steven.bray

Jun 232017
 

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By G. Steven Bray

Yesterday, we reviewed how the Financial Choice Act, recently passed by the House, would affect banking regulations. Today, we’re going to look at how it would change the Consumer Financial Protection Bureau.

The bill would have three major effects:

– It would change the name of the bureau to the Consumer Law Enforcement Agency and change its mission to enforcing existing consumer financial regulations rather than creating new ones. In this sense, it would function more like other independent federal agencies.

– It would allow Congressional oversight through the appropriations process.

– It would change the leadership from a single, unaccountable director to one who serves at the pleasure of the President.

Democrats seem most exercised about this provision as they view the current untouchable director as a way to maintain their preferred regulatory scheme across presidential administrations.

As I said yesterday, the bill’s fate in the Senate seems dim, but three additional developments offer hope to those favoring change:

– A Congressional Budget Office analysis indicates the Choice Act will reduce the deficit by $33 billion, which makes it possible Republicans could use the reconciliation process to pass reforms with only 51 Senate votes.

– Second, the courts seem poised to decide that the CFPB current structure is unconstitutional, but the final decision still may be a couple years away.

– Finally, it seems likely the CFPB’s current director will resign to run for governor of OH, which would allow President Trump to appoint a reformer to the position.

Jun 222017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

President Trump came to office promising to cut regulations that are stifling job growth, and one of his top targets was the Obama-era Dodd-Frank Act that put tough regulations on consumer lending and created the Consumer Financial Protection Bureau (CFPB).

Congressional Republicans recently offered an assist by passing the Financial Choice Act that repeals major aspects of Dodd-Frank. Based on a Congressional Budget Office analysis, the bill offers regulatory relief to community banks and credit unions in exchange for greater capitalization, which should make them safer. Larger banks are unlikely to meet the capital requirements needed for relief.

Large banks do like provisions of the bill that would streamline and reduce the frequency of exams and that would repeal the Volker Rule. The bill also would classify some loans banks hold in portfolio as “qualified mortgages,” which could loosen up bank lending a bit.

Democrats unanimously oppose the bill, but most of their statements so far have been fear-mongering claims that the bill’s passage will lead to another financial crisis. Given the opposition, the bill’s prospects in the Senate are dim for now. Senate Banking Comm Chair Crapo said the Choice Act is a good starting point, but he will craft his own bill with input from Senate Democrats. However, those favoring major change can be cheered by the fact that the Choice Act stakes out a very strong starting point.

Tomorrow, we’ll dig into how the bill changes the Consumer Financial Protection Bureau.

Jun 192017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The Federal Reserve gave us an unexpected surprise last week by announcing details of its balance sheet reduction plan. The Fed has been the main buyer of mortgage bonds, and the concern is that when the Fed curtails its buying, the law of supply and demand will push mortgage rates higher. Even though the Fed didn’t give a start date for the plan, markets are anticipatory, and the news immediately put pressure on rates.

And that probably would have been the news of the day if not the morning’s economic data. Continuing a recent trend, the two reports, inflation and retail sales, both were weaker than expected. The inflation number was particularly disconcerting given that managing inflation is one of the Fed’s mandates. Core inflation dropped again to 1.7%, falling farther from the Fed’s 2% target.

As a result, interest rates were in rally mode by the time of the Fed announcement. The announcement stemmed the rally, but the damage could have been worse. The Fed merely paid lip service to recent economic data and didn’t change its rate hike outlook at all. Despite this, rates held onto most of their gains.

Unfortunately, this leaves us without a sense of direction for rates. This week’s economic calendar is fairly quiet, and if you’re floating your interest rate, I think it makes sense to be defensive. Rates could fall further, but that probably requires an unexpected headline in the short term. If you want to float, choose a bail-out point and keep an eye on rates.

Jun 142017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Texans will have a chance to vote this fall on important changes to lending rules for home equity loans. The changes will allow those with lower-valued homes and rural homes to gain access to their home equity.

Texas has strong homestead protections that are written into the state constitution. Thus, changes to rules governing home equity require voter approval.

Currently, fees associated with a home equity loan are capped at 3% of the loan amount. While a cap on fees sounds great, it doesn’t take into account that certain fees, such as the appraisal and survey fees, don’t vary by loan size. This has prevented many homeowners of lower-valued homes from accessing their equity because the fees would exceed the cap. The new rules cap the fees at 2% but exclude fees associated with the appraisal, survey, and title policy.

The new rules also will allow owners of homes on agricultural land to apply for home equity loans. While this is a favorable development, it will be interesting to see which lenders will be interested in these loans. I suspect conventional lenders will shy away because the loans will be difficult to package with other home equity loans.

A final change will particularly benefit homeowners who used higher-rate, home equity second mortgages for things like remodeling their homes. Previously, a home equity loan only could be refinanced with another home equity loan. The change allows the homeowner to refinance their first and second mortgages into a new conventional loan that is free from the home equity restrictions.

Click here for more information about the amendment.

Jun 132017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

This could be a busy week for bond markets. The marquee event is the Federal Reserve meeting. The Fed announces the results of the meeting Wed afternoon followed by Fed head Yellen’s news conference. While a rate hike seems a near certainty, it’s unlikely to have much effect on longer-term rates, like mortgage rates. Markets priced in the rate hike a while ago. Instead, markets are interested in what the Fed thinks about the state of the economy and how it plans to shrink its massive bond portfolio. Markets may react to any changes to the Fed’s rate hike outlook. If the outlook is less aggressive, I expect the rate rally to resume. Markets don’t expect the Fed to provide more details about unwinding its portfolio, and any variation from expectations could make rates jump.

Other than the Fed meeting, this week is full of important economic reports. Two of the biggest reports, the consumer price index and retail sales, will be released Wed morning before the Fed announcement. It’s likely markets will mostly ignore the reports in favor of waiting for the Fed. That gives the Fed announcement and press conference that much more potential oomph. If the reports differ greatly from expectations, consistent sentiment from the Fed could give the market extra momentum in the same direction.

Jun 072017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Last Fri’s weak jobs report sent rates tumbling to their lowest levels of the year. It wasn’t just that the May number missed expectations by about a third, but the reports for the prior two months were revised lower by 66k jobs. First quarter job growth averaged a meager 121k per month.

Investors are weighing whether this is just another economic soft patch or if the economy has turned. While other economic data has been mixed for many months, respectable job growth has buoyed consumer and business sentiment. The concern is that weaker job growth could cause consumers to pull back making economic weakness a self-fulfilling prophecy.

With this as a backdrop, let’s look at the other factors affecting rates in the next couple weeks. This Thurs is a trifecta of potentially rate-moving events. First, we have the British elections. A surprise result could be unsettling for markets, but I think the chances of that are small. We also have the European Central Bank meeting. An announcement that the ECB will tighten monetary policy could push rates higher, but that doesn’t seem likely. Finally, we have the Comey testimony before the Senate. The media frenzy surrounding the investigation still has markets on edge. If the testimony is a dud, look for some of the recent momentum towards lower rates to dissipate.

However, probably a more important event is next week’s Fed meeting. It’s rather certain the Fed will raise short term rates once again, but markets are more interested in what the Fed says about recent economic data, especially weak inflation data, and its plans to reduce the size of its bond holdings. If the Fed ignores recent weakness, it could pressure rates higher. Between now and then, I really don’t expect rates to move a lot. Investors are unlikely to take extreme positions until they hear what the Fed says.

Rate update: Mortgage rates face pressure to rise again

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Mortgage rates face pressure to rise again
May 232017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

There’s nothing like a little political hysteria to get the bond market rallying. Last week’s impeachment headlines dropped mortgage rates to the lows for the year. Of course, as the silliness faded into reality, rates edged back up. Where they go from here depends on several factors.

First and foremost is Washington drama. If additional leaks reignite last week’s panic, rates could rally further; however, with the appointment of the special counsel, I think that source of inspiration has been muted.

Recent economic data, especially inflation data, has been rate friendly. Notably, the core consumer price index in Apr fell below 2% again, which is the Fed’s stated target. That may reduce the urgency of the Fed to raise short term interest rates.

Overseas headlines, like the terror attack in the UK, can create momentum for lower rates, but based on recent experience, it would take an extreme headline to break the market’s focus on our final factor.

That factor is expectations for the Trump agenda. Markets seem once again to be focused on the prospects for tax and regulatory reform. In particular, equity markets are banking on a lower corporate tax rate, and if Congress is able to make headway on this issue, the “risk off” trade should pressure rates back up into the range they’ve occupied most of this year.

Rate update: Rates riding the range again

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Rates riding the range again
May 092017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Interest rates continue to drift slowly higher as the Xanax kicks in on the markets. The French election outcome provided confidence the European Union won’t take any more hits in the short term, and the health care vote in Congress eased concerns about the Trump agenda. Rates have returned to their post-election range looking for a source of inspiration.

A possible source is the Federal Reserve. Fed governors, through public speeches, have signaled more hikes of short-term rates are likely this year, and an increasingly loud chorus is suggesting the Fed will start to unwind its monstrous bond portfolio. I think the former is pretty much baked into current rates, but the latter could shoot rates higher.

A countervailing force may be recent economic data that showed inflation, particularly wage inflation, is subsiding again. The jobs report last week bested expectations, but the wage data suggests the jobs added may be lower paying ones. While I don’t expect the Fed will see this data as a reason to hold back rate hikes, this may give it pause concerning its bond portfolio, and words of caution may creep back into the Fed’s vocabulary. While I doubt this would be enough to spark another bond rally, these factors could contain rates within their current range.

Rate update: Happy juice flows; Rates rise

 Interest Rates, Residential Mortgage  Comments Off on Rate update: Happy juice flows; Rates rise
Apr 242017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

Investors seem to have found their swagger again. After spending a couple weeks fretting over the many uncertainties in the world, and as a result pushing bond yields lower, they’re casting their fears aside and back on the happy juice. The inspirations for this change in sentiment seem to be the outcome of the French election and expectations for a Trump tax plan.

Interestingly, the French election results were as expected: the establishment candidate bested the “scary” nationalist candidate Le Pen by a couple points, and they will meet in a runoff election in a couple weeks. What seems to have quelled fears is that Le Pen didn’t outperform pre-election polls, and those polls predict a drubbing for her in the runoff. The EU is safe again – for now.

I’m not sure that would have been enough to turn market sentiment if it wasn’t for the Trump talk. Investors had started therapy sessions over the failed advance of the Trump agenda, but the depression lifted last Fri when Trump promised details of his tax reform plan this week. Never mind that it faces a still divided Republican House. Tax cuts are like crack for investors causing them to ignore the difficult week ahead culminating with a potential government shutdown.

While I think we could see some further pressure on interest rates for the next few weeks, the crystal ball beyond that period is cloudy. Recent US economic data has been surprisingly weak, especially inflation data, and it’s still unclear whether Congress can find consensus. Balance that against central bankers’ urge to normalize monetary policy. The resulting mixed picture leaves rates without much direction and subject to headline abuse.

LLC-financed rental homes won’t prevent use of Fannie loan

 Investment, Loan Guidelines, Residential Mortgage  Comments Off on LLC-financed rental homes won’t prevent use of Fannie loan
Apr 172017
 

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

One of the more frustrating loan guidelines encountered by rental property owners is the limit on the number of financed properties. Fannie Mae limits the number to 10 – 4 for best-rate financing. While Fannie hasn’t changed that guideline, it has changed which properties count towards it. Previously, properties financed through an LLC counted towards the limit. Now, if the borrower financed the property through an LLC so that the borrower is not personally liable on the mortgage, Fannie excludes the property from the total.

This should be a nice change for investors who use multiple financing tools to manage their properties. Investors often use shorter-term bank loans to finance the initial acquisition of a property, and bank portfolio loans often will allow a seasoned LLC to sign the note. Now, if the investor wants to roll a property into long-term, lower-rate, conventional financing, those short-term loans won’t get in the way.

Keep in mind that financed primary residences and vacation homes still count towards the total. Also keep in mind that some lenders will count a spouse’s financed properties towards the total even if the spouse isn’t on the new loan. Finally, remember that the limit only includes one-to-four-unit residential properties. Anything else, including land, commercial properties, and timeshares, do not count towards the total.