Bank Stress Test

The Big 34

Earlier this year, we touched on national stress tests done by big banks. Since the Federal Reserve conducted their annual stress test last week and have now released their reports, today we’ll expand on the explanation of the stress tests.

Banking institutions with $50 billion or more in total assets are required by the Federal Reserve to conduct an annual stress test to ensure that through a national financial crisis (like a recession), the banks will retain their financial flexibility to lend to households and businesses. The stress tests are done to satisfy a requirement for the Comprehensive Capital Analysis and Review, also conducted annually by the Federal Reserve. Banks are also required to publish the results of their stress tests to demonstrate to the public their ability to withstand crisis. According to the results that were released by the Federal Reserve Board, our nation’s 34 largest banks passed the stress test.

"This year's results show that, even during a severe recession, our large banks would remain well capitalized," Governor Jerome H. Powell said. "This would allow them to lend throughout the economic cycle, and support households and businesses when times are tough."

Now take a sigh of relief, because that’s definitely good news. Passing the stress test means that if our economy fails, our banks will hold strong. The 34 big banks mentioned above hold more than 75% of the assets of all domestic banking institutions in the U.S. In other words, 75% of our country’s money is held within and managed by the 34 largest banks in the nation. It goes without saying that the funds held within the Big 34 are critical to our nation’s economy, hence the necessity of annual stress tests.

The stress tests come in two forms: the adverse scenario and the severely adverse scenario and all 34 banks are tested against both. The adverse stress test tests for stability of the banks given a United States recession. The severely adverse stress test tests for stability of the banks given a global recession. The tests weigh in factors like unemployment and elevated stress in loan markets and real estate.

Our nation’s banks are in good condition. They are doing a great job at keeping reserves on hand to protect against any future losses or disruptions in our economy. Those of us in the mortgage industry are overjoyed to know that our banks are taking care of themselves. A well-structured banking system means that there are enough national funds to go around to lend to borrowers who wish to purchase homes.

When doing your research, always be sure to consult reliable sources. Check out the sources for this article below!

https://movement.com/blog/2017/06/23/why-bank-stress-tests-are-critical-to-mortgage-markets/

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20170622a.htm

http://www.investopedia.com/terms/b/bank-stress-test.asp

WHITNEY RUSH , VALLEY WEST MORTGAGE

Mortgage Rate Hikes Are On Its Way

If you’re into literature, you know that shortly before his death Julius Caesar was told to “Beware the Ides of March”, and if there were any soothsayers around today, they’d probably be telling us the same thing right about now in relation to mortgage rates. We’re just slightly over a week into this month and though we’ve yet to see that increase in interest rates that has been so heavily discussed by the federal reserve since the beginning of this year, we still know that it’s on its way. And unlike the great Julius Caesar, we need to be prepared for what’s to come.

Janet Yellen, Chairwoman of the Board of Governors for the Federal Reserve, has hinted to a rise in interest rates, specifically in March, several times this year. Our economy has been doing very well in the sense that more people are becoming employed, making money and paying bills. To balance this surge in economic profit, the Federal Reserve has to ensure that the general population doesn’t make so much money that the value of the dollar decreases. Preventing this kind of inflation means raising interest rates to offset the amount of money that will be circulating throughout the country.

Take a look at Janet Yellen’s comment from the Federal Reserve Meeting on March 3:

"Indeed, at our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate," she added.

Not only did Yellen tell us that the Fed is to have another meeting regarding this issue this month, she also told us what they plan to evaluate. Like we discussed earlier, if the employment and inflation rates are moving in a positive direction (which they have been for the last few fiscal periods), interest rates will rise (according to the Fed).

For banks, rising interest rates will be a benefit for the next coming months as borrowers will want to purchase and refinance before the rates get too high. In other words, business will be booming as the rates rise to their peaks. For borrowers, getting into the bank to purchase or refinance should be a top priority for obvious reasons. To illustrate, let’s talk about my friend Jeff. Jeff is at home watching the news and he sees that gas will cost twenty more cents per gallon starting tomorrow. Jeff gets up from his couch and goes tonight to put gas in his car and he fills up his tank. Why? Well wouldn’t you want to buy gas today if you knew it would cost more tomorrow? Most borrowers have the same mindset as Jeff when it comes to their homes. If they know it will cost them more to purchase a home in two weeks, they jump on the bandwagon and call one of our Loan Officers today to get the process started and to get a good rate locked down. Needless to say, it’s more advantageous for you as a borrower to capitalize from the opportunity. The rates are going up sooner rather than later and hey, if you can’t beat them, join them. If the Fed is going to capitalize from the growing state of our economy, why shouldn’t you?

So heed the warning of the soothsayer and beware, (or in a less Shakespearian language) just be alert of the ides (usually the middle of the month) of March as it may hold the key to your next refinance or purchase and you don’t want to miss that opportunity.

When doing your research, always use great sources! Check out the sources for this article below.

http://www.cnbc.com/2017/03/03/janet-yellen-puts-a-rate-hike-on-the-table-for-this-month.html

http://www.cnbc.com/2017/03/07/fed-rate-hikes-may-come-faster-than-the-market-thinks-commentary.html

http://www.cnbc.com/2017/03/06/fed-interest-rate-hike-in-march-is-big-deal.html

WHITNEY RUSH, VALLEY WEST MORTGAGE

More News on the Rate Hikes

The big question in the mortgage industry is when the rates are going to go up. There’s been talks about it being in March which may be the truth. The Federal reserve is looking to raise its benchmark interest rate this month as long as the economic data remains strong.

The Federal Reserve has hinted March 14-15 will be the meeting that could bring a rate hike. Rate hikes are likely to rise faster this year as the economy appears to be growing with few hurdles and the risks have receded substantially. We will soon see what impact this will have on the industry.

Resources:

http://www.mpamag.com/news/yellen-hints-at-timing-of-next-rate-hike-61910.aspx

Interest Rates Are On The Rise!

The Federal Reserve is expecting to raise interest rates as soon as March of this year.

The new Presidential Administration team occupying the White House is expecting a continued growth in the US Economy that has previously flourished as a result of the Obama Administration. They expect that our new President will invoke more jobs, and theoretically as a result of more people being employed, more money will be made for people and for businesses.

More money being made, results in more money being spent. This cyclical regime of the flow of money is what (in theory) will create a thriving economy where everyone earns and everyone spends. When people have the money to pay back and pay off their large debts like credit card, home, auto, and student loans, the Federal Government can decrease their debt.

The problem with the Federal Reserve wanting to decrease their debt is that they gather money for the debt by hiking up interest rates because they assume that if we make more money we can pay more in interest. This means that the percentage that you pay back to the bank every month for your existing home loan and the cost for you to borrow money for the purchase of a new home, goes up. Sure, ideally we’ll all be making more money, but if the Fed is forcing you to also spend more money, how much of this new increase in income will you really see?

With the Federal Reserve strongly indicating interest rate hikes soon, those of you who are interested in refinancing or purchasing in the near future should definitely commit sooner rather than later. When interest rates go up, not even the Federal Reserve knows when it might come back down, as the Fed has noted their concern about the ambiguity of fiscal policies coming from the new Presidential Administration. In fact, the Federal Reserve is predicting the possibility of up to three rate hikes this year alone. That being said, there is likely only a small margin of time for you to take advantage of financially tolerable interest rates. If you haven’t yet done your application for refinance or talked to one of our Loan Officers about purchasing your new home, it’s time to get started!

When doing your research, always use great sources! Check out the sources for this article below.

https://fortune.com/2017/02/22/federal-reserve-interest-rate-increase-fairly-soon/

https://www.bloomberg.com/news/articles/2017-02-22/many-fed-officials-see-rate-hike-fairly-soon-minutes-show

https://www.latimes.com/business/la-fi-federal-reserve-minutes-20170222-story.html

WHITNEY RUSH, VALLEY WEST MORTGAGE

The Consumer Financial Protection Bureau (CFPB) is in back in the spotlight

The Consumer Finance Protection Bureau (CFPB) has been in the spotlight lately since the scandal that took place a few years ago, got them in water for collecting reams of consumer data, undercutting privacy rights while putting potentially sensitive personal information at risk in the event of a hack, and has been in the sight of congress since its inception for spending a lot of our taxpayer’s money on high salaries to major overhauls at its headquarters.
This time we have the Republicans after them. Republican Ted Cruz and Republican John Ratcliffe have introduced bills in the Senate and House that would potentially dismantle and abolish the agency. Cruz said the CFPB does consumers more harm than good. Ratcliffe, “President Trump has made it clear he’ll join us in our fight to dismantle Dodd-Frank and finally offer some relief to the small business owners throughout Texas and across the country who’ve been hit hardest by its devastating impact.”

When doing your research, always use great sources! Check out the sources for this article below.
http://www.mpamag.com/news/ted-cruz-backs-bill-to-kill-cfpb-60203.aspx
http://reason.com/archives/2017/02/15/the-consumer-financial-protection-bureau

- VALLEY WEST MORTGAGE

The Federal Reserve Brings Good News for Interest Rate Decison

February 1^st brings some good news already. The Federal reserve as expected has held the interest rates steady today as they begin to assess where our economy heading-but they hinted that the rates might stay low for a good while to come.

The Fed’s decision today confirmed those expectations.

“In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1/2 to 3/4 percent,” the Federal Open Market Committee said in a statement. “The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation.”

The FOMC also said that it expects economic conditions to evolve in a way that will warrant “only gradual increases” to the federal funds rate in the immediate future. The rate, the committee said, “is likely to remain, for some time, below levels that are expected to prevail in the longer run.”

When doing your research, always use great sources! Check out the sources for this article below.
http://www.mpamag.com/news/fed-announces-interest-rate-decision-58976.aspx

-Valley West Mortgage

FHA BRINGS IN THE NEW YEAR WITH MIP CUTS FOR BORROWERS!

The Federal Housing Administration, also known as the FHA, has decided to bless borrowers this year by cutting mortgage insurance premiums. Who is the Federal Housing Administration? The Federal Housing Administration, simply called the FHA, is the government body that sets standards for the processing of mortgage loans. Most notably, the FHA insures loans made by banks that have been FHA approved. The Mutual Mortgage Insurance Fund created and backed by the FHA has grown exponentially in the past four years under the Obama Administration. This means that the FHA now has the flex room it needs to provide an opportunity for savings for deserving and responsible borrowers.

What does cutting Mortgage Insurance Premiums mean for our borrowers?

The cut in MIP (Mortgage Insurance Premiums) will apply to FHA loans with a closing or disbursement date on or after January 27, 2017. The FHA cut in Mortgage Insurance Premiums is going to do wonders for the borrowers who have to deal with this new environment of rising interest rates. The FHA is predicting that homeowners will be able to save an average of $500 per year. The cut in Mortgage Insurance Premiums means that the cost of housing will decrease and the opportunity for mortgage credit availability will meaningfully expand. In a nutshell, more borrowers will have the opportunity to take out FHA loans because the cost of obtaining an FHA loan is being reduced.

What does cutting Mortgage Insurance Premiums mean for Valley West Mortgage?

We love originating loans for our borrowers at Valley West Mortgage. We (as your lender) bear risk every time we lend money to homeowners. To offset that risk, borrowers pay a Mortgage Insurance Premium at closing as well as an annual mortgage insurance premium that is a small percentage of the loan amount. That premium paid by the borrower then goes toward the Mutual Mortgage Insurance Fund, an account that will pay back the lender if the mortgager falls on hard times and defaults on their loan. Mortgage Insurance Premiums being cut by the FHA means that we will be able to originate even more FHA loans for our borrowers because the required premium at closing will be of a smaller amount than it has been in the past.

Let’s Recap

The Federal Housing Administration or FHA, charges a small percentage of your loan amount to insure your loan against a default. This small percentage that is paid once at closing, and once annually is called your Mortgage Insurance Premium or MIP. The MIP is a part of the cost of your loan. When the cost of the mortgage insurance premium is cut, it allows more borrowers to meet the debt to income ratio that is required to take out an FHA loan. Borrowers that may not have been eligible to meet the standards before now have a chance to enter into the homeowners world. Lenders for whom business may have been slow as a result of rising interest rates will now be happily overflowed with business from borrowers who are looking to take advantage of this remarkable opportunity.

When doing your research, always use great sources! Check out the sources for this article below.
http://www.housingwire.com/articles/38905-housing-industry-welcomes-fha-mortgage-insurance-premium-cut
https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/fhahistory
http://www.investopedia.com/terms/m/mutual-mortgage-insurance-fund.asp
http://www.housingwire.com/articles/38902-fha-cuts-mortgage-insurance-premiums-again

- WHITNEY RUSH, VALLEY WEST MORTGAGE

Private Mortgage Insurance is Temporary. Here's Why.

Home buyers who can’t put at least twenty percent (20%) down usually have to carry private mortgage insurance, often an expensive proposition. One good thing about the insurance, though, is that it doesn’t last forever. Private mortgage insurance protects the lender in the event that a borrower stops making payments before building up much equity in the property. A borrower who diligently pays down a loan, eventually crossing that twenty percent (20%) equity threshold, is no longer considered a big risk, and can expect to be rewarded with cancellation of this requirement. Under the Homeowners Protection Act of 1998, lenders must terminate the insurance after a certain point, something that hadn’t been done consistently before then. The act set the termination date as the point at which the principal balance on the loan is scheduled to reach 78 percent of the original value of the home.

In other words, if you buy a home for $100,000 and put ten percent (10%) down, your starting loan balance is $90,000. Once you have paid enough toward principal that the balance reaches $78,000, or twenty percent (20%), the insurance policy should be automatically cancelled.

A compliance bulletin issued earlier this month by the Consumer Financial Protection Bureau reminded lenders that automatic insurance cancellation is required even if the value of the home has declined from the original value (in other words, the sales price).

The law also creates a way to seek earlier cancellation.

The cancellation rules do not apply to the low-down payment loans backed by the Federal Housing Administration as borrowers must pay insurance for as long as they have an FHA loan if the loan was acquired after June of 2013.

Read The Full New York Times Article Posted August 30th, 2015

2016 Maximum Conforming Loan Limits Established for Fannie Mae and Freddie Mac

Valley West Mortgage is licensed in California, Colorado, Idaho, Maryland, Nevada, New Mexico, Oregon, Utah, Virgina, and Washington.

2016 Maximum Conforming Loan Limits Established for Fannie Mae and Freddie Mac
National Baseline Loan Limit Remains Unchanged; Limits Rise for 39 High-Cost Areas

The Federal Housing Finance Agency (FHFA) today announced that the maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac in 2016 will remain at existing levels, except in 39 high-cost counties where they will increase. In most of the country, the loan limit will remain at $417,000 for one-unit properties.

The Housing and Economic Recovery Act of 2008 (HERA) established the baseline loan limit at $417,000 and mandated that, after a period of price declines, the baseline loan limit cannot rise again until home prices return to pre-decline levels. The $417,000 loan limit will stay the same for 2016 because FHFA has determined that the average U.S. home value in the third quarter of this year remained below its level in the third quarter of 2007.

The state of Colorado will see the highest increase. In 2015, the Maximum Conforming Loan Limit was $424,350. In 2016, the Maximum Conforming Loan Limit will increase to $458,850. The increase is a grand total of $34,500.

HERA provides for higher loan limits in high-cost counties by setting loan limits as a function of area median home value. Although the baseline loan limit will be unchanged in most of the country, 39 specific high-cost counties in which home values increased over the last year will see the maximum conforming loan limit for 2016 adjusted upward. Although other counties also experienced home value increases in 2015, after other elements of the HERA formula—such as the statutory ceiling and floor on limits—were accounted for, these local-area limits were left unchanged.

A list of the 2016 maximum conforming loan limits for all counties and county-equivalent areas in the country may be found here. A description of the methodology used for determining the maximum loan limits can be found in the attached addendum.

Addendum: Calculation of 2016 Maximum Conforming Loan Limits Under HERA

CONFORMING LOAN LIMITS

Fannie Mae and Freddie Mac are restricted by law to purchasing single-family mortgages with origination balances below a specific amount, known as the “conforming loan limit.” Loans above this limit are known as jumbo loans.

The national conforming loan limit for mortgages that finance single-family one-unit properties increased from $33,000 in the early 1970s to $417,000 for 2006-2008, with limits 50 percent higher for four statutorily-designated high cost areas: Alaska, Hawaii, Guam, and the U.S. Virgin Islands. Since 2008, various legislative acts increased the loan limits in certain high-cost areas in the United States. While some of the legislative initiatives established temporary limits for loans originated in select time periods, a permanent formula was established under the Housing and Economic Recovery Act of 2008 (HERA). The 2016 loan limits have been set under the HERA formula.

Social media credit approval is on the way

Social Media plays a huge part in our day to day activities. From staying connected with friends to finding an activity on a Saturday night. With the popularity of Facebook growing every single day, it's no surprise that the Social Media giant is finding new ways to monetize their site in order to generate an annual revenue. Filing a patent is one of the ways the company has to earn additional capital. Social media credit approval

According to an article on The Next Web, On August 4th, 2015 Facebook filed a social media patent that could help filter spam emails and offensive content, improve searches and allow lenders to use your social habits to determine a credit approval. We are already use to the idea of making social media tool more adaptive to daily use, but allowing lenders to use your social media accounts to determine a social media credit approval is absolutely terrifying.

Social media credit approval

The patent filed by Facebook is fairly simple to understand. Lenders would have direct access to your friends list and they would factor in all of your friends credit scores to determine an average credit rating that could factor into your social media credit approval. There are already a huge number of determining factors that play into the credit approval process. Now Facebook wants to make their way into this process. This has the potential to deny millions of Americans the chance to purchase their dream home.

We mentioned in a previous blog post that less than 50% of the American population is saving less than 5% of their monthly income. What would a social media credit approval process do to that statistic? Probably cause that number to drop down to 2.5%.

Facebook hasn’t made it clear how this patent will be used and there are laws in place that determine the criteria lenders can use when deciding your creditworthiness. However, if this social media credit approval process is added into the loan process, it could ruin the way we use social media every day. SO we have to ask, is Facebook trying to make the world a better place, as they have claimed in the past, or are they just trying to make a quick profit for the next quarterly report?