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Scott Sambucci
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Current: Market Development, Blend Labs. Previous: CoreLogic Advisory Services | Chief Operating Officer @ Altos Research. LinkedIn: Lecturer of Economics, Price Theory, Finance, Sales, Management, and International Business at Hult International School of... More
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  • Can QRM & Non-Standard Mortgages Coexist?

    Is it really terrible that Bank of the West, and most other lenders continue to offer Interest-only loans? ("Bank of the West Will Still Offer Interest-Only Loans Post QM" on American Banker)

    The Consumer Financial Protection Board's Qualified Residential Mortgage rule goes into effect tomorrow, January 10, 2014. The final rule states:

    The final rule implements sections 1411 and 1412 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which generally require creditors to make a reasonable, good faith determination of a consumer's ability to repay any consumer credit transaction secured by a dwelling (excluding an open-end credit plan, timeshare plan, reverse mortgage, or temporary loan) and establishes certain protections from liability under this requirement for "qualified mortgages."

    Does offering non-standard loans to non-standard borrowers defy the spirit of the new QRM rule? I don't think so. From American Banker article:

    Most of the largest banks are continuing to offer interest-only loans to their best borrowers that have high down payments, great credit scores and plenty of cash flow.

    Read past the headlines and it seems that banks are reaching specific customer types with these interest-only loans. Being based in the Bay Area, I have relationships with non-standard borrowers - high-wealth individuals with rather odd financial situations such as successful start-up entrepreneurs and investors. And while these borrower types exist outside of Silicon Valley, seeing non-standard loans like the 80/10/10 and 80/15 nationally is unnerving.

    From December 31, 2013 on The Mortage Porter (Seattle, WA):

    From It's back… the 80/10/10 mortgage program which allows home buyers to put just 10% down and avoid having private mortgage insurance via a second mortgage/home equity line of credit.

    From May 31, 2013 on Dallas Mortgage Planners (Dallas, TX)

    Finance up to 95% of the purchase price or home value - With a first loan of 80% and a second up to 15%, you can own a home with a Conventional mortgage with as little as 5% down.

    As reported by National Mortgage News, a recent Mortgage Bankers Association survey indicates lenders expect to take more risk in 2014 in a challenging origination market:

    Moderate returns may encourage lenders to take on more risk. A strong majority of respondents (89%) said that mortgage loans made in 2014 will fall in the "medium" to "somewhat high" risk categories. Last year, the overwhelming majority (88%) predicted that loans made in 2013 would be "medium" to "somewhat low" risk.

    How far are lenders willing to extend the credit box for these loans? When does the marginal decision on the next borrower become one too many? Gulp. I worry.

    Jan 10 1:13 PM | Link | Comment!
  • MBA Residential Mortgage Application Data & Home Prices

    The Mortgage Bankers Association (MBA) published its weekly report of mortgage application activity this morning. Applications are higher for the week of Jan 3, up from last week's 13-year low.

    While only a single data point, it's a good early sign for the Spring housing market, though the 4-week "Purchase" index (applications for purchase vs refinancing) is downward sloping for the past year.

    See: MBA: Mortgage Applications Increase in Latest Weekly Survey on

    Homebuyers generally look for mortgage approvals first, and most experienced REALTORS require some type of pre-approval, so maybe this is the first sign of the spring seasonal bounce. From an email exchange this morning with a Scottsdale-based mortgage banker:

    The good realtors will always connect a prospective home buyer with a mortgage loan officer prior to looking at homes if they haven't already received a pre-approval. There are some realtors, that will show homes first. For the most part, I believe the consumer is getting pre-qualified either on their own or through the realtor prior to looking at homes.

    Here's a 5-year chart of Zillow's List Price index through 12/19/13.

    Listing prices are an excellent indicator of future transaction prices, and so far, listing prices haven't nudged higher (though listing prices are 7.7% higher YoY through mid-December.)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jan 08 12:27 PM | Link | Comment!
  • Retail Bank Branches - Grow Or Prune?

    Came across two sources today with a focus on retail banking:

    1. Accenture Retail Banking Survey 2013: Banking in the Digital Era
    2. It's Long Past Time to Kill the Bank Branch (from American Banker)

    The Accenture Report states:

    The branch-banking conundrum - Branches also remain banks' primary engine for sales. Nearly 60 percent of traditional retail bank products were sold via the branch, according to our survey...

    And from the American Banker article:

    More and more customers are doing most of their banking online or on mobile phones, turning most banks' sprawling locations into city-corner showrooms or special-occasion destinations, reserved for the handful of visits in a lifetime that most people need to, say, take out a mortgage. (While some customers, especially the elderly or the very wealthy, are less likely to do all of their banking online, banks don't need the more than 82,000 branches they currently maintain nationwide to keep these customers happy.)

    While the report and article appear to contradict, I think the real story here is about operational efficiency.

    From personal experience, I do 99% of my banking online (disclosure: with First Republic for both my personal and LLC checking accounts). My received payments are wire transactions, direct deposit, or check deposits via their mobile app.

    To set up the LLC checking account, I visited a branch in San Francisco to work with a personal banker who made an exception on my initial deposit minimum as a small business owner. (I've since made her call the right one... :-)

    Admittedly, I like knowing I can pop into a branch when I'm in San Francisco for work, though I've done so only twice in the past 4-5 years. I suspect if First Republic closed a few branches (or all of them), I'd barely notice, and if I did, it wouldn't change my decision to bank with them. They've been too good for too long. Heck, I live in Davis, CA where the closet branches are more than an hour away in Napa and Walnut Creek.

    In comparison, I have a separate checking account with US Bank that we used for stockpiling emergency cash and small payments. They have a branch in Davis that I've visited once, and disliked immensely. The branch manager treated us poorly, perhaps because he's used to college students instead of thinking of us as your professionals. This was his one chance to impress us and he blew it.

    So for me, branches are a just a "nice-to-have... so long as the service is outstanding.

    Disclosure: I am long IAT.

    Dec 17 2:43 PM | Link | Comment!
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