Peter Drucker opined, "Management is doing things right; leadership is doing the right things." The Federal Reserve sure wants banks that lend money (and, besides those for food or bodily fluids, which ones don't?) to do things right and do the right things. And thus we find it's timeless, "Comprehensive Mortgage Banking Examination Procedures" from a couple years ago. For example, hedging starts on page 11 and goes through page 14.  It can give any lender insight on what the Fed is looking at during exams. My cat Myrtle gave it a "claw's up".

We have seen, and will continue to see, large numbers of mergers and acquisitions in banking and mortgage banking. Recently in Texas Pilgrim Bank ($386mm) announced it will acquire State National Bank of Texas ($240mm). Up north in Ohio First Citizens Banc Corp. (NASDAQ: FCZA), and TCNB Financial Corp, Dayton, Ohio announced that they have signed a definitive agreement and plan of merger which provides for First Citizens to acquire TCNB, and its wholly-owned subsidiary, The Citizens National Bank of Southwestern Ohio ("Citizens National"), in an all-cash transaction. Cape Bancorp, Inc. (NASDAQ: CBNJ), the holding company for Cape Bank, and Colonial Financial Services, Inc. (NASDAQ: COBK), the holding company for Colonial Bank, FSB, jointly announced they have entered into an agreement and plan of merger. In nearby Kentucky, Town Square Bank ($430mm) will acquire the Commonwealth Bank, FSB ($20mm). In the Great State of Texas First National Bank ($782mm) will sell two branches to AIMBank ($501mm); the branches have about $180mm in deposits. And Community Bank ($3.5B, CA) announced a new private banking division called CH Cook & Co. Private Client Advisors will focus on developing banking relationships with high net worth customers.

Think of how easy it will be for the CFPB and other state and federal regulators to monitor fewer banks, and only a handful of megalithic lenders? It is a tough environment when lenders only doing $10-20 million a month feel the need to hire an attorney and large compliance department - and of course pass the costs on to the borrowers or throw in the towel.

For non-bank lenders, not only is Stearns reportedly for sale (see below), but the news yesterday confirmed the rumors from the day before. Caliber Home Loans of Texas announced the acquisition of Washington's Cobalt Mortgage. By most accounts this is a good fit, including STRATMOR's which represented Caliber, so congratulations to those involved. "Through this combination, Caliber is significantly expanding its sales force and nearly doubling the size of its branch retail lending business. The transaction also enhances Caliber's geographic footprint and provides entrance points into new markets, including the highly-attractive Pacific Northwest region." The announcement had the usual merger nouns and verbs: common vision, pivotal roles in helping consumers achieve homeownership, excited to partner, one of the strongest and most well-respected retail branch networks in the country, long history of solid-performance, outstanding reputation, purchase volume, look forward to welcoming, strong balance sheet and direct access to capital markets, offer our customers a broader suite of mortgage lending solutions, gain significant scale... (Feel free to use these terms for your own merger when it comes time.)

It isn't the first, nor will it be the last. The industry continues to bear the brunt of lending from 6-10 years ago. And there are plenty of rumors of more coming down the pipe. Paul Muolo stated how an "offering book" is circulating on Stearns Lending, the nation's 16th largest originator. Mr. Muolo wrote, "Stearns Lending, one of the largest privately held nonbanks in the U.S., is contemplating a sale and has hired JPMorgan Chase & Co. to analyze offers, according to bidders who have knowledge of the lender's offering book. In an interview with IMFnews, Stearns CEO Brian Hale confirmed that an offering book on the 16th ranked lender has been circulating, but cautioned: 'We may end up doing something or nothing.' Hale played down the news of an offering book, noting that Stearns hired an investment banker because over the past 12 months it has been approached by 'a number of interested investors.' He added, 'We listen to many.' Hale, however, would not confirm that JPMorgan is the lender's investment banker. At June 30, the Santa Ana-based firm serviced $27 billion in home mortgages, almost double what it had a year ago, according to figures compiled by Inside Mortgage Finance."

As lenders exit, someone let me know when the borrower is better off by having less competition. And while we're at it, someone had better help the MBA tell the government that Congress' talk about homeownership goals are dust in the wind given the prohibitive cost to smaller lenders for originating a loan. (I guess I got fired up last night here at the Nebraska Mortgage Association's conference. I'll settle down.)

Turning to the markets, the National Association of Home Builders/Wells Fargo sentiment measure climbed to 59, the highest level Since November 2005, exceeding expectations, from 55 in August. (Readings above 50 mean more respondents said conditions were good.) Builder confidence also rose across every region of the country in September. "While a firming job market is helping to unleash pent-up demand for new homes and contributing to a gradual, upward trend in builder confidence, we are still not seeing much activity from first-time home buyers," said NAHB Chief Economist David Crowe. "Other factors impeding the pace of the housing recovery include persistently tight credit conditions for consumers and rising costs for materials, lots and labor."

(Read More: Builder Confidence at near Nine Year High)

That news was more interesting than the much-hyped Federal Reserve Open Market Committee news. The Federal Funds target is still 0bp to 25bp, the Prime Rate is unchanged at 3.25%, and the Discount Rate is unchanged at 0.75%... The FOMC announced the continuation of the taper of QE3 purchases, and that the thresholds for policy tightening were reiterated, stating that the Fed would look to progress from a variety of indicators, both realized and expected, towards its objectives of maximum employment and their inflation target of 2%. There will be further tapering of Fed asset purchases by $10B to a level of $15B per month, with $5B of the Fed's purchases in MBS securities and $10B in Treasuries. An announcement of the end of QE3 purchases is expected at the next meeting of the Fed (at the end of October). The Fed indicated that employment has shown further improvement, but that a range of labor indicators suggest that there is still significant underutilization of labor resources.

So the FOMC information was pretty much as expected. But bond prices sank a little, pushing rates higher, and we actually saw some intra-day price changes for the worse. But we closed Wednesday at a yield of 2.60%, which means we've been in about a 5 basis point range for the 10-year for nearly a week!

On a personal note, given that I lived in Scotland for a spell, the Scotland independence vote is much more intriguing that the usual weekly Jobless Claims, or for that matter Housing Starts and Building Permits, or the Philly Fed. In addition to the scheduled news we'll have the Treasury's announcement of next week's auction needs along 2/5/7yr maturities, seen unchanged at $83 billion. In the very early going the bond markets, and agency MBS prices, are unchanged from Wednesday's closing levels.

Jobs and Announcements

Under the jobs front, here is one that is a little different and might be pretty cool. San Francisco's Social Finance, a new entrant to the mortgage field, is searching for a business development manager. The candidate, to be based in Northern California, will help grow origination volume through direct contacts with Realtor, and Realtor & professional networks, with the goal being $100 million in origination volume per month. The desired skillset includes 5+ years of experience in mortgage or real estate sales, established Realtor networks and relationships, the ability to work in a fast-paced and entrepreneurial organization and ability to travel. One will have the opportunity to "help create a truly disruptive financial services company." SoFi is an entrepreneurial company with freedom to take responsibility and define outcomes, offering a competitive salary with quarterly performance bonus, share options, and benefits. For a full job description, confidential inquiries and resumes should be sent to Jonathan Strike.

And Valuation Partners, a growth-oriented national appraisal firm, is seeking experienced sales executive to assist in growing the company. The person is expected to develop new sales revenue and diversify the client base, and can work remotely. "We have a solid organizational foundation, best in class quality, and nimble technology." A successful candidate must have proven track record in real estate valuation, correspondent lending, technology, or similar product sales to the mortgage industry, along with relationships with key decision makers. Experience and knowledge of the mortgage loan process is a must. Valuation Partners has a competitive compensation package for the right candidate. For confidential inquires or resumes, please contact Mark Lyons.

In the "new product & expansion" category, Parkside Lending advertises, "Close more Condos and PUDs with Parkside lending, using their NEW 'Condo Concierge^TM Service' available in both Wholesale and Non-Delegated Correspondent channels. With 'Condo Concierge', Parkside Lending does all the heavy lifting for you. Gone is the time you used to spend chasing down HOA certs, master insurance policies, budgets, CC&R's or other legal docs. The best part is there is no additional charge for this service! Parkside lending is a Fannie/Freddie Seller Servicer, Ginnie Issuer and licensed in 46 states with operations centers in CA, MI, AZ and TX, and is searching for additional AEs. If you want to work for a forward thinking company known for exceptional customer service, common sense underwriting and leading edge technology; Parkside Lending is looking to expand its wholesale and correspondent channels across the country, please contact Rick@parksidelending.com or send to Parkside."

Lastly here is a note from Dr. Rick Roque, still in Afghanistan teaching as a visiting professor and advising the president elect's (Ashraf Ghani) cabinet on economic development opportunities in the country (especially in the areas of consumer finance and housing). "Rob, As I am preparing my 2015-2016 Mortgage Industry Forecasts market by market in the U.S., I noticed something peculiar: the ISPs (Internet Service Providers) here in Afghanistan block a number of content categories from Afghan's when browsing the internet, and right along with adult content is U.S. mortgage news. I suppose it is in the best interest for Afghan's not to see how the 'sausage is made' - I don't know, I just found it interesting. That aside, in the U.S. 2015-2016 will shape up to be a pivotal year. Most economists estimate 30yr fixed rates to range between 5-6% o 6%), and refinance transactions could fall another 10-12% ending 2015 to around 30%+/- of total originations. I still see many mortgage firms whose annual production volume ranks between $50M - $200M annually are not capitalized (defined as less than $8M in cash in the bank) to remain competitive (with a few exceptions for firms who are grow out of it or raise capital) with such a reduction in refinances (even if a firm's refinance % is 20-30%, such a reduction in that part of their business will jeopardize their thin capital position). What does this mean? Mortgage firms will compete more heavily for purchase business and concurrently, to the irritation of loan officers, will increase corporate margins to make up for production loss & increased compliance costs, impacting street pricing be as much as 30-50bps. This will leave smaller mortgage companies and production teams to look for better capitalized options. Regardless of your production size, in any state, if mortgage professionals want to understand options that may improve the competitive position of their company or sales team today, call Dr. Rick Roque, (408.914.5895) or email me."  For more information you can also visit MENLO's website.