Posts filed under ‘Economy’
The late Met announcer Ralph Kiner used to say that a team is never as good as it looks when it’s winning and is never as bad as it looks when it’s losing. The same could be said of a stock market.
With apologies for those of you recalibrating your retirement plans with every 100 point drop in the market, this rout is not as bad as it looks.
What does the investing class know today that it didn’t know yesterday morning? We already knew that the economies of developing countries were weakening. Brazil is in the midst of a major government corruption scandal, Russia is busy trying to restart the Cold War, India needs to further decentralize its economy and the Chinese economic engine had to slow down at some point. All of this has been going on for months. Since March 2014 an estimated $1 trillion has been pulled out of emerging markets by investors. (http://money.cnn.com/2015/08/24/investing/emerging-markets-capital-outflows/index.html)
Was there surprising news about the state of the Western economies? No. In July, the Word Bank downgraded its economic growth forecast in response to an “unexpected output contraction in the United States, with attendant spillovers to Canada and Mexico.” As for Europe, growth in the EU declined from 0.4 to 0.3% in the second quarter.
What we also knew yesterday morning was that the world economy could only take off if the American consumer started spending again. As explained in that same IMF forecast, ”[t]he underlying drivers for acceleration in consumption and investment in the United States—wage growth, labor market conditions, easy financial conditions, lower fuel prices, and a strengthening housing market—remain intact.” http://www.imf.org/external/pubs/ft/weo/2015/update/02/. I could take issue with each one of these conclusions, but I’ll just point out that anyone who thinks the American consumer is feeling flush with higher wages is wrong. Wages are barely budging and took a beating over the last five years,
So what really happened yesterday? Nothing more or less than an overdue correction to an overheated market. The best piece of analysis I have read comes from Mohamed El-Erian, the chief economic adviser at Allianz SE and a columnist for Bloomberg News who writes: “Some commentators have rushed to describe the recent global stock market turmoil as “historic” and “unprecedented,” yet its evolution has been quite traditional so far.” The markets are adjusting to the reality that central banks can’t quickly stabilize asset prices. Quantitative easing is over.
What all this means is that markets are trending towards reality, which is exactly what markets should do. Expect bond yields to remain low and the Fed to put off raising short-term rates especially now that China has moved to cut its own rates. The economy has never been as strong as some people thought it was. Wall Street is just waking up to this reality.
If at First You Don’t Succeed. . .
Visa and Target announced a settlement intended to compensate card issuers for the high profile data breach of the Minnesota retailer that compromised an estimated 40 million debit and credit cards. The price tag is reportedly $67 million. The agreement comes months after issuers, including credit unions, scuttled a proposed $19 million settlement with MasterCard. NAFCU’s Carrie Hunt is quoted in the WSJ: “This settlement is a step in the right direction, but it still may not make credit unions whole.”
Stay tuned. This will be an interesting issue to keep an eye on in the coming weeks as the specific terms are analyzed.
Foreclosures in New York: Alive and Well
NY’s foreclosure problems are far from resolved, especially in NYC’s suburban communities according to State Comptroller Thomas Dinapoli, who has the numbers to back it up. Between 2006 and 2009, the number of new foreclosure filings jumped 78%. They leveled off in 2011, hitting a low of 16,655, but shot up again. Filings climbed to 46,696 by 2013 before edging back to 43,868 in 2014, still well above pre-recession levels, according to the report.
By the end of 2015, there were over 91,000 pending foreclosures with Long Island and the Mid-Hudson accounting for a disproportionate share. The four counties with the highest foreclosure rates are all located downstate: Suffolk (2.82 percent, or one in every 35 housing units), Nassau (2.47 percent, or one in every 40 housing units), Rockland (2.26 percent, or one in every 44 housing units), and Putnam (2.10 percent, or one in every 48 housing units). Counties in Western New York and the Finger Lakes regions, in contrast, tended to have lower pending foreclosure rates and decreasing caseloads.
The good news is that these numbers most likely represent a backlog of delinquencies rather than a further deterioration of economic conditions. The Comptroller reports that there are fewer foreclosures at the beginning of the process while activity at the end of the process (notices of sale, notification that the property has been scheduled for public auction) is accelerating.
The backlog of foreclosures reflects not only the aftershocks of the Great Recession but also the inevitable result of a foreclosure process that is hopelessly byzantine and invites delay. Maybe there will be a grand bargain in which state policymakers take steps to expedite foreclosures in return for lenders having to comply with one of the nation’s most onerous and lengthy foreclosure processes. In the meantime, I’m curious if the trends persisting in New York began to spread nationally thanks to the adoption of New York style regulations on the national level. Here is a link to the report.
Time Extended for Two-Cents on Online Lenders
You have more time to sound off about the extent to which online marketplace lenders should be regulated if you are so inclined. The Treasury has extended until September 30th the deadline for responding to its Request for Information on the proper regulation of online lenders. The RFI asks a series of questions related to companies operating in three general categories of online lending: (1) balance sheet lenders that retain credit risk in their own portfolios and are typically funded by venture capital, hedge fund, or family office investments; (2) online platforms (formerly known as “peer-to-peer”) that, through the sale of securities such as member-dependent notes, obtain the financing to enable third parties to fund borrowers; and (3) bank-affiliated online lenders that are funded by a commercial bank, often a regional or community bank, originate loans and directly assume the credit risk.
Are these flash-in-the-pan industries that will fold with the next economic downturn or innovative disruptors of the banking model? If they are the later they may hit credit unions particularly hard. According to the Treasury, small businesses are already more likely than their larger peers to go online for their products and services. Online lending may provide them with a means to quickly access the cash that traditional lenders are reluctant to provide them during economic downturns.
The American consumer is still cautious about taking on more debt, but the spending they are doing is making credit unions an even more attractive option.
On what am I basing this pronouncement? The New York Federal Reserve released its quarterly report on consumer spending on August 13th. It indicates that auto loan origination reached a ten-year high at $119 billion. America’s aggregate auto loan balance now stands at $1 trillion. Credit unions have seen a surge in auto loans over the last year and these statistics would seem to indicate that the surge is continuing.
Another bright spot for credit unions has to do with mortgage loan originations. According to a survey, credit unions share of mortgage originations increased from 7% to 11% comparing the first quarter of 2013 with that of 2015. What interests me about this statistic is that the surge in credit union home lending is occurring even as banks continue to impose tougher lending standards on home loan applicants.
According to the consumer report, less than 8% of new mortgage originations were given to borrowers with credit scores below 660. The TransUnion survey speculates that credit unions, having lent more prudently during the recession, are now better positioned than their banking counterparts to make mortgage loans.
Are EMV Cards Being Skimmed
Krebs on Security is reporting that hackers have come up with a creative way of skimming information from EMV Chip cards. The ever reliable Krebs reports that Mexican authorities have discovered an ATM skimming device that is inserted into an ATM and is capable of recording the data that is transmitted between an EMV chip and the ATM. This is further evidence that anyone who thinks of chip-based technology as a silver bullet to prevent card fraud is sadly mistaken.
What Concerns me most about the integrated disclosure requirements that take effect in October isn’t the new disclosures or the timeline for providing them, as troublesome as they are. No, what concerns me most about TRID is encapsulated nicely in a headline in this morning’s American Banker:” Realty Agents, Builders Clueless about New Mortgage Disclosures.”
Why does this concern me? Because to correctly and cost effectively implement TRID your credit union must establish a new framework for dealing with third parties ranging from real-estate agents to mortgage brokers all of whom must understand that the mortgage world has fundamentally changed. If they understand why new procedures are being put in place you can get on with mortgage lending. If you don’t get their buy-in than you can bet that they will blame you for every inevitable bump along the mortgage road and your credit union’s reputation will unfairly suffer.
For example, I’m sure many of you know that TRID generally requires a closing disclosure to be received three business days before a mortgage loan is consummated. What happens if your member’s real estate agent doesn’t know this or doesn’t care? The first time one of her clients has a closing delayed she will start looking for other lenders to whom she can refer clients.
What about the erstwhile closing attorney who you have used for years? You have always strived to accommodate his schedule. His last second rushes to get closing disclosures to you is office legend. At the end of the day his closings take place and we all live happily ever after.
In the post-TRID world the attorney can no longer drive the ship. If he doesn’t get the closing material to you on time the closing can’t take place. This means that you have to reassess what can and should be done by the credit union’s staff. In addition, you should not assume that your closing attorney has had the time to dissect TRID and fully understands its practical implications. Amendments to your retainer agreements may even be in order so that the attorney is on the hook for the cost of closing delays caused by his tardiness.
What about the appraiser and title agent your credit union always recommends? The new early disclosures have even stricter rules about when and by how much the price of a service disclosed on the Loan Estimate can vary from the amount ultimately charged the member in the Closing Disclosure depending on how closely you work with your third-party service providers. For instance, if you require members to use a specific appraiser than the amounts disclosed on the initial loan Estimate and the amount charged on the Final Disclosure can’t vary. There is a bit more disclosure flexibility provided to lenders who permit your mortgage applicants to shop for settlement services (§ 1026.19(e)(1)(vi)).
But no matter what approach you take the onus is on you to put your providers on notice that the days of increased charges for unexpected glitches are over As the Bureau recognized in the TRID preamble a “creditor originating a loan in a geographical area with which it is unfamiliar may have less familiarity with the mortgage market in that area, but the Bureau believes that the creditor nonetheless has better access to information than the consumer about settlement service providers in the geographical area.”
Here are just three examples of how simply educating your lending staff about TRID does not go far enough. Real estate agents don’t care about compliance as much as they do about closing the deal; they are going to recommend the originator that can close the quickest. Vendors want to be paid for the work they perform and lawyers don’t like to be told how to do their job. By explaining how the new rules impact your credit union’s obligations you may avoid a race to the bottom in which third parties give their business to the mortgage lender must willing to bend the rules.
Happy Days Are Here again?
As an unabashed member of the “Glass is Half Empty Club” when it comes to the economy I’m not all that surprised by the latest economic news as summarized by the WSJ “Personal spending, which measures what consumers spend on everything from doughnuts to dishwashers, rose 0.2% from a month earlier, the smallest gain since February, the Commerce Department said Monday. In May, spending rose a revised 0.7%” In addition personal income grew a less than inspiring 0.4%. (http://www.wsj.com/articles/u-s-consumer-spending-up-0-2-in-june-1438605172)
Some Good News on Housing
As housing goes, so goes the economy. So the announcement by the National Association of Realtors that existing home sales increased in June at their fastest pace in over eight years is some of the best economic news I’ve seen lately. It is likely to give comfort to Fed members uneasy about whether or not to start raising short term interest rates this year. According to the NAR, sales of existing homes increased 3.2 percent to a seasonally adjusted annual rate of 5.49 million in June from a downwardly revised 5.32 million in May. Sales are now at their highest pace since February 2007 (5.79 million).
One statistic that I’ve been keeping an eye on is the number of first time home buyers. Their noticeable absence from the market has been one of the key indicators that the post-recession economy we are living in still feels like a recession to many Americans. The NAR report revealed mix results on this front. The percent share of first-time buyers fell to 30 percent in June from 32 percent in May, but remained at or above 30 percent for the fourth consecutive month. A year ago, first-time buyers represented 28 percent of all buyers.
What remains to be seen is how much of the increase in housing activity reflects growing consumer confidence and how much reflects buyers rushing to buy before the Fed ends this period of historically low interest and mortgage rates.
Here is the NAR Press release.
Live from DC. . .It’s the Debbie Matz Show!
NCUA Chairman Debbie Matz appears before a House Financial Services Subcommittee today at 2:00 PM to answer questions about NCUA’s budget and operations. In addition to questions about NCUA’s budget process-or lack thereof-CUNA anticipates that we might also get some information about the pending Risk Based Capital Reform. You can watch it live over the Internet or probably download it tonight if you are having trouble sleeping. Here is a link to the hearing.
You’ve Come A Long Way Baby(?)
Nothing to do with credit unions but there is a provocative article in the New York Times reporting on the changing attitudes that young professional women are taking as they enter the workforce toward achieving a work/life balance. According to the column “The youngest generation of women in the work force — the millennials, age 18 to early 30s — is defining career success differently and less linearly than previous generations of women. A variety of survey data shows that educated, working young women are more likely than those before them to expect their career and family priorities to shift over time.”
It seems to me that those businesses that are mindful of this attitudinal shift by, for example, embracing workplace flexibility and going the extra mile to keep young parents from slipping down the corporate ladder even as they dedicate more time to their families, might be able to attract and keep employees who they otherwise couldn’t afford.
Conventional wisdom tells us that if the motto of previous generations was that “good fences make good neighbors” the motto for the millennial generation is “share and share alike.”
Look around you and everything from bedrooms to clothes to cars is being made available by your neighbor for rent. Personally, it gives me the creeps, but my car is rarely neat enough to let anyone but my closest friends and family ride in it.
Will this trend impact lenders? I have written posts about how ride-sharing services like Uber pose risks for credit unions because, as the law currently stands, a car being used as a taxi isn’t insured in the event of an accident. Good luck getting that car loan paid back.
But there might be a way to not only guard against the sharing trend, but profit from it. Car-sharing poses insurance risks similar to ride sharing. An App is used to connect people willing to loan their car to people who need a quick rental. It’s taking off in cities — where it’s not uncommon to find residents who don’t own a car but who may need one in a pinch. Ford has started a pilot program with which it will offer a ride sharing App to people who need to rent a car for as little as an hour. It is available in Portland, D.C., San Francisco and Chicago. It’s targeting car buyers who obtained Ford Financing.
Here is the part that I find so clever. According to the American Banker, the project will enable Ford to examine the costs and benefits of car sharing and “augurs a future-not too far off-in which auto lenders take into account the revenue a vehicle’s car owner can generate by renting a vehicle.” In other words, my concern is that your collateral is being put at risk; but lending models are already being developed that may enable your credit union to make more loans to more members precisely because they participate in the sharing economy.
For the record, I am not convinced that the sharing economy reflects a fundamental shift in consumer habits. For my money, it simply reflects how desperate people are to squeeze every dollar they can out of this economy. I don’t care if you are 25 or 50, once you have a secure, well-paying job renting out your car to a total stranger looses its appeal. But, for now the sharing economy is alive and well and there are ways to capitalize on this trend.
Has a deal Really Been Reached With Greece?
If you have turned on the news this morning or read a paper you have heard that Europe had reached a deal to keep Greece in the group of countries that use the Euro. These headlines are entirely premature. By Wednesday, the Greek parliament must agree to a long list of austerity measures that sound just as severe as those rejected by the Greek voters a little more than a week ago. Maybe there is more in this for the Greeks than is being reported but, if not, we may very well be seeing the last act before Greece drops the Euro and jilts the world economy.