July 3: Bank M&A unabated; input on IRS tax transcript usefulness; no clear trends in household formation

There are plenty of financial services companies around, but their numbers are dwindling. In related news, after adjusting for recent M&A activity SNL Financial indicates the following are the top 10 largest U.S. banks and thrifts by total assets: JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, US Bancorp, Bank of New York Mellon, PNC Financial Services Group, Capital One Financial, HSBC North America Holdings, and State Street.


In announced merger news from the last week, in Ohio the Farmers National Bank of Canfield ($1.2B) will acquire 1st National Community Bank ($139mm) for $14.2mm in cash (25%) and stock (75%). Washington’s Inland Northwest Bank ($447mm) will acquire Bank of Fairfield ($152mm) for about $21mm in cash. In Maryland Kopernik Federal Bank ($68mm) will acquire Kosciuszko Federal Savings Bank ($12mm). Three-bank holding company American State Bancshares ($653mm, KS) will acquire 3 Kansas branches from Simmons First National Bank ($4.7B, AR) for a 4% premium. The branches hold about $80mm in deposits. In Indiana First Merchants Bank ($5.9B) will acquire Ameriana Bank ($480mm) for about $68.8mm in stock. The holding company of The Juniata Valley Bank ($468mm, PA) and Liverpool Community Bank ($44mm, PA) will acquire The 1st National Bank of Port Allegany ($96mm, PA) for $13.2mm in cash (15% to 25%) and stock (75% to 85%) or approximately 1.3x tangible book.


While we’re talking about banks, I’ve heard a few compliance people over the years refer to the CRA, not as the Community Reinvestment Act, but rather….well, let’s just say something else. As most know the CRA is a 1977 law intended to encourage insured banks and thrifts to meet local credit needs, including those of low- and moderate-income neighborhoods, consistent with safe and sound operations. As part of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA), Congress mandated the public disclosure of an evaluation and rating for each bank or thrift that undergoes a CRA examination on or after July 1, 1990. And to answer a question from a month ago: yes this list is made available to the public, and yes it can be found online. The list covers evaluation ratings that the FDIC assigned to institutions in March 2015.


Yesterday’s information on IRS transcripts and 4506-T’s received a lot of comments.


David S. writes, “Beware – taxpayer supplied tax transcripts may run afoul of independent verification requirements of QM/ATR rules. This is a catch 22.”


Michael writes, “Rob your readers are grossly misinformed. Chase and Wells already do not require a 4506 for a w2 borrower whose income is not commissioned base. AUS findings will say whether or not w2 transcripts are permitted, and if w2 transcripts are permitted you do not need to pull a 4506 with the two correspondent investors I mentioned along with a number of others.”
This from a CEO of a well-known West Coast wholesaler: “One writer said that ‘in 12 years I have only found 1 instance of fraud.’ I can state that prior to requiring transcripts on all loans (whether it is for just W2s or full 1040s we had 1 in about 100 loans that had some form of misrepresentation or fraud. The reason why that no longer exists is that we do require some form of transcripts on all loans and everyone knows it.  If a company were to stop this process, word would get out, and eventually they would find themselves with a pocketful of loans with problems. I wish that was not the case but unfortunately it appears to be human nature.”


Gil suggests, “Rob, the reader asking why there is not a lender willing to waive tax transcripts to increase market share reminds me of the pre-meltdown race to the bottom. There is nothing wrong with taking risk, as long as the risk is quantifiable and priced accordingly. The lender that is willing to market the fact that they perform less due diligence than their competition will look like one of those cartoons where the person is replaced with a sucker.  Lax controls send out a sound that works like a dog whistle. Most of us can’t hear it, but to the shady characters in our industry, it’s deafening.”


And this from a veteran compliance manager: “This person should count themselves lucky… since we began requiring the transcripts, you’d be amazed at how many people ‘forget’ they have a business used as a tax write-off, business expenses that their employer doesn’t cover… and even mortgages that are not reported to the bureaus.  I wish we didn’t need them… but unfortunately, it’s the best fraud deterrent out there.  No longer can people have 2 sets of tax returns (1 for the IRS and 1 for their banker).”


And another: “TRVs are not actually required if the borrower is a W2 Wage Earner as long as you are not using the borrower’s tax returns for any part of their qualifying income.  All you need it a W2 Wage and Tax Statement, from the IRS, and that can be pulled at any time does not to be prior to closing.  Since a high percentage of the information for W2 wage earner can be obtained with a WVOE from other online third party sources, we do not pull the W2 Wage and Tax Statement unless the loan is being audited and the file is being requested by the investor. The likelihood of any inconsistencies is nominal at best.  This reduces the need to pull TRVs since only 25% of the loans are for s/e borrowers or borrowers that are using income from their tax returns to qualify. This has reduced the stress on our shop considerably.”


What have home ownership (both one word and two) been doing in recent months?


“I have a dream.” Every person knows this saying and it seems that most of America takes this message to a level Martin Luther King Jr. didn’t intend, homeownership. A new report by Wells Fargo details results of a survey conducted by Ipsos Public Affairs that found 65% of respondents view homeownership as a dream come true. America has not given up on the American Dream. Despite record low homeownership rates, 72% of respondents think that now is a good time to buy with 43% saying it’s a good way to build equity or more assets. However, how good of a credit score do you need to buy a house? Two-thirds of respondents believe they need a “very good” credit score to qualify for a mortgage but 45 percent defined a “good” score as over 780 which is actually considered excellent by most scoring models while a score over 660 is considered good. Despite their misconceptions 80 percent of respondents say they know and understand the financial process involved in buying a home. Other aspects of the home buying process are well understood by many consumers with 90 percent being aware that there are other costs associated with home buying such as attorney’s fees and insurance premiums. 92% of people say they want to see each step in the process so they can understand what’s happening. Read the full article here.


While single family housing starts are up 6.7% year-to-date and single family permits are up 7.5% year-to-date, new home sales are up a staggering 24%! This means that what’s being built is changing. Specifically relatively fewer custom homes and more spec homes are being built. To wit, first-time buyers accounted for 32% of existing home sales in May, their highest level in 32 months. Economist Elliot Eisenberg, as well as many others, believes that first-time buyers may finally be returning.


As home prices begin to rise and wage growth remains stagnant, dreams of homeownership may be out of reach for many Americans. With the gap widening between household income and home affordability, Zillow analyzed the relationship between homeownership and income and identified where low and middle-income families are able to own homes. The analysis separated households into five equal income brackets for their metro and calculated the homeownership rates of those households. Nationally, those in the highest income bracket have homeownership rates 2.6 times greater than those in the lowest bracket. For example, the highest wage earners in Minneapolis and Charlotte have the highest homeownership rates in the U.S. at 98 percent. The price to income ratio in Charlotte is 2.9 and in Minneapolis the ratio is 3.1, both below the national average of 3.3. In contrast, the homeownership rate in San Jose is 11 percent, the lowest in the country. For householders in the lowest income bracket, St. Louis has the highest homeownership rate at 47 percent and for middle income earners, Minneapolis has a middle-income homeownership rate of 91 percent, whereas San Diego’s middle-income homeownership rate is 41 percent. To read more about homeownership affordability by income, Zillow’s article can be accessed here.


Regarding family formation, while the homeownership rate slipped to a 26-year low of 63.8% in Q1/15, it’s now falling for the right reasons. Rather than dropping as homeowners become renters, it’s falling because hordes of new, primarily renter households are being formed. Between Q1/14 and Q1/15, 1.5 million households were formed, and between Q4/14 and Q4/13 1.7 million were formed, a far cry from the lackluster household formation rate of 500,000/year since 2007.


I’ll say that a lot has happened to race relations in this country over the last hundred years, some good, and some bad. However, one constant appears to be the divide in home ownership rate which still persists. As February is Black History month, and conversation in home ownership rates is always topically to the industry, as well as this commentary, I’ve included Zillow’s A Black & White Story, Unchanged for 115 Years for a quick read. Zillow writes, “The 28 percentage-point divide between white and black homeownership rates remains the same as in 1900. In 2014, the homeownership rate among white households was 70.5 percent; among black households, the homeownership rate is only 42.6 percent.” The list of anti-discriminatory acts is long: the Fair Housing Act, the Equal Credit Opportunity Act, the Community Reinvestment Act and the Home Mortgage Disclosure Act. Most, if not all, of these acts targeted the ownership gap from a legislative angle, and cannot possibly be a cure-all for a very complex problem. Zillow continues, “Other demographic and economic trends affect a household’s likelihood to own their home, even before shopping for a home or heading to the bank for a mortgage. Differences in household incomes, employment histories, credit scores and marriage rates all impact homeownership – and all tend to be more favorable among white households.”


According to the National Association of Hispanic Real Estate Professionals (NAHREP), tight credit suppresses Hispanic homeownership in 2014, as homeownership rates among this ethnic cohort drop to 45.4 from 46.1. There were 54,000 new Hispanic homeowners in 2014, but the homeownership rate declined to the lowest level since 1999 due to strict mortgage credit and higher financing costs. The report tracks current and historical data of Latino population trends, educational achievements, labor profile and consumer attitudes in the U.S. and this year  incorporates survey results of 100 of the top Hispanic real estate agents in the country, where they ranked tight mortgage credit, housing affordability and down payments as the top three barriers to homeownerships among Hispanics. Highlights of the publication include 320,000 new households were formed by Hispanics in 2014, representing about 40 percent of all new households across the nation and 38 million people in the U.S. speak Spanish and of this, 60% speak English “very well”. The 2014 report was released on March 30th, but you can click here to read the 2013 report.


What are dem Millennials doing in terms of ownership? Well, the answer is renting – and in many urban areas can’t save up enough for a down payment. After all, how many years does it take to save up a down payment in some place like Seattle, Denver, or San Francisco where any place you’d want to live is north of $600k? Millennials have limited personal savings, high levels of debt and slow career growth, all of which make it more difficult for them to afford to buy a home, HouseCanary said. The likelihood of rising interest rates will exacerbate the situation.  That’s in contrast to the baby-boom generation, which drove rapid growth in entry-level home sales starting in the 1970s, and has continued to fuel growth in homeownership rates in each decade.



Dear Abby,

My husband is a liar and a cheat. He has cheated on me from the beginning, and, when I confront him, he denies everything. What’s worse, everyone knows that he cheats on me. It is so humiliating.

Also, since he lost his job 14 years ago, he hasn’t even looked for a new one. All he does all day is smoke cigars, cruise around and shoot the bull with his buddies, while I have to work to pay the bills.

Since our daughter went away to college he doesn’t even pretend to like me, and even questions my sexuality.

What should I do?

Signed: Clueless


Dear Clueless:

Grow up and dump him. Good grief woman! You don’t need him anymore!

You’re running for President of the United States.

Act like one.





(Copyright 2015 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)


Rob Chrisman