Speaking of unsustainable business models, in 2011, 92 banks failed, compared to 157 in 2010 and 140 in 2009. Meanwhile, the number of banks on the FDIC troubled list fell slightly to 844 at the end of 3Q. While that news is good, some analysts believe that there are still over 200 banks that are in dire need of capital and will likely have difficulty raising it, and expect to see more closures this year. But you may have noticed we haven’t seen any Friday bank closures for several weeks.

At the other end of the spectrum, there are companies that continue to expand. In Northern California Sierra Pacific Mortgage is seeking an Operations Manager for its Bay Area Regional Wholesale/Retail Lending Center, a senior Compliance Specialist, and a Corporate Operations Specialist II that reports directly to the VP of Corporate Operations. SPM has been in business for 25 years, providing both the retail and the wholesale platforms – 11 around the country to facilitate operations. Sierra Pacific ranked #27 in the nation for total originations during the third quarter of 2011. If you, or someone you know, are interested, please contact Janet Lewis at janetl@spm1.com.

Now that you're back, refreshed after another 3-day weekend, here is the link to the CFPB's mortgage company examination procedures. It is definitely worth a read for compliance folks: http://www.consumerfinance.gov/wp-content/uploads/2012/01/Mortgage-Origination-Examination-Procedures.pdf. I am waiting for my kids to come to me and say, "Dad, I really want to be an auditor when I grow up." This (the release of this procedure, not my kids’ statement) is viewed as its first action to implement its nonbank supervision program, and the CFPB will use these in examining all bank and nonbank mortgage originators. The Mortgage Origination Examination Procedures describe the types of information examiners will collect to (i) evaluate policies and procedures, (ii) assess compliance with applicable consumer financial services law, and (iii) identify risks to consumers throughout the mortgage origination process. CFPB mortgage origination exams will focus on specific products and will cover one or more of the following modules: (i) company business model; (ii) advertising and marketing; (iii) loan disclosures and terms; (iv) underwriting, appraisals, and originator compensation; (v) closing; (vi) fair lending; and (vii) privacy.

If you like forecasts, here is one for you: U.S. home mortgage refinancings will decline 40% this year, according to Fannie Mae’s chief economist Doug Duncan. He believes that households will refinance about $540 billion of home loans, down from nearly $900 billion in 2011 and $1 trillion in 2010, and that the current rates won’t change dramatically this year. As we all know, the economy won’t recover without a move in housing and jobs, and Mr. Duncan noted that about a third of the US workforce is worried about job prospects - a factor that will keep refinancing activity muted due to the significant upfront cash outlay required to refinance a home loan. And as we all know, low rates can only help so much compared to the influence that underwriting standards and values have on the business. Mr. Duncan has said that the US housing market is just halfway through a 10-year recovery.

And for another forecast, Moody’s believes that with home prices likely to slip further in 2012 the risk of jumbo mortgages, yet to refinance out of security pools, will be at a growing risk of strategic default. Put another way, stronger prime jumbo borrowers refinanced last year, leaving weaker ones still in residential mortgage-backed securities. More than 80% of these loans are still current, Moody's said, but more than half of them are underwater. "The high level of negative equity and limited opportunities to refinance will continue to amplify the rate of strategic default, primarily in prime jumbo pools," Moody's said, and it doesn't expect lending requirements to loosen at least at the largest lenders.

Lastly, the MBA’s chief economist Jay Brinkmann and VP of Research & Economics Mike Fratantoni will be discussing the MBA’s economic forecast for 2012 this Thursday from 12-1PM EST. (While this worthwhile webinar event is complimentary for members, there is a cost for non-members.) “This webinar will provide participants with MBA's forecasts of economic conditions, mortgage rates, and mortgage originations for 2012.  MBA's economists will review current economic, housing market, and mortgage market conditions, discuss current monetary and fiscal policy issues, and highlight risks and opportunities regarding the forecast for 2012 and beyond.” It sounds good so if you’re interested call (800) 793-6222 (select option 3), or email campusmbaeducation@mortgagebankers.org.

But critics of forecasts say that despite having large staffs, huge budgets and the data of the largest banks on earth, major economists came in with more than an 80% variance and were directionally right on forecasts only about 50% of the time. The economists are not bad, but the economic prediction business, like earthquake prediction, is currently beyond human abilities. (We know exactly why earthquakes occur, yet no one has successfully predicted a major earthquake in the history of mankind.) In similar fashion, we know why markets move after the fact, but there are too many variables that interact in a complex fashion to currently be predictive with any accuracy. To date, there don’t seem to be any standard economic forecasting models that display any useful predictive capacity.

Commentator Caroline Baum noted that, “Some forecasts are more important than others, which is not to say they’re more accurate, just that they matter more. The Federal Reserve’s forecasts belong in this category. Unlike the average Wall Street prognosticator, the Fed has the unique ability to make its forecast become reality through its manipulation of the federal funds rate (the overnight rate at which banks lend to one another) and control of the monetary base. That’s why the central bank’s forecasts, and what’s required to achieve them, matter.” And starting with next week’s Fed meeting, we will learn for the first time what funds rate is associated with the Fed’s projections for inflation, unemployment and real gross-domestic-product growth in the current year, the next few calendar years and “over the longer run,” according to minutes of the Dec. 13 meeting released this week. Ms. Baum notes that the argument in favor of greater transparency on the expected interest-rate path is that it provides greater clarity and certainty for business investment. “It could have the opposite effect. If the Fed projects slow growth, elevated unemployment, benign inflation and a funds rate of zero to 0.25 percent through 2014, businesses might be lulled into inaction. Why invest now? What’s the rush? My widgets aren’t flying off the shelf, and everything I read says consumers don’t have the wherewithal to spend.”

And the Fed, well…Ben S. Bernanke is signaling his willingness to “double down” on a three-year bet that’s failed to revive housing, showing the extent of the Federal Reserve chairman’s effort to wrest a recovery from the deepest recession. Since the Fed started buying $1.25 trillion of mortgage bonds in January 2009, the value of U.S. housing has fallen over 4%, and is down 32 percent from its 2006 peak, according to an S&P/Case-Shiller index. And don’t forget that the central bank is poised to buy about $200 billion this year, or more than 20% of new loans, as it reinvests debt that’s being paid off. It would appear that the Fed can’t do it alone, and will need the help of the rest of the government (if one believes that government intervention is the way to go, which is certainly arguable) in order to turn around the housing market. While the Fed has helped push mortgage rates to record lows of less than 4%, home-loan borrowing in 2012 is forecast to decline to the least in 15 years. Americans who might refinance and buy properties are getting shut out by stricter lending standards or avoiding transactions as values tumble amid mounting foreclosures, according to the recent Fed study.

Over the weekend the news out of Europe was discouraging after S & P downgraded nine of the seventeen Eurozone countries after talks between private bond holders and the Greek government broke down. Following the downgrades, European leaders vowed to move faster on proposed spending rules and agree on a permanent bailout fund as soon as possible. But the failure to come up with comprehensive agreements on fiscal tightening and how to come up with funds to shore up European banks does not come as a surprise to traders and investors – let’s face it that it will take years. "The rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policymakers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone," S&P said.

For excitement in this country, we've already had the Empire Manufacturing number, which shot unexpectedly higher (does it matter given what is happening to entire countries?). We’ve also had earnings announcements from CitiGroup and Wells Fargo – two mortgage industry “bellweathers.” Citi missed estimates, but Wells’ results beat them – more on these tomorrow.

Tomorrow is the Producer Price Index (remember when we cared about inflation?), the Industrial Production and Capacity Utilization twins, and a NAHB housing index. Thursday is Jobless Claims, the Consumer Price Index, the Housing Starts and Building Permits twins, along a with a Philly Fed number. And on Friday is Existing Home Sales. In the early going the 10-yr T-note, which closed Friday at 1.86%, is at 1.88%, and MBS prices are a shade worse.

I urgently needed a few days off work, but, I knew the boss would not allow me to take leave.
I thought that maybe if I acted “crazy” then he would tell me to take a few days off.
So I hung upside-down on the ceiling and made funny noises.
My co-worker (who's blonde) asked me what I was doing.
I told her that I was pretending to be a light bulb so that the boss might think I was crazy and give me a few days off.
A few minutes later the boss came into the office and asked, “What in the name of goodness are you doing?”
I told him I was a light bulb.
He said, “You are clearly stressed out. Go home and recuperate for a couple of days.”
I jumped down and walked out of the office.
When my co-worker (the blonde) followed me, the boss asked her, “And where do you think you're going?!”
She said, “I'm going home, too. I can't work in the dark.”