Supply and demand (“the invisible hand”) are the driver of many things in life, as are perceived shortages. So it was with great concern that Chris C. and Joe W. sent this breaking news from Kansas City about… the bacon reserve hitting a 50-year low!? Like Beyoncé announcing she's having twins, or oil where the government has strategic reserves to be released, there must be ways to increase supply.

In potentially favorable news for lenders, in Minnesota State Court defendants won a partial Summary Judgment (no loan-level damages on a repurchase claim) over RFC. Phil Stein wrote to say, "Rob, this is from the high-stakes RFC/ResCap Liquidating Trust cases in Minnesota.  The order and opinion (published Feb 1., Court File No. 27-CV-14-3111) granting partial summary judgment to the state court defendants is a welcome development for the many correspondent lenders currently defending against claims filed by RFC, and the many others threatened with new lawsuits. This state court order could very substantially limit the amount of damages RFC could recover if it were to prevail on its claims, and it is by no means clear that it will prevail. Along with some other helpful statements throughout the attached order, footnote 7 lays out one of the reasons from a legal standpoint this decision is potentially very important: RFC can't simply invoke a contractual right to declare a default, and then demand a repurchase and seek related damages according to a formula. Instead, it must establish causation and prove actual damages. In other words, it may face a significantly tougher path to victory than it previously hoped."

Bank, or pseudo-bank, news!

As lenders and community banks struggle with aging owners and the high cost of regulation, some are giving serious consideration to the possibility of mergers and acquisitions in 2017. We've already seen it with Home Point & Stonegate. Every week I list the announced deals, and it is a steady stream. But most bank executives believe that the current environment is unfavorable for deals, and there is even recent evidence that seems to point out that M&A deals are rarely good for investors. While a major motivation for M&A involving community banks in the past was to increase the acquiring bank's geographic reach, this is not always the case anymore since customers do more of their banking online and through mobile apps. Does anyone disagree that traffic at bank branches has steadily declined?

It seems that the motivation for M&A deals has changed. On the banking side of things, one of the biggest drivers for acquiring a bank is to obtain experienced staff with a book of coveted commercial lending business. In fact, 41% of respondents told Bank Director that the ability to acquire experienced commercial lenders is a major reason they are considering M&A deals. But many M&A deals will fail to generate the value acquirers hope for. Late last year global strategy consulting firm L.E.K. noted that not only do the majority of M&A deals fail to generate the shareholder value that companies initially expect, more than 60% of them are harmful to shareholder value.

Among the biggest reasons that many M&A deals, whether it is depository banks or non-depository mortgage banks, don't work out as planned is the fact that acquiring companies often fail to perform adequate due diligence, they are too optimistic about increased revenues from the acquisition, or they simply underestimate the difficulty of merging employees from two different business cultures. Steve Brown with PCBB observes that, "When it comes to community bank M&A deals in particular, one of the most important factors in determining a deal's likelihood for success, besides the price of a deal, is whether the target bank's previous efforts to boost its revenues had led to looser underwriting standards. Among banks that have recently abandoned plans to acquire community banks, 28% told Bank Director that they walked away because of underwriting standard concerns of the target banks."

But announced mergers and acquisitions continue. In the last week or so word was spread that Old Line Bancshares, Inc., the parent company of Old Line Bank, and DCB Bancshares, Inc., the parent company of Damascus Community Bank, announced the execution of a definitive merger agreement that provides for the acquisition of DCB Bancshares by Old Line Bancshares for stock in a deal valued at approximately $40.7 million, or approximately $25.22 per share of DCB Bancshares common stock. Pinnacle Bank ($11.1B, TN) will acquire Bank of North Carolina ($7.4B, NC) for about $1.9B in stock (100%) or roughly 2.9x tangible book. The move vaults Pinnacle into the top 50 public US banking franchises in assets post deal, with $20B in assets. First Guaranty Bank ($1.5B, LA) will acquire Synergy Bank, SSB ($154mm, TX) for about $21mm. Bank of Hope ($13.5B, CA) will acquire UniBank ($255mm, WA) for about $48.8mm in stock (100%).

Central Bank Illinois ($617mm, IL) will acquire The First National Bank & Trust Co. of Rochelle ($278mm, IL). First Merchants Bank ($7.1B, IN) will acquire The Arlington Bank ($305mm, OH) for about $75.8mm in stock (100%) or about 2.15x tangible book. In Illinois, Midland States Bank ($3.2B) will acquire Centrue Bank ($978mm) for about $175.1mm in cash (35%) and stock (65%).

In Florida Harbor Community Bank ($1.8B) will acquire Jefferson Bank of Florida ($296mm) for in about $40mm in cash (20%) and stock (80%). Simmons Bank ($8.4B, AR) will acquire Southwest Bank ($2.0B, TX) for about $462mm in cash (15%) and stock (85%). And on the flip side of things, in Chicago Seaway Bank and Trust Company was closed, and its deposits transferred to State Bank of Texas, Dallas. And SunTrust said it would close 99 branches and open 8 for a net reduction of 91 by Q2 of this year. That is about a 7% decrease overall.

And Reuters reports that SoFi, which has made a name for itself in residential lending in recent years, "has found a way to add bank accounts - only without the bank." SoFi is buying Zenbanx, a five-year-old firm that offers novel multicurrency accounts. "SoFi won't yet get the benefit of cheap deposit funding. Still, it's the closest thing so far to merging Main Street and Silicon Valley.

Banking has its advantages, and Reuters notes the, "...the hiccups last year in parts of the alternative-lending market, which led hedge funds and fickle wholesale financiers to pull back from funding the sector, reinforced how valuable deposits can be as a source of funds. SoFi weathered the storm, concentrating on lending to creditworthy borrowers and spending time burnishing its reputation, including in the asset-backed market. Deposits, though, remain the cheapest form of funding and, calamities aside, are usually stable. And in the United States at least, getting them requires a banking license.

"That in turn comes with tangles of red tape. The Office of the Comptroller of the Currency is trying to streamline things. Last month the watchdog published a white paper outlining how it might grant special-purpose national bank charters to fintech firms. Zenbanx, which works with officially sanctioned banking groups in the United States and Canada but isn't one itself, is a canny compromise. It allows SoFi to test the deposit-taking water without the attendant annoyances. The deal also snares an industry expert, Zenbanx founder Arkadi Kuhlmann, who set up the successful ING Direct online bank. It'll help tee SoFi up for when it decides to take the final plunge." SoFi Chief Executive Mike Cagney said the transaction means "we're moving one step closer to becoming the center of our members' financial lives by adding SoFi deposit, money transfer and credit card products to our offerings for members."

While we're on M&A, MBA's annual Mergers & Acquisitions Workshop for mortgage senior executives is only three weeks away. Taking place in Dallas on February 22-23, this year's workshop includes a line-up of industry leaders who have "been there and done that". "We'll have a seller's panel, a buyer's panel, a technology and vendor M&A panel, as well as sessions on deal structures, legal and regulatory considerations, accounting and tax, effective communications, and transition planning. Whether you are looking to buy, sell or grow your business, or you're simply exploring your options, use this opportunity to make strategic informed decisions with the help of the experts."

The bond market, determiner of mortgage rates

As expected, yesterday the markets were dominated by the FOMC and we learned that the Federal Open Market Committee was on hold this meeting and voted to keep the federal funds rate unchanged at ½ to ¾ percent.  While citing a strengthening labor market and signs of inflation, the statement noted economic activity is still expanding at a moderate pace and overall inflation remains low. Additionally, continued softness in fixed investment was noted as a balance to labor and consumer strength, and all considered, conditions support only a gradual increase in rates going forward.

Yet the U.S. economic data released yesterday morning was very strong, particularly ADP's estimate of 246K private sector jobs added in January - but its correlation to tomorrow's number is poor. This morning we've had the usual Thursday Initial Jobless Claims (-14k to 246k) and also the Challenger Job-Cut Report (46k, down nearly 39% from last year) and Productivity (+1.3%) and Costs (+1.75%). This morning the 10-year is down to 2.44% and agency MBS prices are better by .250 versus last night.

Jobs and Announcements

On the retail job demand side of things, Pacific Union Financial, LLC continues to expand its national footprint and enhance the Distributed Retail management team with the hiring of new Retail Regional Vice President, Christopher Jensen. Mr. Jensen, a senior leader in the mortgage industry, will be responsible for sales production in the Mountain Region. If you're considering a career move and want to explore opportunities with Pacific Union Financial, contact recruiting@loanpacific.com.

The personnel landscape in the west is changing. Independent mortgage lender Academy Mortgage has hired Leif Boyd and Patrick Welberg as Regional Managers. Boyd is Regional Manager for California and Nevada, and Welberg is Regional Manager over the company's newly created Pacific Northwest region. "Leif and Patrick bring nearly four decades of combined mortgage leadership experience to our company," said Academy's EVP of Production Aaron Nemec. "They are both widely recognized and respected for their experience and expertise in our industry and in their respective markets. We are thrilled and humbled to have leaders of their caliber join Academy." Contact Leif Boyd, Patrick Welberg, or National Recruiting Manager John Owens for more information about joining Academy.

On the accounting side of things, a seasoned East Coast lender based near Philadelphia is looking for a Corporate Controller. The ideal candidate will have several years in mortgage banking with senior management experience, and will oversee all accounting and financial functions at the company so expertise is required in cash management, loan officer compensation, servicing and managing profit and loss statements. The company was founded in 1993, originates about $1billion per year through retail, consumer direct and wholesale channels. Confidential inquiries and resumes should be sent to me and please specify the opportunity.

In non-QM job news...

ACC Mortgage is "a cutting edge Non-QM wholesale lender based in Rockville MD. ACC offers the industry's first non-QM automated underwriting system and an extensive product mix that includes No-Doc investment products, Foreign National loans, ITIN loans, 12 and 24-month bank statement loans and so many other options including a proprietary portfolio product. ACC is expanding nationwide and we are looking for a uniquely talented group of account executives to join us as we grow. Current experience is needed in wholesale mortgage and the ability to think outside of the box is a quality that will lead to success. We have state of the art technology and intend on being the dominant non-QM lender in the coming months. Please send resumes to Harvey Goldberg.

FundLoans.com is a residential wholesale jumbo non-QM lender. "At FundLoans.com we take a common-sense approach to looking at your loan. We don't underwrite like a bank, we underwrite like a private fund. We thrive in the super jumbo area and love working with self-employed borrowers. FundLoans.com is looking for experienced Account Executives who thrive when challenged, inspired to deliver a level of service unparalleled in the mortgage industry. Come join the nation's newest Jumbo Non-QM lender as we grow and thrive in this lucrative new space. We are hiring in the following markets: CA, FL, TX, AZ, CO, WA, OR."  Email your resume today for additional information and consideration to David Hidy (760-388-5888).

Congrats to NanEtte Epperson who First Guaranty Mortgage Corporation (FGMC) has appointed as its National Wholesale Sales Director, TPO Production. "FGMC is strategically expanding its Wholesale origination channel, and Epperson's primary role will be to grow the company's market footprint."