CFPB’s Complaint Volume is Swelling

complaintThe Consumer Financial Protection Bureau (CFPB) opened its doors in July 2011 and immediately began accepting consumer complaints about various financial products such as mortgages, credit cards, and bank accounts and services.

As of January 2016, the number of consumer complaints the Bureau has handled since opening its doors rose to 790,000, according to the 7th volume of the CFPB’s Consumer Complaint Snapshot for December 2015 released on Thursday. Approximately 230,000 of those complaints were received in December 2015.

“Many of the financial services examined in today’s report are used by people struggling to make ends meet who can least afford to have issues with their financial products,” CFPB Director Richard Cordray said. “The Bureau will continue to use complaints submitted about these products to target bad actors in the financial marketplace.”

Despite being the second-most complaint about financial product in December behind debt collection, mortgages remained the most complained about financial product to the Bureau as of January 1, 2016, with 209,618 total complaints, with debt collection coming in a close second at 205,082. Credit reporting is third with 127,284. These three categories have combined for about 542,000 complaints, which is more than two-thirds of the complaints the Bureau has received in its four-and-a-half year history.

1-28 CFPB Graph

In the New York metro area, the geographic region spotlighted in the December Consumer Complaint Snapshot, mortgages are the most complained about product. Out of the 57,700 complaints the CFPB has received from consumers in the New York metro area, 27 percent of them have been about mortgages.

In June 2012, the CFPB launched its Consumer Complaint Database online that included basic, anonymous, individual-level information about the complaints received. In June 2015, the CFPB began allowing consumers to publish narratives of their complaints. In April 2015, the Five Star Institute and Black Knight Financial Services released a white paper on Friday titled Analysis and Study of CFPB Consumer Complaint Data Related to Mortgage Servicing Activities to provide more context around complaints the Bureau receives on mortgages.

Fed Unveils Stress Test Criteria

money-stepsThe largest banks and financial institutions in the United States will face a new set of supervisory scenarios as part of the Comprehensive Capital Analysis and Review (CCAR) and Dodd-Frank stress test exercises to see how the banks would fare in a “severely adverse” economic situation, according to an announcement from the Federal Reserve on Thursday.

The purpose of the CCAR is to evaluate the largest U.S.-based bank holding companies to determine the adequacy of their capital planning processes, which include capital planning actions such as dividend payments, share buybacks, and issuances. The 2016 CCAR covers 33 bank holding companies with total consolidated assets of $50 billion or more.

The Dodd-Frank stress tests assess the firms to determine if their capital levels are sufficient to absorb losses and still lend to households and businesses during economic shocks such as the one the country suffered through in 2008, when several of the nation’s largest financial institutions received multi-billion dollar bailouts from the government funded by taxpayers.

The supervisory outcomes are measured under three different scenarios: severely adverse, adverse, and baseline.

“In adjusting the scenarios for our yearly stress testing program, we strive to assess the resilience of the nation’s largest banks in a variety of potential adverse environments,” Fed Governor Daniel K. Tarullo said. “It is important that the tests not to be too predictable from year to year.”

“In adjusting the scenarios for our yearly stress testing program, we strive to assess the resilience of the nation’s largest banks in a variety of potential adverse environments.”

Fed Governor Daniel Tarullo

The “severely adverse” scenario includes a severe global recession that sees the unemployment rate rise from 5 to 10 percent (up 5 percentage points) and a heightened period of corporate financial stress and negative yields for short-term U.S. Treasury securities, according to the Fed. The “adverse” scenario presents a moderate recession and mild deflation in the U.S. along with weakening economic activity across all countries. The “baseline” scenario includes a profile similar to average projections from economic forecast surveys.

According to the Fed’s announcement, each scenario includes 28 variables. Those variables include GDP, unemployment rate, stock market prices, and interest rates, and they encompass economic acivity both domestically and globally.

One carryover from the CCAR in previous years is that six of the bank holding companies are required to factor global market shock into their scenarios.

Bank holding companies that are participating are required to submit their capital plans and stress test results by April 5, 2016, and the results will be announced on June 30, 2016.

Ex-Fannie Mae Boss Mudd Pushes for Dismissal of SEC’s Fraud Suit

gavel-fiveFormer Fannie Mae CEO Daniel Mudd has urged a federal judge to dismiss a lawsuit filed against him by the Securities and Exchange Commission (SEC) accusing Mudd of shielding risky subprime loans from investors in the years immediately before the financial crisis hit in 2008.

Mudd, who was the CEO at Fannie Mae from 2005 to 2008, is one of six former GSE executives (three each from Fannie Mae and Freddie Mac) the SEC sued in December 2011, claiming they misrepresented to investors the amount of exposure to subprime loans the GSEs had incurred. The Commission’s lawsuit alleges that during the years 2007 and 2008 immediately before the crisis, Fannie Mae executives said their exposure to subprime and riskier mortgage loans was about $4.8 billion when it was about 10 times greater.

A lawyer for Mudd asked Judge Paul Crotty in the U.S. District Court of the Southern District of New York to throw the suit out because he believes the SEC has failed to prove its claims against Mudd.

“He didn’t do anything wrong, and the SEC’s case is unworthy,” attorney John Keker said in an email to DS News. “We hope the judge will agree and dismiss the case.”

SEC spokesperson Judith Burns told DS News the Commission declined to comment beyond the court filing and what was said in court.

“He didn’t do anything wrong, and the SEC’s case is unworthy.”

John Keker, Attorney for Daniel Mudd

The other five former GSE executives sued by the SEC have all settled their cases out of court; Mudd is the last one to resolve his case. Enrico Dallavecchia, Fannie Mae’s former chief risk officer, and Thomas Lund, former EVP of Fannie Mae’s single-family lending unit, settled in September 2015 for a combined total of $35,000. The relatively small amount of the settlement was surprising to many, especially considering that the U.S. Department of Justice made an announcement earlier that month stating that it plans to pursue the prosecution of individual employees, and not just their companies, for their role in precipitating the financial crisis in 2008.

The three Freddie Mac executives sued by the SEC, former CEO Richard Syron, former chief business officer Patricia Cook, and former VP of credit policy, Donald Bisenius, settled for a combined $310,000 in April 2015 with no admission of wrongdoing.  Syron agreed to pay $250,000, Cook agreed to pay $50,000, and Bisenius agreed to pay $10,000.

Both Syron and Mudd were ousted from their respective positions with Freddie Mac and Fannie Mae in September 2008 when the Enterprises were taken into conservatorship by the Federal Housing Finance Agency.

In March 2015, Mudd took the stand in the trial of Nomura Holdings, which was sued by the FHFA in 2011 for negligence in mortgage-backed securities underwriting. Mudd testified that certain macroeconomic factors, including housing prices, could possibly have an impact on investments such as mortgage-backed securities and that to his knowledge, no one at Fannie Mae could have accurately predicted the extent of the housing crisis. FHFA had been seeking $1.1 billion in damages; the judge ruled in favor of FHFA and ordered Nomura to pay $839 million.

The Great Debate: Has the Homeownership Rate Bottomed Out?

rising-arrows-twoAs the employment situation continues to improve, more buyers made their way into the housing market for the second quarter in a row.

The U.S. Census Bureau reported Thursday that the homeownership rate rose 0.1 percent to 63.8 percent in the fourth quarter of 2015, compared to 63.7 percent last quarter. Despite the rise however, the homeownership rate is 0.2 percent below the rate of 64.0 percent last year during the same period.

In addition, the homeownership rate, while up from a 48-year low in the second quarter of 2015, is still below the peak of 69.2 percent in June 2004.

After suffering a major drop in November 2015, existing-home sales rose 14.7 percent to a seasonally adjusted annual rate of 5.46 million in December, up from 4.46 million in November. Year-over-year, existing-home sales are up 7.7 percent, and December’s jump will mark the largest increase ever.

According to the National Association of Realtors (NAR), the first-time buyers share was at 32 percent in December, up from 30 percent in November and 29 percent a year ago. For the year, first-time buyers made up 30 percent of homebuyers, up 1 percentage point from 2014 and 2013.

“First-time buyers were for the most part held back once again in 2015 by rising rents and home prices, competition from vacation and investment buyers and supply shortages,” said Lawrence Yun, NAR Chief Economist. “While these headwinds show little signs of abating, the cumulative effect of strong job growth in recent years and young renters’ overwhelming interest to own a home should lead to a modest uptick in first-time buyer activity in 2016.”

The Bureau found that homeownership was highest among those 65 years and older at 79.3 percent int he fourth quarter of 2015, down slightly 79.5 percent in the previous quarter. However, the only age group to increase their homeownership rate was the 35 to 44-year olds, from 58.8 percent in the fourth quarter of last year to 59.3 percent in the fourth quarter of 2015.

“Jobs are being created at a rapid pace, and we expect earnings growth will finally start to rise this year.”

Matthew Pointon, Capital Economics

“Today’s Census Homeownership and Vacancy Survey release also provides optimism that the homeownership rate may have hit bottom in 2015,” said Ralph B. McLaughlin, Chief Economist at Trulia. “Many Gen Xers lost their homes during the recession, so this is a positive sign that we may be seeing boomerang buyers coming back into housing market. However, the increase was not statistically significant from a year ago.”

Capital Economics Property Economist Matthew Pointon added, “That gradual rise in the homeownership rate should continue over the next few years. On the demand side, there are large numbers of young adults who are currently living with their parents. And many of them would like to form their own household. The financial crisis locked them out of homeownership, as they lost their jobs and/or banks refused to provide them with a mortgage. But both factors are now steadily improving. Jobs are being created at a rapid pace, and we expect earnings growth will finally start to rise this year. As well as allowing more households to access homeownership, that will also cut down on mortgage delinquencies and keep more families in their homes.”

The Bureau reported that the homeownership rates were highest in the Midwest at 68.1 percent in the fourth quarter, and lowest in the West at 59.0 percent. All regions, except the West experienced a year-over-year decline in homeownership.

Rental vacancy rates in the fourth quarter were 7.0 percent in the fourth quarter, unchanged from last year and down 0.3 percent from the previous quarter. The homeowner vacancy rate was 1.9 percent for the quarter, also unchanged from last year and last quarter.

“An improving labor market and easing credit conditions are finally leading to a gradual rise in the homeownership rate. But the rental vacancy rate has yet to rise, and that will put upwards pressure on rents over the coming months,” Pointon stated.

Lower Legal Costs Offset Headwinds for Banks’ Q4 Earnings

money-fourMore than half of the 17 largest banks or investment banking firms in the United States posted lower over-the quarter incomes in Q4 2015 due to such factors as market volatility, interest rate uncertainty, and pressures in oil and gas, according to a release from Fitch Ratings on Thursday.

One of the factors that offset these factors was a moderation in litigation costs stemming from mortgage-backed securities, as was the case with Bank of America and Morgan Stanley—both of which reported substantial gains in their profits for Q4 with costs stemming from multi-billion dollar RMBS settlements largely in the rear view mirror. One notable exception to this was Goldman Sachs, which saw a decline of about 50 percent in net earnings over-the-quarter and about 67 percent year-over-year in Q4 due to a fresh $5.1 billion settlement reached in January 2016.

Incremental income growth and very benign credit costs were other factors that offset the market volatility, interest rate uncertainty, and oil and gas pressures, according to Fitch. According to the Fitch report, 11 of the 17 largest financial institutions posted lower over-the-quarter net incomes in Q4.

The precipitous drop in oil prices that has continued into 2016 has resulted in many of the banks reporting further loan loss reserve builds, because banks cited exposure to oilfield services and exploration and production companies as higher risk segments. Banks have benefited greatly from reserve releases in recent years, according to Fitch, but Q4 net earnings were affected by related provisioning even though the banks’ direct exposure to oil and gas pressures was fairly modest.

Fitch noted that it expects to see some price recovery in the oil industry—specifically, the agency expects oil prices to jump from $30 a barrel to about $45 a barrel in 2016 and $55 a barrel in 2017. There is still a great deal of regulatory uncertainty regarding oil prices for the banking sector, according to Fitch.

New York Fed: Expect a Boost in Household Formation in 2016

unboxing-houseSpeaking on the country’s economic outlook and monetary policy at the Economic Leadership Forum in Somerset, New Jersey, Federal Reserve Bank of New York President Bill Dudley said the U.S. economy has its strengths and weaknesses—but he expects household formation to receive a boost in 2016.

“Housing starts are still well below the rate consistent with the nation’s population growth rate, and the fundamentals of housing demand remain positive,” Dudley said. “Rising employment is likely to boost the household formation rate and low mortgage interest rates should keep housing relatively affordable, despite the ongoing recovery in home prices.”

Dudley pointed to the moderate expansion of consumption and housing activity as strengths for the economy, while pointing to weak GDP growth in the fourth quarter as a negative—though the weak Q4 GDP growth should be weighed against the evident strength of the labor market, he said.

“I continue to expect that the economy will expand at a pace slightly above its long-term trend in 2016,” Dudley said. “In other words, I anticipate sufficient economic strength to push the unemployment rate down a bit further and to more fully utilize the nation’s labor resources.”

Inflation remains well below the Fed’s 2 percent objective, primarily due to weaker energy prices and a stronger dollar’s impact on non-energy import prices, according to Dudley—and the inflation outlook has “not changed much.” The passage of the FY 2016 budget package should provide a boost to economic activity, he said.

“Not only does this budget package reduce uncertainty about the budgetary outlook, but its extension of a number of tax breaks and easing of the caps on domestic and military spending means that fiscal policy in 2016 will likely turn somewhat stimulative,” Dudley said.

On whether or not there will be more increases to the federal funds target rate following December’s long-awaited rate hike, Dudley stated that there are “no surprises here—it depends on the data.” He reiterated what the FOMC statement said in December that normalization of monetary policy will be gradual—but he stressed there is no commitment to raise the rates.

Freddie Mac’s Mortgage Portfolio Experiences Rare Contraction

rates.dropFreddie Mac’s total mortgage portfolio contracted at a compound annualized rate of 0.4 percent in November, ending a string of nine consecutive months of expansion, according to Freddie Mac’s

Expansion was rare for Freddie Mac’s mortgage portfolio for the post-crisis years of 2010 through the first half of 2014—in fact, for the entire year of 2014, the portfolio contracted at an annualized rate of 0.2 percent. January 2015 started out much the same way, with the portfolio contracting at a rate of 0.8 percent.

What followed was nine consecutive months of expansion, however, broken up by November’s contraction at a rate of 0.4 percent. The portfolio has now expanded at an average annualized rate of 1.2 percent for the first 11 months of 2015.

The 0.4 percent contraction rate for November calculated to an over-the-month decline of approximately $629 million. The value of Freddie Mac’s total mortgage portfolio at the end of November stood at $1.9319 trillion.

The serious delinquency rate on single-family residential loans backed by Freddie Mac declined another two basis points from 1.38 percent down to 1.36 percent over-the-month in November. The rate is now 16 basis points below what it was in November 2008, at the start of the financial crisis. By comparison, CoreLogic reported a nationwide serious delinquency rate in November of more than double the rate for loans backed by Freddie Mac (3.3 percent).

Despite all the expansion for Freddie Mac’s mortgage portfolio in the second half of 2014 and most of 2015, the portfolio expanded only 21 times in the last 71 months from January 2010 to November 2015. At the beginning of the 15-month period (July 2014) that saw 14 months of expansion, the portfolio was valued at $1.895 trillion. It has expanded by about $37 billion since then.

Freddie Mac completed 2,951 loan modifications in November and has completed 50,074 for the first 11 months of 2015 for an average of 4,552 per month. By comparison, Freddie Mac completed 5,596 loan modifications per month for the full year of 2014.