In legal news, in Denver, the state's high court has ruled that HOAs can’t necessarily sue in construction defects disputes. A couple thousand miles away, the odds of passage are slim but Congress has finally moved forward with a bipartisan amendment that could allow banks to do business with marijuana companies. I don't know how high it is on the priority list...

Capital Markets

This morning we've had our usual read on initial jobless claims. But employment in residential specialty trades is way up compared with the end of 2011, when the job market for home renovators bottomed out in the aftermath of the housing crash and recession. Employment in the category has risen 32 percent since then, to just under 2 million jobs in May. Private employment overall rebounded 12 percent in the same period.

Yesterday volatility picked up in the U.S. Treasury & MBS markets. They finished with large gains for long-dated Treasuries and much smaller gains at the front end of the curve. In the morning, the Consumer Price Index inflation numbers missed expectations for the third-straight month in May. And retail sales coming up short. The shortfall in inflation sparked a lot of buying and short-covering interest when few traders wanted to commit to big positions ahead of the Fed rate decision. Then we had the Fed announcement (more below); the median expectation of the FOMC participants is for one more hike this year and three hikes in 2018.

As expected, the Federal Open Market Committee voted to raise the federal funds rate's target range to 1.00-1.25%. Of more interest to LOs and mortgage folks, the Committee unexpectedly agreed to a plan for balance sheet reduction. Sometime "later this year", the Fed will begin allowing a reduction of a maximum of $10 billion of securities ($6 B of Treasuries and $4 B of mortgage securities) every month. That cap will increase by $10 billion of securities every quarter until the balance sheet is declining by $50 bln/month. Put another way, the Fed is maintaining its existing policy of reinvesting principal payments from its MBS and agency debenture holdings, but added "The Committee currently expects to begin implementing a balance sheet normalization program this year, provided that the economy evolves broadly as anticipated." Also, the Committee said it would be prepared to resume reinvestments if there was a material deterioration in the economic outlook where a reduction on the fed funds rate was not enough.

Yet bond prices improved and rates dropped - another day where someone would have lost their shirt if they'd know the information ahead of time. Most of the rally was based on the weak economic data, and the removal of uncertainty in the markets by the FOMC addressing the balance sheet question. The 10-yr yield hit its lowest level since November 10 and the 2s10s curve the flattest since early September. The 10-year note closed Wednesday yielding 2.14% and agency MBS prices improved .125-.375 depending on coupon and maturity.

Looking at today we've already had initial jobless claims (-8k to 237k), the Philadelphia Fed's manufacturing index (27.6), the Empire Manufacturing number from New York (up to 19.8), and May import & export prices (-.3% & -.7%). Coming up are the Industrial Production and Capacity Utilization duo. We start the day giving back some of yesterday's gains: the 10-year is yielding 2.16% and agency MBS prices are worse about .125 versus last night's close.

Bank News

As mentioned in yesterday's commentary, SoFi applied with the FDIC on June 6 to obtain a de novo bank charter. The application is open to comment through July 6. Good news!

Now for the bad news: now we have the new term "stealth modification." Wells Fargo is accused of making changes to loans it services without telling the borrowers. "The changes, which surprised the customers, typically lowered their monthly loan payments, which would seem to benefit borrowers, particularly those in bankruptcy. But deep in the details was this fact: Wells Fargo's changes would extend the terms of borrowers' loans by decades, meaning they would have monthly payments for far longer and would ultimately owe the bank much more. Any change to a payment plan for a person in bankruptcy is subject to approval by the court and the other parties involved. But Wells Fargo put through big changes to the home loans without such approval, according to the lawsuits."

But "The Coach" says, "Not so fast." Bloomberg writes that, "'Wells Fargo strongly denies the claims in these lawsuits,' spokesman Tom Goyda said in an emailed statement. 'The terms of these modification offers were clearly outlined in letters sent to the customers and/or to their attorneys, and the payment change notices sent to the bankruptcy courts.' Goyda said modifications help customers in distress to meet their mortgage payments, and that such moves have enabled more than 1 million families to stay in their homes since 2009. The bank doesn't finalize changes without getting signed documents from customers and, where required, from bankruptcy courts, he said."

The National Mortgage Servicing Association (NMSA) announced the appointment of Jim Taylor, SVP of Property Preservation with Wells Fargo Home Mortgage Asset Management, to lead the organization's effort to mitigate the threat that vacant and abandoned properties pose to homeowners and communities.

TIAA's acquisition of EverBank is now complete. TIAA's existing banking business, TIAA-CREF Trust Company, FSB (including its division "TIAA Direct"), has been combined with EverBank to form one full-service bank, headquartered in Jacksonville, Florida. The legal name of the combined bank is TIAA, FSB, but for now, we will continue using the EverBank® brand name in a variety of materials.

Yet S&P Global Market Intelligence reports the number of US bank and thrift M&A deals has declined from 284 in 2014 to 278 (2015) and 243 (2016). And so far this year, based on data through early June (98 transactions), the total would be about 235 (2017).

In the last week or so several bank M&A deals were announced. Four-bank holding company QCR Holdings ($3.4B, IL) will acquire Guaranty Bank and Trust Co ($267mm, IA) for about $44.2mm in cash (21%) and stock (79%) or about 1.40x tangible book. In New Jersey BCB Community Bank ($1.8B) will acquire Indus American Bank ($235mm) for about $20mm in cash (20%) and stock (80%). 14 bank holding company Glacier Bancorp ($9.6B, MT) will acquire Collegiate Peaks Bank ($469mm, CO) for about $73.9mm in cash (22%) and stock (78%) or about 1.92x tangible book. CresCom Bank ($2.2B, SC) will acquire First South Bank ($1.0B, NC) for about $162mm in stock (100%) or about 1.92x tangible book. In Texas Southside Bank ($5.7B) will acquire First Bank & Trust East Texas ($1.0B) for about $218.8mm in cash (11%) and stock (89%) or about 2.28x tangible book.

Banks lend money - usually their depositors'. There is other lending, however (look at mortgage banks, for example): Amazon.com says Amazon Lending service has surpassed $3 billion in loans to small businesses since it was launched in 2011. In the last 12 months alone it has loaned over $1 billion to small businesses. Hiking up the sales for third party merchants is a plus for Amazon, as the company gets a piece of the transaction. "We created Amazon Lending to make it simple for up-and-coming small businesses to efficiently get a business loan, because we know that an infusion of capital at the right moment can put a small business on the path to even greater success," Amazon Marketplace VP Peeyush Nahar said. Over 20,000 small businesses have received a loan from Amazon and more than 50% of the businesses Amazon loans to end up taking a second loan.

Banks are certainly watching the potential changes to the regulatory environment. Bloomberg's Matt Scully reports that, "Wall Street's mortgage-bond business could benefit from regulatory rollbacks outlined by Treasury Secretary Steve Mnuchin earlier this week that would allow lenders to gradually loosen underwriting standards, according to analysts at Goldman Sachs Group Inc. Cutting back or revising rules imposed on mortgages after the 2008 financial crisis would likely boost sales of privately issued bonds that finance home loans, analysts led by Marty Young wrote in a note to clients Wednesday. Possible changes recommended by the Treasury Department include repealing or revising rules on risk retention and lifting caps on points and fees that lenders can charge.

"'The Treasury report describes potential changes to mortgage and bank regulation which could be enacted without legislative action, and which thus stand a good chance of eventual implementation,' Young said. While the changes could boost issuance, they still would not bring bond sales back to pre-crisis levels because lenders will remain wary of legal and reputational risks, he wrote.

"The report recommended changes to several complex rules that push banks to avoid riskier versions of mortgages and ensure borrowers actually have the ability to repay. It also suggested regulators either repeal or revise so-called risk-retention requirements that force issuers of private-label mortgage bonds to hold a piece of the securities that they issue, which was an effort designed to align lenders' interests with investors."

Jobs and Broker Disclosure Product

Ally is the leading digital financial services company and a top 25 U.S. financial holding company offering financial products for consumers, businesses, automotive dealers and corporate clients. "We have been named the 'Best Online Bank' for the 5th consecutive year, and now they are making a big push into the mortgage industry. We have over 5 million bank customers ready to be cross sold. Ally is launching a Consumer Direct channel in Sandy, UT and hiring for another class in Charlotte, NC, and is looking for Loan Originators who want to be on the ground floor of this opportunity. An LO at Ally will enjoy a lot of lead opportunities from current Ally customers, will have a great work environment and a company with great benefits and growth potential." Please see Ally MLO for more details and you can send an email if you are interested to Britany Wrightenberry.

Caliber Home Loans, Inc, the #1 Top Volume Gain Mortgage Company for 2015 and 2016 (Scotsman Guide) and the #2 Non-Bank purchase lender (IMF), is actively recruiting Retail branch managers and loan officers. Caliber continues to build out its nationwide footprint and is supported by a leading-edge technology platform, a broad product offering and extensive, customizable marketing support. If you are a high-performer and interested in enjoying the benefits of a fast-growing company in a people-focused culture that rewards success, contact Matt Schilling, SVP Strategic Growth at 310-456-0100 or John Bianchi, EVP National Retail Lending at 469-242-1189 for more details.

Mortgage technology provider SharperLending LLC has enhanced its Appraisal Firewall technology with a new appraisal comparison tool. Intended for mortgage lenders, the Appraisal Comparison Report tool compares the original appraisal report with any subsequently-delivered appraisal reports delivered on the same loan file that may be a result of disputes or revision requests.  It gets rid of the manual work required by automatically tracking changes to ensure proper modifications were made. This is the newest of the many features mortgage lenders can use in Appraisal Firewall to increase efficiency and the speed of production. Appraisal Firewall is secure, web based technology for lenders to manage their own appraisal process.  It connects lenders directly to their appraisers and any AMCs they want to work with.  Appraisal Firewall is the leading appraisal management software tool to increase process efficiency and to assist lenders in complying with all appraisal independence regulations.  Appraisal Firewall is not an AMC. Contact Ben Burris.

CalAtlantic Mortgage is looking for a Secondary Marketing Product Specialist to work in its Arlington, Virginia corporate office. This person will be responsible for developing, maintaining and releasing loan programs and must have a thorough understanding of mortgage banking from secondary to loan servicing. Contact Lori Pasteur, VP, HR at 480-315-7776 for more information.

JMAC Lending just launched its latest tech product, the Initial Disclosures Generator, which is a streamlined new system that empowers brokers to generate and submit their own complete, compliant initial mortgage disclosures package in minutes. Clients receive their loan package via email to sign electronically. Once all parties have signed the package is automatically uploaded to JMAC. The process is simple and easy, providing complete control over the timing of the disclosures. Saving time with disclosures give you more time to focus on building business. For more information, please visit JMACDisclosures or call 844-888-JMAC.