State Law Changes for Lenders; What You Should Know About the Economy and Rates

This year the usual Tax Day (April 15) falls on a Sunday, and the next day is Emancipation Day, a legal holiday in D.C. That means you have until midnight on April 17 to file. There’s your tax tip for the day. (Lenders & accountants know that going forward, borrowers will only be able to deduct interest on up to $750,000 in mortgage debt, down from $1 million under prior law. The old $1 million limit is grandfathered in for existing mortgages, but new home loans are subject to the lower limit. Larger mortgages still receive a mortgage deduction, but it’ll be on only the portion of interest attributable to the first $750,000 in borrowings.)

State Changes

Thank you to Jason M. who noticed this news from New York. “Rafael Espinal, a city council member from Brooklyn, introduced a bill that would make it illegal for businesses to contact employees via email or instant message when employees are off work.” Just think about policing that!

And 2,300 miles to the west, "Free-range parenting?” Utah passed a law that makes it legal for kids to do things like walk to school on their own. Very retro. (Thank you to MT for passing this along.)

The state of Utah amended its provisions relating to its Residential Mortgage Practices and Licensing Act (RMPLA) that include the exemption of certain nonprofit corporations from licensing requirements effective May 8, 2018. The amendment defines “balloon payment” as a required payment in a mortgage transaction that results in a greater reduction in the principle of the mortgage than a regular installment payment; and is made during or at the end of the term of the loan. The amendment excludes from licensing a nonprofit corporation that is exempt from paying federal income taxes; has as the nonprofit corporation’s primary purpose serving the public by helping low-income individuals and families build, repair, or purchase housing;  does not require, under the terms of a mortgage, a balloon payment; performs loan originator activities, using only unpaid volunteers or employees whose compensation is not based on the number or size of the mortgage transactions that the employees originate.

The state of Indiana enacted provisions related to electronic wills, trusts, and powers of attorney through Indiana House Bill 1303. These provisions create a presumption of regularity for electronic wills, trust instruments, and powers of attorney in Indiana and are effective on July 1, 2018. Section 2. IC 29-1-21 is added to the Indiana Code as a new chapter which governs electronic wills. This chapter provides rules for the valid execution, attestation, self-proving, and probate of electronic wills. Section 3. IC 30-4-1.5 is added to the Indiana Code as a new chapter which governs electronic trust instruments. This section provides rules related to the lawful execution, amendment, and revocation of inter vivos trusts signed electronically. Section 4. IC 30-5-11 is added to the Indiana Code as a new chapter which governs electronic powers of attorney. This section provides rules related to the lawful execution, amendment, and revocation of powers of attorney signed electronically.

The legislature of the state of Florida has recently enacted provisions regarding foreclosure proceedings where a defendant has filed for bankruptcy. This bill will be effective as of October 1, 2018. The new bill, Section 702.12 of the Florida Statutes, essentially allows a foreclosing lienholder to submit a document from a defendant’s bankruptcy case, which will serve as an “admission by the defendant” that he or she intended to surrender the property. This bill applies to all foreclosure actions filed on or after October 1, 2018.

The Commonwealth of Virginia amended its provisions regarding notice to tenant in the event of a foreclosure. These provisions specifically outline language and requirements applicable to: failure to pay certain rents after five days’ notice forfeits right of possession. Maintaining dwelling unit. Wrongful failure to supply heat, water, hot water, or essential services. Landlord’s noncompliance as defense to action for possession for nonpayment of rent. Security deposits. Landlord ability to obtain certain insurance for tenant. Confidentiality of tenant records. Failure to deliver possession. Notice to tenant in event of foreclosure. The amendment also lays out prohibited provisions in rental agreements and provides for the early termination of a rental agreement by military personnel.

Capital Markets

As we start the 2nd quarter, it is good to look at what is going on with the economy, and why no one is thinking U.S. rates are heading lower. For example, Federal Reserve Bank of Philadelphia President Patrick Harker said three interest-rate increases are likely this year, including the recent unanimous vote to raise the benchmark federal-funds rate. Fed officials' upwardly revised forecast says faster-than-expected growth of the economy and inflation is likely, along with lower-than-expected unemployment. So, if this holds true, and if the yield curve remains upwardly sloped, we’re looking at 30-year mortgage rates in the 5% range by year end.

So yes, our economy is growing, and a growing economy usually leads to the government, companies, and people borrowing money. And if there is competition to borrow money, those entities must pay investors more yield (rate) to do so.

With that in mind, the Dallas Fed published a paper which examined the relationship between rising public debt and impacts to economic growth. Ever-increasing public debt levels can have negative effects such as “crowding out” private investment, higher interest rates, and ultimately an increased burden to taxpayers in the form of more aggressive taxation. As the trajectory of debt accumulation increases, it may worry investors who may begin to question the ability of a country to sustain such a course. The increased government spending resulting in the increased debt could be growth enhancing if it is invested in productive public capital. The study looked at 40 advanced economies and while they found no single threshold that would prove to be catastrophic, it did find that there is a long-term negative relationship between a constant accumulation of public debt and economic growth.

Much of the macroeconomic data we receive is typically adjusted for seasonality to remove those seasonal components that cause fluctuations which can make it difficult to analyze trends in time series data. Sometimes seasonally adjusted data, however, will continue to exhibit seasonal patterns within its data set in what is known as residual seasonality. Nonfarm payrolls data appears to exhibit a seasonal pattern in Q1 data over from 2010 – 2017, suggesting that the seasonal adjustment process may not be able to completely account for all seasonal factors. Over this period, two of the three months in the quarter have been close while the remaining month appears as an outlier. It is possible that the Q1 2009 decline of 2.3 million, the largest drop since Q3 1945, created a shift that could be causing disruptions to the seasonal calculation. Even though we are eight years removed from the recession, the residual seasonality has not disappeared from the initial estimates in the data set.

As we all know, low inflation has been keeping the Fed from aggressively tightening policy so far during the current expansion. The Federal Reserve has even gone so far as to say its recent policy changes are still accommodative, but less so, rather than mention tightening. Recent inflation data however, have been approaching the Fed’s long-term target and combined with the expected stimulus from the Tax Cuts and Jobs Act increase market consensus that the fed will move forward with policy tightening. Labor costs are also beginning to show signs of increasing as the unemployment rate approaches 4 percent although the participation rate remains low at 63 percent. Cyclical pressures are building yet not outside the Fed’s targets which would forecast policy to become tighter than currently expected.

Looking at the actual bond market, it was closed Friday, and closed early on Thursday – and we had a little rally/price improvement. There was some shifting of the yield curve (the 30-year bond price improved, its yield dropped to below 3%, whereas not so much for the shorter maturities) and the 10-yr yield hit its lowest level since early February. The 2s10s spread tightened by another basis point, dipping to only 48 bps. Thursday the 10-year yield ended the day at 2.74% on a .250 price rally and agency MBS prices improved about .125.

Looking at this week there is plenty of scheduled news although there are only a couple 2nd tier (not market moving) numbers today: Markit US Manufacturing PMI, Construction Spending, and some Institute of Supply Management stats. Tomorrow is only some auto sales numbers. Wednesday, however, things pick up with the MBA’s application data for last week, ADP private employment data, and more 2nd tier numbers like factory orders, capital goods orders, and the like. Thursday is the usual initial jobless claims but also Challenger job cuts and the trade balance. We end the week with the usual 1st Friday of the month bevy of employment statistics – expected to show continued job strength and likely higher rates as the year moves forward.

With that as a backdrop, although the stock market garners headlines, interest rates are definitely on the move. So, although the Fed has predicted more short-term rate increases this year, for now the long-term bond market is not convinced of economic prosperity, and rates aren’t moving much – for now. Many markets around the world are closed for Easter Monday, but in the U.S., we find the 10-year’s yields up a tad at 2.76% to and agency MBS prices worse .125 versus Thursday’s close.

Employment and Producer Events

“Are you a Retail originator or part of a Retail team looking to make a change? Want to work for a bank that is exempt from state licensing, so you can originate in 48 states? Then join our team. Florida Capital Bank, N.A. is a federally chartered bank looking to expand our Retail presence in the Minnesota, Wisconsin, Pennsylvania, Florida, Maryland and Southern CA markets. We offer a variety of loan products suitable for nearly every borrowers’ situation. As a direct seller to Fannie Mae, Freddie Mac and Ginnie Mae, we can provide a multitude of loan products from our one-time close Construction loan program to a variety of Jumbo loan options. Our operational team works hand-in-hand to help LOs meet closing dates, and we back up our service level guarantee with money saving offers. Florida Capital Bank is an Equal Opportunity/Affirmative Action Employer. Expand your business by joining a growing, fun team of lending experts.” If you are interested in joining the team, contact Bob Eisendrath, National Accounts Manager (414-350-3986).

Roostify, one of the fastest growing fin-tech companies in the country, is expanding its team and looking for an Enterprise Sales Director in the Southeast U.S. region. From the company's CEO, Rajesh Bhat, "It’s an exciting time to be at Roostify. We’ve rolled out at several top-tier national lenders, we’re expanding our platform capabilities to improve more parts of getting a loan, and we’ve just raised a $25M Series B with a round of prestigious investors to help us accelerate our growth and further capitalize on a fantastic market opportunity. We’re looking for creative, passionate people to help us get there." Apply directly through the website or contact Roostify's Corporate Recruiter Jodi Hoey.

American Pacific Mortgage has announced more details about the Make Your Mark – The Time is Now Spring Sales Summit. Michael Pankow, EVP of National Production, talks about the agenda and upcoming breakout sessions here. Come join us as our guest and discover first-hand how APM operates and commits to supporting our Originators with the tools, inspiration and resources to grow your production. The first Summit is scheduled for April 11thand travels to 5 different cities. Click here to find and register for a Summit location near you. Or, contact Dustin Block (303) 378-3166 or Peter Schwartz (916) 770-0053.”

Gibran Nicholas, CEO of CMPS Institute and the Momentifi companies, invites you to a free webinar this Thursday, April 5: The Three Most Important Business Lessons You’ll Ever Learn. “I’ll discuss how you can use the 'Hero’s Journey’ framework to uncover hidden opportunities in your market BEFORE it’s too late,” says Gibran. The timing of this webinar is especially important given the billions of dollars flooding the mortgage and real estate tech space. “You have to stop and ask yourself, what does Amazon see here that I don’t? This webinar will help you avoid the fate of Toys ‘R' Us and Blockbuster Video by answering that question before it’s too late.” Click here to sign up for the free webinar!