Let's Talk Loans - Vol. 4

Vol. 4 of "Let's Talk Loans" is in the can and I hope you enjoy. The intent here is for lenders investors, consumers and depositories alike to talk about what's trending and trading in the whole loan market. The loan market is opaque to many, certainly what's trading day to day but also big trends as the market evolves. These are discussions that bubble up to the top of what the desk has seen and heard and shared with you the reader. I hope you find it helpful. Please subscribe or share with your peers.

Reminder - next week is MBA National Secondary Mon-Wed in NYC, so content could be a little light early in the week. Presenting Tuesday at 3pm est on the Non QM Market. I do plan to come back with a summary of the "feel" of the conference. Is it going to be doom and gloom that rates are up, volumes are down and spreads are wider? Or is it going to be optimistic as we pivot to a different sector of lending, ARMs and HELOCs are returning and we have the challenge of operating in a new market? We shall see.

The following week I am off to Vegas (May 22nd - 25th) for the CUNA Finance Council Conference - I hope to see you there ! If you plan to attend, please reach out so we can connect.

1) Mortgage rates hit a 13 year high. Over 5.25%. Two thoughtful articles this week, the first in the Washington Post and followed up by the Financial Times. First off, what a move in rates. Just 3 months back, Feb 2022, we were at 3.55%. It's otherworldly how quickly this has taken off. Then let's quantify it in dollars and cents to the consumer. The average payment for a new mortgage would equate to 42% of an average American's income. Ouch. That's roughly a $500 a month increase as homes start to move out of reach for potential buyers. You can feel a certain desperation that if a buyer doesn't act now, they may never get the home they want or need. That adds stress to the system, gives some lenders concerns on stretching credit and the hope that mortgage rates are close to plateauing.

2) The Community Reinvestment Act ("CRA") is under evaluation and open to comments on proposed new language. Comments due August 5th. Per the Fed:

"The Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency recognize that CRA regulations must evolve to address the significant changes in the banking industry that have taken place since the last substantive interagency updates in 1995 and 2005. Building on previous regulatory actions, feedback from stakeholders, and research, the agencies seek comment on a proposal to update CRA regulations with eight key objectives:

1. Strengthen the achievement of the core purpose of the statute.

2. Adapt to changes in the banking industry, including mobile and online banking.

3. Provide greater clarity and consistency in the application of the regulations.

4. Tailor performance standards to account for differences in bank size, business model, and local conditions.

5. Tailor data collection and reporting requirements and use existing data whenever possible.

6. Promote transparency and public engagement.

7. Ensure that CRA and fair lending responsibilities are mutually reinforcing.

8. Create a consistent regulatory approach among all three banking agencies."

Several links here , here and here as a resource for those wanting to learn more. Join the discussion here .

3) Q1 lending volumes per the NY Fed. Big headline that consumer debt is approaching $16 billion. All products with the exception of HELOCs expanded this quarter. The consumer continues to grow their debt outstanding. Potentially concerning, credit card debt has risen YoY. The question remains, is this a pro growth "positive" scenario or is this a overspending, the savings are gone, "negative" scenario? Depends on your tribe.

You can see with mortgages that volumes are starting to fall. Wouldn't be surprised if the mortgage number slips negative in 2022. You can see further that autos are at their highs as American's want to control their transit in a COVID world. We still have some supply chain issues on new production here but used car values might be starting to come back down to earth. While DQs trickled up slightly, performance and the consumer remain strong for now.

4) What happened to the bank / credit union / depository balance sheet in Q1? Well, we had massive volatility, a significant rate increase and it appears that caused many of you to freeze. You didn't buy bonds, loan growth slowed, deposits kept coming in and you have started to increase your loss provisions again. That about sum up your last 3 months? Per S&P:

* "Total deposits across the industry were up 1.2% QoQ"

* "Total loans and leases increased 1.0% in the first quarter, down from the 3.0% growth rate in the previous quarter"

* "growth in total securities falling to a three-year low of 0.2%"

* "The provision increased again in the first quarter this year to $4.78 billion, the highest amount since the third quarter of 2020"

Join the discussion here .

#MBASecondary22 #mortgage #mortgages #banks #creditunions #lending #markets #cuna 4741297