After 5 Banks Shuttered, a Primer on CD and Savings Rates; How Old is the Average NAR Member?

Friday was
not a good day for five very weak banks as, through various methods, the FDIC
closed them. (Twenty two have closed in 2012.) In all but one of the failures,
the FDIC found buyers who agreed to protect all depositors. InterBank FSB in
Maple Grove, MN became part of Great
Southern Bank
(MO), Plantation Federal Bank (SC) became part of First Federal Bank (SC), HarVest Bank
(MD) was absorbed by SonaBank of
Virginia
(both banks guilty of capitalizing middle letters of their names),
and Palm Desert National Bank (CA)’s operations were absorbed by Pacific Premier Bank (CA). Bank of the
Eastern Shore (MD) was not “absorbed” by anyone, so only the insured deposits
were covered – another lesson in not having too much cash with one institution.

While we’re
talking about banks, I am occasionally asked about interest rates, specifically
rates on savings accounts versus those of CD’s. CD’s should always be higher in
a positively sloped yield curve environment: a) there is a time value of money,
b) CDs are less flexible than savings and come with a certain, stable duration,
and c) CDs require a certain minimum to open. So why do some banks occasionally offer higher rates on savings than on CD’s,
effectively inverting their local deposit interest rate structure? And why would
a depositor ever choose a CD in that situation? Experts believe that there are four
main reasons for this. The first is that people and organizations don’t pay
attention and constantly pay for convenience. In other words, at any given
bank, an estimated 5% to 15% of customers blindly roll CDs over without ever
researching alternatives. Why should a bank pay a premium for customers that simply
want convenience? The second reason is that investors will pay for the
discipline that the CD maturity imposes on them – like a forced savings plan. (My
89-year old Dad falls into this camp.)

The third
reason is that some customers desire stable and set interest income that a CD
provides, and knowing both a maturity and a rate gives the customer comfort, as
does a monthly, quarterly or semi-annual interest payment. Since the savings
rate can vary, some customers will pay a premium for certainty. “I don’t want
the volatility!” And the fifth reason is marketing. Yes, whether it is diamond
ads on the radio or bank ads for CD’s, apparently we’re all susceptible to it. Banks
that offer higher savings rates than CDs tend to spend more marketing and sales
resources on their savings accounts, while keeping their CD options relatively
quiet. Savings accounts, if done right, can have a longer duration than the
bulk of a bank’s CDs and some feel this is the better investment.

Here is
some continued input on the aging of mortgage professionals, or lack thereof.
(By the way, in the latest NAR Profile,
the typical member reported they were 56 years old, up from 52 in 1999, and approximately
57% of NAR members are women; 90% of members have at least some college
education. If you want to sniff around some more, here you go.

Patrick T.
wrote, “I think there are 2 main reasons there aren’t more people around
my age and younger entering our industry. First is the media and our federal
government have blamed mortgage  brokers, mortgage bankers, and bankers as
the reason for the housing bubble and the crashing of the housing market along
with painting those employed in these professions as money-hungry and without
regard for the clients’ well-being. With the younger generations being so tech
savvy, they are bombarded with these false messages through multiple sources
which bash and discredit these professions. The second re……2 – most public
schools are echoing the same messages that the media is broadcasting…..when
our youth are being indoctrinated that being a banker, or a mortgage banker, or
a mortgage broker is a vile and disgusting, what else can we expect to happen?
Remember when being a banker was considered a respected profession like a
doctor or a lawyer (not the ambulance chasing kind)? Whatever happened to those
days?”

And this note: “The scholarship program is actually just for the School of
Mortgage Banking, which falls under CampusMBA. It is specifically designed for
minorities who are already working in mortgage banking, as are most of the
folks who attend the school.  It is tied to career advancement rather than
entry level.  The scholarships are funded by voluntary contributions from
various firms and a bequest from a former MBA president. The issue of who you
see in the lobby at any conference is as much a problem of who companies decide
to send to conferences. And I know that the MBA is working on expanding the
content to bring in a wider range of attendees.”

David O. writes, “On the issue of getting young people to enter the
industry, it is all about the income. I entered the industry around 1989
because the average rebate was 3+ and I could make a good living if I worked
hard and provided great service.  Even at 3% commission, my clients were
getting great competitive rates at the time and felt very happy at the close
and referred business.  Today, I log in 10 times the hours I did per loan
in 1989, my average commission is closer to 1.25% and a much higher percentage
of deals fall through. In 1989, I could easily do 20 deals per month and I did
for quite a few years. Today, if I close 3-5 deals in a month, it takes all my
time and resources. I just don’t think the younger generation sees the real
estate and mortgage industry as the big opportunity we did!  In the area
of financial planning, it will be exceptionally difficult to get young people
motivated to try and find people who have money to invest and are willing to
trust someone with little experience. There are just so few people any more who
have much cash left over at the end of the month to invest.  Financial
advisors at most firms are responsible to market and get business themselves
and that also costs money. I have seen a lot of young people over the last
decade try to get into financial planning and they have almost all failed
because they could not generate enough business to make any money.”

How about some somewhat recent lender/investor/agency/MI updates? As
always, it is best to read the actual bulletin, but this will give one a flavor
for what is happening out there. In no particular order…

US Bank Wholesale will be changing the minimum borrower
requirements for the Interest Only ARMs and Interest Only Fixed Rate programs
such that the minimum acceptable household income will be $150,000 per annum
and $250,000 in reserve.  The current requirement, which will no longer be
in effect for new locks taken on or after May 1st, states that borrowers must
have a minimum household income of $150,000 per year or reserves of $500,000.

As of April 23rd, Kinecta no longer
gets its rates from mortgage insurance vendors.  A new rate sheet has been
published, and the MI sections of Kinecta’s matrices have been modified
accordingly.  The new rate sheet is available via loankinection.com.

Citibank has made a number of
adjustments to the credit overlay listings that were published in
February.  For DU Refi Plus and LP Open Access loans, the payment increase
limitation, mortgage payment history, and installment debt overlay listings
have all been removed, while the maximum LTV/CLTV/HCLTV has been changed and an
accrued/interim interest requirement has been added.  All investment
properties now require a lease agreement.

All Open Access and DU Refi Plus loans submitted to Fifth Third submitted after April 22nd are subject to a 150% LTV
limit if they’re for detached properties; for attached properties, the LTV
maximum is 125%.  This also applies to all applications currently in the
pipeline.  Conforming, Super Conforming, and Agency Jumbo ARM products are
subject to change as well and are now subject to a cap of 5/2/5.

Fifth Third clients are reminded that the streamline reduced doc code is no
longer available for HASP Open Access and DU Refi Plus products (the correct
doc type is full/alt doc type) and that Wholesale Connect will be down for
maintenance on Saturday, May 11th.

As of April 23rd, Fifth Third has
adjusted its HARP II pricing
for HASP Open Access and DU Refi Plus loans
with LTVs over 125%.  Conforming ARM products are capped at 105% LTV,
while Fixed 30 Conforming products are subject to an additional 1.25, Fixed 20
Conforming to an additional 1.75, and Fixed 15 Conforming to an additional
0.75.  The pricing for DU Refi Plus Fixed 10 Conforming products has
increased by 0.75 as well.

On the subject of mortgage insurance,
Fifth Third will accept MGIC, Radian, United Guaranty, Essent Guaranty, and
Genworth Financial as providers of monthly Borrower Paid MI, while Radian is
approved to provide Lender Paid MI.  It is the Correspondent Seller’s
responsibility to price LPMI, and Fifth Third will only allow Single Premium
LPMI on agency loan programs will full documentation.  HARP loans with MI
may be transferred if the insurance is provided by Radian, MGIC, or Genworth,
and Fifth Third will permit an MI transfer with an occupancy change. 
Monthly LPMI is not allowed and cannot be switched to borrower paid. For HASP
Open Access and DU Refi Plus LPMI, the MI certificate must be in the name of
the Correspondent Seller, who should arrange for the certificate to be
transferred to Fifth Third once the loan is purchased.

Unlike
investor pricing and documentation changes which seem to be relentless, the markets are pretty quiet. Not that
stock and bond markets don’t have a lack of news, but interest rates seem very “content”
where they are. The heavy focus will remain on Europe for the foreseeable
future, especially with some elections coming up. Here in the colonies there is
no supply this week but the Treasury will be announcing the May refunding
package on Wednesday.

It will be
a week filled with economic reports. Today is Personal Income & Spending
(are folks spending or saving?), a measure of price inflation (PCE), and the
Chicago Purchasing Manager’s Survey. (With countries and states potentially
crumbling, should a number like this move rates?) Tomorrow are more second-tier
numbers: ISM Index, Construction Spending; Wednesday is the ADP private payroll
numbers, along with Factory Orders. Thursday is Jobless Claims, and then Friday
is the all-important unemployment data – every statistician’s dream.

As you
might recall, Personal Income continued its tepid pace in February, rising only
0.2 percent. Reflecting the pickup in employment, wage and salary growth,
however, has improved in recent months, and economists such as those at Wells
Fargo believe that we’ll see +.3% for March, with consumer spending slowing
slightly. I am heading off to the Dallas area for much of the week, thus the
reason for the early commentary today, but in
the early going the 10-yr is at 1.93% – pretty much unchanged as are agency
mortgage security prices
.

Instead of the usual joke, here’s a short video for animal and music lovers: “Tweety
Steals the Show!

…(read more)

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