Generally speaking, home values are going up, and we receive plenty of statistics every month slicing and dicing sales and values. The latest is from Pro Teck Valuation Services, which released its October forecast. I mention this because it discusses something very relevant to house price rebounds: whether the state is a judicial or non-judicial foreclosure state. "For example in non-judicial states, such as California, foreclosure requirements are established by state statute with no court intervention. State specific rules and timelines are followed, resulting in a faster foreclosure process. 'Two years ago much of the bad news was centered on California, a non-judicial state. Foreclosures were driving down prices and there were high REO discounts,' said Tom O'Grady, CEO of Pro Teck Valuation Services. "But banks moved swiftly to cut losses, peak foreclosure activity came and went, and many markets are now on the rebound. In fact, eight of our top ten metros for this month are in California.'" (Hint: whether it is a foreclosure, a buyback settlement, or a bad date, it is better to wash your hands of it and be done with it.)
Here in Dallas and everywhere else we have 40 business days until QM. Capital is like water flowing down a river. You can put up a dam, like QM, but that doesn't stop the water flowing over, around, or under it. Either the QM definition will change, or non-QM lending will proliferate - but the borrower will pay for the added costs and risk. Is "subprime" coming back? It is not likely, but it depends on how you define subprime. Borrowers still want money, and the unintended consequences of QM will be felt.
Where is Freddie Mac on QM? I received this reminder: "We've issued five Guide Bulletins/Industry Letters this year covering the CFPB's rule and our Guide. We adopted the eligibility criteria in support of the CFPB final rule and will QC loans for compliance with our Guide. We've been posting webpages on the bulletins & letters that also speak to the issues raised by ATR and QM. But the bottom line, as it says in the FAQs, is we don't plan to issue guidance with respect to the QM general requirements at this time. Sellers should refer to the CFPB final rule and/or the CFPB for additional guidance concerning their requirements." Here are the key links for Freddie: Eligibility Criteria and FAQ.
There are no doubt many in servicing land with January 10th 2014 circled on their calendar. This is the day firms must meet the servicing requirements in the CFPB's Regulation Z and Regulation X amendments. While Regs. X and Z will occupy the lion share of many peoples time over the next few months, servicers should not forget about the agencies ECOA Valuation Rule, which emends Regulation B. The rule, which imposes an obligation to provide a copy of valuations to borrowers of first-lien loans and to provide notice to borrowers of this right, may apply to a servicer's loss mitigation efforts as well. K&L Gates write, "Some might have mistakenly assumed that the ECOA rule applied only to loan originations, but the scope is not so limited. The Bureau has stated in its Small Business Compliance Guide that the Rule applies to "loss-mitigation transactions, such as loan modifications, short sales, and deed-in-lieu transactions, if they are credit transactions covered by Regulation B." The CFPB also affirms in the preamble to its ECOA Valuation Rule that "some loan modifications can be subject to the provisions of Regulation B." In essence, the agency has enacted, and placed the burden of responsibilities on servicers to determine whether there has been an "application" for an "extension of credit" that would trigger the Regulation B requirements.
"The Consumer Financial Protection Bureau does not monitor the accounts of particular consumers and does not track the financial habits or activities of any individual consumer, yet." OK, so I added the 'yet'.....but after reading 49 pages of the CFPB's answers to questions originally asked by members of the House Financial Services Committee regarding the agencies data collection's procedures and protocols, you would be a little punch-drunk too. Some interesting items contained within the responses include: the agency identified eleven companies with whom it has contracts for purposes of purchase, collection, analysis and storage of data; they have identified twelve operational areas in which third-party vendors may receive personally identifiable information of consumers; in 2013 the cost of the CFPB's contracts to obtain data was $6,061,900 as compared to 2012 when the cost was $7,129,460; the CFPB has been notified of and responded to 3 incidents that were deemed to be data breaches (the breaches impacted consumers who had submitted complaints to the CFPB's consumer response system and all of the breaches resulted from employee error). All 49 pages and answers to questions such as, "How many data fields are the CFPB collecting per account?" Here is the link; go to the first line and click on "responses."
Let's move on to some Chase & bank updates.
Chase is offering its assistance in identifying CRA loans, premiums for which are now included on the daily rate sheets. CRA loans can be identified with the submission of a spreadsheet containing the loan number, borrower last name, property street address, city, state, zip code, monthly income, loan purpose, and loan amount. All products and programs are eligible, regardless of transaction, occupancy, or property type.
With the federal government resuming its normal activities, Chase is returning to the VVOE requirements that were in effect before October 1st, which apply to all loans with a note date of October 19th or after. The W-2 and tax transcript policy that was in place during the shutdown has also been removed such that all requirements effective prior to October 1st are in effect for loans with note dates of November 4th and after.
"Conditionally approved" status has been added as an underwriting decision option by Chase, which will be issuing correspondents with an Approval Memorandum that lists the specific conditions that must be cleared prior to closing.
In compliance with the CFPB's final rules, Chase has clarified that as of January 10, 2014, effective with the note date, it will not be purchasing loans that do not qualify as Qualified Mortgages and/or meet the Ability to Repay standards.
Chase has updated its disaster policies to require photos of the front of the subject property, the house number and street sign, any visible damage, and the street scene, effective for both Agency and non-Agency loans. For condos and co-ops, a photo of the lobby is also required. For FHA properties located in Presidentially Declared Disaster Areas, Chase will require either an Appraisal Update (1004D) or 2070 Streamlined Inspection completed by an FHA Roster Appraiser after the incident end date as indicated by FEMA. As a reminder, disaster inspections are not required on FHA transactions endorsed by the FHA prior to the disaster date. For VA loans, Chase requires a Loan Guaranty Certificate prior to purchase for subject properties in Presidentially Declared Disaster Areas, while the LGC may be provided after purchase on subject properties that are not situated in areas designated as such.
Bank M&A over the last 2-3 weeks continues on. To generally sum things up, SNL reports there were 236 bank M&A deals in 2012 with a median price to tangible book of 1.15x versus 178 deals in 2011 for 1.06x book. So the price to tangible book values have been increasing somewhat - which is good, since a Sheshunoff survey of community banks finds close to 72% have talked about buying another bank in the past year versus 13% who talked about selling. Let's take a look at some of those recent deals, in no particular order.
Huntington National Bank ($56B, OH) will buy Advantage Bank ($756mm, OH) for $97mm in cash (20%) and stock (80%). Huntington picks up 22 branches. Talmer Bancorp ($4.9B, MI) will buy the remaining banks (Bank of Las Vegas, Indiana Community Bank, Michigan Commerce Bank and Sunrise Bank of Albuquerque) from Capitol Bancorp ($1.4B, MI) out of bankruptcy. Talmer is backed by billionaire Wilbur Ross. Home Federal Savings and Loan ($300, KY) will buy Town Square Bank ($155mm, KY) for $14.7mm in cash (45%) and stock (55%) or about 1.04x tangible book.
Independence Bank ($278mm, CA) will buy Premier Service Bank ($129mm, CA) for $8.6mm in cash and stock. Home Bank ($971mm, LA) will buy Britton & Koontz Bank ($302mm, MS) for $34.5mm in cash. Northrim Bank ($1.2B, AK) will buy Alaska Pacific Bank ($177mm, AK) for $14.3mm in cash (45%) and stock (55%) or about 0.87x adjusted book. LCNB National Bank ($944mm, OH) will acquire Eaton National B&T ($357mm, OH) for $24.6mm in cash.
In a rare occurrence, Honor Credit Union ($470mm, MI) will buy a branch from Edgewater Bank ($121mm, MI) that includes 850 customer accounts for an undisclosed sum. Bank of the Cascades ($1.4B, OR) will buy Home Federal Bank ($1.0B, ID) for $197mm in cash (45%) and stock (55%). Home Federal will pay previous bidder Banner a $3mm termination fee. MVB Bank ($782mm, WV) will buy CFG Community Bank ($478mm, MD) for $30mm in cash and stock. Heritage Bank ($1.4B, WA) will buy Whidbey Island Bank ($1.6B, WA) for $265mm or about an 18% premium to the company's closing share price. And Highlands State Bank ($201mm, NJ) will buy mortgage banking company Secured Lending Solutions for an undisclosed sum.
We have not seen many closures (less than 25 year to date). In a rare mid-week action, regulators closed Bank of Jackson County ($26mm, FL) and sold it to First Federal Bank of Florida ($973mm, FL) under a purchase an assumption agreement. First Federal acquires 2 branches, all deposits and $23mm of assets.
Turning to the markets, there's no disputing the fact that economic news moves markets, but to what degree? That's exactly the question the New York Fed addressed in a very well written paper, where they examine the effects over the announcements of CPI (total and excluding food and energy), the change in non-farm payrolls, the unemployment rate, GDP, housing starts, PCE core, personal income and spending, retail sales less autos, and the empire manufacturing survey have on asset prices. In it, they attempt to show that these data releases generally have a statistically significant effect on the yields of U.S. Treasuries, and show that some of the announcements that move markets the most (payrolls reports, GDP, and core CPI) tend to have significant time variation in consequences for asset prices. Before you start to think that all economists at the Fed dress up as Captain Obvious for Halloween, they focus their study over the past ten years, and have substantial data and colorful graphs to keep anyone's interest. (Read More...)
The commentary discussed the fixed-income markets yesterday, but as a reminder we do have a couple numbers this week to either confirm or deny the trend set by the strong employment number on Friday. There is not much of not today or tomorrow, but Thursday we have the weekly Jobless Claims number, along with Nonfarm Productivity, Unit Labor Costs, and the Trade Balance figures. And then on Friday we have the Import Price Index, Empire Manufacturing, Industrial Production and Capacity Utilization duo. In the early going this morning, unfortunately for anyone who didn't lock last week, rates have crept higher: the 10-yr Friday was at a yield of 2.75% and this morning we're at 2.79%. Look for agency MBS prices to be worse about .125-.250.