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CoreLogic – loan performance insights finds declining mortgage delinquency rates for April as states impacted by 2017 hurricanes continue to recover

–  Early-Stage Delinquencies Drop 0.4 percentage Points Year Over Year in April

–  The Share of Home Loans Transitioning from Current to 30 Days Past Due is the Lowest for the Month of April Since 2000

–  Only Hurricane-Impacted States Are Experiencing Significant Serious Delinquency Rate Increases

CoreLogic released its monthly Loan Performance Insights Report. The report shows that, nationally, 4.2% of mortgages were in some stage of delinquency (30 days or more past due, including those in foreclosure) in April 2018, representing a 0.6 percentage point decline in the overall delinquency rate compared with April 2017, when it was 4.8%. As of April 2018, the foreclosure inventory rate – which measures the share of mortgages in some stage of the foreclosure process – was 0.6%, down 0.1 percentage points from 0.7% in April 2017. Since August 2017, the foreclosure inventory rate has been steady at 0.6%, the lowest level since June 2007, when it was also 0.6%. The April 2018 foreclosure inventory rate was the lowest for that month in 11 years; it was also 0.6% in April 2007. Measuring early-stage delinquency rates is important for analyzing the health of the mortgage market. To monitor mortgage performance comprehensively, CoreLogic examines all stages of delinquency, as well as transition rates, which indicate the percentage of mortgages moving from one stage of delinquency to the next.

The rate for early-stage delinquencies – defined as 30 to 59 days past due – was 1.8% in April 2018, down from 2.2 in April 2017. The share of mortgages that were 60 to 89 days past due in April 2018 was 0.6%, unchanged from April 2017. The serious delinquency rate – defined as 90 days or more past due, including loans in foreclosure – was 1.9% in April 2018, down from 2.0% in April 2017. The April 2018 serious delinquency rate was the lowest for that month since 2007 when it was 1.6%. “Job growth, home-price appreciation, and full-doc underwriting have pushed delinquency and foreclosure rates to the lowest point in more than a decade,” said Dr. Frank Nothaft, chief economist for CoreLogic. “The latest CoreLogic Home Price Index report revealed the annual national home price growth was 7.1% in May, the fastest annual growth in four years. US employers have also continued to employ more individuals, as employment rose by 2.4 million throughout the last 12 months with 213,000 jobs added last month alone. Together, this heightened financial stability is pushing delinquency and foreclosure rates to record lows.” Since early-stage delinquencies can be volatile, CoreLogic also analyzes transition rates. The share of mortgages that transitioned from current to 30 days past due was 0.8% in April 2018, down from 1.2% in April 2017. By comparison, in January 2007, just before the start of the financial crisis, the current- to 30-day transition rate was 1.2%, while it peaked in November 2008 at 2%.

As a result of the 2017 hurricane season, Florida and Texas are the only states showing significant gains in 90-day delinquency rates. According to the CoreLogic Storm Surge Report, Florida has the most densely populated and longest coastal area and thus the most exposure to storm surge flooding (compared to the 19 states analyzed in the report) with more than 2.7 million at-risk homes across five risk categories (Category 1 – Category 5 storms). Louisiana ranks second with more than 817,000 at-risk homes, while Texas ranks third with more than 543,000 at-risk homes. A major storm did not strike Louisiana in 2017, but Florida and Texas are still recovering from Hurricanes Irma and Harvey, respectively. “Delinquency rates are nearing historic lows, except in areas impacted by extreme weather over the past 18 months, reflecting a long period of strict underwriting practices and improved economic conditions,” said Frank Martell, president and CEO of CoreLogic. “Last year’s hurricanes and wildfires continue to affect today’s default rates. The% of loans 90 days or more delinquent or in foreclosure are more than double what they were before last autumn’s hurricanes in Houston, Texas and Naples, Florida. The 90-day-plus delinquent or in-foreclosure rate has also quadrupled in Puerto Rico.”

Stocks slide as US prepares $200B in tariffs on Chinese goods

US stocks fell Wednesday in reaction to the news that the country is pursuing a new set of tariffs that would hit $200 billion in Chinese goods. The Dow Jones Industrial Average fell 219.21 points, or 0.88%, to 24,700.45. The S&P 500 lost 19.82 points, dropping to 2,774.02. The Nasdaq Composite was down 42.59 points at 7,716.61. In a list published late Tuesday, after the markets had closed for the day, the US trade representative said the 10% tariffs would target a variety of products imported from China, including clothing, baseball gloves, bicycles, refrigerators and seafood. “New tariffs have been coming for a while, having been initially hinted at after China first announced retaliatory measures itself,” said Craig Erlam, senior market analyst at Oanda. “The recent announcement was confirmation of this and is a reminder that Trump is not bluffing and a trade war is a very real possibility, which naturally isn’t good for markets.” The additional US tariffs, which will go through a two-month approval process including a public hearing, come after China retaliated in a tit-for-tat trade skirmish last week. Asian markets responded by falling, with China’s Shanghai Composite Index dropping by 1.8%, Hong Kong’s Hang Seng finished the session down 1.3% and Japan’s Nikkei ended the day down 1.2%, snapping a three-day winning streak.

MBA – mortgage applications up

Mortgage applications increased 2.5% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 6, 2018. This week’s results included an adjustment for the Fourth of July holiday. The Market Composite Index, a measure of mortgage loan application volume, increased 2.5% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 18% compared with the previous week. The Refinance Index decreased 4% from the previous week to its lowest level since December 2000. The seasonally adjusted Purchase Index increased 7% from one week earlier. The unadjusted Purchase Index decreased 15% compared with the previous week and was 8% higher than the same week one year ago. The refinance share of mortgage activity decreased to its lowest level since August 2008, 34.8% of total applications, from 37.2% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.3% of total applications. The FHA share of total applications decreased to 10.0% from 10.2% the week prior. The VA share of total applications increased to 11.3% from 10.7% the week prior. The USDA share of total applications remained unchanged at 0.8% from the week prior.

Consumer inflation getting hotter but not too hot yet

Consumer price inflation data could temporarily take market focus away from trade worries, particularly if it surprises to the upside like Wednesday’s producer prices. Economists expect Thursday’s CPI data to reveal a 0.2% increase in both headline CPI and core CPI, excluding energy and food, according to Thomson Reuters. “I wouldn’t expect a big reaction to a surprise on the downside,” said Ed Keon, chief investment strategist at QMA. “There’s still enough information showing that inflationary pressures are rising. It’s much more likely to have a negative reaction if there’s an upward surprise. … If it came out up 0.4%, given everything else that’s going on, I think you’d see a negative reaction.” Traders have been watching inflation data closely for any signs of a pickup, especially since wages are not showing much sign of improvement. A much higher pace of inflation could speed up Fed rate hikes. So far, inflation has edged above the Fed’s 2% target but not gone much further. CPI core is expected to show an annual pace of 2.3% in June. Stephen Stanley, chief economist at Amherst Pierpont points out that the Fed’s preferred inflation metric, the core PCE deflator, finally reached the Fed’s 2% target in May, for the first time in six years. He added that the Fed is no longer worried about inflation being too low, just whether it can sustain current levels. “With growth well above trend and the unemployment rate well beyond estimates of full employment, we should not be surprised that there are increasing reports of price pressures including in the trucking industry, where freight costs are said to be exploding. I have long anticipated that inflation would likely continue to accelerate after finally reaching 2%, a scenario that neither the FOMC nor the bond markets seem prepared for,” he wrote. “A 0.2% monthly gain for the CPI in June would likely push the year-over-year advance up to 2.9% for the first time in over six years, and I would not rule out a move to 3.0%,” Stanley wrote in a note. But he adds that he would expect the pace to peak in June or July for 2018. He said June food prices likely increased but gasoline prices were probably steady. Producer price inflation rose 3.4% in June, year over year, its biggest increase in 6½ years.

California ordered to restore $331 million to fund for homeowners

A state appeals court has ordered California Gov. Jerry Brown to restore money to a fund meant to help homeowners who suffered foreclosures. When California received $410 million in 2012 as part of a nationwide settlement with major banks accused of abusive foreclosures, Gov. Jerry Brown used $331 million to pay state agencies in housing and other programs to cover their deficits. Now a state appeals court has ordered the money be used for its original intent: to help homeowners who suffered foreclosures. The money was “unlawfully diverted” from a settlement fund that was designated for programs directly assisting homeowners, the Third District Court of Appeal in Sacramento said Tuesday. A Sacramento County judge had reached the same conclusion but found he lacked authority to order the state to redirect the money, a finding the appeals court rejected. Neil Barofsky, a lawyer for the National Asian American Coalition and other groups that filed the suit, said the court had properly ordered the state to “immediately put the money back into a fund where it can be used to help struggling homeowners,” particularly in poor and minority communities.

H.D. Palmer, spokesman for Brown’s Finance Department, said state officials had not decided whether to ask the California Supreme Court to review the case. He said the debt payments, most of them for housing bonds, had been approved by state lawmakers, and the case raised questions about whether “the Legislature’s appropriations power can be overridden with a court judgment.” The nation’s five largest mortgage servicers — Bank of America, Wells Fargo, Citigroup, JPMorgan Chase and GMAC — reached the settlement in 2012 in a suit by the federal government and every state except Oklahoma. It included more than $20 billion in direct aid to foreclosed homeowners and $2.5 billion to the states, including $410 million to California. Of the $410 million, at least $331 million was designated by then-state Attorney General Kamala Harris for a fund devoted to programs assisting homeowners who were harmed by the wave of foreclosures. The programs included housing counselors, foreclosure assistance hotlines, legal aid, consumer education and efforts to investigate and combat financial fraud. After the fund was established, however, the state’s Finance Department appropriated the money, with legislative approval, to pay off deficits to the state agencies in charge of state housing bonds and other consumer-related measures. State lawyers argued that the payments were consistent with the mortgage settlement and were not subject to judicial review, but the court disagreed. The money “was unlawfully diverted from a special fund in contravention of the purposes for which that special fund was established,” Justice Andrea Hoch said in the 3-0 ruling.

MBA – mortgage credit availability increased in June

Mortgage credit availability increased in June according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) which analyzes data from Ellie Mae’s AllRegs® Market Clarity® business information tool. The MCAI increased 0.2% to 181.0 in June. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. The Conventional MCAI increased (up 5.5%) and the Government MCAI decreased (down 3.9%). Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 9.3% while the Conforming MCAI increased by 1.0%. “Mortgage credit loosened slightly, led mainly by an increase in the jumbo MCAI which represented fierce competition among lenders for prime jumbo borrowers. However, this loosening was almost completely offset by a decline in credit for government loan programs. The Government MCAI has tightened in recent months, driven largely by policy actions to reduce churning in the Veterans Administration’s Interest Rate Reduction Refinance Loan program,” said Mike Fratantoni, MBA’s Chief Economist and Senior Vice President of Research and Industry Technology.

The MCAI increased 0.2% to 181.0 in June. The Conventional MCAI increased (up 5.5%) and the Government MCAI decreased (down 3.9%). Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 9.3% while the Conforming MCAI increased by 1.0%The Conventional, Government, Conforming, and Jumbo MCAIs are constructed using the same methodology as the Total MCAI and are designed to show relative credit risk/availability for their respective index. The primary difference between the total MCAI and the Component Indices are the population of loan programs which they examine. The Government MCAI examines FHA/VA/USDA loan programs, while the Conventional MCAI examines non-government loan programs. The Jumbo and Conforming MCAIs are a subset of the conventional MCAI and do not include FHA, VA, or USDA loan offerings. The Jumbo MCAI examines conventional programs outside conforming loan limits while the Conforming MCAI examines conventional loan programs that fall under conforming loan limits. The Conforming and Jumbo indices have the same “base levels” as the Total MCAI (March 2012=100), while the Conventional and Government indices have adjusted “base levels” in March 2012. MBA calibrated the Conventional and Government indices to better represent where each index might fall in March 2012 (the “base period”) relative to the Total=100 benchmark.

BLACK Knight – May 2018 Mortgage Monitor

–  Despite record-setting tappable equity growth, share of total equity withdrawn hits four-year low In Q1 2018

July 9, 2018 Data & Analytics

–  Tappable equity grew by more than $380 billion in Q1 2018, the largest single-quarter growth since Black Knight began tracking the metric in 2005

–  The $5.8 trillion in total tappable equity held by US homeowners with mortgages is the most ever recorded, and 16% above the mid-2006 peak

–  The average mortgage holder gained $14,700 in tappable equity over the past year and has $113,900 in total

–  Despite the increase in available equity, the amount withdrawn in Q1 2018 fell nearly 7.0% from Q4 2017

–  Just 1.17% of available equity was tapped in Q1 2018, the lowest share since Q1 2014, and the second lowest quarterly share since the beginning of the housing recovery

–  $35 billion withdrawn via home equity lines of credit (HELOCs) in Q1 2018 marked a two-year low, likely driven by the increasing interest rate spread between first-lien mortgages and HELOCs

The Data & Analytics division of Black Knight, Inc. released its latest Mortgage Monitor Report, based on data as of the end of May 2018. This month, the company looks again at tappable equity, or the share of equity available for homeowners with mortgages to borrow against before reaching a maximum total combined loan-to-value (LTV) ratio of 80%. Despite the record-setting growth in such equity seen in the first quarter of 2018, homeowners are withdrawing equity at a lower rate than in the past. As Ben Graboske, executive vice president of Black Knight’s Data & Analytics division explained, although total equity withdrawn by dollar amount has increased slightly since the same time last year, the rate of growth pales in comparison to that of tappable equity. “In Q1 2018, homeowners with mortgages withdrew $63 billion in equity via cash-out refinances or HELOCs,” said Graboske. “That represents a slight one% increase from the same time last year, despite the fact that the amount of equity available for homeowners to borrow against increased by 16% over the same time period. Collectively, American homeowners now have $5.8 trillion in tappable equity available, yet only 1.17% of that total was withdrawn in the first quarter of the year. That’s the lowest quarterly share in four years, and the second lowest since the housing recovery began six years ago. Somewhat surprisingly, even though rising first-lien interest rates normally produce an increase in HELOC lending, the volume of equity withdrawn via lines of credit dropped to a two-year low as well.

“One driving factor in the decline of HELOC equity utilization is likely the increasing spread between first-lien mortgage interest rates – which are tied most closely to 10-year Treasury yields – and those of HELOCs – which are more closely tied to the federal funds rate. As of late last year, the difference between a HELOC rate and a first-lien rate had widened to 1.5%, the widest spread we’ve seen since we began comparing the two rates 10 years ago. The distance between the two has closed somewhat in Q2 as 30-year mortgage rates have been on the rise, which does suggest the market remains ripe for relatively low-risk HELOC lending expansion. Still, increasing costs in the form of higher interest rates do appear to have impacted homeowners’ borrowing decisions in Q1 2018. We should also remember that the Federal Reserve raised its target interest rate again at its June meeting, which will likely further increase the standard interest rate on HELOCs in Q3 2018. Black Knight will continue to monitor the situation moving forward.” The data also showed that tappable equity increased by more than $380 billion in Q1 2018, the largest single-quarter growth since Black Knight began tracking the metric in 2005. On an annual basis, total tappable equity increased $820 billion, a 16.5% increase over the prior 12 months. The $5.8 trillion in total available tappable equity is 16% higher than the peak seen during the pre-recession peak in 2006. Nearly 80% of the nation’s tappable equity is held by homeowners with first-lien interest rates at or below 4.5%, with 60% of the total being held by those with current rates below 4.0%. The average mortgage holder gained $14,700 in tappable equity over the past year and has $113,900 in total available equity to borrow against.

As was reported in Black Knight’s most recent First Look news release, other key results include:

–  Total US loan delinquency rate: 3.64%

–  Month-over-month change in delinquency rate: -0.84%

–  Total US foreclosure pre-sale inventory rate: 0.59%

–  Month-over-month change in foreclosure pre-sale inventory rate: -3.30%

–  States with highest percentage of non-current loans: MS, LA, AL, WV, FL

–  States with lowest percentage of non-current loans: MN, WA, ND, OR, CO

–  States with highest percentage of seriously delinquent loans: MS, FL, LA, AL, TX

Oil prices climb on global demand

Oil prices rose on Monday as increased global demand and US efforts to shut out Iranian output using sanctions outweighed drilling data suggesting US shale production would climb. Benchmark Brent was up 70 cents at $77.81 a barrel by 1150 GMT. US crude was unchanged at $73.80. “Oil prices are starting the week on the front foot in anticipation of reduced supplies from Iran after US sanctions,” said Stephen Brennock, analyst at London brokerage PVM Oil Associates. The United States says it wants to reduce oil exports from Iran, the world’s fifth biggest oil producer, to zero by November, in a move that will oblige other big producers such as Saudi Arabia to pump more. But Saudi Arabia and other members of the Organization of the Petroleum Exporting Countries have little spare capacity and oil demand has risen faster than supply over the last year.

Chicago Targets ‘Zombie Housing’ for Renewal, Block by Block

In 2011, Chicago officials created the Micro Market Recovery Program (MMRP) to jump start individual blocks that had a high rate of vacant buildings due to foreclosures. MMRP sought to transform those abandoned, dilapidated buildings into affordable homes for renters or first-time homebuyers. It would help to re-settle diverse communities and attract businesses. Chicago had already spent about $169.2 million from the Housing and Urban Development’s Neighborhood Stabilization Program (NSP) for areas hit hardest by foreclosures. MMRP would take the next step and include several community groups, such as Local Initiatives Support Corporation Chicago – known as LISC Chicago – to attract investors and families, according to the Chicago Department of Planning and Development. MMRP has reoccupied nearly 1,000 buildings, including about 2,900 units, in Englewood, Auburn Gresham, West Pullman, Woodlawn and other neighborhoods. Also, more than 400 families received help with loans or obtained financial assistance to keep their existing homes. “As long as the demand and the need are there, we will continue,” says David Reifman, commissioner of the Chicago Department of Planning and Development. “Right now, our recovery is steady but not complete.”

From 2011 through December 2018, about $12.8 million will be invested in MMRP, mostly from the city’s budget and grants from various nonprofits. The amount also includes about $3 million from the Illinois attorney general’s office settlement with major banks accused of questionable lending practices related to the foreclosure crisis. “We wanted to focus our limited resources on key areas to bring back whole blocks at a time,” Reifman says. Since then, foreclosure filings decreased by double digits in the MMRP zones from 2011 through 2016. The targeted areas in the north region had a 67.6% reduction. The middle region had a 66.1% decrease, while the south region had a 25.8% decrease. In comparison, foreclosure filings citywide decreased by 69.4% during the same period. Housing prices also increased in the MMRP communities, some as much as 33.1%, according to the Institute for Housing Studies at DePaul University. The improvements are due to MMRP, community involvement, families returning to the area and an improving economy, says Geoff Smith, the institute’s executive director. “Overall, (the city’s) strategy is one that’s important,” Smith says. “It targets small areas and helps the neighborhoods recover. When there are limited resources, you need to concentrate it and then target the areas to have some level of success.” Also, providing an affordable mortgage, financial assistance, grants, and some forgivable loans are part of the equation, community experts say. MMRP aims to transform tough, poor neighborhoods, such as Englewood, where high-end grocer Whole Foods opened about two years ago. And more commercial development is planned, says Jack Swenson, program officer for LISC Chicago, which partners with the city on housing and other projects. LISC Chicago develops a relationship with residents on a targeted block, finds out their needs and concerns, and works on filling vacant lots and acquiring vacant buildings. It’s a process that ultimately leads to a stronger foundation, Swenson says. “Crime is a reality in every neighborhood and we think we sometimes forget how important a community is,” Swenson says. “In many neighborhoods across the city, it’s the people’s commitment to their community that outweigh the obstacles and they still choose to reinvest.” Besides Chicago, NSP has distributed roughly $6.8 billion nationwide over the last 10 years to cities hit hardest by foreclosures, says Brian Sullivan, HUD spokesman in Washington, D.C. “It’s hard to say if the foreclosure crisis is over,” Sullivan says. “They say all housing is local and the foreclosure crisis ended sooner in some areas rather than others. But who says it’s really over?”

Dallas received about $8 million in NSP funds to help the southern area most affected during the foreclosure crisis. Then Dallas officials in 2015 created the Neighborhood Plus Plan, a citywide revitalization program to help troubled neighborhoods. Dallas also has invested about $75.3 million in housing projects since 2009, says Dallas spokesman Corbin Rubinson. The nation’s capital received about $17.4 million in NSP funds for its struggling neighborhoods. Then in December 2017, Washington’s Property Acquisition and Disposition Division created the Vacant to Vibrant DC program to quickly dispose of or sell vacant properties. Washington budgeted about $3 million this year for both programs, says Polly Donaldson, director of the city’s Department of Housing and Community Development. Los Angeles received about $143 million in NSP funds to rebuild neighborhoods. In 2010, the city also adopted a Foreclosure Registry ordinance to further protect neighborhoods from inadequately maintained and abandoned foreclosed properties or face penalties, says Douglas Swoger, director of the asset management division of the Los Angeles Housing + Community Investment Department. What cities spend on such programs also is difficult to compare, because of the wide range of services, the geography involved, the number of vacancies and other factors, says Alan Mallach, senior fellow and researcher for the Center for Community Progress in Washington, D.C. Thousands of cities have neighborhood revitalization programs, which may range from a modest effort to give elderly homeowners grants to fix their homes to a multifaceted strategy. Some notable programs are in Minneapolis and Baltimore, Mallach says. Some neighborhood revitalization work also is done by nonprofit organizations and not by city governments. Some include Youngstown Neighborhood Development Corporation and Cleveland Neighborhood Progress in Ohio, Mallach says. Chicago’s MMRP has made tremendous progress and offers a cross-sector effort between the city, nonprofit community groups, financial institutions and others, says Maurice Jones, president and CEO of LISC, based in New York with 32 offices nationwide. LISC is a MMRP partner with Chicago. “It’s a recipe that produces results and is sustainable,” Jones says.

US Treasury yields edge higher as trade drama lingers

US government debt prices fell into the red at the start of the trading week. The yield on the benchmark 10-year Treasury note was higher at around 2.850% at 5:40 a.m. ET, while the yield on the 30-year Treasury bond was in the black at 2.953%. Bond yields move inversely to prices. Markets have been given a boost following the publication Friday of the latest jobs report, which revealed that the US economy added 213,000 jobs in June, beating expectations. This positive sentiment seen across markets is in spite of concerns surrounding trade and Brexit. The US placed $34 billion of tariffs on Chinese goods on Friday, a move that triggered China to hit back with its own set of duties. And the U.K.’s Brexit Secretary David Davis announced late Sunday that he was resigning from his post, as he wasn’t prepared to be “a reluctant conscript” to Prime Minister Theresa May’s plans to leave the European Union (EU). On Friday, May had reached a Brexit compromise with her cabinet, persuading ministers to back her intention to press for “a free trade area for goods” with the EU. On Monday, Dominic Raab was appointed as the new Brexit Secretary. On Monday, consumer credit data is due out at 3 p.m. ET, while the Treasury will auction $48 billion in 13-week bills and $42 billion in 26-week bills. The size of a four-week bill, set to be auctioned Tuesday, will also be announced.

Has the housing market in Detroit finally recovered?

At this point, most observers are aware of the plight of Detroit in the wake of the crisis. The city’s economy and housing market both went in the tank as the crisis wore on. Eventually, the city itself declared bankruptcy, marking the largest municipal bankruptcy in the history of the country. In the years since the crisis, the city has been on the rebound, with government funds and private capital helping to lead the way. And now, it appears that the city’s housing market is on the precipice of a full recovery. Last week, Amherst Capital released its latest market commentary, the Amherst Home Price Index, which showed that Detroit is now within mere decimal points of a total comeback. “Based on the Amherst Home Price index, we find that Detroit is finally within 1% of its pre-crisis peak,” Amherst noted in its report. “This was on the back of a strong 7.2% year-over-year growth in April 2018 and we fully expect it to reach new record in the next couple of months. When that happens, 13 of the top 20 big cities will have surpassed their pre-crisis peaks.” That’s right. Not only is Detroit right on the doorstep of a full recovery, Motown could soon surpass its pre-crisis peak in the next few months. Detroit’s recovery tracks with what’s going on nationwide, with home prices continuing to rise across the board, although that increase has tracked below other asset classes. From Amherst’s report: “US housing market grew at a solid 5.3% Y-o-Y in April 2018 according to Amherst Home Price Index. Overall, US single-family price growth has significantly lagged the post-crisis recoveries witnessed in equities and commercial real estate. The pace of new single-family housing construction remains anemic by historical norms even as we expect greater demand from more millennials entering family formation ages in the coming years. Amherst remains optimistic on the US home price growth for the foreseeable future. We expect National home prices to continue their solid growth, with an HPA forecast of 4.3% next year.”

Stearns Lending to buy piece of Certainty Home Loans

Stearns Lending announced recently it will acquire a stake of Certainty Home Loans. The independent mortgage bank has entered into an agreement to acquire an equity interest in Certainty, an independent mortgage lender based in Plano, Texas. Certainty President Jim Clapp and Executive Vice President, National Production Manager Doug Casbon will continue to lead Certainty, which will retain its name. Certainty’s executive team will maintain their position as the largest stakeholders. Last year, Certainty originated $1.4 billion in residential loans, including purchase, refinance, reverse mortgage and renovation loans. Formerly Starkey Mortgage, the company rebranded in October 2017. Stearns Lending offers lending services in wholesale, retail through strategic partnerships in 49 states. “Certainty has a long track record of success and has a retail profile that is a strong complement to the existing Stearns retail platform,” said Stearns CEO David Schneider. “We believe that combining the retail platform of Certainty with Stearns’ industry-leading technology, direct access to capital markets expertise and operational excellence will produce tremendous synergies that benefit both companies. This structure leverages the experience Stearns has with its current joint venture business model, which currently operates under 10 different brands across the country.” The specific terms of the deal, which is expected to close at the end of August, were not released.

Trump says second phase of tax cuts will target middle class ‘even more’

President Trump says his next round of tax cuts will help the middle class.

The Trump administration is working on a second phase of tax cuts, President Trump claims, and it could involve a further reduction in the US corporate tax rate and more stimulus for the middle class. “This will be even more aimed at the middle class,” Trump said. “One of the things I’m thinking about is bringing the 21% [corporate tax rate] down to 20% and for the most part, the rest of it will go right to the middle class. It’s a great stimulus.” The president said the administration would “be doing” the new tax package in the fall, in October or possibly sooner. During a roundtable earlier this year, the president said the second phase of tax cuts would be aimed at both the middle class and helping US companies. National Economic Director Larry Kudlow said in March that part of the second round of reforms could involve making individual tax cuts, and other provisions, permanent. The new package could also include measures aimed at helping Americans save for retirement. House Ways and Means Committee Chair Rep. Kevin Brady, R-Texas, told FOX Business last month that the administration wants to get families “in that savings mode earlier.” Opens a New Window. Brady also said the second round of cuts could be completed before the November midterm elections. The Tax Cuts and Jobs Act was signed into law in December.

Economy slowing?

the economy is already beginning to slow down, according to the economics team at Goldman Sachs, the good news in the explanation to clients below, is that housing investment is actually improving. GDP growth was revised down in the third estimate of Q1 to +2.0% (qoq ar) from +2.2% in the second estimate, and the year-over-year rate was unchanged on a rounded basis at +2.8%. The downward revision reflected a diminished contribution from consumer spending (+0.9% qoq ar vs. +1.0% in the second estimate), net trade, and inventories, each of which contributed -0.1pp to the headline revision. This was partially offset by a faster pace of business fixed investment (+10.4% vs. 9.2%) and housing investment (-1.1% vs, -2.0%). Real Gross Domestic Income (GDI)—an alternative measure of aggregate output derived from different source data—expanded at a solid +3.6% annualized pace in Q1, consistent with a firmer underlying pace of growth in the first quarter. Inflation and jobless numbers remain relatively stable, for now, the Goldman economists added. And where is all this housing investment coming from? Well, a small part of it may start coming from the building of tiny houses (Best. Transition. Ever.), if two legislators out of New Jersey get their way. A new bill proposing a pilot program to house homeless veterans is making its way through the New Jersey Senate and is sponsored by Senators Brian Stack, D-Hudson, and Troy Singleton, D-Burlington, according to this article on NJ.com by Bill Duhart. “They hope the new effort can be a prototype for helping homeless veterans and the indigent to find shelter and help municipalities meet legal obligations to provide affordable housing,” Duhart explains. From the article: “The three-year program would be administered by the New Jersey Housing and Mortgage Finance Agency (HMFA) and cost $5 million. Stack and Singleton expect federal funds to pay for the pilot program. The HMFA would pick which towns participate in three regions of the state. Towns that participate would receive grants for the housing and two-for-one credits towards their affordable housing obligations.”

Tesla’s worker push helps hit Model 3 production goals, stock jumps

Electric automaker Tesla produced three times more Model 3 sedans in the second quarter compared to the first, meeting a key production target as the company recorded its most productive quarter ever. This comes after CEO Elon Musk pulled out all the stops to ramp up productivity in recent days. Shares jumped on the news after Tesla said in a press release on Monday that, for the first time, Model 3 production surpassed combined Model S and X production. More than 18,400 Model 3 vehicles were manufactured, thanks in part to “a significant increase in production towards the end of the quarter.” The electric automaker said a new general assembly line, referred to as GA4, was responsible for about one-fifth of the Model 3 sedans produced last week. The company increased its production targets for the Model 3 to 6,000 per week by late next month, reaffirming expectations for positive net income and cash flow in the coming two quarters. At the start of the second quarter, Tesla was producing just 2,000 Model 3 sedans per week. Last week, Japanese electronics giant Panasonic – which is the exclusive battery partner for the electric automaker’s vehicles – said a “sharp improvement in production” at the automaker was causing occasional battery cell shortages. The carmaker produced a total of 53,339 vehicles in the second quarter. In June, Tesla announced it would cut 9% of its workforce as part of an organizational restructuring aimed at reducing costs and boosting profits. Throughout its nearly 15 years of existence, the company has never made a profit, which Musk cited as a “fair criticism” of the company. He added that while Tesla has never been driven by profit-making incentives, the company will never achieve its goals unless it can demonstrate “sustainable profitability.” Tesla shares have gained 10% this year, exceeding gains in both the Nasdaq Composite and the S&P 500.

MBA – mortgage down

Mortgage applications decreased 4.9% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 22, 2018. The Market Composite Index, a measure of mortgage loan application volume, decreased 4.9% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 6% compared with the previous week. The Refinance Index decreased 4% from the previous week. The seasonally adjusted Purchase Index decreased 6% from one week earlier. The unadjusted Purchase Index decreased 7% compared with the previous week and was 1% higher than the same week one year ago. The refinance share of mortgage activity increased to 37.6% of total applications from 36.8% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6.5% of total applications. The FHA share of total applications increased to 10.2% from 10.1% the week prior. The VA share of total applications increased to 10.7% from 10.2% the week prior. The USDA share of total applications increased to 0.8% from 0.7% the week prior.

Supreme Court case may cripple public sector labor unions

The US Supreme Court on Wednesday ruled in favor of non-union workers in a case that some believe could have a significant impact on the influence of public-sector labor unions. Known as Janus vs. American Federation of State, County and Municipal Employees, the court determined it is unconstitutional to require government workers to pay a “fair share” fee to unions for the coverage and protection afforded to them under collective bargaining if they choose not to be members. As a result, public unions stand to lose out on fees from some individuals who may choose not to join but still want the benefits, also known as “free riders,” which could cost the groups a lot of money. The plaintiff in the case, Mark Janus, a child-support specialist at the Illinois Department of Healthcare and Family Services, argued that non-members are forced to pay a fee to support union’s increasingly politically-focused causes that they do not support. The high court agreed the procedure was a violation of free speech. Janus said on Wednesday before the press that 5 million non-union members would now be free “to make their own choice.” “I don’t want to be forced to pay something to somebody just to hold a government job,” Janus told FOX Business’ Stuart Varney. “I want to make my own decision and I shouldn’t have to pay a fee just to do something that I like to do.”

Only 22 states allowed unions to collect fair-share fees. The unions in these states that benefited from collecting the money argue it is just because the employees who are not direct members, but are covered by collective-bargaining agreements, still benefit from their efforts. Union membership is on the decline, specifically in the private sector, where fair-share fees are already prohibited in most states. The overall rate of union membership was 10.7% last year, compared with 20.1% in 1983, according to the Bureau of Labor Statistics. In 2017, 6.5% of private-sector workers belonged to a union, while 34.4% of public-sector workers were members. The decline in membership is not a death knell for unions, just a call for them to restructure, according to Ilya Shapiro, a senior fellow in constitutional studies at the Cato Institute. “It’s not like public sector unions have disappeared in the other [28] states … they operate differently … their operations are more efficient,” he told FOX Business. “The shape of the unions, the way they operate, will change.” The loss for public-sector unions may serve to curtail their involvement in non-labor-related efforts because they will have significantly less money to spend on politics, according to Shapiro. “It will erode unions’ electioneering and politicking, and involvement in issues that are unrelated to workers’ interests, like abortion or gun control, or things that are political issues that have nothing to do with the unions themselves or the workers they are representing,” he said. An earlier Supreme Court case on union fees, Friedrichs vs. California Teachers Association, ended in a   4-4 stalemate after Justice Antonin Scalia died.

NAR – pending home sales inch back 0.5% in May

Pending home sales decreased modestly in May and have now fallen on an annualized basis for the fifth straight month, according to the National Association of Realtors®. A larger decline in contract activity in the South offset gains in the Northeast, Midwest and West. The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 0.5% to 105.9 in May from 106.4 in April. The lackluster spring has primarily been a supply issue, and not one of weakening demand. If the recent slowdown in activity were because buyer interest is waning, price growth would start slowing, inventory would begin rising and homes would stay on the market longer. Instead, the underlying closing data in May showed that home price gains are still outpacing income growth, inventory declined on an annual basis for the 36th consecutive month, and listings typically went under contract in just over three weeks. Lawrence Yun, NAR chief economist, now forecasts for existing-home sales in 2018 to decrease 0.4% to 5.49 million – down from 5.51 million in 2017. The national median existing-home price is expected to increase around 5.0%. In 2017, existing sales increased 1.1% and prices rose 5.7%. The PHSI in the Northeast increased 2.0% to 92.4 in May, but is still 4.8% below a year ago. In the Midwest the index rose 2.9% to 101.4 in May, but is still 2.5% lower than May 2017. Pending home sales in the South declined 3.5% to an index of 122.9 in May (unchanged from a year ago). The index in the West inched forward 0.6% in May to 94.7, but is 4.1% below a year ago.

Westinghouse emerging from bankruptcy, will pursue foreign sales

The US nuclear company Westinghouse will target Saudi Arabia and India for nuclear reactor sales once it emerges from bankruptcy, with sufficient equity in the coming weeks. Brookfield Asset Management in January agreed to buy struggling Westinghouse from Toshiba for $4.6 billion. Cost overruns at US reactors pushed the once iconic industrial giant into bankruptcy. Westinghouse CEO Jose Gutierrez told Reuters that the Brookfield deal would close as soon as it had been approved by US and British nuclear regulators and the Committee on Foreign Investment in the United States (CFIUS). “We are confident we will get those approvals in the next few weeks, we don’t see any roadblocks,” he said. When the deal is closed the company will emerge from bankruptcy and Brookfield will recapitalize the firm. Gutierrez said that Westinghouse didn’t lose a single contract during its bankruptcy to sell services, fuel and spare parts to almost 80% of the world’s 450 reactors and that the company will immediately pursue additional business. It is also resuming talks with India on the sale of six reactors, Gutierrez told Reuters. China also holds major opportunities for the company. It plans to start-up the first of four long-delayed AP1000 reactors this year. Projects for six more are pending and Westinghouse expects China will build a fleet of at least 20 additional in the coming decade. A US-India agreement 10 years ago set a project in the country in motion, and now with the company emerging from Chapter 11, Gutierrez said that they will resume conversations with India. Westinghouse is also waiting for Saudi Arabia to decide on a shortlist of bidders to build two nuclear plants.

MBA – commercial/multifamily mortgage debt outstanding posts largest q1 increase since before great recession

The level of commercial/multifamily mortgage debt outstanding increased by $44.3 billion in the first quarter of 2018 as all four major investor groups increased their holdings.  That is a 1.4% increase over the fourth quarter of 2017. Total commercial/multifamily debt outstanding rose to $3.21 trillion at the end of the first quarter.  Multifamily mortgage debt outstanding rose to $1.3 trillion, an increase of $19.3 billion, or 1.5%, from the fourth of quarter of 2017. “During the first three months of 2018, commercial and multifamily mortgage debt outstanding increased more than during any other Q1 since before the Great Recession,” said Jamie Woodwell, MBA Vice President of Commercial Real Estate Research. “Interestingly, Q1 holdings grew more slowly this year than last among the three largest investor groups: banks, life insurance companies, and the GSEs. This year’s increase was driven by the CMBS market, which added $6 billion of mortgages to its balances. This is a sharp contrast to the $21 billion decline over the same period in 2017. “For the first time since 2007, CMBS has seen three straight quarters of increase,” Woodwell continued.

The four major investor groups are: bank and thrift; federal agency and government sponsored enterprise (GSE) portfolios and mortgage backed securities (MBS); life insurance companies; and commercial mortgage backed securities (CMBS), collateralized debt obligation (CDO) and other asset backed securities (ABS) issues. The analysis summarizes the holdings of loans or, if the loans are securitized, the form of the security.  For example, many life insurance companies invest both in whole loans for which they hold the mortgage note (and which appear in this data under Life Insurance Companies) and in CMBS, CDOs and other ABS for which the security issuers and trustees hold the note (and which appear here under CMBS, CDO and other ABS issues). Commercial banks continue to hold the largest share of commercial/multifamily mortgages, $1.3 trillion, or 40% of the total. Agency and GSE portfolios and MBS are the second largest holders of commercial/multifamily mortgages, holding $617 billion, or 19% of the total.  Life insurance companies hold $471 billion, or 15% of the total, and CMBS, CDO and other ABS issues hold $446 billion, or 14% of the total.  Many life insurance companies, banks and the GSEs purchase and hold CMBS, CDO and other ABS issues.  These loans appear in the “CMBS, CDO and other ABS” category.

Looking solely at multifamily mortgages, agency and GSE portfolios and MBS hold the largest share, with $617 billion, or 48% of the total multifamily debt outstanding.  They are followed by banks and thrifts with $411 billion, or 32% of the total.  State and local government hold $96 billion, or 8% of the total; life insurance companies hold $74 billion, or 6% of the total; CMBS, CDO and other ABS issues hold $41 billion, or 3% of the total, and nonfarm noncorporate business holds $14 billion, or one% of the total.

In the first quarter of 2018, banks and thrifts saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt – an increase of $14.7 billion, or 1.2%.  Agency and GSE portfolios and MBS increased their holdings by $10.8 billion, or 1.8%, life insurance companies increased their holdings by $9.2 billion, or 2.0%, and CMBS, CDO and other ABS issues increased their holdings by $5.6 billion, or 1.3%. In percentage terms, other insurance companies saw the largest increase in their holdings of commercial/multifamily mortgages, an increase of 4.9%.  State and local government retirement funds saw their holdings decrease 1.7%. The $19.3 billion increase in multifamily mortgage debt outstanding between the fourth quarter of 2017 and first quarter of 2018 represents a 1.5% increase.  In dollar terms, agency and GSE portfolios and MBS saw the largest increase in their holdings of multifamily mortgage debt, an increase of $10.8 billion, or 1.8%.  Commercial banks increased their holdings of multifamily mortgage debt by $7.1 billion, or 1.8%.  Life insurance companies increased by $1.4 billion, or 2.0%.  CMBS saw the largest decline in their holdings of multifamily mortgage debt, by $1.7 billion, or down 4.0%. In percentage terms, finance companies recorded the largest increase in holdings of multifamily mortgages, at 5.0%.  Private pension funds saw the biggest decrease at 4.8%.

The end of conservatorship

Last Thursday, news broke that the Trump administration has unveiled plans for a massive overhaul of the federal government, including the end of conservatorship for Freddie Mac and Fannie Mae. Mortgage industry professionals will be watching with bated breath until the end of the government-sponsored enterprises comes to pass (or doesn’t). This proposal is the latest in the Trump administration’s efforts to roll back government involvement in business. Since then, the nation has been mulling over the potential changes, which also include privatizing the US Post Office and combining the Labor and Education Departments. Some view it as the administration finally taking the training wheels off a stronger, wiser housing economy, while others view the potential changes as throwing Americans back to the wolves of Wall Street. The Mortgage Bankers Association takes the former position: “MBA applauds the administration for releasing a proposal to reform Fannie Mae and Freddie Mac which closely tracks much of the work that has been done to date by policymakers on Capitol Hill. It includes many core principles that MBA has long advocated for, such as an explicit government guarantee on MBS only as a catastrophic backstop, allowing for multiple guarantors and ensuring small lender access. MBA is heartened that the proposal recognizes that reform must be part of any plan before either Fannie Mae or Freddie Mac is released from conservatorship,” MBA President and CEO David Stevens said in a statement. “As with any proposal of this size, the devil is in the details and MBA looks forward to working with the Administration, and Congress to finally tackle this long overdue issue,” he added.

GE nears deal to sell Industrial-Engines Unit to private-equity firm

General Electric is moving closer to a deal to sell a unit that makes large industrial engines for $3 billion or more to private-equity firm Advent International. It would be a move that would bring in needed cash for the struggling conglomerate, according to Dow Jones. The deal could be announced as early as Monday. Cummins was also in the auction for the businesses, according to people familiar. Chief Executive John Flannery is trying to sell $20 billion worth of assets by the end of next year. Last month, GE agreed to sell its railroad division in a complex deal worth $11 billion. Last week, GE learned that it will be removed from the Dow Jones Industrial Average after more than a century in the blue-chip index. The company’s shares closed Friday at $13.05, down by more than half in the past year. Advent manages about $41 billion in assets across a range of sectors from industrial to financial services and telecommunications and media.

Financial Regulation: A Post-Crisis Perspective

By Martin J. Gruenberg, Chairman, Federal Deposit Insurance Corporation

I joined the Federal Deposit Insurance Corporation (FDIC) Board as Vice Chairman in August 2005 and was confirmed as Chairman in November 2012. I have served the FDIC both when banks were enjoying record profits, and when the US financial system was on the verge of collapse. Since the crisis, important reforms have put the US banking industry on a stronger footing, and banks again are highly profitable. I believe we are now at a point in the cycle when financial regulators need to be especially careful.

Trump plans new curbs on Chinese investment, tech exports to China

President Trump is preparing a plan that will further ramp up trade concerns with China. The plan would bar many Chinese companies from investing in US technology firms, and by blocking additional technology exports to Beijing, according to Dow Jones. The curbs are reportedly set to be announced by the end of the week. They are aimed at preventing Beijing from moving ahead with plans outlined in its “Made in China 2025” report to become a global leader in 10 broad areas of technology. The Treasury Department would block firms with at least 25% Chinese ownership from buying companies involved in what the White House calls “industrially significant technology.” In addition, the National Security Council and the Commerce Department are putting together plans for “enhanced” export controls, designed to keep such technologies from being shipped to China, said the people familiar with the proposals. Last week, Trump threatened to impose tariffs on as much as $450 billion of Chinese goods. Tariffs of 25% go into effect on $34 billion of Chinese imports on July 6. Beijing has threatened to match the US tariffs on the same day on a dollar-for-dollar basis.

The boom years and the crisis

When I joined the FDIC Board, the United States was experiencing a boom in housing prices. Banks were in the midst of a six-year string of annual earnings records that spanned 2001 through 2006. Between mid-2004 and early 2007, not one FDIC-insured bank failed, a record unmatched in the FDIC’s history. The percentage of banks on the FDIC’s problem bank list during 2006 was at record lows. This prosperity may have encouraged banks and regulators to view the industry through rose-colored glasses. Whatever the reason, a buildup of significant risk in banks and other financial institutions went unaddressed. A number of large institutions operated with excessive financial leverage and inadequate liquidity. The securitization of large volumes of poorly underwritten mortgages, and the growth of an opaque network of credit derivatives backing those securitizations, made risks more interconnected. The result of all this, when the housing bubble burst, was taxpayer bailouts of the financial sector on an unprecedented scale and the failure of some 500 banks. The bank regulatory framework in the pre-crisis years did not provide adequate safeguards for financial stability, and the US paid a high price. As a result of the crisis and ensuing recession, nearly 9 million people lost their jobs, more than 12 million foreclosures were started, and millions of households owed more on their mortgages than their homes were worth for many years. Most estimates put the loss of US gross domestic product (GDP) from the crisis at between $10 trillion and $15 trillion. All of this occurred despite unprecedented assistance to financial institutions from the Federal Reserve System, Treasury Department and FDIC. Without such assistance, many more large financial institutions would have failed, and the US economy would have faced a catastrophe.

The core post-crisis reforms

The US federal banking agencies implemented a number of reforms to address weaknesses in the pre-crisis regulatory framework. Many of these reforms were directed primarily at large institutions. The core reforms address risk-based and leverage capital, liquidity, proprietary trading, margin for non-cleared swaps, and tools to enable the orderly resolution of systemically important financial institutions (SIFIs) to prevent taxpayer bailouts. I will direct my comments to capital and liquidity. Capital absorbs losses and reassures counterparties about a bank’s viability. It supports a bank’s ability to lend and grow prudently, and helps address moral hazard problems by ensuring banks have meaningful equity stakes at risk. The banking agencies strengthened the quality of regulatory capital and the level of risk-based capital requirements. The agencies also required large or internationally active banks to meet an enhanced supplementary leverage capital requirement that accounts for certain off-balance-sheet assets. Strengthening leverage capital requirements for the largest, most systemically important banks in the United States was among the most important post-crisis reforms. In April 2014, the FDIC, Office of the Comptroller of the Currency (OCC) and Federal Reserve jointly finalized a rule that required the eight US global systemically important banking organizations (GSIBs) to satisfy a supplementary leverage ratio capital requirement of 5% at the holding company and 6% at their insured depository institutions. This simple approach has served well in addressing the excessive leverage that helped deepen the financial crisis. The strengthened risk-based and enhanced leverage requirements complement each other. Risk-based capital is risk sensitive but also complex, and is premised on the idea that the risks facing banks can be reliably measured; leverage capital is not risk sensitive, but is simple and provides assured loss-absorbing capability. The crisis was also a reminder of the dangers to banks of operating with insufficient holdings of liquid assets, and of excessive reliance on short-term and potentially volatile funds to finance lending and investment activities. There were no regulatory liquidity requirements in effect for large banking organizations before the crisis. The agencies addressed this by finalizing the Liquidity Coverage Ratio rule to require sufficient liquid-asset holdings to meet short-term periods of liquidity stress. The agencies also have proposed the Net Stable Funding Ratio (NSFR) rule to constrain the extent of longer-term funding imbalances between assets and liabilities.

The post-crisis performance

The core reforms have been strongly in the public interest. Large banking organizations operate with roughly twice the capital and liquidity relative to their size than they did entering the crisis. They are less likely to fail, less likely to trigger destabilizing counterparty runs, and are better able to be a source of credit during a future downturn. Along with stronger capital and liquidity, US banks are enjoying strong performance. Excluding one-time tax effects in the fourth quarter of 2017, net income at insured banks grew at an annualized rate of 6.2% during the three years 2015–2017. Underlying profitability continued to improve, as pre-tax return on assets in 2017 was 1.54%, up from 1.51% in 2016, 1.49% in 2015 and 1.46% in 2014. An increase in net-interest margins to 3.25%, up from a 2015 low of 3.07%, was an important earnings driver. Lower corporate tax rates—and, if it persists, the trend toward higher interest rates—should contribute to stronger bank earnings going forward. At the same time, the US banking industry is supporting the credit needs of the US economy. Annualized loan growth at US banks during the four-year period 2014–2017 averaged 5.5%—significantly outpacing nominal GDP growth in each year. This comparison suggests that US banks are supporting economic growth rather than constraining it. Large US banking organizations are supporting economic activity through their investment-banking subsidiaries as well. The top investment banks in the world by fee income all have been, for some time, subsidiaries of US globally systemic banking organizations. Supported by the bond-underwriting activities of these and other US investment banks, corporate-bond issuance for both investment- and speculative-grade debt has been at a record-setting pace during much of the post-crisis period, providing further support to economic growth. In short, US banking organizations are recording strong earnings growth and are supporting US economic activity. The improved cushions of capital and liquidity at large US banking organizations are not a source of competitive weakness relative to banks in other jurisdictions. They are a competitive strength for our banking industry and our economy, and one that is directly attributable to the strong US response to the crisis as reflected in the core reforms.

Risks in the current outlook

The US is currently in the ninth year of an economic expansion, the third-longest US expansion on record. One barometer of economic optimism, the Dow Jones Industrial Average, gained more than 50% in value in a little more than two years as of this writing. An abundant supply of investible funds and low interest rates has supported the value of assets—not only stocks, but also bonds and real estate. No one knows when or how the current expansion will end. Past experience, however, tells us that expansions do end, and that despite the good conditions we currently see, there are always challenges that could quickly change the outlook. Even though the current expansion appears more sustainable than the boom that occurred in the years leading up to the 2008 crisis, there are vulnerabilities in the system that merit our attention. One vulnerability relates to the uncertainties associated with the transition of monetary policies—both here and abroad—from a highly expansionary to a more normal posture. The effects of a transition to higher interest rates are hard to predict but could be of significant consequence. The prices of stocks, bonds and real estate have been supported by a decade of low interest rates. Stock price-to-earnings ratios are at high levels, traditionally a cautionary sign to investors of a potential market correction. Bond maturities have lengthened, making their values more sensitive to a change in interest rates. As measured by capitalization rates, prices for commercial real estate are at high levels relative to the revenues the properties generate, again suggesting greater vulnerability to a correction. Higher interest rates also could pose problems for industry sectors that have become more indebted during this expansion. Taken together, these circumstances may represent a significant risk for financial-market participants. While banks are now stronger and more resilient as a result of the post-crisis reforms, they are not invulnerable, and it would be a mistake to assume a severe downturn or crisis cannot happen again.

The road ahead for prudential regulation

Simplifying or streamlining aspects of prudential regulation without sacrificing important safety-and-soundness objectives is a worthy goal. Substantially weakening the core post-crisis reforms, however, would be a mistake. Those core reforms were put in place to address weaknesses in regulation that helped precipitate a financial crisis that no one wishes to repeat. The rules at issue are both substantive and important—the largest banking organizations are not voluntarily holding the enhanced capital and liquid-asset cushions they now hold. Some have made clear that they would operate with less capital and less liquidity if the rules permitted. If and when some banks go down such a path, others will be pressured by their shareholders to do so as well, to boost return on equity by operating with less capital, or by holding fewer highly liquid but low-yielding assets. Recent proposed changes to capital regulation for large, systemically important banking organizations include removing central bank exposures, Treasury securities and initial margins from the calculations of the Enhanced Supplementary Leverage Ratio (eSLR), and lowering the ratio itself, as proposed by the Federal Reserve and the OCC. Such proposals would substantially reduce the capital requirements for the largest banking organizations, in particular for their bank subsidiaries for which deposits are federally insured and the failure of which would implicate FDIC resolution mechanisms. They would significantly weaken the resilience of large, systemically important banking organizations and the financial system.

Conclusion

I have been reminded of a speech I gave in May 2006 at a meeting of the Conference of State Bank Supervisors. The subject matter was Basel II, a capital framework that would have substantially reduced capital requirements. The speech included the following statement: “While we all hope that the current high level of economic activity will continue, it would be a mistake, it seems to me, to take for granted that the next 10 years will be equally benign. We should therefore be particularly cautious and prudent in making changes to our system of bank capital.” It seems to me the statement in that speech remains relevant today. The US banking industry has transitioned from a position of extreme vulnerability to a position of strength. Operating with the stronger cushions of capital and liquidity required by the post-crisis reforms, large US banking organizations are experiencing strong earnings growth and are providing support to the US economy through their lending, investment banking and other activities. Moreover, they are better positioned to support economic activity in the next downturn and avoid a financial crisis, such as occurred in 2008. All of us have a stake in preserving these hard-won improvements in the strength and stability of our banking system.

AARP Livability Index – Wisconsin good place to call home

Wisconsin must be a pretty good place to call home, as six of its cities receive high marks on the new 2018 AARP Livability Index. Communities are rated on multiple qualify of life measures for people of all ages, and AARP’s state director, Sam Wilson, says the Badger State has more top performing communities than other states in the country. “That is something we need to be extraordinarily proud of,” he states. “We clearly have some communities that are making the right investments in order to make them more livable. “But when you’re at the top, everybody’s gunning for you. So, this is no time for complacency, because other cities are watching and they want those top spots, as well.” Fitchburg, La Crosse, Madison, Milwaukee, Sheboygan and Sun Prairie all placed in the top 10 in their respective population categories. Wilson says the index is a valuable tool for local leaders as they examine how to improve their communities and better meet the needs of people of all ages, especially as the number of older adults continues to grow. Wilson says Wisconsin’s areas of strength include family medical leave laws, protections against foreclosures, voting engagement and smoke free policies. But he notes there are always areas that could use improvement, including traffic safety and transportation. “The last few years, the state had repealed the Complete Streets policy, which no longer forces when you are building roads to make sure you consider all users of the road,” he states. “Also, there are rollbacks in some of the mandates for human services transportation.” The index focuses on the categories of housing, neighborhood, transportation, environment, health, engagement and opportunity, and it now includes updated data to reveal changes over time. Wilson says people can view the results and see where their community stands. “Not only are you being scored on the individual metrics for each community, but you’re also being measured against all the other communities in the country,” he explains. “So, you can really know where you stack up based on your livability score.”

ATTOM – foreclosure starts increase in 43% of local markets in May, including 153 jump in Houston

Foreclosure starts decreased nationwide in May, but 43% of local markets posted year-over-year increases in foreclosure starts, counter to the national trend, according to an ATTOM Data Solutions analysis of record-level foreclosure data. Markets with increasing foreclosure starts included Houston, Texas (up 153% from a year ago); Los Angeles, California (up 14%); Miami, Florida (up 4%); Dallas-Fort Worth, Texas (up 46%); and Atlanta, Georgia (up 7%). A total of 33,623 US properties started the foreclosure process in May, down 1% from the previous month and down 6% from a year ago — the 35th consecutive month with a year-over-year decrease. Counter to the national trend, 23 states and the District of Columbia posted a year-over-year increase in foreclosure starts in May, including Texas (up 53%), California (up 3%), Georgia (up 15%); Pennsylvania (up 6%); and South Carolina (up 31%). There were a total of 71,949 US properties with foreclosure filings in May 2018, up 12% from the previous month but still down 12% from a year ago — the 32nd consecutive month with a year-over-year decrease and a foreclosure rate of one in every 1,863 US housing units with a foreclosure filing for the month. States with the highest May 2018 foreclosure rates were New Jersey (one in every 643 housing units with a foreclosure filing); Delaware (one in every 874); Maryland (one in every 999), Illinois (one in every 1,180), and Connecticut (one in every 1,236). Among 219 metropolitan statistical areas analyzed in the report, those with the highest foreclosure rates in May were Flint, Michigan (one in every 135 housing units with a foreclosure filing); Atlantic City, New Jersey (one in every 399); Trenton, New Jersey (one in every 519); Philadelphia, Pennsylvania (one in every 805); and Columbia, South Carolina (one in every 889). Lenders repossessed (REO) 21,312 US properties in May, up 50% from the previous month but still down 21% from a year ago — the 16th consecutive month with a year-over-year decrease. Counter to the national trend, 12 states and the District of Columbia posted a year-over-year increase in REOs in May, including Michigan (up 155%); Maryland (up 22%); Alabama (up 10%); Connecticut (up 11%); and Oklahoma (up 26%).

Germany’s largest automakers back abolition of EU-US car import tariffs

The US ambassador to Germany returns to Washington today with a tariff peace offering. Richard Grenell will present a proposal from Germany’s leading automakers, calling for doing away with all import tariffs for cars between the European Union and the US That would mean scrapping the EU’s 10% tax on auto imports from the US and other countries and the 2.5% duty on auto imports in the US, according to Dow Jones. In return, the Europeans want President Trump’s threat of imposing a 25% border tax on European auto imports off the table. Grenell held meetings with the CEOs of Daimler, BMW  and Volkswagen, which operate plants in the US Overall, Germany’s auto makers and suppliers provide 116,500 jobs in the US, according to the Association of German Automotive Manufacturers. The Europeans reportedly also want a 25% US tax on imports of light trucks–pickup trucks, sport-utility vehicles, and big vans–scrapped. That could alienate US auto workers, a core constituency for Trump in the midterms this fall. Berlin has no power to hammer out trade deals–a prerogative of the European Commission. The EU’s executive body would have to persuade fellow EU member states to back a radical free-trade approach many have shown little interest in, said Dow Jones. Trump’s threats to raise tariffs on imported cars could put $54 billion in annual revenue from European passenger car exports to the US at risk, according to data from the European statistics office. Daimler and BMW each generated around 10% of their global unit sales in the first five months of the year through exports to the US, according to Wall Street Journal calculations.

CoreLogic – US single-family rents up 2.7% year over year in March

–  While low-end rents are still increasing faster than high-end rents, high-end segment rent growth accelerated and low-end segment decelerated in March 2018 compared with March 2017

–  Of 20 metros analyzed, only Honolulu experienced a year-over-year decrease in single-family rents in March

Single-family rents climbed steadily between 2010 and 2018, as measured by the CoreLogic Single-Family Rental Index (SFRI). However, the index shows year-over-year rent growth has decelerated slowly since it peaked early last year. In March 2018, single-family rents increased 2.7% year over year, a 1.5-percentage-point decline in the growth rate since it hit a high of 4.2% in February 2016. The SFRI index measures rent changes among single-family rental homes, including condominiums, using a repeat-rent analysis to measure the same rental properties over time. Using the index to analyze specific price tiers reveals important differences. The index’s overall growth in March 2018 was pulled down by the high-end rental market, defined as properties with rents 125% or more of a region’s median rent. Rents on higher-priced rental homes increased 2.4% year over year and rents in the lower-priced homes, defined as properties with rents less than 75% of the regional median rent, increased 3.9% year over year. However, rent growth is accelerating for the high end and decelerating for the low end. High-end rent growth was 0.5 percentage points higher than in March 2017, and low-end rent growth was 0.5 percentage points lower than March 2017. Rent growth varies significantly across metro areas. Las Vegas had the highest year-over-year rent growth in March with an increase of 5.5%, followed by Phoenix (+5.4%) and Orlando (+5.2%). Both Phoenix and Orlando had strong year-over-year job growth in March, with job gains of 3.2% and 3.5% respectively. This is compared with national employment growth of 1.6%. Honolulu was the only metro among the 20 analyzed to show a decrease in the rent index, declining 0.4% year over year in March. Rents continue to increase in metro areas such as  Houston and Miami that were hit by hurricanes last year. Houston rents were up 3.4% year over year and Miami was up 2% year over year. Prior to the 2017 late-summer hurricanes, rents had been decreasing in those two metro areas.

Starbucks provides weak sales outlook, will close 150 stores

Starbucks shares fell as much as 3% in after-hours trading Tuesday after the coffeehouse chain provided a weak sales forecast for its upcoming quarter and said it would shutter 150 stores in fiscal 2019. The Seattle-based company said it would close underperforming stores in “densely penetrated markets” and slow its rate of store growth. Starbucks said it traditionally closes about 50 underperforming locations annually. Starbucks said it expects same-store sales to grow 1% in its third fiscal quarter of 2017. Analysts had expected same-store sales to grow 3% in that period. “While certain demand headwinds are transitory, and some of our cost increases are appropriate investments for the future, our recent performance does not reflect the potential of our exceptional brand and is not acceptable,” Starbucks CEO and President Kevin Johnson said in a statement. “We must move faster to address the more rapidly changing preferences and needs of our customers.” Starbucks said it will return an additional $25 billion more to shareholders than initially planned in the form of share buybacks and dividends. The company will hike its dividend 20% to 36 cents per share. The chain, which operates more than 8,000 US stores, said the changes were made to address the weaker-than-expected sales growth, adding that several digital initiatives were expected to add 1% to 2% in comparable sales in fiscal 2019. Starbucks said it would provide additional details on its plans at an investor presentation on Tuesday afternoon. The changes came weeks after Starbucks Executive Chairman Howard Schultz announced he would leave the role in June. Schultz is widely rumored to have political aspirations.

MBA – mortgage applications up

Mortgage applications increased 5.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 15, 2018. The Market Composite Index, a measure of mortgage loan application volume, increased 5.1% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 3% compared with the previous week. The Refinance Index increased 6% from the previous week. The seasonally adjusted Purchase Index increased 4% from one week earlier. The unadjusted Purchase Index increased 1% compared with the previous week and was 3% higher than the same week one year ago. The refinance share of mortgage activity increased to 36.8% of total applications from 35.6% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 7.0% of total applications. The FHA share of total applications decreased to 10.1% from 10.6% the week prior. The VA share of total applications decreased to 10.2% from 10.7% the week prior. The USDA share of total applications decreased to 0.7% from 0.8% the week prior.

NAHB – housing starts reach post-recession high in May as permits soften

Total housing starts rose 5% in May to a seasonally adjusted annual rate of 1.35 million units, according to newly released data from the US Department of Housing and Urban Development and the Commerce Department. This is the highest housing starts report since July 2007. While housing production numbers rose, overall permits — which are a sign of future housing production activity — dropped 4.6% to 1.3 million units in May. Single-family permits fell 2.2% to 844,000 while multifamily permits fell 8.7% to 457,000. “Ongoing job creation, positive demographics and tight existing home inventory should spur more single-family production in the months ahead,” said NAHB Chief Economist Robert Dietz. “However, the softening of single-family permits is consistent with our reports showing that builders are concerned over mounting construction costs, including the highly elevated prices of softwood lumber.” The May reading of 1.35 million is the number of housing units builders would begin if they kept this pace for the next 12 months. Within this overall number, single-family starts rose 3.9% to 936,000 — the second highest reading since the Great Recession. Meanwhile, the multifamily sector — which includes apartment buildings and condos — rose 7.5% to 414,000 units. Year-to-date, single-family and multifamily production are respectively 9.8% and 13.6% higher than their levels over the same period last year. The year-to-date metric can help compare performance data over a specific time period and show growth trends. “We should see builders continue to increase production to meet growing consumer demand even as they grapple with stubborn supply-side constraints, particularly rising lumber costs,” said NAHB Chairman Randy Noel, a custom home builder from LaPlace, La. Regionally, the Midwest led the nation with a 62.2% increase in combined single- and multifamily housing starts. Starts fell 0.9% in the South, 4.1% in the West and 15% in the Northeast. Looking at regional permit data, permits rose 42.1% in the Northeast and 7.2% in the Midwest. They fell 4.6% in the West and 13.9% in the South.

CoreLogic – homebuyer migration to Houston affected by energy industry

The Houston metro has been challenged by natural disasters (three major floods including hurricane Harvey) and an oil price bust during the last few years. Despite these challenges, Houston experienced a home price increase of 3.7% over the year ending April 2018. However, there has been a declining inflow of potential homebuyers from out-of-state the last two years. More homebuyers were moving into the Houston metro area from other parts of the country than homebuyers moving out of Houston before 2016.  But that changed in 2016 with a net outflow of potential homebuyers as the jobs related to oil and gas started to disappear. As a case in point, this blog focuses on homebuyer mobility in the Houston metro area. During 2017 through April 2018, the Houston Core Based Statistical Area (CBSA), which is comprised of nine Texas counties, experienced a slight net loss in mortgage applications from out-of-state: for every 100 mortgage applications submitted by Houston residents who were buying out-of-state, the CBSA received 97 mortgage applications from out-of-state residents looking to buy a home in the Houston area. While migration to and from other states will affect home sales, about 92% of home-purchase mortgage applications in Houston were made by current Houston residents. The Houston metro started to experience a net loss of applications in 2016. Figure 1 shows as the gasoline price dropped drastically in 2015, by the following year there were more Houston residents submitting loan applications to buy homes outside the CBSA than there were homebuyers from outside of the CBSA submitting applications to buy within the Houston metro area (i.e., IN/OUT ratio for home-purchase mortgage loan applications was less than 1 in 2016 and 2017). With the oil price rebound the inflow-to-outflow ratio has started to rise in 2018.

Consistent with the overall Houston metro area, Harris County experienced an overall net loss of potential applicants. Among Harris County residents who applied for mortgage loans during 2017 through April 2018, about 29 out of 100 households were looking to buy outside of the county. Figure 2 summarizes the net flow of Harris County applicants during this time period. Harris County, on net, lost 15% of its residents who wanted to buy a home. More than two-thirds of the net outflow, representing about 11% of current Harris County residents who wanted to buy a home, were looking to buy in the suburban counties of Houston metro (mostly in Fort Bend and Montgomery followed by Brazoria and Galveston). Median home sales price for the properties sold during 2017 through April 2018 in both Fort Bend and Montgomery were higher than in Harris County. In general, the houses sold in both Fort Bend and Montgomery were newer and bigger than the houses in Harris County. Overall, the loan application data show that Harris County residents were buying homes in neighboring suburban counties with additional amenities, such as newer and bigger homes. The data also show that most Millennial and Generation X homebuyers from Harris County were moving to Fort Bend, Montgomery and Brazoria counties whereas most baby boomer and silent generation homebuyers were moving out of Texas, mostly to Florida and Colorado, followed by Montgomery County.

NAHB – builders discuss rising lumber prices with Commerce Secretary Ross

Randy Noel, chairman of the National Association of Home Builders (NAHB) and a custom home builder from LaPlace, La., issued the following statement after the NAHB leadership met today with Commerce Secretary Wilbur Ross to discuss the growing problem of escalating lumber prices that are being exacerbated by tariffs on Canadian lumber imports into the U.S: “Today, we discussed with Secretary Ross our mutual concern that lumber prices have risen sharply higher than the tariff rate would indicate, and that this is hurting housing affordability in markets across the nation. Rising lumber prices have increased the price of an average single-family home by nearly $9,000 and added more than $3,000 to the price of the average multifamily unit. “We applaud Secretary Ross for acknowledging the gravity of this situation and expressing a willingness to look into the possibility that factors other than the tariff may be manipulating the market. “We also encouraged the secretary to return to the negotiating table with Canada. It is essential that the two sides resume talks and hammer out a long-term solution to this trade dispute that will ensure US home builders have access to a stable supply of lumber at reasonable prices to keep housing affordable for hard-working American families.”

CoreLogic – for-sale housing inventory: lowest in decades

Resale inventory is at the lowest level in more than 18 years and continues to decrease. New home construction hasn’t kept pace with demand, and the result is an inventory shortage at a time when demographic and economic indicators are moving upward for the housing market. One way to measure for-sale housing inventory is with “months’ supply,” which shows how many months it would take to sell the available inventory at the current sales pace, as if no other homes came on the market, which is unlikely but it is a good snapshot to measure health. The housing market is seasonal, so when comparing the data over time we look at these numbers for the same month of each year. In March 2018, the months’ supply was approximately 3.8 months measured across the country, which means it would take only 3.8 months to sell all the existing houses listed for sale at the March 2018 sales pace.  The March 2018 supply was about the same level as in March 2017, but well below where it was during the Great Recession, and tighter than it was before the housing boom. By this measure, inventory is the tightest it’s been in over 18 years.

When we dig deeper into inventory at different price levels we see that inventory for entry-level homes is even tighter. Using the median price as the reference, we look at months’ supply for homes listed at different price points, for those homes listed at the entry-level (priced from 50% of median sale price up to 25% above) there was only a 3-month supply available for sale. There is more supply at higher price points – close to 7 months for homes listed for more than twice the median sale price. Areas of the country with strong job growth have even lower supply. Denver, Seattle, and San Francisco have about 2 months of supply, making each of those cities a sellers’ market. Miami, with a supply made up mostly of condos, has the highest supply of the largest metros at 9 months. The incredibly tight inventory on the low end has pushed prices up for that segment of the market. As measured by the CoreLogic Home Price Index, prices for lower-end homes increased by almost 10% year over year in March 2018, while prices for higher-priced homes increased by 6%. Increases for lower-end homes can price entry-level buyers out of the housing market, keeping a lid on overall home sales.

John Williams assumes influential role at most powerful regional Fed bank

John Williams assumed his new role as head of the New York Fed on Monday, after being appointed to the powerful post in early April replacing longtime president William Dudley who is retiring. As he takes over the second most influential position within the US central banking system, Williams will be awarded a permanent seat – and vote – on the Federal Open Market Committee (FOMC). He has served as president at the San Francisco branch since 2011, where he succeeded former Federal Reserve chair Janet Yellen. Prior to 2011, Williams served as executive vice president and director of research for the San Francisco Fed. In a statement issued on Monday, Williams said he will remain committed to transparency, independence of thought and building a diverse workplace at the New York Fed. “I start my first day with a deep commitment to securing the stability of our financial system and prosperity for our economy,” Williams added. In an outgoing interview with Dow Jones, Dudley noted the culture at the New York Fed “is not perfect” while indicating he and Williams are on the same page. The Federal Reserve raised its benchmark interest by a quarter percentage point on Wednesday, and is expected to raise rates two more times this year. As the central bank brings interest rates closer to “neutral” levels, meaning they are neither accelerating nor slowing economic growth, Williams suggested in an interview with Reuters this month that rates may even exceed neutral, which he defined around 2.5%, for a period of time. “I don’t view our policy path as just getting to neutral and saying, ‘okay we’re done’” he said. The Fed funds rate is currently in the 1.75% to 2% range. Williams started his career with the Federal Reserve System as an economist at the Board of Governors in 1994.

Orlando home prices continue to rise in May as sales tumble

The Orlando Regional Realtor Association is reporting the inventory of homes available for purchase in the Orlando area dropped to its lowest point this year in May 2018, dampening sales at the time when buyers traditionally ramp up their efforts to secure and move into a new home in time for the start of school. That demand is continuing to squeeze prices upward. The overall median price of Orlando homes (all types combined) sold May is $234,000, which is 7.3% above the May 2017 median price of $218,000 and 1.7% below the April 2018 median price of $238,000. Year-over-year increases in median price have been recorded for the past 83 consecutive months; as of April 2018, the overall median price is 102.60% higher than it was back in July 2011. The median price for single-family homes that changed hands in May increased 8.5% over May 2017 and is now $255,000. The median price for condos increased 6.1% to $125,250. The Orlando housing affordability index for May is 126.45%, up a bit from 126.13 last month. The first-time homebuyers affordability index increased to 89.92%, from 89.69% last month.

Members of ORRA participated in 3,407 sales of all home types combined in May, which is 11.4% less than the 3,845 sales in May 2017 but 1.1% more than the 3,371 sales in April 2018. “We are experiencing an unusual market filled with buyers who want to buy but sellers who don’t want to sell out of concern that there is no place for them to go,” explains ORRA President Lou Nimkoff. “Many would-be sellers aren’t moving because they worry about finding another home to buy in such a tight-inventory environment. In addition, the median length to stay in a home by recent sellers has now swelled to 10 years (historically, it was about six to eight years), which is further reducing inventory turnover.” Homes of all types saw sales decline in May. Sales of single-family homes (2,657) in May 2018 decreased by 12.4% compared to May 2017, while condo sales (410) decreased 3.1% year over year but actually increased 12.6% compared to last month. Sales of distressed homes (foreclosures and short sales) reached 120 in May and are 70% less than the 282 distressed sales in May 2017. Distressed sales made up just 3.5% of all Orlando-area transactions last month. The overall inventory of homes that were available for purchase in May (7,486) represents a decrease of 14.7% when compared to May 2017, and a 3.3% decrease compared to last month. There were 10.5% fewer single-family homes and 25.4% fewer condos. Current inventory combined with the current pace of sales created a 2.2-month supply of homes in Orlando for May. There was a 2.8-month supply in May 2017 and a 2.3-month supply last month. The average interest rate paid by Orlando homebuyers in May was 4.64, up from 4.51% the month prior. Pending sales in May are down 11.4% compared to May of last year and are down 7.4% compared to last month.

Amazon Prime members who shop at Whole Foods: You’re in luck

Amazon cuts Whole Foods prices for Prime members while Target slashes the delivery fee for loyalty members. FBN’s Gerri Willis with more.

It’s been a year since Amazon.com Inc. agreed to buy Whole Foods for $13.5 billion. The biggest beneficiaries of the deal might be Amazon Prime members. Sky-blue signs advertising discounts for Prime members greet shoppers in some Whole Foods parking lots. Inside the stores, blue placards spotlight lower prices for Prime members on organic nectarines and sausage. “Blue signs mean special deals just for you. Yes, you,” declared leaflets that were arranged on a display table at a large Whole Foods in Oakland, Calif. Amazon last week expanded free two-hour delivery of Whole Foods groceries for Prime subscribers to 14 cities, including Baltimore, Boston, Philadelphia and Richmond, Va. More than half of Whole Foods stores now offer a 10% discount on sale items to Prime members. Whole Foods’ new delivery service has led some customers to gripe. Some parking spots now are reserved for delivery drivers, and store sections have been converted to busy order-assembly areas. Some store entryways and service counters now are crowded with workers picking up orders, customers said. “It can almost feel like mayhem,” said Julie Gelfat, a 57-year-old communications consultant who stopped going to her local Whole Foods in San Diego after it added delivery. “There’s no protocol to make the in-store customer feel relaxed.” Amazon and Whole Foods spokeswomen declined to comment.

Amazon is also making a hard sales pitch to get Whole Foods shoppers to sign up for Prime memberships. “It was funny to be standing in a grocery store and hear, ‘Would you like to be a Prime member?’ ” said Talia Smith, 25 years old, who lives in San Francisco. Ms. Smith said she is considering paying the $119 annual fee for Prime perks, now that they include lower Whole Foods prices. Some analysts expect Amazon to use Whole Foods discounts as a way to capture even more retail spending by the grocery chain’s largely urban clientele. Some 60% of Whole Foods shoppers are Prime members, Morgan Stanley analysts estimate. Meanwhile, more Amazon products are turning up in Whole Foods stores. At some locations, Echo speakers, Fire tablets and Fire TVs are for sale alongside Amazon lockers where customers can pick up their e-commerce orders. Customers browsing Amazon’s website now are likely to see Whole Foods beans, baking soda and other store-brand goods displayed prominently. Amazon also appears to be giving a boost to Whole Foods’ “365 Everyday Value” products. The chain’s private-label sales have grown as a percentage of store purchases since the deal, according to advertising firm inMarket.

Trump to nominate Kathy Kraninger to lead CFPB

On Saturday, Reuters reported that the White House will name Kathy Kraninger as its nominee to permanently lead the Consumer Financial Protection Bureau (aka BCFP). Mick Mulvaney’s appointment as the acting director of the consumer watchdog is set to end on June 22. Last week, there were reports that President Donald Trump would announce a nominee to lead the agency this week. In those initial reports, sources familiar with the matter batted around potential nominee names, such as National Credit Union Administration Chairman J. Mark McWatters as permanent director, but not until close to June 22, according to an article by Kate Berry for American Banker. Another article said Trump was considering outgoing Rep. Darrell Issa, R-Calif. But Saturday, the White House confirmed Trump will name Kraninger to lead the agency, drawing fast criticism from both consumer advocates and dividing conservatives, who were quick to call out Kraninger’s lack of experience in the consumer finance arena. Kraninger currently works as a deputy in the Office of Budget and Management, which is also led by Mulvaney. According to the Reuters article, she does not have much experience in consumer finance but does have experience managing large teams.

Zillow facing lawsuit

Zillow and its subsidiary Trulia have been hit with a patent infringement lawsuit over real estate information search applications. According to reporting from GeekWire, the lawsuit alleges that the real estate tech companies’ mobile home search apps violate a patent for “real estate information search and retrieval system” and seeks to block Zillow and Trulia from using location-based mobile search apps that display information about homes. The suit, filed in the US District Court in Seattle, was brought against Zillow Group by Corus Realty Holdings, a Virginia-based brokerage that was acquired by real estate company Long & Foster in 2009. In the court filing, Corus says that in 2001 it developed and patented a “mobile device that used location technology to identify and obtain relevant information about real estate near a user’s location.” According to GeekWire’s coverage, Zillow addressed the suit with the following statement: “We are aware of the lawsuit recently filed. While we won’t discuss pending litigation, we believe the claims are without merit and intend to vigorously defend ourselves against the lawsuit,” the company said.

CoreLogic – March loan performance lowest delinquency rates in 11 years

–  Rising Home Equity and Employment Support Delinquency Decline

–  March Foreclosure Rate Declined 0.2 percentage Points Year Over Year

–  Early-Stage Delinquency Rates Were Unchanged from March a Year Ago

CoreLogic released its monthly Loan Performance Insights Report. The report shows that, nationally, 4.3% of mortgages were in some stage of delinquency (30 days or more past due, including those in foreclosure) in March 2018, representing a 0.1 percentage point decline in the overall delinquency rate, compared with March 2017 when it was 4.4%. As of March 2018, the foreclosure inventory rate – which measures the share of mortgages in some stage of the foreclosure process – was 0.6%, down 0.2 percentage points from 0.8% in March 2017. Since August 2017, the foreclosure inventory rate has been steady at 0.6%, the lowest level since June 2007, when it was also 0.6%. The March 2018 foreclosure inventory rate was the lowest for that month in 11 years; it was also 0.6% in March 2007. Measuring early-stage delinquency rates is important for analyzing the health of the mortgage market. To monitor mortgage performance comprehensively, CoreLogic examines all stages of delinquency, as well as transition rates, which indicate the percentage of mortgages moving from one stage of delinquency to the next. The rate for early-stage delinquencies – defined as 30 to 59 days past due – was 1.7% in March 2018, unchanged from March 2017. The share of mortgages that were 60 to 89 days past due in March 2018 was 0.6%, also unchanged from March 2017.

The serious delinquency rate – defined as 90 days or more past due, including loans in foreclosure – was 1.9% in March 2018, down from 2.1% in March 2017. The March 2018 serious delinquency rate was the lowest for that month since 2007 when it was 1.5%. “Unemployment and lack of home equity are two factors that can lead to borrowers defaulting on their mortgages,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Unemployment is at the lowest level in 18 years, and for the first quarter, the CoreLogic Equity Report revealed record levels of home equity growth with equity per owner up $16,300 on average for the year ending March 2018.” Since early-stage delinquencies can be volatile, CoreLogic also analyzes transition rates. The share of mortgages that transitioned from current to 30 days past due was 0.7% in March 2018, up from 0.6% in March 2017. By comparison, in January 2007, just before the start of the financial crisis, the current- to 30-day transition rate was 1.2%, while it peaked in November 2008 at 2%. “As we enter the summer, the risk of hurricane and wildfire damage to homes increases as does the risk of damage-related loan default,” said Frank Martell, president and CEO of CoreLogic. “Last year’s hurricanes and wildfires continue to affect today’s default rates. Serious delinquency rates are more than double what they were before last autumn’s hurricanes in Houston, Texas, and Naples, Florida. The serious delinquency rates have also quadrupled in Puerto Rico.”

Producer prices up 0.5% from April, 3.1% in past year

US wholesale prices last month posted the biggest 12-month gain since January 2012, a sign that the strong economy is beginning to rouse inflation. The Labor Department said Wednesday that its producer price index— which measures inflation before it reaches consumers— rose 3.1% from May 2017. The index rose 0.5% from April, biggest one-month increase since January. In April, producer prices rose just 0.1%. Energy prices, pulled higher by surging gasoline prices, rose 4.6% last month from April, the biggest jump in three years. Food prices rose just 0.1%, and seafood prices fell a record 13.1%. Core wholesale prices — which excludes the volatile food and energy sectors — rose 0.3 from April and 2.4% from May 2017. The Federal Reserve is expected to raise short-term interest rates Wednesday for the second time this year and the seventh time since December 2015 as inflation hits the central bank’s annual 2% target. On Tuesday, the Labor Department reported that consumer prices rose 0.2% in May, largely on soaring gasoline costs, and 2.8% over the past year, fastest 12-month jump since February 2012. But core consumer prices have risen a milder 2.2% over the past 12 months.

MBA – mortgage credit availability increased in May

Mortgage credit availability increased in May according to the Mortgage Credit Availability Index (MCAI), a report from the Mortgage Bankers Association (MBA) which analyzes data from Ellie Mae’s AllRegs® Market Clarity® business information tool. The MCAI increased 1.5% to 180.6 in May. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. The index was benchmarked to 100 in March 2012. The Conventional MCAI increased (up 2.0%) and the Government MCAI increased (up 1.0%). Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 2.2% while the Conforming MCAI increased by 1.9%. “The expansion of offerings across all loan types drove credit availability to its highest level in three months. In particular, the conventional index and jumbo index both rose to their highest levels since March 2011. This was mainly caused by increased investor interest in jumbo loans and high balance conforming loans,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. The MCAI increased 1.5% to 180.6 in May. The Conventional MCAI increased (up 2.0%) and the Government MCAI increased (up 1.0%). Of the component indices of the Conventional MCAI, the Jumbo MCAI increased by 2.2% while the Conforming MCAI increased by 1.9%

The Conventional, Government, Conforming, and Jumbo MCAIs are constructed using the same methodology as the Total MCAI and are designed to show relative credit risk/availability for their respective index. The primary difference between the total MCAI and the Component Indices are the population of loan programs which they examine. The Government MCAI examines FHA/VA/USDA loan programs, while the Conventional MCAI examines non-government loan programs. The Jumbo and Conforming MCAIs are a subset of the conventional MCAI and do not include FHA, VA, or USDA loan offerings. The Jumbo MCAI examines conventional programs outside conforming loan limits while the Conforming MCAI examines conventional loan programs that fall under conforming loan limits. The Conforming and Jumbo indices have the same “base levels” as the Total MCAI (March 2012=100), while the Conventional and Government indices have adjusted “base levels” in March 2012. MBA calibrated the Conventional and Government indices to better represent where each index might fall in March 2012 (the “base period”) relative to the Total=100 benchmark.

Small business optimism jumps to second-highest level ever; tax cut cited

–  The NFIB’s small business optimism index rose 3 points to 107.8 in May, the second-highest level in the index’s 45-year history.

–  Within the index, expectations for business expansion and reports of positive earnings trends hit record highs.

–  Reports of compensation increases also hit their highest in the history of the index.

Small business optimism rose in May to its highest level in more than 30 years, helped by all-time highs in some key index components, the National Federation of Independent Businesses said Tuesday. Expectations for business expansion and reports of positive earnings trends hit record highs, while expectations for strong increases in real sales reached their highest since 1995. Reports of compensation increases also hit their highest in the history of the index. Small businesses account for about 40% of total hiring and are a good indicator on overall economic activity, Joseph Lavorgna, chief economist for Americas at Natixis, said in a note Tuesday. The% of firms in the NFIB survey expecting higher real sales tends to lead GDP by one quarter, which indicates second quarter growth should pick up to at least 3%, Lavorgna said. The US economy grew at a 2.2% annualized rate in the first quarter, according to the second estimate from the US Department of Commerce. “Small business owners are continuing an 18-month streak of unprecedented optimism which is leading to more hiring and raising wages,” NFIB chief economist Bill Dunkelberg said in a statement. “While they continue to face challenges in hiring qualified workers, they now have more resources to commit to attracting candidates.” Overall, the small business optimism index’s reading of 107.8 in May marked an increase of 3 points from the prior month and the second-highest level in the index’s 45-year history. The record high hit in 1983 is just 0.2 points more at 108.0. “The new tax code is returning money to the private sector where history makes clear it will be better invested than by a government bureaucracy,” a commentary in the NFIB report said. “Regulatory costs, as significant as taxes, are being reduced.”

Olick – weekly mortgage applications drop 1.5% as rates turn higher again

–  Rates are on the move higher again, and that caused mortgage application volume to drop 1.5% last week.

–  Volume was 15.4% lower than a year ago, according to the Mortgage Bankers Association.

–  Refinance volume turned back to bleeding, down 2% for the week and off nearly 34% from a year ago.

The mortgage market found some new energy for a few weeks, when interest rates suddenly dropped, but it was remarkably short-lived. Rates are on the move higher again, and that caused mortgage application volume to drop 1.5% last week from the previous week and 15.4% than a year ago, according to the Mortgage Bankers Association’s seasonally adjusted report. Refinance volume, which saw a significant gain the previous week, turned back to bleeding, down 2% for the week and off nearly 34% from a year ago, when interest rates were lower. Refinance demand is most sensitive to even the smallest moves in interest rates. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.83% from 4.75%, with points increasing to 0.53 from 0.46 (including the origination fee) for 80% loan-to-value ratio loans. Mortgage rates loosely follow the yield on the 10-year Treasury bond. “Despite lingering uncertainty over a potential trade war, investors moved away from Treasurys, pushing yields up for the week,” said Joel Kan, an MBA economist. “Overall mortgage application activity declined as rates rose, but government applications increased, driven largely by increases in FHA applications, reflecting stronger demand by first-time homebuyers.”

FHA, the federal insurance entity that backs home loans, allows for down payments as low as 3.5%. First-time homebuyers have been struggling to find affordable homes, as housing continues in a supply crisis. The FHA share of total applications increased to 10.6% from 9.7% the week before. The severe shortage of homes for sale is more of an issue for homebuyers than interest rates and continues to weaken purchase demand. Mortgage applications to buy a home fell two% for the week and were 0.2% lower than the same week one year ago. Purchase applications have largely been higher on a year-over-year basis, so this drop could signal more weakness ahead. Home prices continue to rise, and the gains in some market are getting bigger, as supply falls. More homes came on the market for the spring season, but they were quickly bought up by hungry buyers, often in bidding wars. Homes are spending less and less time on the market, meaning buyers have less time to secure financing, especially if they need more than they expected. Mortgage rates are now sitting near seven-year highs again, but that could change swiftly on upcoming economic news. The policymaking Federal Open Market Committee is expected to raise its lending interest rate on Wednesday afternoon, but comments from members could move mortgage rates as well. “The Fed announcement could push rates quickly higher or lower in the afternoon. Less than 24 hours later, the European Central Bank is out with their own hotly anticipated policy update,” said Matthew Graham, chief operating officer of Mortgage News Daily. “In both cases, investors aren’t wondering about rate hikes (we already know the Fed will and the ECB won’t). Rather, it’s the accompanying details that run the risk of causing significant volatility for rates.”

Merrill Lynch ordered to pay $15.7M for cheating customers in mortgage bond trades

Merrill Lynch will pay $15.7 million to settle allegations that its employees misled mortgage bond customers and overcharged those customers residential mortgage-backed securities trades during a three-year period from 2009 through 2012, the Securities and Exchange Commission announced Tuesday. According to the SEC, an investigation found that Merrill Lynch RMBS traders and salespeople tricked the bank’s customers into overpaying for mortgage bonds by lying about the price Merrill Lynch paid to acquire the securities. For those unfamiliar with RMBS trading, mortgage bonds are not publicly traded on an exchange and pricing information for the bonds is not publicly available. Therefore, RMBS buyers and sellers use broker-dealers to execute individually negotiated transactions. In its investigation, the SEC found that Merrill Lynch RMBS traders deceived customers about the prices of mortgage bonds, raising the prices in order to make more money on the deals. “During the Relevant Period, Merrill personnel who purchased and sold non-agency RMBS made false or misleading statements, directly and indirectly, to Merrill customers and/or charged Merrill customers undisclosed excessive mark-ups,” the SEC said in its order. “By engaging in this conduct, Merrill personnel acted knowingly or recklessly.”

According to the SEC, Merrill Lynch’s RMBS traders and salespeople illegally profited from excessive, undisclosed commissions, which, in some cases, were more than double what the customers should have paid. The SEC also stated that Merrill Lynch had policies that prohibited traders from making false or misleading statements and the ability to monitor traders’ communications for such statements. But the SEC stated that the company failed to “reasonably” implement procedures to monitor and prevent those types of “false or misleading” statements. “Merrill also had policies that prohibited excessive mark-ups and procedures to monitor for excessive mark-ups on transactions in non-agency RMBS, but the policies and procedures were not reasonably designed and implemented,” the SEC said. “Due to these deficiencies, Merrill failed reasonably to perform a meaningful review of potentially excessive mark-ups on certain non-agency RMBS transactions, including transactions that are the subject of the Order.” The SEC found that that the Merrill Lynch traders violated antifraud provisions of certain federal securities laws and that Merrill Lynch failed to reasonably supervise the traders. “In opaque RMBS markets, lying to customers about the acquisition price can deprive investors of important information,” said Daniel Michael, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. “The Commission found that Merrill Lynch failed in its obligation to supervise traders who allegedly used their access to market information to take advantage of the bank’s own customers.” As part of the settlement agreement, Merrill Lynch will pay a fine of $5.2 million to the SEC and will repay more than $10.5 million to its customers. Merrill Lynch neither admits to nor denies the SEC’s findings, but agrees to be censured by the SEC. In a statement provided to HousingWire, Merrill Lynch said these issues have long since been remedied. “We have addressed issues raised in this matter, which occurred between 2009 and 2012, and taken steps to improve our procedures,” the company said in its statement.

Maurice Wutscher LLP – 9th Cir. rejects FCRA putative class action relating to short sale credit reporting

In a putative class action alleging violations of the federal Fair Credit Reporting Act, the US Court of Appeals for the Ninth Circuit recently held that:

(1) the credit reporting agency’s reporting of short sales was not inaccurate or misleading, even though it knew that a government sponsored enterprise misinterpreted its short sale code as a foreclosure, because FCRA does not make credit reporting agencies liable for the conduct of its subscribers;

(2) the credit reporting agency’s consumer disclosures were clear and accurate, and 15 USC. § 1681g did not require the credit reporting agency to disclose its proprietary codes that could confuse unsophisticated consumers; and

(3) the plaintiffs failed to establish a right to statutory damages because the credit reporting agency conduct was not objectively unreasonable.

The plaintiffs brought this action against a credit reporting agency alleging violations of the federal Fair Credit Reporting Act, 15 USC. § 1681, et seq., based on the credit reporting agency’s reporting of short sales and its related consumer disclosures. The credit reporting agency delivered its credit reports in a proprietary computer-generated format that displays credit information “in segments and bits and bytes,” but the credit reporting agency provides technical manuals that enable its subscribers to read and understand the credit reports they receive. As you may recall, a short sale is a derogatory credit event that furnishers report to the credit reporting agencies. When the credit reporting agency receives data reporting a short sale, it translates the data into its proprietary coding before it can export the data to subscribers. The credit reporting agency’s technical manual coded short sales as follows:

(1) Account type: A mortgage-related account, such as a first mortgage or home equity line of credit.

(2) “Account condition” and “payment status” code: 68, which corresponds to a Special Comment of “Account legally paid in full for less than the full balance.” The 68 automatically populates a 9 into the first position on the payment history grid to display the “Settled” status.

(3) Payment history grid showing the final status (“Settled”) in the first digit, followed by 24 months of payment history information.

(4) Date in 25th month in the payment history grid corresponds to the date the furnisher reported the “Settled” status to the credit reporting agency.

In other words, the credit reporting agency reported account condition code 68 (“Account legally paid in full for less than the full balance”) for short sales, which then automatically inserted the number 9 into the payment history grid (to display a “Settled” status). However, a lead payment history code of 9 can represent multiple, derogatory, non-foreclosure statuses, including “Settled, Insurance Claim, Term Default, Government Claim, Paid by Dealer, BK Chapter 7, 11 or 12 Petitioned, or Discharged and BK Chapter 7, 11 or 12 Reaffirmation of Debt Rescinded.”

Foreclosures are reported with a lead payment history code of 8 and an account condition and payment status code of 94 (“Creditor Grantor reclaimed collateral to settle defaulted mortgage”). According to the credit reporting agency’s technical manuals, it was impossible for its credit reports to reflect a foreclosure with a lead payment history code of 9. A government sponsored enterprise (“GSE”) that purchased mortgage loans from certain lenders used a proprietary underwriting software. Its rules required that a consumer with a prior foreclosure must wait seven years before obtaining a new mortgage, but consumers with a prior short sale need wait only two years. The GSE’s underwriting software analyzed credit report data from the credit reporting agencies. In doing so, the software relied on the GSE’s payment code, which corresponded to the credit reporting agency’s lead payment history code. Until 2013, the software “identified [mortgage accounts] as a foreclosure if there [was] a current status or [payment history code] of ‘8’ (foreclosure) or ‘9’ (collection or charge off).” Thus, the GSE elected to treat code 9 the same as it treated code 8, even though it knew from the instructions of the credit reporting agency that code 9 did not represent a foreclosure, and that it was “necessarily capturing accounts that [were] not actually foreclosures.” The GSE’s treatment of lead payment history code 8 and 9 imposed a seven year waiting period on consumers with a prior short sale, when the waiting period should have only been two years. In 2010, consumers and the credit reporting agency raised this issue with the GSE, but neither entity changed its coding.

Between 2012 and 2013, the plaintiffs disputed the credit reporting agency’s reporting of their prior short sales. However, the plaintiffs were able to obtain new loans after their prior short sales because their lenders either understood that they had a prior short sale, not a foreclosure, or the lender did not use the GSE’s underwriting software. In June 2013, the plaintiffs filed a putative class action against the credit reporting agency asserting claims for: (1) a reasonable procedures claim pursuant to 15 USC. § 1681e; (2) a reasonable reinvestigation claim pursuant to 15 USC. § 1681i; (3) a file disclosure claim pursuant to 15 USC. § 1681g. The plaintiffs requested damages pursuant to 15 USC. § 1681n. The case was stayed pending the Supreme Court’s resolution of Spokeo, Inc. v. Robins, 135 S. Ct. 1892 (2015). After the stay was lifted, the credit reporting agency moved for summary judgment. The trial court granted summary judgment in favor of the credit reporting agency. This appeal followed. The Ninth Circuit began its analysis on the plaintiffs’ reasonable procedures and reasonable reinvestigation claims. As you may recall, FCRA’s compliance procedures provide that: “[w]henever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” 15 USC. § 1681e(b). Liability under this reasonable procedure provision “is predicated on the reasonableness of the credit reporting agency’s procedures in obtaining credit information.” Guimond v. Trans Union Credit Info. Co., 45 F.3d 1329, 1333 (9th Cir. 1995). To bring a section 1681e claim, the “consumer must present evidence tending to show that a credit reporting agency prepared a report containing inaccurate information.” Id., 45 F.3d at 1333. Additionally, a credit reporting agency must conduct a free and reasonable investigation within 30 days of a consumer informing the agency of disputed information. 15 USC. § 1681i(a)(1)(A). Consumers must show that “an actual inaccuracy exists” for a section 1681i claim. Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 890 (9th Cir. 2010).

The plaintiffs argued that the credit reporting agency’s short sales code combination 9-68 was “patently incorrect” because it caused the GSE to treat short sales as a potential foreclosure. However, the Ninth Circuit noted that the credit reporting agency reported short sales with code combination of 9-68. Account status code 68 automatically inserted 9 into the lead payment history spot, signifying that the account was “Settled” and “legally paid in full for less than the full balance.” This, according to the Ninth Circuit, was the very definition of a short sale. Further, the Ninth Circuit explained that even if code combination 9-68 stood for other derogatory events, and thus could be misleading, that alone did not render the credit reporting agency’s reporting actionable. The reporting must be “misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.” Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1163 (9th Cir. 2009). As the Ninth Circuit explained, the credit report agency reported foreclosures with code 8-94, which meant “[c]reditor [g]rantor reclaimed [the] collateral to settle defaulted mortgage.” And, as the Ninth Circuit further explained, a foreclosure did not occur where a mortgage account is “legally paid in full for less than the full balance” like a short sale. Thus, in the Ninth Circuit’s view, the credit reporting agency’s code system accurately distinguished short sales and foreclosures. The plaintiffs also argued that the credit reporting agency’s reports were misleading because it knew the GSE was misreading its technical manuals and failed to take remedial action. However, the Ninth Circuit rejected this argument because FCRA did not make the credit reporting agency liable for the misconduct of its subscribers. Thus, because the Ninth Circuit determined that the plaintiffs failed to point to any inaccuracies on their credit reports, it did not have to consider whether the credit reporting agency had reasonable procedures or conducted reasonable reinvestigations.

Next, the Ninth Circuit turned to the plaintiffs’ arguments regarding the credit reporting agency’s consumer disclosures. As you may recall, 15 USC. § 1681g(a) provides, in relevant part, that “[e]very consumer reporting agency shall, upon request, clearly and accurately disclose to the consumer: [a]ll information in the consumer’s file at the time of the request.” A consumer’s file includes “all information on the consumer that is recorded and retained by a [credit reporting agency] that might be furnished, or has been furnished, in a consumer report on that consumer.” Cortez v. Trans Union, LLC, 617 F.3d 688, 711-12 (3d Cir. 2010). First, the plaintiffs argued that the credit reporting agency’s consumer disclosures violated section 1681g(a)(1), because it placed the designation “CLS” (Closed) in the lead spot on the payment history grid on each consumer disclosure, instead of one of the code 9 statuses. The plaintiffs argued that because the status category on a consumer disclosure (“Paid in settlement”) was a separate category from the lead digit in the payment history grid on a credit report, these categories served different purposes. The Ninth Circuit disagreed. It found that the credit reporting agency complied with section 1681(g) because it provided the plaintiffs with all information in their files at the time of their requests in a form that was both clear and accurate. Specifically, the credit reporting agency’s consumer disclosures conveyed the same information it reported to its subscribers. Additionally, the Ninth Circuit determined that the credit reporting agency was not required to report the actual code 9 in a consumer disclosure. Requiring the credit reporting agency to provide its proprietary code, in the Ninth Circuit’s view, would contradict section 1681g(a)’s requirement that the disclosure be “clear.” In order for a consumer to understand code 9, the credit reporting agency would have to report account status code 68 and release its complicated technical manual, which would further confuse unsophisticated consumers.

Moreover, the Ninth Circuit was unpersuaded by the plaintiffs’ argument that the credit reporting agency violated section 1681g(a)(1), because “there was a material disconnect between the information displayed in [their] consumer reports and the information displayed in [their] consumer disclosures due to the presence of the catchall code 9.” As the Ninth Circuit explained, this was in essence the same argument based on an incomplete interpretation of the credit reporting agency’s coding system. The credit reporting agency’s account status code 68 clarified the account’s status and the specific derogatory event attached to it. Thus, the Ninth Circuit held that the plaintiffs failed to identify what information the credit reporting agency improperly excluded from its disclosures. Additionally, the Ninth Circuit found that the plaintiffs failed to establish a right to statutory damages under 15 USC. § 1681n, which required a showing that the credit reporting agency willfully failed to comply with FCRA. The Ninth Circuit stated that even if the credit reporting agency had violated section 1681g, it did not act in an objectively unreasonable manner by electing not to list code 9 in its consumer reports. Further, the Ninth Circuit noted that the Consumer Financial Protection Bureau investigated the short sale-foreclosure problem and determined that the underlying issue was not due to inaccurate reporting by furnishers or credit reporting agencies. Accordingly, the Ninth Circuit affirmed the trial court’s grant of summary judgment in favor of the credit reporting agency.

Oil prices fall as US, Russia supplies grow

Oil prices fell on Monday, pulled down by rising Russian production and US drilling activity creeping to its highest in more than three years. Analysts expect surging US output to start offsetting efforts led by the Organization of the Petroleum Exporting Countries (OPEC) to withhold production, which have been in place since early 2017 and have pushed up prices significantly in the first half of this year. Brent crude futures, the international benchmark for oil prices, were at $76.21 per barrel at 0504 GMT, down 25 cents, or 0.3%, from their last close. US West Texas Intermediate (WTI) crude futures were down 21 cents, or 0.3%, at $65.52 a barrel. Prices were weighed down by another rise in the number of rigs drilling for new oil production in the United States. The rig count crept up by one to its highest since March 2015 at 862, according to energy services firm Baker Hughes on Friday. That implies US crude output, already at a record high of 10.8 million barrels per day (bpd), will rise further. “Non-OPEC supply is expected to rise sharply in 2019 led by US shale growth, along with Russia, Brazil, Canada and Kazakhstan,” US bank JPMorgan said in its quarterly outlook published on Friday, adding that it was bearish on the oil price outlook going into the second half of the year.

Ben Carson backtracks on rent raise

The US Department of Housing and Urban Development released a plan in April that HUD Secretary Ben Carson says will push millions of low-income households toward self-sufficiency. Under the current system, Carson explained many low-income earners are discouraged from, or even penalized for, finding higher-paying jobs as they would lose their current benefits and perhaps be worse off than when they earned a lower income. But HUD’s proposed plan quickly earned criticism as an analysis by the Center on Budget and Policy Priorities showed it would raise rates for the poorest Americans by about 20% and would raise the minimum rent from $50 to $150 per month. However, now it seems Carson is reconsidering that plan. At the Bipartisan Policy Center Friday, he said additional funding from Congress eliminated the immediate need to raise rents. “The reason we had to consider raising rents at all is because we were dealing with a $41 billion budget,” Carson said. “And in order to be able to keep from raising rents on the elderly and the disabled, and in order to not displace people who are already being taken care of, that was necessary.” “Now that the budget has been changed, the necessity for doing that is not urgent,” he said.

Trump issues warning to trade partners over retaliatory tariffs

President Donald Trump warned trading partners not to retaliate against US duties on steel and aluminum imports, before departing from the Group of Seven summit in Quebec on Saturday. “If they retaliate, they’re making a mistake,” Trump told reporters in a short but stern remark. The president met with leaders from Canada, Britain, Italy, France, Germany and Japan in Quebec, where trade talks dominated the summit. Trump has asked countries to end tariffs and trade barriers in his push for “fair and reciprocal” trade. Trump’s administration last week ended a two-month exemption to steel and aluminum imports from Mexico, Canada and the European Union. Mexico slapped a 25% import tariff on US steel products, as well as 20% on pork products, 25% on bourbon and duties on other agricultural goods including cranberries. Canada issued its own threat of tariffs, which don’t go into effect until July. Meanwhile, the European Union – the world’s largest trading bloc – announced last week it would impose retaliatory tariffs on the US beginning in July, over Washington’s duties on steel and aluminum imports from Europe. The EU said it will impose the “rebalancing” tariffs on about $3.3 billion (2.8 billion euros) worth of US steel, bourbon, agricultural products including sweet corn, orange juice, cranberries and certain clothing made of cotton.

Zillow begins rollout of significant Premier Agent changes

Back in April, Zillow Group announced it was rolling out changes to its Premier Agent program. Now, those changes have begun. Zillow previously disclosed that it would soon bring several significant changes to its Premier Agent program “over the next several months.” Now, reports have reached HousingWire that this rollout has begun. The new changes will certainly be beneficial to consumers, however real estate agents are still unsure about the changes. Previously, real estate agents could purchase leads, which Zillow would send to them either via phone call or email. If the agent did not answer the phone, they were able to call the lead back at a later time. But Zillow pointed out several pitfalls to this system, both for real estate agents and consumers alike. For consumers, the pitfalls were obvious – there wasn’t always an instant connection to a real estate agent when they tried to contact someone to get their questions answered. Real estate agents also complained due to the value of the leads they would receive, as often times the callers were already working with another agent, and just wanted to ask questions. Also, several different real estate agents were able to purchase the same zip codes, meaning if they missed the call and other agent called the consumer back first, they would keep the lead.

Now, however, Zillow is changing the game. It will now have its own representatives screen incoming calls. They will make sure the caller is actively looking to buy or sell a home, not yet working with an agent and ready to speak to an agent. Once this screening process is complete, Zillow will connect the real estate agent to the caller. However, if the agent doesn’t pick up, Zillow will automatically transfer the call to the next agent in line. “We’ve implemented these changes to deliver higher quality leads to agents while also ensuring a great experience for consumers looking to connect with agents,” a Zillow spokesperson told HousingWire. “This will allow potential buyers to schedule time to speak to an agent when it’s convenient for them and the agent. And, when an agent misses a call for any reason, they don’t lose their place in the queue, they receive the next connection.” If a consumer requests a specific real estate agent, the lead will be sent to that agent, and will remain with them regardless of whether or not they answer the initial phone call. However, Zillow explained this occurrence in rare. “Our data shows the majority of home shoppers do not specifically select an agent when submitting an inquiry on a listing,” the company said. “However, when a home shopper does select an agent, that lead is much more likely to convert.”

And Zillow does warn that real estate agents’ lead volume might change, but expresses its hope that the leads agents are provided with will be of better quality. “Your lead volume may change; however, you’ll continue to receive leads in proportion to your Premier Agent Advertising share of voice,” the company stated. “We’re now focusing on quality over quantity. Each lead you receive will be validated, ready to speak to you and directly connected to you by phone.” The company will continue to roll out its new program across the US throughout 2018. To see if Zillow has begun using its new Premier Agent validated leads in your area, click here and enter your zip code.

Oil sinks further as OPEC and Russia look to raise output

Oil prices extended losses on Monday as Saudi Arabia and Russia said they may increase supplies while US production gains show no signs of slowing. Brent crude futures stood at $75.35 a barrel at 0913 GMT, down $1.09 from the previous close and after touching a three-week low of $74.49 earlier in the session. US West Texas Intermediate (WTI) crude futures were at $66.69, down $1.19, after hitting a six-week low of $65.80. The Organization of the Petroleum Exporting Countries (OPEC) and other producers led by Russia began withholding 1.8 million barrels per day (bpd) of supplies in 2017 to tighten the market and prop up prices that in 2016 fell to their lowest in more than a decade at less than $30 a barrel. Prices have soared since the start of the cuts last year, with Brent breaking through $80 this month, triggering concerns that high prices could crimp economic growth and stoke inflation. “The pace of the recent rise in oil prices has sparked a debate among investors on whether this poses downside risks to global growth,” Chetan Ahya, chief economist at US bank Morgan Stanley, wrote in a weekend note.

To address potential supply shortfalls Saudi Arabia, de-facto leader of producer cartel OPEC, and top producer Russia have been in talks about easing the cuts and raising oil production by 1 million bpd. “Given that our crude balance is short some 825,000 bpd over [the second half of the year], a gradual increase of about 1 million bpd would probably limit stock draws to quite some extent,” Vienna-based consultancy JBC Energy said. Meanwhile, surging US crude production showed no sign of abating as drillers continue to expand their search for new oilfields to exploit. US energy companies added 15 rigs looking for new oil in the week ending May 25, bringing the rig count to 859, its highest since 2015, in a strong indication that American crude production will continue to rise. US crude output has already surged by more than 27% in the past two years, to 10.73 million bpd, ever closer to Russia’s 11 million bpd.

Military members most likely to utilize zero-down mortgages

The home buying preferences of service members and veterans differ from the rest of the population. Military members often face very different lives than the rest of the population, so it stands to reason that their preferences and actions when it comes to buying a home would also be different. One of the most notable differences is the down payment, or lack thereof, according to NAR’s 2018 Veterans and Active Military Home Buyers Profile. About 56% of active duty members and 41% of veterans take advantage of zero down or 100% financed mortgages, compared to just 7% of non-military members. Of course, while there are some zero-down mortgage options available to certain homebuyers, it is much easier for military members and veterans to take advantage of these programs through the US Department of Veterans Affairs.

The US needs 50,000 truck drivers to avoid a shipping squeeze

Retailers are facing a shipping squeeze, and the trucking industry just can’t keep up. According to the American Trucking Associations, there’s a shortage of roughly 50,000 truck drivers across the country. And it’s hitting both businesses and consumers in the wallet. Companies are complaining about how the driver shortage is impacting their business. Meanwhile, the cost of convenient shipping is starting to catch up with consumers. Amazon recently hiked its Prime membership to $119 a year from $99 a year. The retail giant said one of the reasons for the price jump was increased shipping costs. But the driver shortage isn’t just because of demand created by online shopping. There’s a lot going on behind the scenes, according to Bob Costello, chief economist at American Trucking Associations. “We have a demographics problem, demand is strong, trucks haul over 70% of the freight tonnage, our average age is very high, [and] we don’t have enough females,” said Costello. “So much of it revolves around demographics.” To be fair, the trucking lifestyle isn’t exactly an easy sell. Truck drivers work long hours, they’re away from home for weeks on end, and oftentimes sleep inside the trucks themselves. Now, there’s a new technology limiting the hours a truck driver can work in a given day – electronic logging devices (ELDs). And then there’s Elon Musk. He’s using Tesla to develop a fully electric semi truck that could change the industry. He’s not the only one looking to disrupt trucking as we know it. Goldman Sachs estimates that self-driving cars could cost American drivers up to 25,000 jobs a month. But the trucking industry isn’t quite ready to go autonomous yet. “Driverless trucks are decades away,” Costello said. “That is not the solution.” The ATA says we’ll need 898,000 more drivers over the next decade to keep up with growth and demand. It’s not exactly clear how the trucking industry is going to shake out. But until the shortage issue is resolved, companies and consumers alike will likely be stuck with the trickle-down effects of this driver shortage.