One of the problems with servicing loans in Hawaii, or even for "mainlanders" originating loans there, is name pronunciation. How does someone from El Paso or Boston ask a borrower in Kauai if they live on Ki'i'oni'oni Place? But this weatherman nailed a 58-letter town in Wales. Sign him up for the customer service department!
Not a week goes by without some legal news pertaining to residential lending. Law firm Buckley Sandler spread the word that the latest was the DOJ announcing a settlement of more than $29 million with a Florida-based mortgage banking firm in connection with violations of the False Claims Act. Although the industry generally views this Act as a catch-all for a wide variety of supposed wrongs, in this instance the firm's subsidiaries participated in HUD's Home Equity Conversion Mortgages (HECM) program, which insures reverse mortgage loans by reimbursing lenders that are unable to recoup the full amount of a reverse mortgage loan once the loan becomes due and payable. HUD will reimburse sales commissions paid to real estate agents in connection with the liquidation of foreclosed properties, but will not reimburse fees paid to real estate agents for referrals of loans to be liquidated. According to the DOJ the firm used straw companies to split commissions with real estate agents, and then later submitted claims to HUD for reimbursement of the full commission amount. Additionally the firm encouraged its subsidiaries to submit false debenture interest claims to HUD. Specifically, the subsidiaries neglected to disclose that they had failed to meet certain required regulatory deadlines and were therefore not entitled to interest payments.
Switching gears, banks and mortgage banks love to remind us that credit unions don't pay taxes, and that the requirements to join one have dropped dramatically in the last several years. I received this note. "Check out this article. If the MBA, which I assume is made up mostly of tax-paying mortgage lenders, isn't paying attention, I suggest you forward the article on to them to get them to take notice. It's just a matter of time before the CU industry, with its advantage of not paying income taxes, significantly affects the mortgage business for those tax-paying entities."
Roger Sauerhaft sent along some news that is making the rounds: credit unions experienced the fastest loan growth in their history adding $10.2 billion in loans during the month of June. Membership growth hit the fastest rate in two decades as well. "It all speaks to the improving state of the middle market consumer - credit unions' core customer."
Where is growth coming from? Consumer installment credit loan balances (auto, credit card, and other unsecured loans) rose at the fastest pace since September 2009: 13.7% during the 12 months ending in June, helping to pull the overall loan growth average to 10.9% for the year. Credit union savings balances also improved. Savings balances rose 4.4% during the first half of 2015, compared to a 3.3% rise during the same period in 2014. Memberships rose by 440,000 - total credit union memberships are now 103 million, which is 32.5% of the U.S. population. Memberships are up 3.3% over the past year due to rapid job creation and strong demand for new and used auto loans - the fastest growth rate in more than 20 years. The full CUNA Mutual Group report can be found here.
But this is a mortgage commentary, right? Michael Ehrlich with Thomson Reuters did some slicing and dicing of recent data. "During the 2nd quarter credit unions originated just over $35 billion in 1-4 family 1st lien mortgages, up from $26B in Q1. Roughly 39% of those were sold into the secondary market ($13.8B). The percentage of loans sold has continued its upward trend since early 2014. In 2014, 33% of CU originated loan volume was sold.
Mr. Ehrlich reports that, "Most credit unions will only sell loans if they are able to keep the servicing, hence 'servicing retained' loan sales to the GSEs (weighted significantly toward FNMA) are increasing. A number of credit unions are looking to find outlets for some of their non-agency jumbo fixed production, though limited options for 'servicing retained' outlets are keeping most of these in portfolio. ARMS, Balloons, Hybrid ARMS accounted for 28% of all CU loan origination in the first half of 2015, down from 36% in 2014."
"Of the top CU originators, Kinecta and Lake Michigan had the highest percentage of loans sold. Both have either correspondent or wholesale channels where conforming and/or government loans are originated/acquired for sale. Pentagon Federal leads the pack in ARM origination, a high percentage acquired through their 5/5 ARM correspondent channel. Total ARM origination at PenFed topped $1.2 billion for the first half of 2015. Navy Federal originated over 24,000 mortgages in the first half of 2015, followed by State Employees of NC with 9,062.
There are certainly credit union-related webinars. Here's one focused on "traditional and Dark Web" threats. Dark web? "In this webcast, cybersecurity experts will examine why credit unions have become a top cyber target in the financial industry, how to gain situational awareness of the latest cyber threat trends facing credit unions, practical, cost-effective steps you can take to reduce your most critical risks."
So let's see what a typical credit union like Kinecta has been up to lately in terms of lending announcements.
Kinecta Federal Credit Union reminded its counterparties that, "The final deadline for submitting a revised Lender-Paid LO Comp plan for the 4th quarter of 2015 is Friday September 25. LO comp plan changes for the 4th quarter of 2015 are effective Thursday October 1, 2015. While there are no material changes to our existing form, prudent review and forecasting of your Lender-Paid LO Comp Plan should take into account not exceeding the 3% total points and fees as outlined by the Consumer Financial Protection Bureau (CFPB) for broker-originated transactions."
Kinecta Federal Credit Union has alerted its clients regarding written verification of employment. The borrower cannot hand-carry the 1005 to the employer. The written VOE cannot be addressed to a specific person in the company. It must be addressed to the company or HR Department. The employer must send the completed 1005 directly back to Kinecta or the broker without the form passing through the borrower or any other party. The employer can either mail or electronically transmit the 1005 to Kinecta or the broker.
Kinecta Federal Credit Union told clients that, "Branches for the same broker company may have different compensation plans in different states if they comply with state rules. The broker company may not have different compensation plans for branches located in the same state.
I know a Secondary Marketing guy who loves to play the game: Why Aren't Interest Rates Triple their Present Value. It's not actually a real game, so don't go looking for it in the SkyMall catalog on your next flight, but rather it's more of an exchange of inflammatory emails sent at five in the morning. I hope he doesn't read Wells Fargo's recent Interest Rate Weekly. "Fiscal year 2015 will most likely have a budget deficit around 2.5 percent of GDP, near the average of the past 50 years. From a long-run perspective, however, the federal deficit is set to steadily rise over time, increasing U.S. federal debt to unprecedented levels....for now, the U.S. fiscal situation has stabilized, but the long-run outlook remains ominously unclear."
Anticipation has been building ahead of this week's Federal Open Market Committee meeting for the past few weeks, when the Federal Reserve is expected to announce its first hike in the federal funds rate in more than nine years. Or are they? The odds have fluctuated widely as the problems in China impact stock markets around the world. But it is important to remember that the stock market is not the economy. In addition to its primary goals of maintaining price stability and pursuing full employment, the Fed has a more immediate goal of normalizing monetary policy (moving the funds rate away from zero) without upending the financial markets.
The decision to taper securities purchases in 2013 shocked the financial markets, leading to a surge in mortgage rates and collapse in home sales. But the actual end of QE had no lasting impact on rates, and in fact 30-year conventional and government mortgages have sat between 3.75%-4.125% for quite some time. Global events might still push the first rate hike into late this year or 2016, but most "experts" are holding to forecasts that the Fed will raise the target for the federal funds rate by one-quarter percentage point at its September meeting.
So no, the stock market is not the economy, but fluctuations in stock market indices, and individual stock prices, do tend to influence the psychology of investors and consumers. If your Apple stock price just dropped 10% you are less likely to go out and buy that fancy Ferrari or Tesla. And business may cut back on investment and spending. But generally market moves have to be more dramatic and longer lasting to make a real difference. So although stocks have jumped around, much of the world's economies are in the same situation they were in a month or two ago, and the Fed knows this.
Some reduction to the Fed's forward guidance is likely even if the Fed chooses not to raise the federal funds rate, due to the global economic slowdown. If the Fed chooses to simply reduce its forward guidance and leave interest rates unchanged, however, it would either expose the first rate hike as occurring at one of the next two meetings or imply that it has been pushed to 2016 altogether. Stay tuned as the financial press may discuss this ad nauseam.
In addition to the Fed meeting we have all kinds of titillating economic news this week - starting tomorrow. Watch for Retail Sales, Empire Manufacturing, and the Industrial Production and Capacity Utilization duo Tuesday. Wednesday the 16th are the Consumer Price Index (which could move the bond market) and the NAHB Housing Market Index (which won't). Thursday is a full basket with Housing Starts, Building Permits, Initial Jobless Claims, and the FOMC rate decision. Friday is Leading Economic Indicators. This morning the bond markets are nearly unchanged with the 10-year sitting at 2.17% (after closing Friday at 2.18%) with the current coupon Agency MBS prices are a shade better.
(This week I am fortunate to be accompanying 100+ folks from Utah-based Academy Mortgage on their public work project in the village of Amaru, Peru. Academy's staff are helping villagers build an irrigation system and a production center where the villagers will make their local handicrafts; guiding the village school children with craft projects; bringing a doctor and nurse to provide much-needed healthcare services; and helping to paint a local church. I am sure the villagers are unconcerned about TRID, enforcement actions, or the price of a Fannie 3.50% security in October. I will do my best to respond to e-mails, but please excuse any delays in responding this week, and any potential delays in the daily commentary itself.)
Jobs and Announcements
Under the heading of retail news, "Founded in 1893, Popular Inc. has been built upon strong institutional values while providing broad financial services within the United States, Puerto Rico and the Caribbean. We strive to create an extraordinary legacy with a passion for customer service, tremendous dedication to our employees and strong partnerships in the communities where we reside. Come explore Popular Community Bank and see why we are 'The Human Side of Banking.' We are currently building a Mortgage Loan Officer team to support our network of 38 branches. We are searching for established and experienced Mortgage Loan Officers to promote and sell mortgage products, increasing mortgage product use among banking customers and non-customers. MLOs will travel amongst an assigned territory of branches (Miami, New York and/or New Jersey branch locations). This is an exciting opportunity! Anyone interested in joining the Popular team at the ground level can find more information and submit their resume using the links above.
In wholesale news, due to continued expansion Mega Capital Funding is searching for Account Executives in CA, WA, OR, CO, and NV. Mega Capital Funding is a privately owned mortgage banker, located in Southern California, and "has a unique business model and opportunity for the right candidates with wholesale residential lending experience. Mega Capital Funding supports you and your customers, with an emphasis on Conventional loan production with extremely consistent competitive pricing, and service. Additionally, alternative products are offered, which will supplement your production. In CA, we offer an amazing Alternative Documentation program, that is industry leading, and limited to just a few lenders." For a discrete inquiry, please contact Greg Handy.