June 29: Retail opportunities; the FHLB & wareshouse lines; U.S. rates drop; CFPB to audit executive pay – why not doctor’s pay?

I doubt the average U.S. household is sitting around worrying about interest rates. It’s probably more like earthquake preparedness than anything; California residents have been told the “big one” is coming for dozens of years, that it’s a statistical certainty in the long run. However, I believe very few homes in that state have anything more than a box with a few expired soup cans in it as a survival stash. In a similar vein Wells Fargo asks the question, Are Households Prepared for Higher Interest Rates? By “prepared,” in essence, they ask the question whether or not home owners have over-leveraged themselves into sensitivity. “Healthy household balance sheets, critical to growth in consumer spending, should be poised to absorb rate increases due to stronger underlying fundamentals and a shift in debt dynamics.” With the exception of the student loan market, consumer credit markets appear to be stable and poised to absorb the impending actions of the Fed. Time will tell.


LendSmart Mortgage continues to grow through branch and company acquisitions across the country. There are some unique reasons why it has tripled its branches in four years in an environment where every branch & LO receives calls nearly daily from head hunters. CEO Scott Flaherty notes, “The things that we are most proud of are how highly regarded our underwriting staff is, how respected our management staff is, and how much our people love working here.   Once people start working here they don’t leave because of the culture. No LO is going to escape the regulatory environment, and finding the time to actually research the right fit for them is difficult. We recognize that, and originators see our consistent underwriting, fast turn times, and unparalleled new production support, LendSmart Mortgage offers a desirable culture and a solid transition plan are those who make decisions easier and transitions successful.” For more information, contact Tom Dolan.


Shelter Mortgage, a subsidiary of national lender New Penn Financial, announced that Corey Caster has joined the company as Senior Vice President. Caster has more than 17 years of Retail Mortgage Banking experience. “Corey is an accomplished leader with recognized achievements in both production and operational management, and I believe that he will add significantly to the growth of our channels through our joint venture partnerships” said Jerry Schiano, President and CEO of New Penn Financial. Caster will be based in Cleveland, Ohio, where he will be tasked with managing existing partnerships and developing new retail and joint venture opportunities. Confidential inquiries regarding partnership opportunities can be sent to Corey Caster.


Speaking of executives, are you one? And are you compensated? You’ll be happy (snort) to know that Dodd Frank and the CFPB are keenly interested in your comp plan regarding pay versus performance. Are we having fun yet? And you CEOs, be sure to share that with your CEO brethren in other industries. But wait! “CEOs” are barely in the U.S. Government’s list of the 20 highest paid occupations in the United States of America. It is amazing the politicking and comprising that went into creating Dodd-Frank – why are CEOs’ compensation under scrutiny and not every health care occupation listed? Maybe I should move to a free-market economy, like Russia or China…


“Rob, is the Federal Home Bank is now offering warehouse lines of credit directly to businesses?” No it doesn’t offer warehouse lines per se, but does offer their members advances for loans held for sale which function the same – although the FHLBs don’t operationally require all the detail that a traditional warehouse lender would. This is dependent on member’s appetites. Des Moines has an interesting landing page with all the options for members to finance mortgages either on or off balance sheet.


FHLB members, as well as every lender out there, are directly impacted by trends in the housing market. And it is nearly impossible to argue that the trends are not positive. Let’s condense some of the news & statistics gathering we’ve seen over the last several months.


The Bureau of Labor Statistics (BLS) publishes the Consumer Price Index (CPI) data, one of the main measures used to determine how prices fluctuate in the U.S. Regarding homeowners, the CPI data on Owners’ Equivalent Rent (OER) is meant to estimate the amount of price changes due to homeowners’ shelter costs. In order to gauge this obscure amount, the BLS Consumer Expenditure Survey (CES) asks homeowners, “If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities.” The OER series grew from 200 to 2009, congruent with the growth of all prices and then flatted in 2009 and 2010. This is in contrast to most housing indices that suggest a rapid increase in shelter costs before the Great recession, or a drastic decline in shelter costs during the housing bust. The CES questions are an amalgam of purchase prices and rent prices, for example rent growth was slow during the housing bubble but grew during the housing bust; therefore respondents concentrate on trends in their local rental market rather than local purchase market in the survey.


I am asked about housing and lending statistics, and it seems that many companies had trouble earlier this year submitting data. As a refresher, HMDA-Loan Application Register submissions were due March 2nd, but exemptions to this rule include depository institutions with assets of $44 million or less as of 12/31/2014. A new requirement this year included reporting HOEPA loans as some of the home purchase products applicable to the expanded HOEPA coverage are reportable as home purchase loans under Regulation C. The submission process includes using a valid .DAT file to successfully import the data file into the HMDA Data Entry Software (DES) then performing a Batch Edit to ensure a valid encrypted file has been created for submission.


Remember all this early next year! Once the data file is void of errors, transmit the data file from DES using the Export Options, Submission via Web. The data file will contain an internal timestamp and to avoid an invalid timestamp error, run the Batch Edit after revisions and then submit the revised data file using the Export Option, Submission via Web.  All record types should be in century, year, month, day, hour and minute format (ccyymmddhhmm). Once the data file is posted to the Federal Financial Institution Examination Counsel (FFIEC) Database, an edit report will be sent to the e-mail address provided in the lender’s Transmittal Sheet, in which the lender will have 7 days to complete and return the report. If the lender does not receive an edit report within 24 hours after submitting the data file to FFIEC then they should contact CRA or HMDA Help at CRAHELP@frb.gov or HMDAHELP@ frb.gov, with the subject line of “Awaiting Edit Report” with the respondent ID number, agency code and institution name.


A while back Kroll Bond Rating Agency released a presentation that was shown at the Real Estate Symposium in Salt Lake City, UT. The presentation gave an overview of the market, discussing how low interest rates are causing home prices to rise and are encouraging sales of mortgages into the agency market but are not increasing mortgage lending, particularly purchase mortgages. Industry regulations and requirements are having an adverse effect on new 1-4 family mortgage loan originations, which are at a 12 year low. Commercial banks are also exiting the 1-4 family mortgage origination market as almost 80% of the compliance costs for small banks derive from residential lending. Bank revenues from mortgage sales, securitization and servicing were down $9.1 billion or 35.1% YoY. For more information regarding the presentation, contact info@kbra.com.


One would think that home builders keep a close eye on consumer’s taste in housing. But do home builders really understand what buyers want?  Two real-estate economists said late last week that many home builders aren’t doing a good job of determining what home buyers want.  They’re focusing more of their resources instead, the economists said, on building pricey homes for buyers with ample credit.


Home buying season is upon us. After Nationwide’s Health of Housing Markets (HoHM) report, the outlook for the housing market remains positive. How does the report find this?  “Leading Index of Healthy Housing Markets (LIHHM): A data-driven view of the near-term performance of housing markets based upon current health indicators for the national housing market and 400 metropolitan statistical areas (MSAs) and divisions across the country.” The nationals LIHHM remains near its peak and is well over 100 (the neutral number), which indicates the U.S. housing market is healthy. Even better, it shows that there is little chance of a downturn over the next year. Which areas of the country are doing the best? Upper Midwest (Cincinnati, Cleveland, and Chicago) and Southeast region lead the way. There are only a few areas in the county that are in the negative. Only a few parts of Texas and Louisiana contain every negative area except one (Bismarck, North Dakota is the other). The majority of metropolitan statistical areas are healthy, which means that expansion in most local housing markets is sustainable.


Household formation is the name of the game, but one can’t ignore buyers coming back into the purchase market after they went through a short sale, bankruptcy, or foreclosure. And it seems some lenders are happy to take another chance on them. The WSJ published a story titled, “Call It a Comeback for Risky Home Buyers.Lenders are seeking out borrowers who recently went through a foreclosure or bankruptcy. “A new wave of nonbank lenders is bringing these risky buyers back into the housing market some seven years after the mortgage meltdown. The lenders are targeting borrowers who have recently gone through a foreclosure, short sale or bankruptcy—but who they say are safer than their credit profiles suggest.”


“Don’t sweat the small stuff” people often say. However, when talking about business, the saying doesn’t apply. Wells Fargo took a look at the 10-year yield and they found that when the yield was at or below 2%, a small increase has big effects: it could easily generate negative total returns in a portfolio. They also found that predictions of 1% for the 10-year Treasury as not credible. The total return for 7-10 year Treasury debt was actually 1.1%. Not only was the yield far off from the 2% “benchmark performance” but also both U.S. and European high yield fixed income outperformed longer-term Treasury debt. Wide receivers get paid to go long, but do we? While at first glance, longer-dated U.S. treasury yields seem to be more attractive than short-dated Treasuries, this actually isn’t the case; what about duration risk? What happens after the 5-year mark? The incremental yield on U.S. government bonds an investor receives drops noticeably. Wells Fargo says that given the rapid rise in yields since the end of May, the incremental yield
did not provide enough protection to provide a positive total return on the portfolio.


While we’re yapping about rates, they crept higher last week – but they’re back down this morning. This week we’ll see happens with the unemployment data Thursday and – you guessed it – what happens between Greece and the rest of Europe. Don’t worry: eventually something else will captivate the press and move rates. What happened last week? Besides being revised for the third time, real GDP growth was changed from a decline of 0.7% to 0.2%. The economy is on an uphill climb, with the housing market leading the way. New and existing home sales came in better than expected in May reaching the highest level in 7 years. On top of personal income rising 0.5% in April, that number was matched in May showing a positive outlook for consumer spending. The spring continues to look positive for the U.S. economy.


We do have a slate of economic news this week in this country and a holiday. We start off slowing with Pending Home Sales today. Tomorrow is the S&P/Case-Shiller indices (telling us what happened two months ago with home prices), the Chicago Purchasing Manager’s Survey, and Consumer Confidence. July 1st brings us Challenger Job Cuts, the ADP private employment numbers, some Institute of Supply Management figures, and then Thursday the 2nd we’ll have all the employment data (since Friday is a bond market holiday) including Jobless Claims. Look for things to become pretty quiet after that.


As a proxy for rates we closed the 10-year at 2.48% Friday and this morning we’re at 2.34% and agency MBS prices are better by more than .5. Why? This morning we’re seeing the proverbial “flight to quality” as money flows into U.S. fixed income markets (certainly not stock markets) due to the announcement that Greek banks would be closed until July 6th. Capital controls have been put in place after creditor talks broke down. How would you like to have all your money in a Greek bank and not be able to access it?



An airline introduced a special package for businessmen:

“Buy your ticket; get your wife’s ticket free.”

After great success, the company sent letters to all the wives asking how the trip was.

Ninety one percent of them gave the same reply…”What trip?”





(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