Among the lengthy list of state and federal regulators, legislative bodies, and agencies that oversee residential lenders, one can’t forget the FTC (Federal Trade Commission). We were reminded of that yesterday when the FTC banned a group of principals of a mortgage relief operation and their companies from the mortgage loan modification and debt relief business. I didn't recognize any of the companies listed - they were mostly law groups in Florida.

How much money do you owe others? Last month the Federal Reserve spread the word that U.S. household debt hit $12.29 trillion in the second quarter, up $434 billion from a year earlier as auto loans and credit card debt increased. Auto debt was $1.10 trillion, up $97 billion from a year earlier, while the aggregate credit card limit increased for the 14th straight quarter. Mortgage debt was $8.36 trillion, up $246 billion from last year, while student loan debt was $1.26 trillion, up $69 billion. Some 4.8 percent of the outstanding debt was in some stage of delinquency, down from 5.6 percent from a year ago, according to the quarterly household debt and credit report. My statistics teacher would hate this, but, roughly speaking, at 320 million of us in this country, this works out to about $38,400 per man, woman, and child for all debt.

Lenders and investors continue to make changes with regard to viewing credit, and changing required criteria that influence credit. "Like what?" you ask? Here is a sampling:

Plaza's HomeReady Program Guidelines have been updated to reflect Fannie Mae's recent enhancement regarding HomeReady income limits announced in SEL 2016-05. Don't forget Plaza also offers Freddie Mac's Home Possible Program which generally follows the same income limits with the exception of allowing even higher limits in certain high-cost areas.

To improve transparency and to help its clients better understand how a borrower's credit is reviewed during the manual underwriting process, Sun West has updated its manual underwriting guidelines specifically for the review of a borrower's credit. The updated guidelines include additional information on how various risk factors associated with a borrower's credit are analyzed during a manual underwriting review. To access the updated guidelines, please click here.

Effective on September 27^th, Wells Fargo is updating its requirements for VA and Guaranteed Rural Housing Loans to prohibit the purchase of loans to borrowers with diplomatic immunity.  This restriction is already applicable for FHA Loans as well as conventional Conforming and Non-Conforming Loans.

Citi Correspondent has updated its general policies including borrowers' authorization for Post-Close Counseling, Rental Income: Use of Leases and Business Income: Calculating Liquidity. Also, clarifications were made to guidelines such as Principal Curtailments and Qualifying Income. To view or print the complete bulletin, CLICK HERE.

Pacific Union Financial clarified its Conventional tax-lien policy. All tax liens recorded in public records or on title must be paid off at or prior to closing, even if the borrower has a repayment agreement in place. If the borrower owes delinquent taxes, but no lien has been recorded in public records or on title: The taxes may remain unpaid if the borrower has a repayment agreement in place and has made a minimum of three payments as agreed.  The payment must be included in the qualifying DTI. If there is no repayment plan in place or the borrower has not made three payments as agreed, the taxes must be paid in full. Refer to the MI provider website for guidelines, if applicable, as the provider may require the payment of delinquent taxes.

Sun West Mortgage Company has published guidance on acceptability of properties with outstanding Property Assessed Clean Energy (PACE) or HERO programs. The guidance is available in General Requirement section in Underwriting Guide for Forward Mortgage. To access the guideline for wholesale channel, please click here. To access the guideline for correspondent channel, please click here.

ditech's Jumbo underwriting guidelines have been updated extensively. A table outlining the current and new guidelines is attached for reference; however, the Jumbo chapter of the Client Guide and product matrices must be reviewed for complete details. All changes in the Guide and on the product matrices will be highlighted in red font.

Impac Mortgage can qualify a borrower with 12 months' bank statements. Impac has a flexible alternative documentation program with realistic guidelines to help them qualify.  Click here to read the details.

You may be tempted to take out a home equity credit line, but Kerry Hannon says you need to consider three things first. Read More

It's my dream to one day write the daily commentary using nothing but buzz words and business clichés. I'm still stuck on whether I want to start the first paragraph with the timeless, "skate towards where the puck will be, not to where it has been," or some sort of homage to "think outside the box." I'll probably circle back around and peel that onion at a later date, though. Speaking of buzz words, the Federal Reserve is stress testing home owners now, or at least stress testing leverage.

The New York Federal Reserve writes, "Borrowers' housing equity is an important component of their wealth and a critical determinant of their vulnerability to shocks...we created a unique data set that allows us to provide a comprehensive look at the ratio of housing debt to housing values-what we refer to as household leverage-at the micro level. An advantage of our data is that we are able to study the evolution of household leverage over time and across locations in the United States."

The Fed found that leverage was at a very low point just prior to the large declines in housing prices that began in 2006, but it rose very quickly thereafter, despite the reductions in housing debt. It's not shocking that recent numbers, as of late 2015, show leverage statistics are approaching their pre-crisis levels, as house prices have risen over 30 percent nationally since 2012. What the Fed is able to do using their borrower-level leverage measurements, and updated borrower credit score, is the ability to project leverage and defaults under various adverse house price scenarios. The Fed found that while the riskiness of the household sector has declined significantly since 2012, it's still a market which remains vulnerable to very severe declines in house prices.

The main findings of the paper show that, as of the third quarter 2015, nationwide, household leverage has declined substantially relative to 2008-2012, and is approaching its pre-crisis levels. Consequently, and also due to an improvement in credit scores among households with outstanding mortgages, the household sector's vulnerability to a modest house price decline has decreased, although for very severe house price declines (approaching the magnitude of those observed during the crisis) vulnerability remains elevated.

While scaling up financial models can sometimes prove fruitful, housing is a different animal, and location-location-location is king. The Fed continues, "At a more disaggregated level, the time series of our leverage measures clearly reflect the dramatic regional home price dynamics that others have observed, with the widest swings in prices found in the "sand states": Arizona, California, Florida and Nevada. Studying these states illustrates one of the key lessons from our analysis: looking at measures of leverage based on concurrent housing values will often lead one to misestimate the vulnerability of a housing market to shocks."According to the paper, homeowners in these so-called "sand states" were much less levered in 2005 than those in other regions, yet as home prices regressed to their historical mean, their leverage rapidly increased and extremely high mortgage defaults followed. While not perfect, stress tests such as the one proposed in this paper allow one to anticipate such potential dynamics and provide a better view of how vulnerabilities vary over time and across locations.

On an historical basis interest rates here in the United States have been relatively stable for much of the summer. Yesterday that continued, although there was a little intra-day volatility after the release of Initial Jobless Claims (slight increase), unit labor costs (revised higher), ISM manufacturing data (dropped), construction spending (unchanged), and Challenger job cuts (fell). MBS prices closed lower and spreads were wider to risk-free Treasury securities led by lower coupons. But by the time traders headed home the 10-year and 5-year T-notes were basically unchanged with agency MBS prices worse a shade.

But today we've had the "troop" of jobs numbers, thought to likely tip the scales toward or away from a short-term rate hike as soon the September FOMC meeting. Nonfarm payrolls, expected at +180k, were +151k, down from a revised higher 275k in July. The unemployment rate, expected to remain unchanged at 4.9%, was. And average hourly earnings, expected to increase slightly, were +.1%, hourly hours worked were down. The July international trade balance figure was also released, -$39.5 billion; July Factory Orders will be released at 10AM ET.

This is generally viewed as not the "oomph" that the Fed wanted to see for a rate increase at its September 21 meeting. The recent "Fed Speak" has pointed toward a rate increase, but the market's reaction to this morning's employment numbers was "moderate." Soon after the number we find agency MBS prices better by about .125-.250 and the 10-year is at 1.55%.

Jobs and Announcements

Lender M&A continues, the latest news on that coming yesterday when E Mortgage Management LLC (EMM), a full-service mortgage lender licensed in over 35 states, announced the expansion of its consumer-direct lending operations to the mortgage lending digital space.  EMM is acquiring certain assets of New Jersey's Fortren Funding LLC. So the online mortgage biz's competitive landscape will change somewhat with the entry of EMM as a nationwide internet-based lending company providing residential mortgage loans. Fortren will operate as a "dba" of EMM.

What is driving lender M&A? "With company valuations reaching a peak since 2011, net pre-tax profit per loan is hovering around 70+bps which provides a great deal of strength on behalf of sellers in negotiations with prospective capital partners," says Dr. Rick Roque, founder of MENLO, a boutique investment and M&A firm for mortgage banks. "Lenders and investors are re-capturing profits from branch offices and from consumers due to 3 primary factors: Regulatory ramp-up in technology and legal (2010-2015), TRID (Q4 2015), and the stubbornly low cost of funds for lenders widening net margins. Lenders are seeking ways to accelerate profits by a smart user (and investment) in technology automation, lowering LO compensation, and establishing new mechanisms to capture branch profits."

His note continued. "Smart mortgage banks are seeking options while taking advantage of high production volumes and wider margins thus seeking a better post-tax multiple on their company - because profits and expanding pipelines are expected to contract with rate increases in 2017, increased competition, and new HMDA rules implemented in 2018 significantly increasing technology and operational support expenses. Legal and compliance expenses should increase, threatening most mortgage banks whose net worth are under $15M. The most aggressive target for acquisitions are consumer direct platforms whose scalability, ease of management, and consumer experience are more easily controlled." (To reach Rick e-mail him at Dr. Rick Roque or call 413.297.6895.)

The same thing is happening with depository banks, although the pace of M&A has declined. But in the last week it was announced that the National Bank of Commerce ($1.7B, AL) will acquire Private Bank of Buckhead ($291mm, GA) for about $59mm in cash and stock or roughly 1.77x tangible book. In The Keystone State Standard Bank ($485mm) will join with Allegheny Valley Bank of Pittsburgh ($435mm) in a merger of equals (MOE) transaction. Over in Alabama Family Security Credit Union ($577mm) will acquire Bank of Pine Hill ($25mm), and in nearby Florida Stonegate Bank ($2.4B) will acquire Insignia Bank ($246mm) for about $37mm in stock or about 1.48x tangible book.