President: A Strong Economy is the Key to America’s Future

money-stepsPresident Barack Obama had much to reflect on prior to unveiling his final budget plan for Fiscal Year 2017, but one theme remained consistent in every part of his speech to Congress and the U.S. today—economic strength is the key to America’s future.

When the president took office back in 2008, the nation was in the “worst recession since the Great Depression,” the economy was losing nearly a million jobs per month, and many families were struggling financially. Since then, 14 million jobs have been created and the unemployment rate is below 5 percent for the first time in almost eight years, according to the fact sheet released by the The White House Office of the Press Secretary.

The labor market was the strong point of the U.S. economy in the last quarter of 2015, with an average of 284,000 jobs added in the last three months of the year.

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President Barack Obama

The January 2016 Employment Summary from the Bureau of Labor Statistics (BLS) indicated a bit of a slowdown, however, with 151,000 jobs added in the first month of the year—close to half of the previous three-month average.

“Yet while it is important to take stock of our progress, this Budget is not about looking back at the road we have traveled. It is about looking forward and making sure our economy works for everybody, not just those at the top. It is about choosing investments that not only make us stronger today, but also reflect the kind of country we aspire to be–the kind of country we want to pass on to our children and grandchildren.” -Office of the Press Secretary

The president’s budget plan, which will go into effect October 1, 2016, talks about several reforms, including a tax reform plan that would “modernize the business tax code to make it fairer and more efficient, and to create jobs,” the fact sheet said. In addition, two bipartisan agreements were passed to prevent the return of “harmful sequestration funding levels in 2018 and beyond, replacing the savings by closing tax loopholes and reforming tax expenditures, and with smart spending reforms.”

The budget also includes a historic proposal regarding housing. According to an announcement from HUD, the president’s budget request for $11 billion to end family homelessness in the budget.

“This significant investment is based on recent rigorous research that found that families who utilized vouchers–compared to alternative forms of assistance to the homeless–had fewer incidents of homelessness, child separations, intimate partner violence and school moves, less food insecurity, and generally less economic stress,” the Office of the Press Secretary stated.

The Opening Doors program, which was the first-ever federal strategic plan to prevent and end homelessness, was launched by President Obama nearly six years ago. While that program has made strides, there is more work to be done, according to HUD. In January 2010, there were 54,000 homeless families nationwide, including 123,000 children; the Opening Doors program has reduced that number by 19 percent in the last six years. In some pockets of the country, however, the rental affordability crisis has resulted in an increase in homelessness among families, according to HUD.

“Today, we can celebrate historic successes in reducing homelessness in all its forms—but we need to reach more families with the proven, cost-effective strategies that have driven that success,” HUD stated in its announcement.

The president concluded his budget plan by noting that “the Budget is a roadmap to a future that embodies America’s values and aspirations: a future of opportunity and security for all of our families; a rising standard of living; and a sustainable, peaceful planet for our kids.  This future is within our reach.  But just as it took the collective efforts of the American people to rise from the recession and rebuild an even stronger economy, so will it take all of us working together to meet the challenges that lie ahead.”

Foreclosure Inventory Plummets; What Else is New?

foreclosure-threeForeclosures have been on a rapid steady decline for the last five-plus

years since hitting their peak in 2010, so there were no surprises contained in CoreLogic’s December 2015 National Foreclosure Reportreleased on Tuesday.

CoreLogic reported that the nationwide foreclosure inventory totaled 433,000 in December, or 1.1 percent of all homes with a mortgage, which was down by almost one-quarter (23.8 percent) from December 2014 and the lowest foreclosure inventory level for any one month since December 2007. The number of completed foreclosures in December 2015 totaled 32,000, down 22 percent from 41,000 in December 2014 and down 72.8 percent from their peak of nearly 118,000 reached in September 2010.

The steep decline in distressed inventory may be indicating a further return to “normal” for the housing market, but at the same time it is affecting available non-distressed inventory, according to Anand Nallathambi, president and CEO of CoreLogic. In CoreLogic’s most recent report on distressed sales, the share of residential home sales that were distressed was 11.9 percent for November 2015, down from their peak of 32.4 percent reached in January 2009.

“The supply of distressed inventory continues to shrink rapidly. While this is positive for the housing market overall, it also drives a decline in the inventory of affordable for-sale homes,” Nallathambi said. “The lack of housing stock, particularly affordable inventory, is a growing issue and will limit a full housing recovery in the short to medium term.”

2-9 CoreLogic GraphIn December 2015, serious delinquencies (mortgage loans 90 days or more past due, in foreclosure, or REO) had also fallen to levels not seen since 2007. CoreLogic reported the number of serious delinquencies in December 2015 as 1.2 million, or 3.2 percent of all mortgages nationwide. It was a decline of 23.3 percent from the previous December and the lowest level for serious delinquencies since 2007.

“Reflecting on the full-year foreclosure results for 2015, we can see that completed foreclosures are down more than 20 percent for the year, which is the lowest level since 2006, before the crisis,” said Dr. Frank Nothaft, chief economist for CoreLogic. “Maryland, which can be described as a suburb of the solid D.C. market, led the way with a 59-percent decline in foreclosures in 2015.”

Judge to Bank of America: Hold Off Paying Investors in RMBS Settlement

A New York judge last week signed an order to delay payouts to investors from Bank of America Corp’s $8.5 billion mortgage securities settlement because Bank of New York Mellon, the trustee in charge of the securities, was unsure how to split the proceeds among investors.

Justice Saliann Scarpulla of New York state court in Manhattan signed an order to hold payouts to a group of mortgage-bond investors including BlackRock, MetLife, and Pacific Investment Management in escrow. The decision to disperse the money had been made just one week prior to last week’s delay order and is intended to give investors the chance to voice their opinions on how the funds should be dispersed.

Scarpulla has set a March 4 deadline for investors to file papers.

According to the order, BNY Mellon petitioned the court to delay the payouts until it could untangle competing interpretations of the methodology. Payouts were scheduled at the end of January to begin on Feb. 10 and will eventually go to 530 residential mortgage-backed securities trusts.

BNY Mellon’s argument reportedly stems from a question of what each of the trusts should do with the money once received. The main question is whether the trusts should count the money it will receive from Bank of America as a decrease in the trust’s liabilities to investors, or as an increase in the trust’s assets. According to the filing, the order could lead to investors in less-secure investor classes receiving money that would otherwise be distributed to more senior investor classes.

A group of 22 institutional investors negotiated the deal in June of 2011 to resolve claims that $174 billion of mortgage securities issued by the now-defunct Countrywide Financial Corp. (which Bank of America acquired in 2008) didn’t meet their promised quality. The petition was accepted in New York Court last April.

The payouts, when made, are expected to be a huge relief for Bank of America, which has had to contend with $50 billion in bad money, most of it due to what it took on from Countrywide, since the recession.

GSE Serious Delinquency Rate is Lowest Since Start of Conservatorships

As a sign that mortgages backed by Fannie Mae and Freddie Mac are performing better is the consistent decline in the serious delinquency rate on residential loans insured by the GSEs, which is now at a level comparable to what it was in September 2008 at the start of the conservatorships.

According to the Federal Housing Finance Agency (FHFA)’s November 2015 Foreclosure Report released Tuesday, 1.50 percent of mortgages backed by the GSEs were seriously delinquent as of the end of November 2015, which is the lowest level since the conservatorships began. This percentage was less than half of the national average that CoreLogic reported for December, which was 3.1 pecent in that company’s National Foreclosure Report also released on Tuesday. The rate for both Fannie Mae- and Freddie Mac-backed loan has been steadily declining since 2010.

A decline in serious delinquencies for GSE-backed mortgage loans is concurrent with all the other declines in default-related metrics experienced by Fannie Mae and Freddie Mac in November. The GSEs completed 13,891 foreclosure prevention actions in November compared to 17,121 in October. Foreclosure prevention actions by the GSEs include loan modifications, repayment plans, forbearance plans, and charge-offs-in-lieu of foreclosure. The largest portion of those (8,569) were permanent loan modifications.

Foreclosure prevention actions have been on the steady decline for the last four years, concurrent with the decline of foreclosure sales and foreclosure inventory. The totals of foreclosure prevention actions on GSE-backed mortgage loans for the last four years are as follows: 541,219 in 2012; 447,728 in 2013; 307,218 in 2014; and 215,309 in 2015 through the end of November. This number includes home forfeiture ac,989,126tions, such as deeds-in-lieu of foreclosure and short sales as well as home retention actions.

As of the end of 2015, the GSEs are only 10,000 and change away from completing three million home retention actions since the star of 2009; the exact total of home retention actions completed is 2,989,126; the number of foreclosure prevention actions since 2009, including home forfeiture actions, was 3,626,692 as of the end of November 2015.

OCC Removes Servicing Restrictions from U.S. Bank, Santander—For a Price

american-moneyThe Office of the Comptroller of the Currency has terminated mortgage-servicing related enforcement actions against U.S. Bank and Santander, the agency announced Tuesday.

According to the OCC, the agency has levied a $10 million civil penalty against U.S. Bank and a $3.4 million civil penalty against Santander. The termination of the orders ends business restrictions that the banks were operating under since last June and completes the enforcement process that began with OCC (and its Office of Thrift Supervision) orders against the banks in April 2011.

U.S. Bank issued the following statement on Tuesday’s action by the OCC: “The Office of the Comptroller (OCC) today announced that U.S. Bank, N.A., has met the requirements of its amended Consent Order related to its residential mortgage servicing activities and the Consent Order has been terminated in full. We are pleased to have this matter with the OCC resolved and remain committed to providing exceptional service to our residential mortgage customers.

“Our employees have worked very hard over the past few years to implement improvements to our processes that will enhance our customers’ experiences, should some of our residential mortgage borrowers experience hardships, such as bankruptcy or loan default. U.S. Bank embraces the highest standards of compliance and we continuously explore ways to improve our processes in all aspects of our mortgage business, and across the entire enterprise, to benefit all of our customers.”

Santander issued the following statement:

“The announcement from the OCC reflects the progress we have made to enhance all aspects of how we support our customers. We have implemented a significant number of practices to improve how our mortgages are serviced, particularly in support of customers facing financial hardship. This builds on our work across Santander US to further meet the expectations of customers, shareholders and regulators.”

The OCC had already terminated mortgage servicing-related orders against Bank of America, Citibank, PNC Bank, One West, EverBank, JPMorganChase, Aurora Bank, FSB, and MetLife Bank. Wells Fargo and HSBC continue to operate under enforcement actions restricting certain business process, according to the OCC.

Last June, the OCC announced that by the end of 2015, eligible borrowers and their heirs would be able to claim uncashed payments made pursuant to the 2013 Independent Foreclosure Review Payment Agreement through their respective states’ escheatment processes.

According to the OCC then, more than $2.7 billion had been distributed to more than 3.2 million eligible borrowers from OCC-supervised institutions as a result of the IFR Payment Agreement, representing about 90 percent of the amount available for distribution. The agency estimated that roughly $280 million from OCC-supervised institutions would go unclaimed by the end of 2015, after all efforts to find remaining eligible borrowers had been exhausted.

At the time, the OCC determined that Bank of America, Citibank, and PNC Bank have complied with the orders the agency issued in 2011 and the amendments it issued in 2013 and therefore the consent orders against them were terminated.

The restrictions included limitations on the acquisition of residential MSR portfolios, new contracts to perform residential mortgage servicing for other parties, the outsourcing or sub-servicing of new residential mortgage servicing activities to other parties, off-shoring new residential mortgage servicing activities, and new appointments of senior officers responsible for residential mortgage servicing.

Cash Sales Share Remains Elevated Despite Persistent Declines

bank-owned-fiveThe share of residential home sales that are all-cash transactions has been on the steady decline for nearly five years. At their peak, all-cash sales accounted for nearly half of all home sales; now that percentage is down below one-third, according to data released by CoreLogic on Monday.

Despite the persistent declines, the cash sales share remains elevated above pre-crisis levels more than seven years later. In September 2015, the cash sales share declined by another 3.4 percentage points year-over-year down to 32.5 percent, meaning all-cash transactions accounted for less than one-third of all residential home sales. At their peak in January 2011, all-cash transactions accounted for close to half of all homes sales at 46.6 percent. CoreLogic estimates that if the cash sales share continues to decline at the rate it did in September, it will reach pre-crisis levels by the middle of 2017.

About 58.3 percent of cash sales were REO properties in September, making it the category with the largest cash sales share. Even though the percentage of cash transactions that were REO remained high, REO properties accounted for a small percentage of cash transactions overall at 6.4 percent as sales of REO properties continued to decline. At their peak in January 2011, REO sales accounted for nearly one-quarter of all home sales at 23. 9 percent.

12-21 CoreLogic graph“The cash share was 32 percent in September, far below the 47 percent peak in January 2011 but still above the long-term average of about 25 percent in more normal market conditions,” CoreLogic Chief Economist Frank Nothaft said. “Two factors that have moved the cash share lower are the drop in REO sales—often purchased by investors for cash—and the strong U.S. dollar, which has discouraged foreign buyers.”

The cash sales share remained near one-half in a handful of states in September. Alabama had the highest cash sales share for September with 48.2 percent, followed by West Virginia (46 percent), Florida (45.2 percent), New York (44.1 percent), and Kentucky (39.6 percent). The cash sales share was higher than 47 percent in five metro areas during September, four of which were located in Florida: Miami-Miami Beach-Kendall (50.8 percent), West Palm Beach-Boca Raton-Delray Beach (50.6 percent), Philadelphia, Pennsylvania (48.9 percent), Fort Lauderdale-Pompano Beach-Deerfield Beach (47.9 percent), and North Port-Sarasota-Bradenton (47.2 percent). Syracuse, New York (14.1 percent) had the lowest cash sales share in September.

Wells Fargo Agrees to Pay a Steep Price for FHA-Insured Defaults

Wells Fargo announced Wednesday that it has reached a billion-dollar settlement agreement in principle to resolve claims surrounding its Federal Housing Administration (FHA) lending activities.

Since 2012, the lender has been involved with the U.S. government regarding allegations that it was “reckless” in certifying the credit and underwriting quality of FHA loans it originated. The FHA had to pay out insurance claims on FHA-insured mortgages that defaulted.

According to a Securities Exchange Commission (SEC) 8-K filing on Wednesday, Wells Fargo reached an “agreement in principle” with the U.S. Department of Justice, the U.S. Attorney’s Office for the Southern District of New York, the U.S. Attorney’s Office for the Northern District of California, and HUD.

The SEC filing noted that Wells Fargo has agreed to pay $1.2 billion to resolve civil claims that the federal government had pending against the bank concerning its lending program from 2001 to 2010, including other potential civil claims relating to the lender’s FHA lending activities for other periods.

“Although the Company and the Federal Government have reached an agreement in principle to resolve these matters, there can be no assurance that the Company and the Federal Government will agree on the final documentation of the settlement,” the bank said in the SEC filing.

Catherine B. Pulley, SVP, Consumer Lending Communication at Wells Fargo, told DS News, “Wells Fargo and the United States government have reached an agreement in principle to resolve claims regarding our FHA lending activities, and the company has made an addition to its previously announced reserves to reflect this development. However, we can’t provide any additional details at this time.”

The 8-K filing showed that the settlement will knock $134 million, or $0.03 per share, off the company’s 2015 profits, dropping earnings down to $22.9 billion, or $4.12 a share.

The net income numbers for Wells Fargo in Q4 and for the full year of 2015 were little changed year-over-year, according to Wells Fargo’s Q4 2015 earnings statement. Wells Fargo’s Q4 2015 net income of $5.7 billion, price of $1.03 per share, and full year net income of $23 billion were all virtually the same as the year before (the full year net income did slightly decline, from $23.1 billion in 2014 down to $23.0 billion in 2015).

“Full year and fourth quarter 2015 results demonstrated the benefit of our diversified business model as we again generated strong financial results, maintained our risk discipline and continued to invest across the company for future growth,” Wells Fargo Chairman and CEO John Stumpf said. “We remained focused on the building blocks of long-term shareholder value, with continued growth in loans, deposits and capital. For the fifth consecutive year, we returned more capital to shareholders than the prior year. I am proud of the dedication of our team members and their focus on helping our customers succeed financially.”