Disaster, Flood, and Water News; The Fed Raised Rates - The Sun Still Rose

As more people under the age of 30 enter residential lending, what is happening on the other end? Well, congrats to SunTrust's Elaine Lee who is retiring after 35 years at the Bank. 35 years is an eye-opener! And retiring after 38 years in the biz is Paul Miller with Academy Mortgage. Think of how many tens of thousands of borrowers these two directly or indirectly helped. At the other end of the age & work spectrum we have interns: the monthly income level of tech interns at some well-known companies is pretty darned eye-opening as well.

The disaster news and lender reactions have continued in November and December.

AmeriHome is tracking and providing disaster updates in reference to Hurricane Matthew. FEMA'samendment No. 14, declared an incident period end date of 10/24/2016 to DR 4285, which provided assistance to North Carolina areas affected by Hurricane Matthew. On 11/18/2016, FEMA issued Amendment No. 3, to DR-4291 granting three additional independent cities Hampton, Portsmouth and Suffolk, in the commonwealth of Virginia, individual assistance for areas affected by Hurricane Matthew. On 11/14/2016, with Amendment No. 7, FEMA declared an incident period end date of 10/30/2016 to DR 4286, assistance provider to South Carolina.
 
An alert was issued as a reminder to the Pacific Union Financial, LLC policy for properties located in disaster areas as published in the Correspondent Lending Guide. Pacific Union is monitoring the impact of ongoing fires and fire management declarations across several states including Tennessee, Kentucky, North Carolina, South Carolina, Georgia, and Colorado. In addition to the above, Pacific Union is monitoring the impact of several tornadoes across Alabama, Louisiana, Mississippi, and Tennessee, as well as severe storms and recent disaster declarations throughout several states as published by the Federal Emergency Management Agency (FEMA). 
 
At this time, loans secured by properties located in disaster areas are subject to standard Pacific Unionprotocol. Recently published/updated state-specific maps/impacted areas include the following: Florida 4280; Florida 4283; Georgia; Hawaii; Iowa; Kansas; Minnesota; North Carolina; Pennsylvania; South Carolina; Virginia; Wisconsin. Standard requirements for disaster areas apply for these properties as they relate to expectations from appraisers for existing pipeline and new applications. For loans secured by properties in affected areas, the appraiser must comment on the disaster and if there is an impact to the property and value.  In addition, all types of issued insurance policies (hazard, flood, windstorm, etc.) must have binding authority on the subject property.
 
Designated Minnesota Disaster Areas from September 21, 2016 to September 24, 2016 include Blue Earth County, Freeborn County, Hennepin County, Le Sueur County, Rice County, Steele County and Waseca County. For loans submitted with an appraisal dated on or before the incident period end date or for those submitted without an appraisal, Sun West will require an interior and exterior inspection prior-to-funding or purchase of any loans with subject properties that are determined to be at risk. The inspection must verify that the property is sound, habitable and in the same condition as when it was appraised.
 
Plaza Home Mortgage passed the word on to its brokers about recent disasters. "Because of Hurricane Matthew, FEMA has declared additional independent cities in the commonwealth of Virginia a disaster area and eligible for individual assistance: Independent Cities of Hampton, Portsmouth and Suffolk. The major disaster declaration was initially declared on November 2, 2016." And in Florida, "Because of Hurricane Matthew, FEMA has declared additional counties a disaster area and eligible for individual assistance: Manatee, Taylor and Wakulla. The major disaster declaration was initially declared on October 17, 2016. Because of Hurricane Hermine, the following counties were declared a disaster area by Plaza, or FEMA and eligible for individual assistance: Citrus, Dixie, Hernando, Hillsborough, Franklin, Jefferson, Lafayette, Leon, Levy, Liberty, Madison, Manatee, Pasco, and Pinellas, Taylor, Wakulla."
 
Last week the House of Representatives passed a massive waterways bill Thursday that includes steps to pay for a handful of flood and hurricane protection projects across Louisiana.  
The latest version of the Water Resources Development Act authorizes Congress to spend $744 million to build an extended levee in Louisiana, puts aside $170 million to address lead contamination in the drinking water in places like Flint, Michigan as part of a pre-election compromise that, in part, let Louisiana receive its first $500 million tranche of emergency relief after the devastating floods of August. (The water bill passed on a 360-61 vote. A major sticking point was over provisions to increase the water delivered from northern California to drought-stricken zones in the south, pitting members of that state's delegation against each other.)
 
And finishing up with flood and water news, In the November 7, 2016, Federal Register (81 FR 78063) the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), the Farm Credit Administration (FCA), and the National Credit Union Administration (NCUA) jointly issued a proposed rule to amend their regulations regarding loans in areas having special flood hazards to implement the private flood insurance provisions of the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters Act). 
 
Specifically, the proposed rule would require regulated lending institutions to accept policies that meet the statutory definition of private flood insurance in the Biggert-Waters Act and permit regulated lending institutions to accept flood insurance provided by private insurers that does not meet the statutory definition of private flood insurance on a discretionary basis, subject to certain restrictions. Comments on the proposed rule must be received by the above federal agencies (collectively the Agencies) on or before January 6, 2017.
 
Yesterday, to the surprise of no one, the Federal Open Market Committee voted to increase rates. This 25 basis point increase in Fed Funds, of course, has a ripple effect around the world, including "emerging" markets. As economist Elliot Eisenberg put it, "Rising rates, and thus improved US returns, vacuum up money from developing nations, causing their currencies to decline. This forces those nations to consider raising interest rates to reduce inflation and protect their weakening currencies." Although economic activity is still expanding at a moderate pace, the FOMC statement acknowledged that conditions in the labor market, as well as expectations for slightly accelerating inflation, warrant the increase. 
 
Moody's (the rating agency) expects the loosening of underwriting standards for residential mortgages as borrower demand drops off. "We expect the equilibrium federal funds rate to converge around 3.0% and the 10-year yield to settle around 4.0% within the next five years."
 
Rising interest rates will have varied implications for US structured finance sectors. overall, US consumers are well-positioned to cope with rising debt expenses given the current stable macroeconomic environment and generally strong household balance sheets, which will result in neutral or slightly negative credit effects on consumer asset classes including residential mortgage-backed securities (RMBS).
 
In this country, the yield curve flattened after the news. The spread between 2 and 30-year Treasuries (the traditional measure of the steepness of the yield curve) narrowed sharply (-7 basis points to 189 bps) as traders began truly thinking about 2017. The verdict is a more "hawkish" Federal Reserve in 2017, meaning more aggressive in raising rates: the Fed anticipates three .250 rate hikes in 2017; a few days ago the markets were expecting two.
 
The Fed's decision can affect the cost of housing, cars, student loans, credit cards, etc. When the Fed raises rates, all sorts of other expenses eventually tick up. In theory movement of the Fed's rate does not have a large, direct impact on long-term mortgage rates. But when the Fed's rate goes up, banks find ways to pass their higher borrowing costs along to consumers. And the fact that the Fed thinks the economy is strong enough to warrant higher rates can lead to higher rates. Long-term mortgage rates factor in the anticipation of future rate increases. That's part of why mortgage rates have been shooting up in recent months: The Fed has suggested that interest rates are likely to continue rising for years.
 
(An interest-rate increase may also affect renters - just not as directly. Higher rates mean that landlords must pay more to purchase and renovate their properties, so in the long run, those are costs they could easily pass on to renters. But with the labor market improving, workers' wages could rise at about the same time and pace as rent prices.)
 
Looking at mortgages, analysts are talking about, once again, the tapering of MBS purchases could occur before the end of 2017, sooner than expected, should the Fed's forecast hold true. But for now the NY Fed will continue to buy $1-2 billion a day of agency MBS - which given declining applications means that $1-2 billion, as a percentage of daily volume, is more significant. The Fed will have less money to buy MBS as fewer loans prepay... By the time the dust settled the 10-year T-note was yielding 2.52%, and 5-year notes and MBS prices had worsened .375.
 
Not that they matter much but today we've had the November Consumer Price Index figures (+.2% headline and core), December Empire State Manufacturing Survey ("9"), Philadelphia Fed Business Outlook Survey (higher than expected) and Initial Jobless Claims (-4k to 254k). Coming up is the NAHB (builders) Housing Market Index. The 10-year is yielding 2.60% and agency MBS prices are worse .250 versus last night's close.

Jobs and Announcements

In wholesale job news "Plaza Home Mortgage, Inc. has an exciting opportunity in Florida!Management is currently looking for an experienced AE to cover both the Tampa and Orlando markets. This candidate can live in either city, but will be given the opportunity to work both markets and will inherit 40 approved accounts and an active pipeline of loans. Plaza Home Mortgage has a Florida-based operations center and was recently ranked as a top 5 Wholesale Lender nationally by the Scotsman Guide. Programs are tailor-made for the Sunshine State, with renovation loans, FHA/VA down to 580, manufactured homes, and flexible condo guidelines. Contact Mark Boleky, Sales Manager (904-332-6380, ext. 2490). Plaza is an EEOC employer and follows all federal, state, and local laws relating to fair employment."
 
Homeside Financial, one of the fastest growing independent mortgage banks in the country, is actively looking for a Sales Manager in Ohio and North Carolina. "Homeside has grown from a small team of 10 in a temporary space, to over 450 people across 20 major cities in just under 3 years. We take top producers and sales managers and provide them with an actual career path and the tools they need for success in every aspect of the business," announced Chuck Shackelford, Sr. Vice President of Homeside Financial. "We get to the next level, when our people do." If you are a sales manager looking for more opportunity, or a top producer looking for the next big step after production, reach out directly to Chuck. "For a closer look at what it's like to work at one of the only mortgage companies Glassdoor acclaimed as a 'Best Place to Work' visit http://recruiting.gohomeside.com today."
 
For those companies using Dovenmuehle as their sub-servicer, Richey May & Co will again be conducting a sub-servicer oversight review on behalf of numerous clients, with an on-site visit to Dovenmuehle's facility scheduled for January 17th & 18th. In addition, Richey May has expanded its loan-level testing options in numerous servicing areas to assist clients in fulfilling their oversight responsibilities.Richey May & Co, an accounting and advisory firm that is heavily specialized in the mortgage industry, has developed an oversight review program that includes testing of Dovenmuehle's policies and procedures and internal controls on behalf of multiple clients at the same time, thereby sharing expenses and creating cost savings that are passed on to participating clients. If you are interested in learning more about Richey May's sub-servicer oversight review program, the expanded loan-level testing available, or how to participate in the upcoming Dovenmuehle review, please contact Kurt Blohm.
 
"As ResMac continues to expand its national footprint, technology upgrades to ResMac's proprietary loan origination platform, MARTI, take the customer experience to a new level. The recent integration of Docutech, the leading provider of compliance and documentation technology, streamlines the disclosure process for ResMac wholesale customers. Greg Lutin, SVP, National Director of TPO Sales, shares, "With minimal data entry our wholesale customers are able to input the necessary fees for ResMac to generate and deliver the Loan Estimate as well as the initial disclosure package." Another exciting upgrade includes the recent integration of the Mercury Appraisal Network into MARTI. Coming up are the integration of the Mortgage Insurance Best Execution Model (allowing customers to evaluate mortgage insurance inside of MARTI) and the integration of the automated Closing Cost Estimator, further reducing customer data entry, as well as the full integration of income, employment and asset verification per Fannie Mae's Day 1 Certainty Program."