As a reminder, since I am still being asked about it, along with a number announcements and policy amendments taking effect on the 1^st of January, the CFPB has increased two important thresholds. First, the Bureau set the HMDA asset-size exemption and threshold to $43 Million, and issued a final rule adjusting this threshold for banks, savings associations, and credit unions under Regulation C, which implements the Home Mortgage Disclosure Act. HMDA requires that the CFPB adjust this threshold yearly by the annual percentage increase in the CPI for Urban Wage Earners and Clerical Workers.

Secondly, the Bureau issued a final rule adjusting the asset-size threshold for certain creditors to qualify for an exemption from the requirement to establish an escrow account for a higher-priced mortgage loan under Regulation Z, which implements TILA. The Bureau established the threshold at $2 billion as part of its 2013 Escrows Final Rule, which implemented the Dodd-Frank Wall Street Reform and Consumer Protection Act. Each year, this threshold will automatically adjust based on the annual percentage increase in the average of the CPI for Urban Wage Earners and Clerical Workers for each 12-month period ending in November. The complete release can be found here. (Yes, I know that this is old news for compliance folks.)

There are plenty of small institutions (both depository and non-depository) that may not be able to afford a compliance staff, HR department, Accounting, Recruiting, Legal, and so on. But it's rare that you encounter the word "hogwash" anymore, that' a shame because it's a great word. So a few weeks ago when I was sent an article contained in SNL Financial's e-Bulletin, entitled "Small Community Banks Can't Survive? Hogwash!" regarding the market capacity for such institutions, my curiosity was aroused.

Like most banking institutions in today's climate, small banks are not immune from regulatory concerns and issues. "We can work to recover bad loans, but we can do nothing to alleviate the cost of the increasing burden of compliance," said Fife Commercial Bank CFO Mark Southwick. Most community banks are happy to accept the tag as "customer oriented," however many found themselves expanding into first lien lending over the past five years to meet demand from their customer base. This expansion has recently become a cost-to-benefit concern as federal regulations require more time to insure compliance, especially challenging for banks with assets less than $100mm. The article continues with Hershey State Bank's CEO Kenneth Niedan, "...with slightly more than $65 million in assets and 17 employees, [the bank] got into mortgage lending four or five years ago because of demand in the market. The fee income from that business amounted to about 12% of the bank's gross this year. But the bank officer overseeing that lending line also had to take on the burden of auditing loans for compliance, which takes more than half of her time. She has concerns about whether she can keep up with all the regulations. The Dodd-Frank Act's rules on mortgage lending are "giving us the fits."

Earlier this week the commentary discussed current trends in appraisals. Jim Reno, the CEO of PCA Appraisal Management, contributes, "Using an AMC is a choice.  Our clients use us because we do a good job for them.  Or job is to make them look good. Some lenders choose to use online systems, some choose to run their own AMC (not very popular now with QM limitations) and some prefer to leave the appraisal work to the AMC and their contracted appraisers.  It depends on how involved and responsible the lender chooses to be.  Lending is tough enough.  And when I visit my lender clients, I am never surprised at how little they really understand appraisal practice.  They simply do not have the time to be experts in two difficult fields.  They rely upon my expertise and the work of my staff to insure their appraisals are done correctly. Any AMC that fits the description mentioned in the commentary has no business doing AMC work.  At PCA, we have always focused on geo-competence.  An appraiser must have a minimum of ten years' experience in their area of expertise and we never send out of town appraisers. 'Never stepped foot in a neighborhood'?  It just does not happen - no lender or agent would even allow it.

"At PCA, we constantly strive to pay the appraiser more and every appraisal order is up for negotiation should the appraiser feel more fee is due.  We are almost always on a 25/75 split with the appraiser with the appraiser making 75% of the fee.  Any increase for complexity or for a rush fee goes directly to the appraiser.  Almost every appraiser (over 95%) at PCA is certified and FHA approved so we are certainly not using less experienced appraisers.  Since 2009 we have done thousands of appraisals and we've only had one buyback situation.  In that situation, PCA paid the buyback fee for the lender and did not rely on the appraiser's E&O (even though it was the appraiser's mistake.) I agree with the commentary about bad AMCs.  Lenders should only use AMCs that are properly managed.  But I disagree that a lender will be able to tell which appraiser is more knowledgeable than another better than another appraiser.  I have been a certified/FHA appraiser myself for many years and I keep my license active to this day.  Look me up at www.orea.ca.gov.  I believe that to run an AMC, to deal with valuation, to properly review an appraisal and to work with appraisers, you should be one yourself.  That's why PCA works and why so many other AMCs fail; they are not run by people who have done the work and keep an active license.  And by the way, our Valu Trac ordering system is SOC 1 rated for security. I say, let the client decide which they prefer, a hands-on service like PCA or an online ordering system.  Each client is different and there is room for all of us."

On the agency & investor front...

The Federal Housing Administration has elected to use the Department of Veterans Affairs' residual income test as a new compensating factor to qualify borrowers with high debt-to-income ratios. Under the new manual underwriting guidelines that go into effect April 21, applicants that pass the VA residual income test can have DTI ratios of up to 37% on the front end and 47% on the back end. The standard DTI limit is 31/43 with no compensating factors. (FHA currently allows borrowers to exceed the standard 31/43 DTI ratio if they make a down payment of 10% or more.) But that compensating factor and others will be eliminated when the new FHA manual underwriting guidelines go into effect in April. FHA eliminated most of the traditional compensating factors. There will be four compensating factors going forward, including the VA residual income test.

Provident Funding announced "We have received numerous requests from our broker community to reduce uniform compensation levels in order to better position their companies for the current market environment and provide consumers more competitively priced loans. In response to the high number of requests, Provident Funding is pleased to announce that we will make an exception to our broker compensation policy of quarterly adjustments, and will allow decreases to the current uniform compensation level to be implemented with effective dates of 2/1/2014 and 3/1/2014. Requests for changes effective 2/1/2014 must be received by the end of business 1/30/2014 and requests for changes effective 3/1/2014 must be received by the end of business 2/27/2014. Brokers that want to decrease their uniform compensation level should have the owner, or master account user, open a case to the branch with the request including: the new uniform compensation level (must be decreasing from the current compensation level); the desired effective date of 2/1/2014 or 3/1/2014; the specific state for the uniform compensation change if your company originates in more than one.  Uniform compensation levels which are not changed will remain the same and future compensation adjustments will be subject to our existing compensation policy."

Shifting gears to the financial markets, the U.S. Treasury Department recently released the International Capital Data for November. The so-called "TIC" number is basically a breakdown of which country is purchasing our debt. According to Treasury, "The sum total in November of all net foreign acquisitions of long-term securities, short-term U.S. securities, and banking flows was a monthly net TIC outflow of $16.6 billion. Of this, net foreign private outflows were $30.5 billion, and net foreign official inflows were $13.9 billion." Foreign residents decreased their holdings of long-term U.S. securities in November, while U.S. residents increased their holdings of long-term foreign securities. You may be asking yourself right now, "why is this number important to me, I'm just a mortgage broker/processor/underwriter/secondary trader or compliance officer?" Because it is very important to know how willing foreign investors are in purchasing U.S. debt. When TIC data is rising, this traditionally indicates the net purchases of long-term securities is increasing; you know that foreign investors are still interested in buying U.S. debt and that interest rates will most likely remain low. If, however, TIC data is decreasing, this traditionally indicates the net purchases of long-term securities is decreasing; you know that foreign investors are losing interest in buying U.S. debt and that interest rates will most likely need to rise in the future to entice more buyers.

Just when LOs and Capital Markets folks had planned for a slow steady rise in rates, unexpected overseas events did away with all that - at least for now. This week the U.S. Treasury 10-year note yields fell to its lowest level in a few months as investors sought a safe haven from emerging market instability. Who cared that the Federal Reserve announced plans for a second reduction in its monthly bond purchases - that, and more in the future, was expected? (By the way, it was the first time since 2011 that the committee reached a unanimous decision.) Who cared that the Treasury auction off $64 billion in 5 & 7-year notes? Thursday the 10-year note closed at 2.69%. MBS prices gave back a little of their Thursday gains.

But the Fed's activities are still very relevant. The latest report from the New York Federal Reserve Bank which reported net purchases averaged $2.52 billion per day ($12.6 billion total) for the week ending January 29, which compared to mortgage banker selling that averaged $1.1 billion. So yes, on a percentage basis the Fed is still buying more than originators are producing.

Today closes out January with a busy schedule of economic news. We've already had the Q4 Employment Cost Index (expected unchanged at 0.4, it was +.5%), and December Personal Income & Consumption (expected at +.2% and +.2%, they were actually unchanged and +.4%). January Chicago PMI is later, as is final January Consumer Sentiment, forecast higher to 81.0 from mid-month's 80.4 read. But the big news, as noted above, is Europe's "emerging markets". They had largely escaped, until this week, the effects of a sell-off that hit such markets in Asia and Latin America. Now, Czech, Hungarian and Polish currencies are coming under pressure. Some market players say the sell-off is driven solely by fear and doesn't reflect serious vulnerability in European emerging markets. Rates are down again this morning with the 10-yr at 2.65% and agency MBS prices better by roughly .125.