Finreg Summary For Lenders, Bank Earnings Roundup, Mortgage Insurance Tax Deductions

Finreg Summary For Lenders
The Financial Reform Bill passed the Senate, and will no doubt be signed by President Obama. It is 2,300 pages. From my limited view, there are hundreds of thousands of questions for regulators and investors to answer in the next several months (at least), and most large mortgage companies are doing their best to tell clients that “they just don’t know yet” what the answers are to many questions. Certainly nothing will happen overnight. I know very little, but here is a 15 page synopsis by the Mortgage Bankers Association which may be of some help with the lender-specific topics.

Many mortgage lenders are very concerned with the compensation portion of the bill, or at least how regulators interpret the guidance. As one industry veteran wrote to me, “There already is no Origination Fee/Point, Discount Fee/Point, Yield Spread Premium – they were all done away with the GFE RESPA changes last year. There is now only “Origination Charge” in Box 1, on the new 3 page GFE (the total in Box 1 & Box 2 encompasses all of the former Origination Fee, Discount Fee, Yield Spread Premium). The Origination Charge is a flat dollar charge. The new legislation actually just catches up to the new RESPA GFE changes.”

FDIC’s Take On Finreg
FDIC Chairman Sheila Bair said, reflecting the government’s stand, “The responsibility now shifts to regulators to implement this law in a manner that is aligned with its principles. To this end, the FDIC will move swiftly and deliberately through the various rulemakings and studies required under the bill. We will do so in an open, transparent and collaborative fashion…I am also very pleased that the bill will strengthen the capital requirements of the U.S. banking system. For the first time, bank holding companies will be subject to the same standards as insured banks for Tier 1 capital. Excess leverage and thin capital cushions were primary drivers of the financial crisis, which resulted in severe, sudden contractions in credit and led to the loss of millions of jobs. This provision will bring stability to the financial system, allowing it to support real, sustainable, long-term growth in the real economy.”

Goldman Settles With SEC
On this day in 1941, prior to the US’s entry into World War II, Joe DiMaggio set the American League’s (and professional baseball’s) record for hitting in consecutive games: 56. The National League’s record was set in 1897 (45) by Wee Willie Keeler. Those are big numbers – so is the $550 million that Goldman Sachs has agreed to pay in order to settle federal claims that it misled investors in a subprime mortgage product as the housing market began to collapse. A judge is expected to approve the deal, but many say it is “peanuts” compared to Goldman’s $13.39 billion in profit last year. Heck, it is even less than the supposed amount Tiger Woods will pay Elin Nordegren: $750 million.

Bank Earnings Roundup
JPMorgan Chase’s earnings were better than expected yesterday, and today, so far, GE’s, Bank of America’s, and CitiGroup’s were better than expected as well (although Google’s was weaker than expected). For the 2nd quarter, BofA’s earnings per share were 27 cents versus 22 cents expected; revenue came in at $29.15 billion, and BofA had $8.1 billion set aside for credit losses. Overall BofA said it had lower credit costs. Generally speaking, the funds involved by banks reducing reserves, by bringing them back “in house”, are not viewed as long term income. So it is good news that the money is not being spent on losses, but not viewed as much good news either. CitiGroup released its earnings: 9 cents per share versus 5 cents expected. Revenue came in as expected at about $22.1 billion for the 2nd quarter. Overall – fewer credit problems but very low loan growth from the banks.

Mortgage Insurance Tax Deductions
Way back when, the US Congress passed legislation extending a tax provision that allows homeowners to deduct the cost of mortgage insurance premiums from their federal income tax returns through 2010. Borrowers with adjusted gross incomes below $100,000 were, and are, able to deduct 100% of their mortgage insurance premiums, although deductions are phased out in 10% increments for borrowers with adjusted gross incomes between $100,000 and $109,000. But… this ends at the end of this year. I have heard of no plans to extend this, or not extend it. Although I would expect that Congress will extend it, the very real possibility exists that legislators will wait until the last minute, just as they have for items like flood insurance.

No Inflation, Weak Manufacturing Lead To More Low Rates
A slow economy and no inflation usually don’t lead to higher rates – unless one starts thinking about the amount of debt out there. But for now, few people have been complaining about mortgage rates, and interest rates in general, and with good reason. Few have claimed that our economy is doing well enough to support higher rates, nor see any reason for rates to rise much in the near future. Housing and jobs continue to shuffle along. The Fed minutes from the June meeting confirmed that earlier this week: growth was downgraded, there is lingering high unemployment, no threat of inflation, etc.

Yesterday’s Empire Manufacturing number and the “Philly Fed” number were weak, which over-shadowed a strong Initial Jobless Claims report. (Claims are often distorted in July due to seasonal shut-downs in the auto industry related to retooling for the new model year as temporarily laid-off workers file for unemployment. Seasonal adjustment factors attempt to account for this, but since the schedules change every year, and GM recently reported that they were not shutting as many assembly plants as usual due to demand for various models, it seemed no one knew quite what to make of the number.) The 30-yr bond auction went well, and the demand continues to be solid for mortgage-backed securities. Selling and buying were a little light at $1.7 billion, with a smattering of 3.5% securities, some 4%, but still mostly 4.5% MBS’s trading hands – very liquid coupons for hedging. Even our friend the 10-yr Treasury note dropped below 3% for the first time in a few weeks, and stocks were about unchanged.

The June Consumer Price Index number dropped .1%, with the core rate +.2% – still no inflation. Year-over-year, the CPI is only up 1.1%. (Later in the morning, to close out the week, we have the University of Michigan Consumer Sentiment Survey.) Yesterday mortgage prices ended the day almost .375 better in price, and the yield on the 10-yr went back below 3%, although after the news this morning we find the 10-yr back up to 3.00%, and mortgage prices are slightly worse.

Daily Humor
Jacob, age 92, and Rebecca, age 89, living in Miami, are all excited about their decision to get married. They go for a stroll to discuss the wedding, and on the way they pass a drugstore. Jacob suggests they go in.

Jacob addresses the man behind the counter: “Are you the owner?”

The pharmacist answers, “Yes.”

Jacob: “We’re about to get married. Do you sell heart medication?” Pharmacist: “Of course, we do.”

Jacob: “How about medicine for circulation?” Pharmacist: “All kinds.”

Jacob: “Medicine for rheumatism?” Pharmacist: “Definitely.”

Jacob: “How about suppositories?” Pharmacist: “You bet!”

Jacob: “Medicine for memory problems, arthritis and Alzheimer’s?” Pharmacist: “Yes, a large variety. The works.”

Jacob: “What about vitamins, sleeping pills, Geritol, antidotes for Parkinson’s disease?” Pharmacist: “Absolutely.”

Jacob: “Everything for heartburn and indigestion?” Pharmacist: “We sure do.”

Jacob: “You sell wheelchairs and walkers and canes?” Pharmacist: “All speeds and sizes.”

Jacob: “Adult diapers?” Pharmacist: “Sure.”

Jacob: “We’d like to use this store as our Bridal Registry.”

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