We’ve passed the Winter Solstice, and we can look forward to more daylight in the Northern Hemisphere from here on out. (Good news for readers in Fairbanks, AK, where the sun now sets at 2:40 in the afternoon.) The amount of daylight isn’t the only thing changing. Any lender whose entire 2015 or 2016 profitability was based on rate and term refis is certainly concerned. For other companies, changes in the marketplace represent opportunities. It will be an interesting first quarter for change. Rumors are swirling, hiring freezes are already in place at some well-known lenders, and M&A is already alive and well. For example, the National Credit Union Administration approved 18 credit union mergers in November, according to the agency's latest Insurance Report of Activity.

Meanwhile, one constant is legal issues. Blame for the financial problems our nation had 5-10 years ago (call it whatever you like, the Great Recession, the Credit Crisis, etc.) is easy to spread around, all the way from borrowers to investors. Given the number of brokers, lenders, investment banks, rating agencies, and the number of entities that were allegedly harmed, the potential combination of lawsuits is staggering, and they are still happening.

The latest to grab the headlines is the U.S. Justice Department suing Barclays PLC, alleging the bank fraudulently sold more than $30 billion of mortgage securities that helped fuel the financial crisis. Apparently, settlement negotiations had been going on for quite some time, but broke down.

The complaint filed yesterday against the U.K.'s second-largest bank shows the urgency among senior Obama appointees in the Justice Department to resolve the outstanding probes of pre-crisis conduct at major banks before those officials leave office in mid-January. Part of the urgency stems from a great deal of uncertainty about how a Trump administration might pursue, settle or drop the remaining probes.

Barclays said in a statement that it would seek the suit's "dismissal at the earliest opportunity," and that it considers the claims "disconnected from the facts." (Another government suit against Bank of America was dismissed earlier this year.) It has been reported that the Justice Department is deep in negotiations over mortgage securities with two other big European banks (Deutsche Bank AG, which apparently has a tentative settlement, and Credit Suisse Group AG) that may wrap up by next month.

The 198-page lawsuit by the U.S. government says the bank "engaged in a fraudulent scheme to sell tens of billions of dollars of residential mortgage-backed securities (RMBS), in which it repeatedly deceived investors about the characteristics of the loans backing those trusts." Barclays sold the securities to a wide range of investors, including financial institutions, Fannie Mae and Freddie Mac, federal home-loan banks, credit unions, pension plans, charitable and religious organizations, and university endowments. Did the Bank mislead investors, or did the investors fail to carry out appropriate due diligence?

But the suit also alleges that companies hired to conduct due-diligence checks on the mortgages warned the bank, and those warnings were essentially ignored. "These vendors described some of these securitized loans as 'craptacular,' others as 'scariest collateral,' and others as having the 'distinct aroma of default,'" the suit says.

The New York Times reports that, "One of the key arguments Barclays made to Justice Department lawyers during the negotiations was that Barclays was the most-exposed investor in the securities in question, and had already taken a big write-down during the financial crisis as a result of losses. Barclays also insisted that losses from the securities were related to broad market events, not its own practices, and argued that its due diligence on the deals was deemed at or above industry standards, including by government-backed entities that approved of Barclays's methodology at the time."

There was also news of a probable settlement. Deutsche Bank announced late on Thursday that it had reached a tentative $7.2 billion deal to resolve a federal investigation into its sale of toxic mortgage securities. The civil settlement requires Germany's largest bank to pay a $3.1 billion penalty and provide relief to American consumers valued at $4.1 billion. The consumer portion of the settlement, the bank said, is expected to be "primarily in the form of loan modifications and other assistance to homeowners." Still, the bank cautioned that the deal was not final, saying that "there can be no assurance that the U.S. Department of Justice and the bank will agree on the final documentation."

What do you call Santa's Elves? Subordinate Clauses. That's a cute way of easing into the topic of the heavy regulatory and compliance environment in which lenders find themselves, often with overlapping and contradictory rules by different government bodies. A survey by Keefe Bruyette & Woods finds banks report an average increase in compliance costs post Dodd Frank of 301%. This breaks down by assets as follows: $10B to $50B (+544%); $5B to $10B (+185%); $5B or less (+260%). Banks reported 50% of their staff is allocated to meeting BSA and AML requirements.

There is hope. President Elect Donald Trump named Carl Icahn to be his adviser on regulatory overhaul. "Under President Obama, America's business owners have been crippled by over $1 trillion in new regulations and over 750 billion hours dealing with paperwork," Icahn said in a statement released by the Trump transition team. "It's time to break free of excessive regulation and let our entrepreneurs do what they do best: create jobs and support communities." Of course, Mr. Icahn owns stock in many companies that are affected by government regulation.

The Community Home Lenders Association (CHLA) sent a letter to President-Elect Trump, outlining a series of bold actions, including some focused on the regulatory environment, the incoming Administration could take in its first 100 days to "help working families, by improving access to mortgage credit and reversing a declining homeownership rate at its lowest level in 51 years "  and noting that the recommendations "would benefit the middle class, including minority families, younger persons saddled with student debt, and other qualified borrowers with lower FICO scores and limited down payment resources."

Here are its recommendations for a streamlining the mortgage regulatory policies. ("Streamlined Mortgage Regulatory Policies, While Protecting Consumers.") (1)  CFPB - support a change to a Commission, with more transparency and accountability, (2) Streamline regulatory treatment for both community non-banks and banks, and (3) Let mortgage lenders correct compliance problems prior to CFPB enforcement action."

The letter also has suggestions for the FHA, Fannie Mae & Freddie Mac. It can be found at www.communitylender.org; go to the "Actions" tab at the top and the letter is first item.

And let's not forget Section 342 of Dodd-Frank. Back in September the Council for Inclusion in Financial Services (CIFS) was formally launched by a coalition of industry leaders with the goal of helping the financial services industry develop and sustain an inclusive workforce while enabling compliance with Section 342 of the Dodd-Frank Act. The CIFS is providing industry resources for both suppliers and financial institutions, including offering the industry's only online Diversity & Inclusion Self-Assessment tool from VRM University. Additionally, the organization has launched what is designed to be the industry's most comprehensive, online-sourcing portal to connect vendors, suppliers, and requisition groups at financial institutions and solution providers.

"The CIFS' new sourcing portal will enable vendor management and sourcing departments to search for vendors and suppliers based on fields including service category and geography, while providing financial institutions the ability to track and report on utilization. Additionally, The CIFS will offer vendors and suppliers the option of becoming a CIFS-certified vendor, which entails a broad industry-standard background check, and basic training covering topics that help organizations build in-house programs to support diversity and inclusion efforts. Moreover, CIFS will provide certification programs for compliance officers on diversity & inclusion and develop VA and college internship programs to attract more women, minorities, and Veterans into the industry. And a tool for self-assessment. 

Lenders and regulatory bodies dealing with lenders, of course, must react to compliance changes.

The following changes will be made to Flagstar's disclosure of credit report fees and are effective with table funded loans registered on or after January 3, 2017: Flagstar will no longer input an amount, i.e. will disclose $0, for the credit report fee prior to disclosing the initial Loan Estimate (LE) provided the originator did not enter in an amount greater than $0 to be disclosed. If any amount is entered by the originator after the initial LE is disclosed at $0, the fee amount will be changed to $0 for any subsequent disclosures. If an amount greater than $0 is input by the originator prior to the initial LE being disclosed to the borrower(s), that amount will be disclosed on the initial LE.  The originator may not subsequently increase the fee amount disclosed on the initial LE, however Flagstar may in their discretion update the fee due to any subsequent credit report fees which are approved as valid changed circumstances.

The Department of Veterans Affairs requires all VA Authorized Agents to pay an annual recertification fee to each lender with whom they intend to have an ongoing relationship in the coming year. The $100 recertification fee must be paid to Flagstar by December 30, 2016 to prevent delays in submitting VA loans to Flagstar under the VA Authorized Agent program.  Beginning November 1, 2016, the recertification fee may be processed via credit card payment. Please contact us at (866) 945-9872, option #3, and then option #5. A $2 transaction fee will be applied. Have your Flagstar Seller ID and VA Authorized Agent ID available when calling to make your payment.

NMLS issued a reminder to the course provider community regarding point of contact. Questions regarding the EMS, credit banking, course offerings, or corrections need to be directed to Britton Anderson. Questions regarding course approval status should be directed to Jessica Esquina. Questions regarding course exams or compliance should be directed to Michelle VanderNaalt.

Glancing at the capital markets, and interest rates, research by the Treasury finds Japan has moved into the top spot of ownership of US debt at $1.13 trillion as of October, while China has dipped to the second spot at $1.12 trillion. China's holdings as of October were the lowest in 6 years.

Not much happened in the bond market yesterday, and today includes an early close. Thursday's trading action was quite uneventful as securities across the curve held to narrow trading ranges despite a large batch of economic data hitting the wires. The front end of the yield curve fared better than the back end of the yield curve, which led to a slight steepening in the 2-10 spread. MBS closed mixed in price and mostly tighter on spread, led by lower coupons, as another round of heavy Fed support, tight ranges, declining volatility all contributed to MBS outperformance.

For those of you who missed the economic news, the numbers continue to point to a U.S. economy that is doing well. Q3 GDP was revised up to 3.5% from 3.2%. The GDP Deflator was left unchanged at 1.4%. But Durable Goods orders declined 4.6% - a 73.5% decline in orders for nondefense aircraft and parts acting as the major drag. Excluding transportation, durable orders were up 0.5%. Initial Jobless Claims for the week ending December 17 increased 21,000 to 275,000 but remained below 300,000 for the 94th consecutive week. The FHFA Housing Price Index for October +0.4%, so house prices for loans done by Fannie & Freddie continue to improve. Personal income was little changed in November and Personal Consumption/spending increased 0.2%. The PCE Price Index and the core PCE Price Index, which excludes food and energy, were both unchanged. And the Conference Board's Leading Economic Index was unchanged in November.

Hey, just because it is the day before a holiday weekend doesn't mean there isn't more economic news today. We'll have the New Home Sales report for November at 4AM Hawai'i time, as well as the University of Michigan Consumer Sentiment for December. SIFMA is recommending an early close today for the bond market, which means it will happen - and who the heck is going to lock in a loan this afternoon? For anyone guessing where rate sheets will be, we closed last night with the 10-year yielding 2.55% and this morning it is yielding 2.54% with agency MBS prices better by nearly .125.