Posts filed under ‘Economy’

Two Reports You Have To Read

Those of you in charge of anticipating where interest rates are headed or attracting and retaining the best employees, should take the time, assuming that your retinas are still in working condition, to read two recent reports released by the Federal Reserve Banks of San Francisco and New York. One report unveils a new survey intended to gauge employee sentiment and the other offers yet another plausible explanation for why we have not seen pressure to increase wages even as the unemployment rate continues to tumble at a rate almost as fast as the President’s approval ratings.

As readers of this blog will know, yours truly is becoming obsessed with the issue of inflation and wage growth. Simply put, if the economy is growing and the unemployment rate is dropping, why aren’t we seeing more upward pressure on prices in general and wages in particular?

The New York Federal Reserve has just introduced a new labor market survey which may help answer those questions. According to the New York Fed, the survey is the first which focuses on employee experiences and expectations. For example, it asks respondents how many job offers they have received and breaks them down by age. In July, 22% of persons under 45 reported receiving at least one job offer in the past four months compared to about 13% of older respondents.

A key question that this survey may help answer is, why has there been so little churn or job movement? In a well-functioning free market economy, churn is key since it both creates jobs for young employees and rewards the best performers with new growth opportunities. According to the survey, workers with annual household income of $65,000 or less are more likely to predict that they will be switching jobs or becoming unemployed in the near future than higher income employees. According to the Fed, these predictions are actually good indications of where the economy and the labor force is headed.

A second report produced by the Federal Reserve Bank of San Francisco has me scratching my head a little. It reports that wage growth is improving and that such growth, “may be even better than the headline number suggests.”

The good news is that wage growth for continuously full-time employed workers is currently in line with the wage growth peak of 2007. The bad news is that the entry of new and returning workers to full-time employment is holding down aggregate wage growth. The bank goes on to explain that, “As the labor market has continued to strengthen, many workers have moved from the sidelines of the labor force or part-time positions into full-time employment. The vast majority of these new workers earn less than the typical full-time employee, so their entry brings down the average wage.”

Now I don’t know why  the Bank considers this good news exactly. It means that the glut of under employed workers is so large that there is little pressure on wage growth. This type of report makes me wonder why the Fed is even considering raising interest rates any time soon.

August 22, 2017 at 8:48 am Leave a comment

Is The Fed Playing Where’s Waldo With The Economy?

That is the question I pondered on Friday as I settled in for a long weekend at a lake house outside of Cooperstown, New York. As the Fed nudges the Fed Rate higher at what point will consumers expect a greater return for placing their deposits with you? Or as the WSJ put it in this great article ” For now, most bankers are happy to keep deposit yields low, standing pat even as the Federal Reserve hikes short-term rates. No one is sure, though, how long customers will tolerate that.”

The chart accompanying this  blog (which I created using the FRED website) demonstrates that something really strange is going on here: on the one hand employment is that a 16 year low;  on the other hand inflation has Hardly nudged and wage growth has been anemic. Not surprisingly interest rates on  12 month certificates of deposit  are flat.

History says it’s not supposed to be this way. After all, the Fed has gradually been raising rates and has signaled that it intends to start selling  all those mortgage back securities back into the economy, but despite impressive  job gains we haven’t seen the type of upward pressure on wages that would make raising rates the logical thing  for your credit union and the Fed to do  The WSJ reported that from a year earlier, average hourly earnings increased 2.5%, in July  thanks to a 9 cents-an-hour increase from the prior month. That is slower than normal in the past  quarter. In fact,  one of the reasons the market is booming is because it’s the only place persons planning for retirement can make any money off their money.

Which brings us back to Where’s Waldo? If you read their analysis  or listen to their interviews economists  are convinced that inflation is hiding  out there somewhere, they just haven’t looked in the right place  yet.  Conventional wisdom says they are right but if they are wrong than we aren’t anywhere near  the point  yet where the Fed should raise rates again or  your  members will demand a higher return on their deposits

August 7, 2017 at 9:27 am Leave a comment

Industry Talks the Talk and Walks the Walk

The credit union industry’s long, national nightmare dealing with the fallout from the mortgage meltdown is not quite over, but, NCUA, by laying out its roadmap for a post-crisis framework and giving some money to credit unions in the process, has taken an important step in ongoing efforts to move beyond the crisis once and for all.

For those of you who haven’t seen the news yet, the agency announced several important steps yesterday. It announced that it would be shutting down the Temporary Corporate Credit Union Stabilization Fund which has been in existence since 2009. In addition, it wants to raise the Share Insurance Fund equity ratio to 1.39% of insured credit union assets from 1.30%. If all goes according to plan, credit unions will be getting some money back.
While it’s too early to comment on the specifics – which is a fancy way of saying I need to get a lot more comfortable with the proposal’s intricacies before I start blogging about them – I’ve said it before and I will say it again: the credit union industry writ large should be proud of how it has conducted itself over the last several years. It demonstrated that it not only talks-the-talk but walks-the-walk when it comes to the shared benefits and responsibilities that come with being part of a cooperative system.
• It repaid its debts without costing the American taxpayer a cent.
• All institutions contributed and sacrificed to get the job done.
• Credit unions working jointly with NCUA scaled back the size of the corporate system and limited its powers, doing more to address systemic risk than the banking industry, which created this mess in the first place.
• The agency’s aggressive and innovative use of the legal system to recover funds from some of these banks not only saved credit unions money but has provided a model that all regulators will use in the future to save taxpayer money.
That is a record to be proud of. Had the banking industry and its regulators conducted themselves with the same level of competency and accountability, the American public wouldn’t be quite as cynical as it is today.

July 21, 2017 at 9:12 am Leave a comment

And down the stretch they come…

With the legislative session scheduled to end sometime tomorrow, this is the time when most of the really important stuff is voted on, amended, or left to wither on the vine until next January.

While there are a bunch of bills that I will be talking about in the coming weeks there is of course one that continues to grab the attention of all faithful bloggers; I am talking about the Banking Development District bill which continues to advance. Yesterday it passed the Assembly without being laid aside for debate. The final tally was 83 to 9.

Remember now is the time to be contacting all those Senators and debunk all the nonsense the banks have been telling them. For one thing, credit unions do pay taxes, lots of them. You may also want to point out that this bill does nothing more than allow credit unions to participate in a program that would assist areas with a dearth of banking services.

A second issue that came up yesterday doesn’t deal with legislation, but it is a pressing concern not only in NY, but to anyone who offers mortgage loans across the country. State Comptroller, Thomas DiNapoli, issued a report calling for enhanced state/federal coordination of water quality standards. This gives me the opportunity to sound off on one of my personal pet peeves.

No one is ever going to accuse me of being a tree-hugger, but my research of issues surrounding the water contamination in Hoosick Falls and the potential ramifications of hydro-fracking has demonstrated to me that lenders must get clearer guidance from the federal government and the GSE’s in particular about baseline environmental standards including water quality.

As it stands right now any time a mortgage is sold to the secondary market the seller is making strict liability guarantees regarding the environmental safety of the area in which the property is located. If these warranties are breached the lender can be made to repurchase the mortgage. Obviously, this makes sense if someone is selling land in love canal, but most environmental issues are not as clear cut as the extreme cases that get national attention. The result is that lenders who work with the GSE’s are forced to make tough decisions about the long term environmental impacts dealing with issues such as water quality and mediation, often with little guidance from the Federal Government.

Furthermore, many of the areas in need of environmental remediation are already suffering from economic decline. The hesitancy of lenders to lend in these areas (even for a short time) makes these declines even more dramatic.

I applaud Comptroller DiNapoli for highlighting the importance of this issue, but I would suggest that any comprehensive analysis is incomplete unless it also highlights the need for the GSE’s to work more closely with lenders, lending in areas where the water quality is in need of mediation. One of the most basic things they can do is limit the scope and or length of warranties.

 

June 20, 2017 at 9:44 am Leave a comment

Banking Development District Bill Gains Traction

Legislation that would allow credit unions to participate in Banking Development Districts (BDD) (S.6700 -Hamilton)/A.6494B -Zebrowski) for the first time in two decades is gaining traction in both houses of the Legislature as we enter the final week of session. This is good news for anyone in need of greater access to financial services. The bill has advanced to the Assembly floor and has been introduced by the Senate Rules Committee, which means it can be voted on at any time by the full legislature.

The BDD program has been in existence since 1997 with the first district authorized in 1999. The basic idea of the program is that localities and financial institutions jointly apply to the DFS for designation as a BDD. In return for opening up a branch in an area underserved by banking institutions, banks and other depository institutions are eligible for low interest deposits.

The program is a great idea since it makes it more cost effective for financial institutions to provide banking services in areas which are currently lacking access to depository institutions. Unfortunately, as the DFS noted earlier this year, banks and other financial institutions “have submitted a modest number of applications over the last twenty years.” In addition, a 10 year review of the program by the Banking Department concluded that it could be “dramatically improved.” Allowing credit unions to participate in the program could provide the jolt it needs to be truly effective.

Shock of shocks, the usual suspects are trying to kill the bill. The kneejerk opposition of the banking industry, while utterly predictable, is even more cynical than usual. Despite the fact that the industry has demonstrated a lack of interest in participating in the program for almost 20 years, it is fighting to keep credit unions from enhancing the program.

This is the latest example of banks being so opposed to credit union that they are putting their own perceived interests above consumers. Despite the fact that we live in one of the wealthiest states in the nation, there are millions of New Yorker’s who have no choice but to turn to check cashers and payday lenders. Anything the Legislature can do to encourage and help persons of modest means get their monies deposited in to a financial institution is in everyone’s best interest.

 

June 16, 2017 at 9:23 am Leave a comment

Three Things To Ponder In the Week Ahead

Here are three things you should know as you snap back from reality following a sunny and dry summer weekend;

  • The Washington Post is reporting that Fannie Mae will begin raising its maximum debt to income ratio from 45 percent to 50 percent, beginning July 29, 2017. This is of course big news for those of you who provide mortgages because it expands the pool of member mortgages that can be sold to the secondary market. Also, remember that under the Dodd-Frank Act any mortgage that qualifies for sale to either Fannie Mae or Freddy Mac is a qualified mortgage. This is a big deal because without this, under the qualified mortgage requirements, the debt to income ratio cannot exceed 43 percent per the CFPB.
  • If all goes as expected, the Federal Reserve will once again nudge interest rates higher when its policy making committee meets later this week. Personally, I am really looking forward to Federal Reserve’s Chair Janet Yellen’s press conference following the festivities. The economy continues to send out a string of mixed signals and it will be interesting to see how much she hedges her bets when it comes to the possibility of future rate hikes later in the year.
  • The Wall Street Journal is reporting that the Treasury Department may release as early as today, a 150 page blue print for Regulatory Relief. Among the executive orders signed in the early days of the Trump Administration, was one requiring that the Treasury Department report on potential areas of regulatory reform. While the report has no legally binding impact, it will provide an indication about the top regulatory relief priorities of the administration. Incidentally, the report will not call for the elimination of the CFPB’s single-director structure, but will instead propose that the position be answerable to the president. If it comes out today, I will of course be skimming it as I watch game 6 of the NBA finals, to tell you what is in there about credit unions tomorrow morning. I hope the anticipation doesn’t keep you awake tonight.

On that note enjoy your day!

June 12, 2017 at 8:19 am Leave a comment

Household Debt Hits New Record

Far be it from me to tell anyone how to do their job, but if I was involved in lending for a living I would certainly take a close look at the New York Fed’s quarterly snapshot of household debt released yesterday. Its either (a) an infliction point signaling that sustained higher growth has taken hold; (b) a high point which masks some disturbing trends; or (c) something in-between.

First, the “good” news. The American consumer is back baby! The New York Fed tells us that household debt achieved a new peak in the first quarter of 2017, rising by $149 billion to $12.73 trillion—$50 billion above the previous peak reached in the third quarter of 2008. Balances climbed in several areas: mortgages (1.7 percent); auto loans (0.9 percent); and student loans (2.6 percent). Considering that consumer spending accounts for at least 70% of the nation’s economic growth all this spending is good news. Despite the growth, credit card balances fell 1.9 percent this quarter.

Secondly, there is evidence that we have learned our lesson According to this accompanying research the country still has less mortgage debt than it did a decade ago and lenders have actually followed the credit union lead in lending to more credit worthy borrowers.

So why am I a little skeptical? It doesn’t feel like it but by historical standards we are at the back end of the growth cycle. As none other than Ben Bernanke pointed out in a speech yesterday that from a historical standpoint a recession is due in the next two to four years.   In addition much of the current economic hype is predicated on a “Trump bump” but don’t expect major Reg Relief let alone tax reform until Robert Mueller completes his Russia investigation.

Supreme Court Makes Important Bankruptcy Rule

One of the CFPB’s real pet peeves has to do with debt collectors who continue to seek repayment of debts even after the statute of limitation for their collection has expired. In addition, inquiring minds want to know if it is legal for debt collectors to submit proofs of claim in Chapter 13 bankruptcy proceedings for the repayment of such debts. Earlier this week the Supreme Court provided guidance on this issue. It ruled that debt collectors do not engage in an unfair and deceptive practice, under the Fair Debt Collections Practices Act, by submitting claims for stale debts.

MIDLAND FUNDING, LLC v. JOHNSON dealt with a creditor who submitted a proof of claim for repayment of a 10 year old credit card debt. The debtor argued that this was an unfair and deceptive practice since the debt was not collectible. Alabama has a six year statute of limitations. The Court explained that the parties to a Chapter 13 bankruptcy are sophisticated. Most importantly the bankruptcy is responsible for reviewing the validity of all claims. The court effectively held that, while a trustee has every right to reject a stale loan there is nothing to keep the debt collector from seeing if he can slip one by the goalie.

Baseball Hot Dogs, Apple Pie and Uber

Nothing says summer like hailing a ride from Uber or Lyft, or at least that is what some New York lawmakers think. They recently proposed legislation to push up the effective date of New York’s law authorizing ride hailing services from July 9th to July 3rd, just in time to get a cheap ride home from the beer infused family Fourth of July party.

May 18, 2017 at 9:18 am Leave a comment

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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