All U.S. Banks Pass Stress Tests

Posted on June 23, 2017 by Laura Lam

loan losses severeFor the second year in a row, all of the nation’s largest financial institutions passed their stress tests, meaning each company has enough capital on hand to survive a “severe recession.”  On Thursday, the Federal Reserve announced the results of the annual stress testing, which showed that all 34 participating financial institutions are adequately capitalized and could withstand another economic downturn.

“The nation’s largest bank holding companies have strong capital levels and retain their ability to lend to households and businesses during a severe recession,” the Fed stated.

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

According to the Fed, the banks were tested on several scenarios.  The most severe hypothetical scenario projects $383 billion in loan losses at each of the 34 participating bank holding companies during the nine quarters tested.  The “severely adverse” scenario included a severe global recession wherein the U.S. unemployment rate rose approximately 5.25 percentage points to 10%, accompanied by heightened stress in corporate loan markets and commercial real estate.  According to the Fed, each of the 34 banks has enough money to survive that scenario.

The 34 banks, which are those with $50 billion or more in total consolidated assets, make up more than 75% of the assets of all domestic bank holding companies.  Included among the tested financial institutions are Bank of America, Citigroup, Fifth Third, Goldman Sachs, JPMorgan Chase, and Wells Fargo.

Source:  HousingWire/Federal Reserve

Study Discovers New Segment of Digital Banking Users

Posted on June 21, 2017 by Laura Lam

FIS pace surveyA recent study from financial services technology leader FIS reveals the emergence of “Gen MX,” a new segment of higher-income Gen Xers and senior millennials.  This segment shares strikingly similar banking behaviors and are increasingly transferring their personal preferences for digital channels into all areas of how they bank and run their businesses.

The 3rd annual Performance Against Customer Expectations (PACE) survey asked consumers in various age demographics – millennials, Gen Xers and baby boomers – to rank the importance of key attributes to their banking experience and how well their banks are meeting those attributes. For the first time, the 2017 study also broke down the millennial demographic into younger and senior segments.

The study revealed that senior millennials (age 26-36) and Gen Xers (age 37-51) in the U.S., the U.K., Germany and other countries share striking similarities in terms of their banking preferences and behaviors:

  • They are more likely than other age groups to use regional banks as their primary financial institutions.
  • They share, in the same order, the 10 most important attributes that they want most from their banks, ranging from safety and security at the top to simplicity, transparency, omnichannel options, and ability to anticipate and meet their financial needs.
  • 75% of their banking contacts are handled via online and mobile channels, and they do more than twice as many mobile banking interactions as baby boomers, on average.
  • Nearly 66% of senior millennials and half of Gen Xers have at least one major life event planned within the next 2-3 years that will affect their finances.
  • Both segments indicated a significant preference for using their primary banking provider as their first choice of where to turn for assistance with their finances.

“Gen MX is now in the driver’s seat of the global economy,” said Anthony Jabbour, COO – Banking and Payments, FIS. “This super segment of consumers earn more than any other age group, are starting and running businesses, and are about to inherit the biggest transfer of wealth in history. They are accustomed to using digital channels to manage their personal lives, and they want the same level of digital experience in their banking and business relationships.”

“These digital power users are creating the future of banking and payments, and financial institutions of all sizes need to be paying attention to serving their needs,” Jabbour added.

Source:  FIS
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Home Flipping Volume Rises to 9-Year High

Posted on June 19, 2017 by Laura Lam

home flippingATTOM Data Solutions’ Q1 2017 U.S. Home Flipping Report revealed that 43,615 single family homes and condos were flipped during Q1 2017, which was an 8% decrease from the previous quarter and a 6% decrease from a year ago. Home flips in Q1 2017 accounted for 6.7% of all single family home and condo sales during the quarter, up from 5.8% in the previous quarter and unchanged from a year ago.

A home flip is defined as a property that is sold in an arms-length sale for the second time within a 12-month period.  One-third (33.3%) of all single family homes and condos flipped in Q1 2017 were purchased by the flipper with financing, up from 31.9% in Q4 2016 and up from 29.5% in Q1 2016 to the highest level since Q3 2008, when 37.6% of completed home flips were purchased by the flipper using financing.

“The business of financing for home flippers continued to grow in the first quarter of 2017 even as the home flipping rate plateaued compared to a year ago and average home flipping returns decreased for the second consecutive quarter,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Home flippers financed an estimated $3.5 billion in purchases for homes flipped during the quarter, up from $3.3 billion in the previous quarter and up from $2.4 billion a year ago to the highest level since the fourth quarter of 2007 — a more than 9-year high.”

Among 85 metropolitan statistical areas with at least 90 completed home flips in Q1 2017, those with the highest share originally purchased by the flipper with financing were Colorado Springs, Colorado (69.3%); Denver, Colorado (54.8%); Seattle, Washington (51.6%); Boston, Massachusetts (51.3%); and Providence, Rhode Island (47.3%).

The District of Columbia had the highest home flipping rate in the nation in the first quarter (10.7%), followed by Nevada (9.8%); Alabama (9.0%); Tennessee (8.9%); Maryland (8.5%); and Missouri (8.0%).

Source:  ATTOM Data Solutions/Builder/Housing Wire

The Cost of Attending a Wedding in 2017

Posted on June 16, 2017 by Laura Lam

wedding partyWedding season is upon us.  According to theKnot.com, the average cost of a wedding in 2016 rose to an all-time high of $35,329.  But modern weddings aren’t just ultra-expensive for the happy couple, they’re actually a serious, wallet-emptying affair for guests as well.

According to the Knot’s 2016 Wedding Guest Study, the average bridesmaid/groomsman spent just over $1,500 last year, while wedding guests spent $888.  Here’s a breakdown of the costs:

Average bridesmaid and groomsmen spend per wedding: $1,154

  • Wedding gift spend: $177
  • Wedding attire: $207
  • Wedding travel: $342
  • Wedding accommodations: $293

Average wedding guest spend per wedding total: $888

  • Wedding gift spend: $118
  • Wedding attire: $81
  • Wedding travel: $321
  • Wedding accommodations: $322

These figures don’t include wedding party costs if you’re attending events in addition to the actual wedding day.  Friends and family who are wedding attendants take part in the pre-wedding festivities often end up spending hundreds of dollars in addition to the $1,154.

Bachelorette party attendees spend $472, while bachelor party attendees drop way more: around $738, just for the party itself. If travel and accommodations are required for the pre-wedding celebrations, then bachelorette parties ring in at an average of $1,106 and bachelor parties majorly tip the scale at an average attendee spend of $1,532. The costs they face include the price of the party, gift, travel, and accommodations.

Source:  TheKnot.com, PopSugar

Homeowner Equity On the Rise

Posted on June 15, 2017 by Laura Lam

corelogic home equityHomeowner equity increased significantly in the first quarter of 2017, according to the Q1 2017 home equity analysis from CoreLogic.  Homeowners with a mortgage, about 63% of all homeowners, saw their equity increase by 11.2% for a total of $766.4 billion since the first quarter last year. The average homeowner gained about $13,400 in equity over the last year.

The total number of mortgaged residential properties with negative equity decreased 3% from the fourth quarter to 3.1 million homes, or 6.1% of all mortgaged properties. This is a drop of 24% from 4.1 million homes in the first quarter last year.

“One million borrowers achieved positive equity over the last year, which means mortgage risk continues to steadily decline as a result of increasing home prices,” said CoreLogic Chief Economist Frank Nothaft.  “Pockets of concern remain with markets such as Miami, Las Vegas and Chicago, which are the top 3 for negative equity among large metros, with each recording a negative equity share at least twice or more the national average.”  The chart above shows which states saw the largest equity gains from last year.

Negative equity, often referred to as being underwater or upside down, applies to borrowers who owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in home value, an increase in mortgage debt or both.

The value of negative equity in the U.S. at the end of the first quarter totaled about $283 billion. This is down 0.9% by about $2.6 billion from $285.5 billion in the fourth quarter and 7.1% from last year’s $304.5 billion.

According to CoreLogic President/CEO Frank Martell, the rise in home equity is the largest increase since mid-2014.  “The rising cushion of home equity is one of the main drivers of improved mortgage performance. It also supports consumer balance sheets, spending and the broader economy,” he added.

Source:  Housing Wire/CoreLogic

Is the New Household Debt Record Cause for Concern?

Posted on June 14, 2017 by Laura Lam

household debt 2Last month, the New York Federal Reserve reported that household debt across the nation has hit a dubious milestone in the first quarter: It surpassed the peak debt level of 2008 at $12.7 trillion.
Household debt — including mortgages, auto and student loans, and credit cards — rose $149 billion compared with the last quarter of 2016, with nearly all the gain coming from mortgages.
Reaching the peak raises questions about whether the backdrop exists again for another financial meltdown.  But the data show the current structure of debt is substantially different from 2008.

According to a research officer at the Federal Reserve, the record is “neither a reason to celebrate nor a cause for alarm.” In fact, there are a number of differences between 2008 and 2017.

Mortgage debt has fallen from 73% to 68% of total debt since the peak. That has come along with a rise in auto- and student-loan debt as a percent of the average American’s liabilities.  Debt per capita, which hit $53,000 in 2008, comes in at around $48,000. The level has risen steadily since the bottom in 2013, but not nearly as sharply as it did in the years leading up to the financial crisis.

While the percent of debt 90 days delinquent did rise for the second straight quarter, it remains well below the level of 2008 and substantially below the level of the worst days of the financial panic. The NY Fed says 3.37% of all debt outstanding is 90 days or more delinquent; that’s up from 3.3% in the fourth quarter. But it was 8.7% in 2010, and 5.1% at 2008.  The reason delinquency has improved is that a lot of the lending is only going to the most creditworthy borrowers. For example, those with credit scores of 760 or greater got 36% of all loans in 2008.

But there are some worrisome signs. Credit-card delinquencies crept up and student-loan delinquencies remain stubbornly high in the low double digits. Delinquencies in the $1.2 trillion auto-loan market were down a bit, but they bear watching after a steady rise since 2012.

Source:  CNBC/Newser

New Home Sales Less Than Half of Historical Norms

Posted on June 13, 2017 by Laura Lam

Historic NormsThe current level makes up 88.3% of the 50-year average, according to a report from Trulia. However, new home sales are unable to keep up with the rate of total sales.  How many new home sales do we need for the market to look normal?  According to Trulia Chief Economist Ralph McLaughlin, if we compare the share of new home sales to total sales, that share needs to more than double.  “In April, new home sales made up about 11.9% of all home sales, which is less than half of the historical average of 23.6%,” McLaughlin said.

However other experts explain this drop in April comes as no surprise after the past several months of high home sales.  “After soundly beating expectations in every month to start 2017, it’s not very surprising to see new home sales come back to Earth in April,” said Zillow Chief Economist Svenja Gudell.  He added that while some worry about the double-digit monthly decline from March, it’s important to keep all the numbers in context.  “Data from the first 3 months of the year were all revised upward, and at a seasonally adjusted annual rate of 569,000, April new home sales were still higher than in all but 4 months of 2016,” stated Gudell.

But not all economists say the drop is positive or even normal. One expert explains this drop brings unwelcome news to homebuyers who are already struggling with limited inventory.  “New home sales plummeted 11.4% in April – bad news, especially for first-time and lower income buyers,” said Realtor.com Senior Economist Joseph Kirchner.  “This month’s drop in home sales and the stagnation in new home inventory will continue to exacerbate the national inventory shortage which will result in even higher prices and lower affordability.”

However, prices didn’t increase. The report showed home prices dropped to $309,200, down from last month’s $315,100. And while home sales may be down, housing inventory increased slightly.  “Inventory continues to grow, albeit slowly,” said Robert Dietz, National Association of Home Builders senior vice president and chief economist.  “The largest year-over-year gains in new home inventory are among homes not-started construction,” Dietz said. “Completed, ready-to-occupy new homes in inventory total only 59,000 on a nationwide basis.”

Source:  Housing Wire/Trulia/HUD/U.S. Census Bureau

Banks See Slower Loan Growth, Higher Charge-Offs

Posted on June 12, 2017 by Laura Lam

FDIC bank earningsFDIC-insured banks reported that the pace of loan growth slowed in the first quarter and that charge-offs on loans to individuals increased. But banks still recorded robust earnings for the period.  Total loans and leases fell by $8.1 billion, or 0.1% year-over-year, in the 3 months ended March 31, led by credit card loans, which posted a seasonal decline of $43.7 billion, or 5.5%. In its Quarterly Banking Profile, the FDIC attributed the decline to cardholders paying down outstanding balances, but residential mortgages also fell, by 0.5%. Credit to businesses offset some of the decline, with commercial and industrial loans up 1.3% and commercial real estate loans rising 1.7%.

Failed consumer loans also dinged banks’ balance sheets. Banks charged off $11.5 billion of loans in total in the first quarter, an increase of 13.4%. Net credit card charge-offs rose 22.1%, while auto loan charge-offs increased nearly 28%. Charge-offs of “other loans to individuals” increased a whopping 66.4%.

But trends in non-current loan balances – the amount of loans and leases 90 days or more past due – do not suggest the bulk of consumers are having a hard time paying back credit. Non-current loans at banks fell by $7 billion, or 5.3%, in the first quarter, led by declines in non-current mortgages (8.2%) and C&I loans (4.6%).

In total, FDIC insured banks reported net income of $44 billion in the first quarter, up 12.7% year over year. More than 57% of all banks reported year-over-year increases in quarterly earnings, while only 4.1% reported negative net income for the quarter.

The positive income trend was boosted by a 7.8% increase in net interest income. The average net interest margin improved to 3.19%, up from 3.1% a year ago. However, for the most part, large banks were the beneficiaries, “as higher short-term interest rates lifted average asset yields,” said the FDIC.  Smaller banks, which have a bigger share of their assets in longer-term investments, did not see their net interest margins benefit from the rise in short-term rates, according to the FDIC. More than half of all FDIC-insured banks (53.7%) reported lower net interest margins than a year ago.

Banks saw their non-interest expenses, which eat into profits, increase from a year ago. Salary and employee benefits costs were a big driver, rising $3.3 billion (6.6%). Part of that increase was due to a larger workforce: banks reported 41,469 more employees than a year ago.

Source: CFO

Beige Book: Slower Growth, Less Optimism

Posted on June 09, 2017 by Laura Lam

unemployment rateEconomic growth slowed across parts of the U.S. in recent weeks, and some firms have become a bit less optimistic about the future, according to a new report from the Federal Reserve.  “A majority of districts reported that firms expressed positive near-term outlooks; however, optimism waned somewhat in a few districts,” the Fed said in its latest Beige Book report.

Broadly, the Fed said economic growth was modest in 7 districts, moderate in 4 districts and “flattened out” in the New York Fed district. The prior beige book said activity expanded in all 12 regions with the pace equally split between moderate and modest (“moderate” is stronger than “modest.”)

Looking forward, businesses remained upbeat, though some less so than had been the case earlier in the year. The Philadelphia Fed reported manufacturers continued to expect growth over the next two quarters, but “the breadth of optimism has narrowed” and “expectations for future employment and capital expenditures also softened.” The Dallas Fed said in the energy sector, “outlooks remained positive, although contacts were more guarded in their optimism” than before.

Labor markets across the U.S. “continued to tighten, with most districts citing shortages across a broadening range of occupations and regions,” the Fed said. The national unemployment rate in April fell to 4.4% as hiring picked up from the prior month, according to Labor Department data.

The San Francisco Fed reported that “recent changes in immigration policy created substantial labor supply shortages for low-skilled workers in the agriculture sector; as a consequence, some growers discarded portions of their harvest.”

Even with more firms struggling to find workers, the report said there was “little change to the recent trend of modest to moderate wage growth, ” though some firms raised pay to attract and keep employees. The Chicago Fed reported a “manufacturing firm that was expanding raised wages for unskilled workers 10% and noted a significant improvement in retention and the quality of applicants.”

Inflation remained tame, with most areas “reporting modest increases” in prices, the report said. Prices rose for materials like lumber and steel, while some areas saw falling prices for groceries, clothing and motor vehicles.

The Fed held interest rates near zero for years in the wake of the 2007-09 recession as part of its effort to boost inflation and lower unemployment. Now, with the economy on stronger footing, officials are slowly raising rates and preparing to shrink their $4.5 trillion in holdings of Treasury and mortgage securities.

Source: Wall Street Journal/Federal Reserve

Foreclosure Activity Hits Post-Recession Low in April

Posted on June 08, 2017 by Laura Lam

attom data foreclosure April 2017ATTOM Data Solutions released its April 2017 U.S. Foreclosure Market data, which shows foreclosure filings – default notices, scheduled auctions and bank repossessions – were reported on 77,049 U.S. properties in April, down 7% from the previous month and down 23% from a year ago to the lowest level since November 2005.

“Foreclosure activity continued to search for a new post-recession floor in April thanks in large part to the above-par performance of mortgages originated in the past 7 years,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “Meanwhile we are seeing an elevated share of repeat foreclosures on homeowners who often fell into default several years ago but have not been able to avoid foreclosure despite the housing recovery.”

Nationwide one in every 1,723 housing units had a foreclosure filing in April 2017.  In the worst of the recession, March 2010, one in every 352 homes was involved with a foreclosure filing.

States with the highest foreclosure rates were New Jersey (1 in every 562 housing units); Delaware (1 in every 706); Maryland (1 in every 776); Connecticut (1 in every 956); and Illinois (1 in every 1,083).  The metros with the most filings with populations of at least 200,000 were Atlantic City, NJ (1 in 237); Fayetteville, NC (1 in 615); Trenton, NJ (1 in 620); Rockford, IL (1 in 668; and Philadelphia (1 in 733).

A total of 34,085 U.S. properties started the foreclosure process in April, down 6% from the previous month and down 22% from a year ago and continuing well below the pre-recession average of more than 77,000 foreclosure starts per month between April 2005 and November 2007.

Counter to the national trend, the District of Columbia and seven states posted year-over-year increases in foreclosure starts, including Connecticut (up 40%); Massachusetts (up 34%); Alabama (up 10%); Missouri (up 10%); Oregon (up 7%); and Illinois (up 6%).

Source: ATTOM Data