Potential FHLB Merger; What Higher Rates Mean for Banks; State Updates; Fee to Use Libor

News

People
need to use their heads once in a while. Circulating in the e-mail
world is a claim: “This is the only time in your life you will see this
phenomenon: August, this year, will have 5 Fridays, 5 Saturdays and 5
Sundays. This happens only once every 823 years.” Snort. Anyone who can
read and has a calendar, and a little common sense, knows that this is
incorrect, as every time a month with 31 days (January, March, May,
July, August, October, December) has the 1st day of the month on a
Friday, this happens. So stay tuned for May 2015 when it will happen
again. Speaking of things that are subject to skepticism, even if
they’re in writing, Al W. forwarded this along about how LOs are #3 on a list of jobs that make a person happy and rich.

Speaking
of using your noggin, the GDP of Argentina is about the same as that of
Virginia, about $400-500 billion. Traders could use Argentina’s missing
a debt payment as an excuse to buy US bonds. But instead of a flight to
quality which would push our rates lower, the “market” in its infinite
wisdom, decided to concentrate on economic data that sparked concern the Federal Reserve could raise interest rates sooner than some have expected. So yes, rates have moved higher, but are still within the range we’ve been in since before Easter. And we once again have proof that stocks and bonds don’t always move in the opposite direction,
since bond prices and stock prices have fallen this week. Lots of
smarter minds than mine see this as an over-reaction and a buying
opportunity for both.

Many banks are preparing for an eventual increase in interest rates (take your pick: a stronger economy or the Fed scaling back security purchases). And so many banks are adding floating rate loans
in order to have an increasing income stream when rates do rise. This
is probably a good idea given that typical community bank funding
structures are positioned for a rising interest rate environment. As
bankers know, floating rate loans are typically priced at a spread
pegged to a benchmark. Over the years, though, many banks have been
shifting from Prime to Libor as they seek to better match funding
sources (large banks typically use Libor to price deposits).

I
remember when it was correctly called LIBOR (London Interbank Offered
Rate) but I guess it is easier to type Libor. It is a global floating
interest rate that initially acted primarily as a benchmark for
transactions between banks, and especially for commercial loans.
Possible manipulation and lawsuits aside, or actually because of them, a
new Libor administrator took over from the British Bankers Association
(BBA) called the Intercontinental Exchange (ICE). But on July 1 of this year the ICE introduced new licensing arrangements for the use of the index!
A usage license is required for any party that uses Libor rates in
valuation and pricing activities, including collateral calculations,
interest rate fixing, pricing curves, etc., plus any party that uses
Libor rates as a reference rate in transactions which could include
swaps, mortgages and loans.

This
is shocking in its broad reach and seems to require a license for
practically every bank, mortgage company, credit union, core provider
and servicer in the U.S. ICE indicates licenses cost $16,000 per year –
can the local mortgage company or credit union afford that? That may
change, however, as Pacific Coast Bankers Bancshares reports that
currently the ABA and the ICBA are actively communicating with ICE to
help it achieve a better understanding of how U.S. institutions use the
index and to have this fee eliminated.

Banks
use their deposits to make loans, but US banks are steeling themselves
for the possibility of losing as much as $1 trillion in deposits as the
Federal Reserve reverses its emergency economic policies and raises
interest rates. JPMorgan Chase, the biggest US bank by deposits, has
estimated that money funds may withdraw $100 billion in deposits when
the Fed stops influencing supply and demand. And you know all those
recently minted MBAs in the ranks of Wells, Citi, Bank of America, Bank
of New York Mellon and PNC Financial Services are crunching numbers
trying to gauge the potential effect of the Fed’s exit on institutional
or retail depositors who might choose to switch to higher interest accounts or investments.
Of course banks love paying roughly 0% on deposits and loaning the
money out, thus earning the spread. An outflow of deposits would be a
reversal of a five-year trend that has seen significant amounts of extra
cash poured into banks thanks to the Fed flooding the financial system
with liquidity. Banks
might have to pay higher rates on deposits to retain customers –
potentially hitting their profits and sparking a price war for client
funds.

 

State Updates

Pennsylvania recently modified provisions regarding powers of attorney in House Bill 1429.
The bill requires a power of attorney to be dated, as well as signed by
the principal or by another individual on behalf of and at the
direction of the principal if the principal is unable to sign. The
signature must be acknowledged before a notary public who is not the
agent designated in the power of attorney and witnessed by two
individuals, each of whom is 18 years of age or older.

Florida recently passed House Bill 413, which enacts provisions regarding consumer collection practices. HB 413 states, “a
person may not engage in business in Florida as a consumer collection
agency without first registering in accordance with the law, and
thereafter maintaining a valid registration.”
The Financial Services Commission may also adopt rules requiring
electronic submission of forms, documents and required fees as well as
establish time periods during which a consumer collection agency is
barred from registration due to prior criminal convictions of, or guilty
or no contest pleas by, an applicant’s control persons, regardless of
adjudication.

California amended provisions regarding mortgage loan originator education requirements in Senate Bill No. 1459.
Under the law, an applicant for a mortgage loan originator license is
required to complete at least 20 hours of approved pre-licensing
education. Pre-licensing education courses must be reviewed and approved
by the NMLSR. Education may be offered either in a classroom, online or
by any other approved means. Education requirements approved by the
NMLSR for any state other than California are accepted as credit toward
completion of pre-licensing education requirements in California.

Rhode Island’s Governor, Lincoln Chafee, signed HB 7997
in July, which extends the state’s licensing requirements to include
companies servicing a loan, directly or indirectly, as a third-party
loan servicer. As Buckley Sandler write, “the
new law expands the definitions for servicing and third-party loan
servicers, establishes for such servicers a $1,100 annual licensing fee,
and requires licensed servicers to: (i) maintain at least $100,000
capital; (ii) obtain a bond; (iii) maintain segregated borrower
accounts; and (iv) maintain certain records.”
HB 7997 also establishes prohibited acts and practices for third-party
servicers, including, among others: (i) knowingly misapplying loan
payments to the outstanding balance of a loan or to escrow accounts;
(ii) requiring unnecessary forced placement of insurance; (iii) failing
to provide loan payoff information as required; (iv) collecting private
mortgage insurance beyond the date required; (v) failing to timely
respond to consumer complaints; and (vi) charging excessive or
unreasonable fees to provide loan payoff information. The new rules and
requirements take effect July 1, 2015.

Connecticut’s legislature has passed House Bill 5514
providing for an alternate method of foreclosure. The new bill
establishes an additional method of foreclosure that will support the
Connecticut real estate market by selling residential properties at
market prices, encourage potential purchasers eligible for first-time
homebuyer and other special lending programs or who wish to perform due
diligence concerning a purchase to purchase a residence in foreclosure,
provide a measure of dignity to residential borrowers faced with the
prospect of foreclosure, reduce deficiencies by providing a procedure
for a market sale instead of a forced auction sale or lender possession
of property prior to sale and provide a speedy method of concluding a
foreclosure when the borrower and first mortgage lender agree on a sale.

New York has
adopted regulations concerning shared appreciation mortgage
modification as Title 3 NYCRR Part 83. It permits banks and mortgage
servicers to reduce the amount of principal outstanding on a borrower’s
mortgage in exchange for a share of the future increase in the value of
the home. The option is limited to borrowers who are 60 or more days
past due on their loan or whose loan is the subject of an active
foreclosure action and who are not eligible for existing federal and
private foreclosure prevention programs.

 

Lender Updates

The
Federal Home Loan Bank of Des Moines
and the Federal Home Loan Bank of
Seattle announced that they are discussing a potential merger of the two
Banks.
A merger would require approval from the Federal Housing Finance
Agency, as well as member-owners of FHLB Des Moines and FHLB Seattle.
The combined institution would provide funding solutions for more than
1,500 member financial institutions in 13 states, as well as the U.S.
territories of American Samoa and Guam and the Commonwealth of the
Northern Mariana Islands.

US Bank Mortgage posted its bulletin 14-045 regarding agency conventional overlays.

Due
to an improved lending environment and the agencies providing better
clarity regarding their expectations, U.S. Bank Home Mortgage will be
eliminating all conventional agency credit overlays. “USBHM continues to
provide clarity when agencies are silent on a topic or when USBHM
chooses to use an alternative process to expedite loan approval.” These
changes are effective immediately for all new conventional agency loans
and current loans in your pipeline. Agency guidelines must be followed.

Kinecta Federal Credit Union
reminded clients that it offers a 90% LTV Jumbo Arm program for loan
amounts up to $250,000 above agency high-balance limits, min 720 FICO
and discounted MI. Conversely, if the borrower wants to avoid MI, we
also offer 1st and 2nd combos up to a combined loan amount of $1
million. Also min FICO is 720.

Banc of California
now offers Non-Warrantable Condos, Condotels HomeStyle Renovation
loans in all 50 states to its correspondent clients; Non-Warrantable
Condos: Fixed Rate and ARMs; Loan amounts to $2.5M, 65LTV; 80LTV to
$1.5M.

Affiliated Mortgage Company recently updated its website. Check out its improved site at: AMC.

MT Bank Correspondent’s
2014-20 bulletin included information regarding Homeownership
Counseling disclosure forms audit requirement on loan files submitted
for purchase with application dates on or after 7/10/14 to ensure
compliance with the Dodd-Frank requirement. SONYMA Conventional Plus
income limits have changed with most of the State seeing a decrease. VA
appraisal fees have been revised applicable to all VA appraisals ordered
on or after July 2; Flood insurance minimum deductibles, for new or
renewing policies are in effect.

Turning
back to the markets, take your pick (Ukraine, Argentina, Israel, Libya,
the possibility of the Fed raising rates in the first half of 2015
instead of the second half), volatility has increased. MBS prices got
whacked Wednesday and Thursday, and yesterday the 10-yr closed at a
yield of 2.56% – still on the low side of the range we’ve been in since
MLK Day.

Today
we’ve seen the Personal Income and Consumption data, along with payroll
and unemployment data. Nonfarm Payrolls were +209k for July, slightly
lower than expected but the prior month revised higher to 298k, and the
unemployment rate inched up to 6.2%; average hourly earnings and
workweek were both unchanged as expected. We still have the July final
University of Michigan survey coming, as well as July’s ISM
Manufacturing results – but on a summer Friday, they are unlikely to
move rates. In early trading we’re down to 2.54% and agency MBS prices are better by about .125.

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