The value of US pensions has soared this year.  Per JPMorgan Chase, pensions now cover 96% of future obligations!  Pension values have seen the biggest improvement in 25 years - funding levels were in the high 70%s as of the end of last year.  The news could get even better in 2014 if bond yields rise. This is good since Baby Boomers (1946-1964) are now retiring at the rate of 8,000 per day and this is expected to increase as more enter their retirement years. (Of course, no one ever truly retires from our business, right?).

"We remain optimistic that home sales, new home construction and home prices will all continue to improve in the coming year, even though conditions will be more challenging on a number of fronts," so says Wells Fargo's Economics Group in a recent Housing Chartbook. I hope they're correct. According to the publication sales and construction are still being held back by the aftershocks of the housing bust, which have reduced buyer power and led to more restrictive lending criteria. Land development also faces greater constraints and less public support than it has in the past. Demographics are also changing in a way that is boosting demand for rental units and active adult housing but is also restricting demand for first-time home buyers, trade-up purchases and second homes. Wells' conclusion: in this environment, housing starts will continue to struggle to regain their long-term average of around 1.5 million units a year.

For anyone involved in a California short sale there is some good news. On December 5^th the California Board of Equalization (BOE) announced that despite a failure to pass extensions of either the federal or state mortgage debt forgiveness law, the BOE will conform to IRS regulation, and income from a short sale (on non-recourse loans) will not be treated as taxable. In a September letter submitted by George Runner of the BOE to the Franchise Tax Board's Chief Counsel Jozel Brunett, in which Mr. Runner requested a legal opinion as to the potential tax consequences for a California resident who completes a short sale under existing California law, Mr. Brunett replied, "Since California conforms to the relevant portions of the federal tax law governing the forgiveness of non-recourse and recourse indebtedness, California would follow the federal treatment for the CCP section 580e transactions." A legislative effort to extend tax protection for California short sales derailed this year. However, the Franchise Tax Board's announcement that it will conform with the IRS ensures continued protection for taxpayers without the need for legislation.

In October Massachusetts recently amended 209 CMR 18, "Conduct of the Business of Debt Collectors and Loan Servicers", in order to further clarify and establish standards of conduct for debt collectors and third party loan servicers. The biggest impact to 209 CMR 18 is the addition of Section 18.21A "Mortgage Loan Servicing Practices". A third party loan servicer may not use unfair or unconscionable means in the servicing of a mortgage loan and this section outlines examples of conduct which will result in a violation. Bankers Advisory writes, "Third party mortgage loan servicers must comply with additional requirements regarding the right of a borrower to cure default, loss mitigation options and evaluation requirements, and loan modification requirements prior to foreclosure among other foreclosure related servicing requirements." Section 18.21A also outlines the requirements where a third party servicers is acting on behalf of the mortgagee in providing foreclosure affidavits or sworn statements and certifications. The complete and official amendments, which went into effect on October 11^th, can be found here.

Iowa recently amended, and made revisions to, specific code provisions relating to public funds, state banks, debt management services, the Uniform Money Services Act, currency exchanges, delayed deposits, mortgage licensing, professional engineers and land surveyors, real estate brokers and salespersons, appraisers, and architects. The changes focus on licensing requirements, education and examination of various license applicants, and the powers of the Board of Appraisers. Bankers Advisory Inc has a complete section-by-section here.

We have 17 business days left until QM is official. Information continues to flow into the marketplace, although by now most companies are nearly compliant. The American Mortgage Law Group & Allregs have compiled an additional bulletin and FAQ documentation on the upcoming myriad of regulation changes. If you have additional questions, please email marketing@allregs.com and your email will be answered directly by the speakers. The recording of the most recent webinar is available here. Access supporting documentation for this webinar here.

Through the end of September we'd only had 22 banks fail; the 24^th was shut down on Friday. Texas Community Bank, National Association, The Woodlands, Texas, was closed, and Spirit of Texas Bank, SSB, College Station, Texas, assumed all of the deposits. This year, per the FDIC, the first 21 bank failures cost the Deposit Insurance Fund (DIF) $512 million. The 22nd bank failure (The National Bank of El Paso) cost the DIF $637.5 million or more than the collective failures of all previous 21 takeovers in 2013.

And there is plenty going on inside of banks, and with mergers and acquisitions. Hovde research finds that since 2000, bank sellers over $1 billion in assets have captured a 32% premium over those with assets less than that. Meanwhile, selling banks in metropolitan MSAs over the same time period have captured a 19% premium over banks in rural areas.

In recent bank M&A news, Mascoma Savings Bank ($1.1B, NH) will acquire Connecticut River Bank ($285mm, VT) for $26.7mm in cash. Community Bank ($7.3B, NY) will acquire the professional-services practice from Lifetime Healthcare for an undisclosed sum. The practice provides medical-benefit valuation and consultation services to 150 companies. Spanish Bank Banco de Sabadell SA will acquire JGB Bank ($530mm, FL) from Columbian billionaire Jaime Gilinski Bacal for about $56mm or roughly 1.12x book. Volunteer Corporate Credit Union ($1.0B, TN) will acquire Kentucky Corporate Federal CU ($153mm, KY). First State Bank ($348mm, NE) will acquire Community Bank ($51mm, NE) in an all-equity deal that would combine both banks. The banks are owned almost entirely by the Randecker family. Apollo Bank ($257mm, FL) will acquire First Bank of Miami ($198mm, FL) for an undisclosed sum. Bank of the Ozarks ($4.7B, AR) will acquire Omnibank ($301mm, TX) for $23mm in cash or about 0.75x book.

SunTrust Bank announced it will sell its asset management subsidiary, RidgeWorth Capital Management, to RidgeWorth employees and an investor group for up to $245mm. RidgeWorth provides support to boutique money managers in areas that include trading, compliance, technology, accounting, distribution and marketing.

Pacific Mercantile Bank, a wholly-owned subsidiary of Pacific Mercantile Bancorp, is exiting the consumer mortgage origination business. The bank, with seven locations in Orange, San Diego, Los Angeles and San Bernardino counties, expects to sell or end its mortgage banking division to focus on its mission to become a prominent business banking franchise, Steven Buster, president and chief executive of Pacific Mercantile Bancorp said in a statement. "We made the strategic decision to exit the consumer mortgage origination business due to the operating performance of the unit and the bank's desire to focus on continuing to develop the commercial banking opportunity in its marketplace," Buster said. Pacific's consumer mortgage division will stop accepting new applications on or about Dec. 20.

And change is constant: TCF National Bank ($18.4B, SD) will close 37 bank branches in Jewel-Osco stores in Chicago to address customer migration away from traditional retail banking to mobile, ATMs and online. TCF also announced it would be adding 52 ATMs to Chicago Transit Authority train stations around the city.

As part of its QM and ATR preparation, Wells is revising the qualifying rate requirements for 7/1 and 10/1 ARMs to be calculated as the greater of the fully indexed rate or the initial note rate, effective as of January 10^th.

Chase is expanding the Chase Legal review of inter vivos revocable trusts, which should be submitted to Chase Customer Support; however, the credit file should still go to underwriting. This is available only for Agency and non-Agency non-delegated loans.

In order to align with Agency guidelines, Chase has expanded the maximum LTV/CLTVs for Agency ARMs with Accept/Eligible findings in LP, FNMA Fixed Rate 2-Unit Primary Purchase transactions, and FHLMC Fixed Rate 1-Unit/Condo/PUD Non-Owner Occupied Purchase transactions. The Agencies' new LLPAs for cash-out LP Conforming ARMs with expanded LTVs will apply as well. Applicable loans with an LTV between 75% and 80% will incur an adjustor of -1.250 for FICO scores between 700 and 739 and -.500 for scores of 740 and over.

Turning to the markets, we finished Friday with the market thinking that yes, we can all expect the Fed to taper off buying fixed-income securities, but still we don't know when, but even when it does scale things back, the world will not end and rates won't go up 2%. In a Reuters' poll of 63 economists conducted after Friday's employment report, 14 percent of those polled expected tapering to be announced in December, 30 percent in January and 52 percent in March. This compared to odds of 5 percent for December, 26 percent for January and 69 percent for March in a poll conducted a couple of weeks prior to that. Supply from mortgage bankers has been averaging $1 billion per day while the daily pace of Fed buying has been $2.7 billion.

Of more importance to individual borrowers was the FHFA announcement late Monday regarding changes in guarantee fees, including a 10 basis points increase in the base g-fee for all mortgages effective April 1, 2014 for loans exchanged for MBS and March 1 for loans sold for cash. We also had the Senate vote confirming Rep. Mel Watt as FHFA Director. Investors are worried that Watt will expand HARP in various ways including extending the cut-off eligibility date and offering principal forgiveness.

We have a lot going on this week. Today is the Industrial Production & Capacity Utilization duo. Tomorrow is the Consumer Price Index. Wednesday, December 18^th, Federal Open Market Committee (FOMC) will announce its views on the economy along with information regarding QE3 and potential changes in policy rates or asset purchases. Prior to that we'll have the Housing Starts & Building Permits duo, followed by Thursday's Existing Home Sales, Philly Fed, and weekly Jobless Claims numbers. Friday, December 20^th, Gross Domestic Product (GDP) will measure the total output of the country's production. We'll also have the Treasury auctioning off $112 billion in 2-, 5- and 7-year notes and 5-year TIPS beginning Tuesday through Thursday. Looking at actual numbers, the risk-free 10-yr note closed Friday with a yield of 2.87% and is now down at 2.85%; MBS prices are a shade better.