I guess it is a "new" economy? Coca-Cola has announced plans to lay off about 1,800 employees globally, in an effort to cut costs by roughly US $3 billion. Department store chains J.C. Penney is shuttering 39 underperforming stores and laying off 2,250 workers, while Macy's announced a restructuring that will shift workers from 830 Macy's and Bloomingdale's stores and close 14 Macy's stores. The moves could cut up to 2,200 employees. It is unlikely these families will be refinancing or buying a house.

Ah yes, I remember when the CFPB was just a small start-up; renting office spaces in old abandoned warehouses, and paying their employees in free vending machines and ping-pong tournaments. It is all grown up now, and the Bureau has issued its fourth annual report to Congress on its workforce. According to 2014's report, the CFPB had 1,419 employees as of September 2014, 46% of the CFPB's employees are female and 35% of the CFPB's employees self-identify as a minority. In comparison, 2013's report indicated that the CFPB had 1,302 employees as of September 2013, with about the same percentages of female employees and employees who self-identified as a minority. Dodd-Frank requires the CFPB to submit an annual report that includes a Recruitment and Retention Plan, Training and Workforce Development Plan, and Workplace Flexibilities Plan. The new report details the CFPB's steps to develop and train its workforce, workplace flexibilities offered, and recruitment efforts. No word yet of an IPO, though.

Yes, to reiterate, Dodd-Frank is big on reporting, which is good considering it created the CFPB, and the CFPB is big on writing reports...it's a circular flow kind of thing. One such report the Bureau is required to provide annually to the House and Senate Committees on Appropriations regards the financial operating plans and forecasts of the Director, the financial condition and results of operations of the Bureau, and the sources and application of funds of the Bureau, including any funds appropriated in accordance with Dodd-Frank. Released December 31st, the new report covers the period October 1, 2013 through September 30, 2014.

While we're on the CFPB, you can use the CFPB's eRegulations tool to help prepare for the new TILA-RESPA Integrated Disclosure rules that will be effective on August 1, 2015. "A quick and easy way to view the changes to the rule is with the eRegulations 'compare' feature. You can compare two versions of a regulation, and see exactly where the regulation has changed.

Check out a comparison of the existing version and the version effective August 1, 2015, and see why compliance personnel make the big bucks these days.

While the industry waits for the next CFPB enforcement action in the mortgage industry, many wonder when Realtors, who are involved in nearly every transaction, will be held accountable for their role in the housing crisis or "held to task" by the CFPB. I received one note from a west coast LO saying, "The lack of Realtor accountability in the last several years is so true but has received absolutely no press. Unfortunately, as a lender, it would be suicide to bring it to the attention of the press. Realtors were out their telling clients, 'You better buy now. This home will be 5-10% more next year. Real Estate values always go up, there is no bubble.' etc.  I guess having 1.1 million dues paying members has it benefits."

If I went through my email inbox over the last few years I'd probably notice a few themes in the subject line; one of those themes would no doubt be inquires to where and when subprime will make its triumphant return. Any market has the capability of happening given an equal aggregate demand and an equal aggregate supply; subprime mortgages are no different....but don't tell that to the CFPB. Investor dollars behave much like water; it flows and pools, sometimes backs up, but inevitably keeping it at bay it almost futile. Bloomberg article Subprime Angst Fades as Crisis-Era Bonds Show 12 Percent Returns is an excellent read for those interested in subprime performance as of late. "The securities that were created in the years before the financial crisis in 2008, which marked the last time they were issued, have gained almost 12 percent this year, or six times more than junk-rated corporate debt, according to Barclays Plc. After contributing to the collapse of Lehman Brothers Holdings Inc., bonds tied to the riskiest home loans have returned 75 percent since 2010, topping speculative-grade corporate debt for three straight years." Delinquencies, by comparison, are not as catastrophic as of late either. According to the article, while almost 30 percent of the subprime mortgages tied to bonds are at least 60 days delinquent, the percentage has fallen from as much as 41 percent in 2010. In the broader market for mortgage securities without government backing, which also includes loans known as Alt-A and jumbo debt, the default rate has fallen to 23 percent from 30 percent in 2010. The market has potential, and a falling supply is helping the cause. According to Federal Reserve data, the amount of non-agency bonds has fallen to less than $720 Billion, from more than $2.3 Trillion in 2007.

Let's take a quick look at some appraisal vendor updates...

Valuation Link, a national Appraisal Management Company providing Residential and Commercial appraisals and valuation products nationwide, has made 2 major announcements. The first announcement is regarding the promotion of Robert Stackhouse to Chief Executive Officer, who, prior to his promotion, was the Chief Operating Officer for Valuation Link. Also announced is the launching of the "Valuation Link Desktop Appraisal Report". This product is perfect for Home Equity, Default and Portfolio/Servicing loans due to its compliance with USPAP and Interagency Appraisal and Evaluation Guidelines. The report is performed by a Licensed or Certified Appraiser and incorporates a current Property Inspection Report with photos that addresses the subject and market conditions. The Valuation Link Desktop Appraisal Report is far less expensive with a quicker turn time than a traditional appraisal.

Turning to the bond markets, Federal Reserve policymakers have been spare in their guidance on when near-zero interest rates will rise next year, but its 2015 bank stress test will account for the possibility of an increase in short-term interest rates. The stress test includes a "hypothetical adverse scenario" that could force an increase in bank funding costs, said Janet Yellen, head of the central bank. Let this serve as a reminder since the announcement came in October.

The Federal Home Loan Bank of San Francisco reported that the November 2014 Cost of Funds Index (COFI) was 0.686%, an increase from the October 2014 measure of 0.671%. The COFI is determined based upon the interest expense reported for each given month by the Arizona, California and Nevada savings intuitions. For the November 2014 index, 12 qualified institutions reported COFI data. Changes in the interest rates for ARM loans are tied to changes in the COFI.

But for now, no one is complaining about rates being too high. If anything, alert LOs are more worried about borrowers qualifying if the economy starts being impacted by the drop oil (like in states like Texas, Alaska, Alabama, and the Dakotas) or events overseas. But the minutes from the December Federal Open Market Committee (FOMC) tell us that in general "economic activity was increasing at a moderate pace in the fourth quarter and that labor market conditions had improved further. Consumer price inflation continued to run below the FOMC's longer-run objective of 2 percent, partly restrained by declining energy prices. Market-based measures of inflation compensation moved lower, but survey measures of longer-run inflation expectations remained stable."

Mortgage pricing continues to be driven by the general trend in rates (down), fear of prepayments (up), supply (mediocre), and demand (decent) - but it depends on the coupon. Investors are concerned that MBS backed by higher rate mortgages will pay off early, in spite of it being very expensive to refinance a loan. And the demand for lower coupon mortgages is strong, resulting in lower passthrough rate MBS rallying more than higher coupon products. And then you have different price movements between Fannie, Freddie, and Ginnie - especially noticeable yesterday with the FHA news. In theory the supply of GNMA securities will increase if the FHA lowers its premiums, and if demand remains constant it would lead to lower prices and higher rates.

Thursday supply was down, and prices rallied relative to Treasury securities - the "benchmark" for fixed-income securities. But investors were keen to note that the New York Federal Reserve Bank sold $68 million from two pools: FNMA A1010 (4%) and FNMA A3613 (3.5%), 7-9yr WALAs. So we know they can do it mechanically if the Fed decides to lighten their trillions in MBS holdings.

The markets today were intent on the jobs data. Prior to the data Treasuries were up (and rates down) as investors speculated that economic weakness overseas outweighs any strength in the U.S. jobs market. Employers were expected to have added 240k workers in December following a 321k increase in November.  Meanwhile, the unemployment rate was expected to fall to 5.7% - the lowest rate since 2008. What actually happened was that Nonfarm Payrolls were 252k, November was revised higher, the Unemployment Rate hit 5.6% (the lowest since 2008), and Hourly Earnings were down. We will see plenty of slicing and dicing of the stats, but for numbers Thursday the 10-yr closed with a yield of 2.02%, prior to the employment numbers we were 2.00%, and soon afterward we're at 1.99% and agency MBS prices are better by .125-.250.

 

Jobs

Bay Equity Home Loans is a family owned mortgage lender based in San Francisco, CA. It recently brought on branches in Aliso Viejo, CA, St. George, UT, and Shreveport, LA. "As we near the end of 2014 it is a great time to look at new opportunities.  Bay Equity has regional operations centers, sells direct to Fannie, Freddie, and is Ginnie approved, offers strong Non Agency products and above all has a great originator centric culture. We are focused on methodical, careful growth and are looking for originators who want to be the best in the business. Our tools have been developed in conjunction with our top producers, creating a number of best practices available to all in our company to help get everyone to the next level." If you are interested in speaking confidentially about Bay Equity, please contact Chief Production Officer Casey McGovern.  

 

And Greg Frost is looking for a few more Branch Partners. "Yes, it's the same Greg Frost who was the mortgage industry's first billion dollar Loan Originator and current popular motivational sales trainer. Greg's organization currently has Branch Partners in New Mexico, Arizona, California, Colorado, Texas, South Dakota, Illinois, Iowa and Mississippi. If you're operating in one of these states, and would like to investigate his very profitable Branch Partner business model, just click here to schedule a confidential conversation with Greg. Imagine working with and being mentored by one of the industry's' most prolific mortgage professionals. Click Here now."