained for yield. Citigroup, Goldman Sachs, JP Morgan and Morgan Stanley handled the transaction.

Remember that plenty of depositories and investors are only too happy to keep jumbo and other non-agency loans in their portfolios. Why pay the large sums to put the loans into securities when they're earning a decent yield and taking advantage of the cross-selling opportunities? And thus the private-label residential mortgage bond sector remains quiet. "Only $3.3 billion of prime jumbo RMBS has been sold year-to-date, or about a quarter of the $12 billion total issued in 2015, according to Bank of America Merrill Lynch data" and Two Harbors recently said it would end its mortgage loan securitization business due to challenging market conditions.

And in terms of the daily bond markets, it's still a snoozer while many lenders relish good Augusts! The usual suspects are still selling, and the Fed and the usual investors are still buying. Wednesday 10-year T-notes, 5-year T-notes, and agency MBS prices were all pretty much unchanged.

To lead off September today we began with the outplacement firm Challenger, Gray, and Christmas job cut data: layoffs of 32,188 in August, a 29% drop from July and a 22% drop from August 2015. Trends indicate that full-year layoffs in 2016 will be slightly less than 2015. We also had Initial Jobless Claims (263k, +2k), productivity (-.6%, unit labor costs higher). Later we have ISM, construction spending, and vehicle sales. The 10-year's yield is up to 1.61% and agency MBS prices are worse nearly .125 versus Wednesday.

Jobs and Announcements

A very well-known and well-capitalized company in related industries is preparing to enter the mortgage business and is looking for someone to be its Director of Underwriting "with the experience, vision and passion to help build a world-class mortgage business. This position reports to the Head of Mortgage and will be based in Dallas. We need a leader with the industry expertise to build from scratch and the management capabilities to oversee the operation once it is built. The Director of Underwriting will assist in the phased maturation of our technology to build an industry changing LOS: we are looking for people to rethink the business from the ground up. Recruitment and retention of top talent will be a priority, capacity management will be of paramount importance, and we will need a leader with familiarity in FNMA, government, and portfolio loans. The candidate will partner closely with the Director of Production to manage our pipeline and ensure service level agreements are met - customer satisfaction, cycle times, and hitting closing dates are the name of the game." Resumes should be submitted to me; please specify opportunity.

"Attention retail LOs! If you're not earning what you're worth, then it may be time to consider Wholesale. Wholesale offers much more opportunity to earn and create a career with longevity. A national wholesale lender based in Southern California is looking for smart LOs looking to make the switch to wholesale AE. We offer a full product line, including an exciting non QM series, to get you to your earning goals, even in low cost markets. We'll train and mentor you, and provide the tools and support you need to succeed. With drive and focus there's no reason you wouldn't be earning six figures within a year. Are you motivated? Aggressive?" Send your resume to me atrchrisman@robchrisman.com and specify this opportunity.

In other business news, Florida's Buckley Management Advisors, LLC, introduced a new alternative for small to medium sized banks, credit unions and mortgage bankers in the area of Mortgage Compliance and Consulting.Under the new program, "BANC," clients pay a nominal membership fee annually and can utilize Buckley's services at a discounted rate. "Many lenders are still struggling with TRID almost a year later and are now they're faced with HMDA revisions, which are fast approaching. For many of these lenders, having internal compliance personnel is not an option and they are overwhelmed by the complexity and scale of today's regulations." Buckley is a nationwide consulting firm with over four decades of experience in mortgage banking; for more information on this program click on the link above or contact Michael Celenza (904-329-7247).

And kudos to Strategic Vantage, a marketing and public relations agency that just surpassed 100 clients served in the mortgage industry since opening its doors 14 years ago. I've met several times with their president, Rosalie Berg, and have spoken to several of her agency's clients, and I can see why companies want to do business with them. They know the industry extremely well and their clients see results. Berg explains, "We specialize in the mortgage industry and our team members have tremendous depth in the business, so we know what works and what doesn't. We take trial and error out of the equation. Whether we're creating a website or brochure, writing an article, doing advertising or publicizing a company, our clients know they will get reasonably priced marketing and PR that produce results.  The biggest mistake companies tend to make is taking too long to get us involved and missing many opportunities for growth."