|Banks Hammer It Home On Stress (Test)
They were long dreaded by U.S. banks, but stress tests now seem to be getting easier to pass, at least for the biggest banks, and that may aid in the industry’s quest to roll back regulations.All 34 of the banks that took the hypothetical “stress test” passed, meaning they could continue lending even during a deep recession, the Federal Reserve said in a strong statement that could bolster the industry’s case for cutting back regulations.
“This adds new ammunition for the Trump administration to roll back some regulations, which is probably going to allow banks to be a little bit more aggressive going forward, and that’s great for Commercial Real Estate finance and the residential real estate market,” says Situs Executive Managing Director Steven Bean. “The bank industry has been patiently waiting for the promised rollback in regulations, and this clear bill of health from the stress tests should help their cause. But it is anything but a foregone conclusion.”
The Fed concludes the largest U.S. banks have significantly improved their defenses since the 2008 financial crisis, although both Capital One and American Express did so only after taking the Fed’s “mulligan” — revising their initial requests to return capital to shareholders.
And the results were even better in the second round of the stress test on Wednesday, as big banks won approval from the Fed to increase dividend payouts and share buybacks to their highest levels in years, suggesting regulators believe they are healthy enough to stop stockpiling capital.
All 34 firms tested by the Federal Reserve got approval for their capital-return plans in the second part of the annual “stress tests” designed to gauge the soundness of the nation’s financial system. The companies — which include big banks such as J.P. Morgan Chase & Co., midsize lenders such as Regions Financial Corp. and credit-card companies including American Express Co. — hold more than 75% of the total assets of U.S. financial companies.
The Fed created the annual stress test with two main parts. One judges whether banks’ plans for paying out capital to shareholders would still allow them to withstand a hypothetical economic downturn. The other part is a “qualitative” evaluation of how they manage risk. If a bank fails either part, the Fed discloses they have failed the tests and rejects their requests for higher payouts.
The Treasury Department released a banking policy report that recommended the Fed consider changes to the stress tests.
The Treasury report said no firm, even the largest, should have its capital plans rejected for solely “qualitative” reasons. Fed officials are already considering that change. The report also said the tests should occur only once every two years, instead of annually, except “in the case of extraordinary events.”
Click here to learn more about how Situs supports clients subject to stress testing.
Overhauling Fannie & Freddie: The Good, The Bad & The Ugly
Two senators – a Republican and a Democrat – who are working on an overhaul of Fannie Mae and Freddie Mac are seriously considering a plan that would break up the GSEs, according to sources quoted by Bloomberg.
The proposal by the leaders of the Senate Banking Committee, Republican Bob Corker of Tennessee and Democrat Mark Warner of Virginia, reportedly would attempt to foster competition in the secondary mortgage market, where loans are packaged into bonds and sold off to investors.
Corker and Warner’s plan is just Congress’ latest attempt to figure out what to do with Fannie and Freddie, an issue that has come under lawmakers’ scrutiny ever since the government took control of the companies in 2008 as the housing market cratered.
“There’s both good and bad news here,” says the Collingwood Group Managing Director Tom Cronin. “While everything still remains up in the air, the good news is the Senate Banking Committee leadership is getting focused; the bad news, not everyone on that committee is as engaged and there are competing demands for their attention.”
Among the ideas Corker and Warner are said to be considering is splitting Fannie and Freddie’s single-family businesses from their multifamily businesses. The single-family businesses could then be split again into even smaller companies.
Says Collingwood’s Cronin, “There are clearly complex, technical and legal issues to be resolved, along with domestic and global concerns. It’s going to take a bit longer; no one should kid themselves.”
The stakes of changing the housing-finance system are enormous. Fannie and Freddie underpin much of the mortgage market by buying loans from lenders, wrapping them into securities and providing guarantees in case borrowers default. Together, the companies back more than $4 trillion in securities.
FORMER FHA DIRECTOR JUSTIN BURCH TO JOIN THE COLLINGWOOD GROUP, A SITUS COMPANY
The Collingwood Group, a Washington, DC-based advisory firm led by the former head of FHA, and partners who have held senior leadership positions in HUD, Fannie Mae and Freddie Mac, focused on housing policy and regulation, announced today that Justin Burch will join the company as Managing Director and Head of the Federal Housing Practice.
As the firm’s Federal Housing Practice leader, Burch will manage the delivery of business advisory services to financial services clients that require resolution of federal business and regulatory issues associated with federal housing programs, or that seek insight into the federal regulatory environment. Leveraging his experience, Burch and his team will also assist Collingwood clients that seek to promote policy positions, initiate substantive dialogue, and establish critical working relationships in Washington, DC, and across the industry.
To read the full press release, click here.
Yellen: U.S. Banks Have Learned their Lessons
Fed Chair Janet Yellen says banks are “very much stronger” and another financial crisis is unlikely anytime soon.
Speaking during an exchange in London with British Academy President Lord Nicholas Stern, the central bank chief said the Fed has learned lessons from the financial crisis and has brought stability to the banking system.
“I think the public can see the capital positions of the major banks are very much stronger this year,” Yellen said. “All of the firms passed the quantitative parts of the stress tests.”
She also made a bold prediction: that another financial crisis like the one that exploded in 2008 was not likely “in our lifetime.” The crisis, which erupted in September 2008 with the implosion of Lehman Brothers but had been stewing for years, would have been “worse than the Great Depression” without the Fed’s intervention, Yellen said.
Yellen added that the Fed learned lessons from the financial crisis and is being more vigilant to find risks to the system.
“I think the system is much safer and much sounder,” she said. “We are doing a lot more to try to look for financial stability risks that may not be immediately apparent, but to look in corners of the financial system that are not subject to regulation, outside those areas in order to try to detect threats to financial stability that may be emerging.”
Broadly speaking, the financial crisis was caused by excessive risk taking in the mortgage industry as banks made loans to less-desirable buyers and then packaged them into securities that were sold on Wall Street.
Yellen’s predecessor, Ben Bernanke, once famously called problems in the subprime mortgage market “contained,” a statement that would be proven wrong when the collapse of illiquid mortgage-backed securities cascaded through Wall Street and contributed to the worst economic downturn since the Great Depression.
read more: CNBC
Meantime, in Europe …
Easy money unleashed by global central banks is receding, a development that could test a range of assets — from stocks to real estate — that have become tightly linked to monetary support since the global financial crisis.
Top European Central Bank officials left investors with mixed impressions over the past two days about when the ECB would reel in its €2.3 trillion ($2.6 trillion) bond-buying program, and the chiefs of the Bank of England and the Bank of Canada both suggested they’d be reducing stimulus.
The euro plunged against the dollar on Wednesday, then recovered. The pound and the Canadian dollar leapt. Yields on U.K. government bonds shot up. Yields on Treasurys and other bonds also moved higher.
When and how much Western central banks pull back from their unprecedented run of ultralow interest rates and large-scale asset purchase programs, known as quantitative easing, are the foremost questions for global investors.
The prospect of an end to stimulus has lurked in the background for months but has zoomed to the fore now that signs of an economic recovery are beginning to appear in regions, especially Europe, that have struggled to shake off the aftereffects of the global financial crisis.
An end to the ECB’s bond buying “is probably the most important supply-demand change that we can foresee in bond markets,” said Tim Haywood, investment director for fixed income at Swiss money manager GAM.
read more: Wall St Journal
Fewer buyers signed contracts to buy existing homes in May.
The pending home sales index from the National Association of Realtors dropped 0.8 percent month-to-month and is now 1.7 percent lower than May 2016. Expectations had been for a slight gain, but even April’s reading was revised lower.
“Monthly closings have recently been oscillating back and forth, but this third consecutive decline in contract activity implies a possible topping off in sales,” said Lawrence Yun, chief economist for the Realtors. “Buyer interest is solid, but there is just not enough supply to satisfy demand. Prospective buyers are being sidelined by both limited choices and home prices that are climbing too fast.”
The number of home sales that closed this spring were slightly higher than a year ago, but the lack of listings clearly held the market back. The supply of homes for sale at the end of May was down more than 8 percent from a year ago, and homes that were listed sold at the fastest rate on record.
The tight supply is pushing home prices higher, considerably faster than income growth. Low mortgage rates have not been much help in offsetting these big price gains, and in fact may be exacerbating the problem, especially if rates begin to rise as is widely expected.
read more: CNBC
Mortgage Applications Slow
Applications for mortgages plunged during the week ended June 23, even as interest rates remained relatively stable.
The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of application volume, fell 6.2 percent, on a seasonally adjusted basis, from the week ended June 16 and was down 7 percent without an adjustment.
The decrease affected applications for both refinancing and for purchase, although refinancing took the larger hit. That index dropped by 9 percent and the refinance share of activity retreated a full percentage point to 45.6 percent.
The Purchase index was down from the prior week by 4 percent when seasonally adjusted and 5 percent unadjusted. Compared to the same week in 2016, the unadjusted index maintained an 8 percent edge.
Thirty-year mortgages had an average contract rate of 4.02 percent, down from 4.04 percent. Points increased 0.41 from 0.35 and the effective rate was unchanged.
The average rate for 15-year fixed-rate mortgages decreased to 3.39 percent with 0.33 point from 3.40 percent with 0.38 point. The effective rate also decreased.
read more: Mortgage News Daily
Payday: NYC Construction Worker Wages Hit Decade High
Average wages for New York City construction workers rose more last year than they did in any year since 2007, a new report from the New York Building Congress found.
Construction workers’ average annual wages shot up 5.4 percent last year, to $80,200 in 2016 from $76,100 in 2015. The uptick was the biggest annual increase since wages rose 6.4 percent in 2007. It also marks the first time in nine years that construction worker earnings increased by more than 3 percent in a year.However, the highest-paid folks in the industry — heavy construction workers and civil engineers — actually saw their wages slide to $116,800 last year from $119,200 in 2015. (Heavy construction companies are contractors who plan and build infrastructure projects, like roads, bridges, sewers, and railroads, according to OSHA.) The decrease may be linked to declining overtime rather than a dip in hourly wages, NYBC suggests.
“Like the rest of the job market, construction industry wages finally seem to be catching up to job growth after lagging behind for most of the economic recovery,” New York Building Congress President Carlo Scissura said in prepared remarks. “While this is great news for individual workers and their families, it remains to be seen what, if any, effect rising wages will have on the overall demand for construction services in New York City.”
Rank-and-file construction workers saw a significant 9.2 percent increase in wages to $80,100 last year from $73,300 in 2015.Workers employed by specialty trade contractors also saw their pay increase, to $76,900 in 2016 from $73,500 in 2015.
read more: Commercial Observer
One in Three Recent Homebuyers Made an Offer Sight-Unseen
Thirty-three percent of people who bought a home in the last year made an offer without first seeing the home in person, according to a May survey of 3,350 homebuyers and sellers commissioned by Redfin. In a similar survey last year, 19 percent of buyers said they had offered sight-unseen. Among recent Millennial homebuyers, 41 percent had done so.
Five other major findings include:
1. Affordable housing was the most prevalent economic concern, cited by 40 percent of buyers; rising prices caused 21 percent to search in other metro areas where homes cost less.
2. Forty-one percent of buyers would be hesitant to move to a place where people have different political views from their own.
3. Orders restricting immigration influenced the buying and selling plans of 52 percent of Arab, Asian and Latino respondents; 45 percent of minority buyers felt that sellers and their agents may have been less eager to work with them because of their race.
4. Buyers remain resilient amid the prospect of rising mortgage rates. Just 5 percent said they’d cancel their plans if rates surpass 5 percent.
5. Fifty-one percent of buyers and 46 percent of sellers saved money on real estate commissions.
“Millennials are already starting to set trends in the real estate industry,” said Redfin chief economist Nela Richardson. “They are three times more likely than Baby Boomers to make an offer sight-unseen, and they’re more likely than older buyers and sellers to negotiate commission savings. Despite their tech-savvy confidence, politics are seeping into Millennials’ decisions about where to live; nearly half cited hesitations about moving to a place where their neighbors wouldn’t share their views.”
Guess Which Cities Have the Most Multi-Millionaires
New York leads the world in the number of multi-millionaires.
A study by Wealth-X finds the New York metro area has 8,350 people worth $30 million or more.
Hong Kong come in second with 7,650 multimillionaires.
Tokyo takes the bronze medal with 6,040.
Los Angeles ranked fourth with 4,600.
Other cities in the U.S. included Chicago, in seventh place, with 3,110 super-rich residents, and the Washington, D.C. area, which ranked eighth, with 2,570.
Despite all the tech millionaires and billionaires, San Francisco ranked 11th.
read more: Wall St Journal
Happy July 4th Weekend – Take A Drive, It’s Cheap
As drivers hit the road this Fourth of July, there are no fireworks at the pump – gas prices have plunged to their lowest level in a dozen years.
Fuel prices average of $2.21 a gallon, the lowest since 2005, according to GasBuddy.
For the first time in 17 years, gasoline prices are expected to be lower on July 4 than on New Year’s Day.
“It’s thrilling to see gas prices falling just in time for the most-traveled summer holiday,” says Patrick DeHaan, GasBuddy senior petroleum analyst. “Perhaps we can finally get rid of the myth that gas prices go up for the holiday.”
read more: CNBC
Have a prosperous day and a safe and healthy July Fourth holiday.
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