"If you want to be successful on the highest level, be willing to serve on the lowest." That is a great statement for companies who take charity work to heart. Taking liberties with the term “lowest,” here’s a short video of a fun activity the next time you’re at the airport:limbo under the seats at the gate. On the "highest" side of things, everyone is yammering about the $250 million dollar house for sale at 944 Bel Air Road, reportedly the most expensive house in America. (Insert White House joke here.) The 38,000 square-foot, 12-bedroom, 21-bathroom home boasts great views of Los Angeles. There are five bars inside in case a mortgage banking conference breaks out. Grab 11 of your friends, so everyone can have their own room, and pony up $20 million each, plus another $200k each a year for property tax. Manservant extra.
Turning to bank news, the announced mergers and acquisitions just don't stop.
In the last week or so we learned that Hope Bancorp (Los Angeles, CA) has plans to acquire Seattle-based U & I Financial Corp. HCBF Holding Company, Inc. (Fort Pierce, FL) has agreed to acquire Jefferson Bankshares, Inc. (Oldsmar, FL). In Texas AIMBank ($831mm) will acquire Muleshoe State Bank ($109mm), and Post Oak Bank ($1.2B) will acquire The State Bank of Texas ($187mm). Southern Bank ($1.5B, MO) will acquire Capaha Bank, SB ($194mm, IL) for about $23.4mm in cash and stock and assume $3.8mm in debt for total consideration of about 1.40x adjusted capital. Columbia Bank ($9.6B, WA) headed south and will acquire Pacific Continental Bank ($2.5B, OR) for about $644.1mm in stock, just above 3.0x tangible book. In Mississippi Renasant Bank ($8.5B) will acquire Metropolitan Bank ($1.1B) for about $190mm in stock or about 2.0x tangible book.
But banks continue to venture outside of banking, and credit unions continue to expand their wings. Advia Credit Union ($1.3B, MI) will acquire Peoples Bank ($233mm, WI) for an undisclosed sum. M&T Bank ($127B, NY) will acquire commercial mortgage placement and servicing company Carey, Kramer, Pettit, Panichelli & Associates, adding $2.7B in loans to M&T Realty Capital's servicing portfolio. MVB Bank ($1.5B, WV) will invest an undisclosed sum in bill pay startup BillGO, and its president and CEO will join the board. It isn't all rainbows: ten days ago, Harvest Community Bank ($126.4mm, NJ) was closed and the FDIC sold it to First-Citizens Bank and Trust Company ($32.8B, NC) under a purchase and assumption agreement.
Onto the capital markets!
Last week I noted that the US Supreme Court has rejected an industry appeal and ruled that investors' antitrust lawsuits against a number of banks accused of manipulating the London Interbank Offered Rate, including Deutsche Bank, Bank of America and JPMorgan Chase, can move forward.
But although adjustable rate mortgages account for less than 10% of originations, LOs are asking what the heck is LIBOR (which evolved into "Libor" since it was too hard to type all those capital letters)? As with setting the Prime rate in the U.S., Libor similarly comes from a group of large banks. Twenty of the world's largest banks submit their interest rate data to the British Bankers Association (BBA) each day. The BBA then threw out the top 25% of quotes and the bottom 25% and averaged the remainder.
Critics say that Libor was a hypothetical rate (not an observed rate), in that the banks were asked to submit the rate that they believed represented where they could borrow that day from another bank. That opened things up to interpretation and that is not a good thing and that is why Libor now comes from observable rates. (As for the Prime rate, it is tied more to the federal funds rate. That means it only moves around when the Fed moves rates. That is good for banks when the Fed is easing, as the rate doesn't move down as quickly as Libor, but it is bad when rates are rising and Libor moves upward in anticipation of higher rates. In short, Libor moves all the time, while Prime may sit idle for years before moving one way or the other.)
Steve Brown with PCBB notes that, "Large US banks typically start each day by setting funding rates using the Libor curve. They take each maturity term and then apply some percentage to their own deposit rates for each term. By using Libor on the asset side of your balance sheet as well as the inherent tie to it that is going on with funding (large banks control about 90% of all US funding), community banks stand a better chance of controlling against basis risk. What is basis risk you may ask? It is the risk that occurs when the relationship among various rates (deposits and loans in this case) is mismatched and move independently from one another. Put another way, basis risk occurs when the spread between Prime and Libor changes."
The presidency of Donald Trump, who has made his fortune in big business, doesn't seem to be affecting confidence in small business. The national Federation of Independent Business has a Small Business Confidence Survey which showed a surge in optimism in December, to 105.8, the strongest reading since December 2004. There are also a couple numbers that bode well for future FOMC rate increases in Comerica's Economic Weekly. The first is a strong labor market supported by "The Job Openings and Labor Turnover Survey for November showed stable and positive labor market conditions." Secondly, retail sales for December increased by 0.6%, which was supported by strong auto sales and rising gasoline prices. This shows a strong economy which the FOMC needs in order to raise interest rates. However, the next interest rate hike isn't expected until June 14 so the economy will need to be at a good point under our new president.
As the economy strengthens, Fed officials are now thinking about what to do with their $4.5 trillion of Treasuries and MBS, which are a legacy of the QE days. As of now, they are re-investing maturing proceeds to maintain their assets at approximately $4.5 trillion. Normalization of monetary policy certainly includes returning the balance sheet to its pre-QE levels of under $1 trillion, but that may turn out to be a 2018 event.
Regardless of what the bond market does on any given day, someone can always rationalize it. Yesterday bond prices sank, and thus rates went up, despite existing home sales stinking, a decent 2-year T-note auction, and Markit's U.S. Manufacturing PMI moving to a one-year high for January. But I didn't hear a good reason for rates going up, other than they shouldn't have gone down on Monday. Who knows? Maybe it was the news out of Europe overnight. Who cares? Interestingly ThomsonReuters observed that volumes for the trading session were above average. What I do know is that yesterday the 10-year note closed .625 worse in price and its yield shot up to 2.47%. As usual, since mortgages tend to track the 5-year T-note more than the 10-year, those were off about .250.
But it's a brand spankin' new day. We've had the MBA's report on last week's applications (not locks) which showed apps +4% - mostly due to purchases. Coming up are the FHFA Home Price Index (Nov) and a $34 billion 5-year note auction. We start the day with rates roughly unchanged from Tuesday: the 10-year is at 2.48% and agency MBS prices are down a tick or two.
Jobs and Announcements
In vendor news, this week SocialSurvey welcomes their newest partners, Inlanta Mortgage, The Mortgage Firm, South Pacific Financial, Michigan Mutual and Broadview Mortgage. SocialSurvey provides a platform for mortgage lenders to collect and share customer feedback. This provides a boost on social media, SEO, employee retention, recruiting Realtor partnerships, and social proof. If you want to join these companies and share the stories of your happy customers, send an email to GetStarted@SocialSurvey.com.
In correspondent news, AmeriHome Mortgage is pleased to announce that Michael Wooten has joined the company as a Correspondent Sales Account Executive. Michael brings 7 years of Secondary/Capital Markets experience to AmeriHome's team of seasoned and talented mortgage professionals. He is assisting business development in the South-Central region, including NM, TX, OK, AR, LA and MS. (Use the link above to contact Michael or call him at 214.983.0380 for those interested in partnering.)
In wholesale job news, Ditech Wholesale is hiring talented experienced AEs in key markets across the country. "We are focusing on VA, FL, GA, and NC on the Eastern Seaboard (led by Regional Sales Manager Tony Petronio); NV, AZ, and TX in the Southwest (led by Regional Sales Manager Zeenat Zonte); UT, WA, ID, and the Central Valley of California for the Northwest (led by Regional Sales Manager Michelle Thiebaud). "With the rise in interest rates, we understand that territory expansion and alignment are now at a premium. With our return to Wholesale, we are in a fortunate position to have some wide-open geographies, allowing our AEs the unique opportunity to be first in market and capture large footprints with more customers at their disposal. With that in mind, our technology, infrastructure, and deep agency relationships empower Brokers and support Account Executive in creating and building strong business relationships." Click Here to review the job description and apply today! You can also contact Owen Welch in HR with questions."
In Ops job news, a "Next generation financial technology company disrupting consumer lending, well-funded by top tier investors, is searching for an experienced Mortgage Underwriter to join the home team in San Francisco, CA. In this job, you will perform credit analysis on different consumer lending products to determine the applicant's willingness and ability to repay and evaluate their risk to ensure a correct loan decision is made. The ideal candidate has 5 -7 years of mortgage underwriting experience, including conforming and non-conforming transactions, and has practical knowledge of delegated jumbo underwriting and/or a Direct Endorsement authority for FHA and VA loans (preferred). This individual will also assist sales staff in structuring proposed transactions to provide the maximum benefit to consumer with the most effective presentation for credit review and should have the desire to learn to underwrite using financial technology in a multi-product consumer lending environment. Please submit your resume to me at rchrisman@robchrisman.com.
On the retail side, Assurance Financial continues to expand after increasing production by 29% in 2016 while opening several offices in new markets throughout the country! The company has a solid reputation for closing loans on time, appealing to anyone wishing to grow their origination business. Our back office supports its mortgage loan originators and branch managers so they can focus on originating more new loans rather than worrying about closing their pipeline. Assurance plans to expand its footprint further this year by selectively hiring producing branch managers and MLOs in good markets. For more information, contact Paul Peters, CMB at 225-239-7948 or visit LendTheWay.com/Careers.
Congratulations to Ben Carson. He is the new head of the U.S. Department of Housing and Urban Development (HUD). Carson, a former pediatric neurosurgeon who also vied for the Republican nomination for president, has no experience running a government agency and has never been elected to office. But that appears to be the current norm. We all wish him the best!
Do you need to increase purchase originations rapidly? On Thursday, February 9 at 1PM ET, Ron Vaimberg, Head Coach and Executive Director of nmpU (a division of National Mortgage Professional Magazine) will be presenting via live streamed video training, "How to Rapidly Build a Purchase Origination Business." One low price and you or your entire office can attend this national broadcast success event. This is NOT a Webinar! In just 90 minutes, Ron will show you exactly how to win purchase business using no cost / low cost strategies in today's competitive market. Only 200 seats will be sold for this program. Visit nmpU Live for details. Use discount code "Chrisman" and save $100.
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