Alabama Trust Bank, National Association, Sylacauga, Alabama, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Southern States Bank, Anniston, Alabama, to assume all of the deposits of Alabama Trust Bank, National Association.
The sole branch of Alabama Trust Bank, National Association will reopen during its normal business hours beginning Saturday as a branch of Southern States Bank. Depositors of Alabama Trust Bank, National Association will automatically become depositors of Southern States Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits. Customers of Alabama Trust Bank, National Association should continue to use their existing branch until they receive notice from Southern States Bank that it has completed systems changes to allow other Southern States Bank branches to process their accounts as well.
This evening and over the weekend, depositors of Alabama Trust Bank, National Association can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.
As of March 31, 2012, Alabama Trust Bank, National Association had approximately $51.6 million in total assets and $45.1 million in total deposits. In addition to assuming all of the deposits of the failed bank, Southern States Bank agreed to purchase essentially all of the assets.
Customers with questions about today's transaction should call the FDIC toll-free at 1-800-405-8124. The phone number will be operational this evening until 9:00 p.m., Central Daylight Time (CDT); on Saturday from 9:00 a.m. to 6:00 p.m., CDT; on Sunday from noon to 6:00 p.m., CDT; on Monday from 8 a.m. to 8 p.m., CDT; and thereafter from 9:00 a.m. to 5:00 p.m., CDT. Interested parties also can visit the FDIC's Web site at http://www.fdic.gov/bank/individual/failed/alabamatrust.html.
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $8.9 million. Compared to other alternatives, Southern States Bank's acquisition was the least costly resolution for the FDIC's DIF. Alabama Trust Bank, National Association is the 24th FDIC-insured institution to fail in the nation this year, and the first in Alabama. The last FDIC-insured institution closed in the state was Superior Bank, Birmingham, on April 15, 2011.
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Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation's banking system. The FDIC insures deposits at the nation's 7,359 banks and savings associations, and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars — insured financial institutions fund its operations.
FDIC press releases and other information are available on the Internet at www.fdic.gov, by subscription electronically (go to www.fdic.gov/about/subscriptions/index.html) and may also be obtained through the FDIC's Public Information Center (877-275-3342 or 703-562-2200). PR-57-2012
Mortgage Rates are steady to slightly improved today following as Europe's fiscal woes continue providing downward pressure on US interest rates. The forces at work keeping rates low were joined today by "minutes" from the most recent FOMC meeting. All told, several notable lenders are offering their all-time lowest interest rates while others remain close.
Markets actually got off to a shaky start as far as rates were concerned. Had it not been for the European headlines and the FOMC Minutes, we'd likely be looking at slightly higher rates today. Mortgage-backed-securities (aka "MBS," the most direct influence on mortgage rates) and US Treasuries began the day in weaker territory until news that the European Central Bank had ceased it's normal interactions with several Greek banks, and the ECB President essentially wasn't willing to bend over backwards to make sure Greece stays in the Euro-zone. We discussed the implications of a Greek Euro-zone exit in yesterday's post.
The ECB-related news helped bond markets bounce back into stronger territory and FOMC Minutes added to that momentum. Though there were no major surprises out of the Fed, the Minutes indicated that the Fed remained in sort of uncertain territory with respect to further quantitative easing, which thus far, has been a major boon for rates.
Markets were perhaps guarded against the possibility that the Minutes would indicate a shift AWAY from an accommodative stance. The fact that the minutes did no such thing, combined with the consideration that this meeting took place BEFORE the most recent bout of Euro-drama was enough for markets to infer a slightly economically bearish bias from the Fed, and the Fed combats economic bearishness by keeping rates low.
For only the 3rd time since early February, the Conventional 30yr Fixed Best-Execution Rate is arguably straddling 3.75% and 3.875%. Some lenders' rate sheets are structured such that 3.75% is clearly Best-Execution. More have moved down into that territory, though many remain at 3.875%. (read more about Best-Execution calculations)
Until and unless mortgage rates actually break into NEW all-time lows (which they are very close to doing), we'll likely keep reiterating that which has already been said:
We see two diametrically opposed forces pushing and pulling on mortgage rates here at these key levels. The European component is the obvious force pushing rates down, but less obvious is the underlying structure of the Secondary Mortgage Market providing resistance to moving lower. The latter is what has prevented rates from getting any lower now and in the past.
That said, if the economic outlook remains fairly dim and if European concerns continue to fuel that "flight-to-safety" demand for long enough, the Secondary Mortgage Market CAN slowly evolve to accommodate lower rates. It remains to be seen whether or not it will actually happen. Global economic panic is not our favorite justification for thinking rates will move predictably lower.
Investors in the secondary mortgage market have demonstrated that they tend to feel the same way, having clearly avoided a quick move down into uncharted territory with respect to the "buckets" on the secondary mortgage market. Read more about "buckets" HERE. Without a more stable motivation for low interest rates, we'd expect ongoing progress in creating a market for even lower rates to continue to be slow and small.
Today's BEST-EXECUTION Rates
Ongoing Lock/Float Considerations
Federal Reserve Governor Elizabeth A. Duke told attendees at a break-out session of the National Association of Realtors® (NAR) Midyear Legislative Meetings that she wished she had, as the session title suggested a "Prescription for Housing Recovery." "I do see policies that I believe will help reduce the shadow inventory of houses in the foreclosure pipeline," she said. "I also see policy actions that could be taken to improve credit availability for potential homebuyers and, in turn, demand for houses."
Duke briefly recounted the toll that the housing market had taken on homeowners and the nation's housing stock and some of the signs of recovery such as improving delinquency rates, and declining inventories of unsold and foreclosed homes.
She said there have also been signs that home prices are stabilizing and even improving. These modest improvements, she said, can only continue if the demand for homes strengthens or the supply fails to meet the weak demand. "My Realtor friends," she said, "have taught me that when inventories of houses for sale reach a level equal to six months of sales, then markets are usually in rough balance. And, indeed, just as the inventory of existing homes for sale nationally has approached six months of sales, we have seen a leveling of prices suggesting that some equilibrium is being achieved, albeit at low levels."
The national data, of course, masks differences in regional markets. She pointed to Miami and Phoenix where there is actually an undersupply of homes while delinquencies and foreclosures are still high. "For me, this calls into question the notion that housing prices cannot stabilize until the foreclosure pipeline is worked off. I believe that this reduction in inventory, even in the face of a steady supply of foreclosed homes, is a result of a sharp contraction in normal homeowner activity and an equally sharp expansion of investor activity". This could mean that discouraged homeowners have pulled homes off the market or that a significant portion of inventory has been absorbed by investors.
Despite some signs of improvement, demand for owner-occupied housing remains what Duke called "stubbornly tepid." One driver of demand is household formation which typically falls during economic downturns but has been especially weak in this cycle, running at three-quarters of the normal rate since 2007. At the same time some homebuyers are delaying home purchases because of uncertainty, others because they expect prices might fall even further.
Some who would like to buy cannot because they are unable to obtain a mortgage. She pointed to the Feds most recent Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) showing that underwriting standards for residential mortgages tightened steadily from 2007 to 2009, "and they do not appear to have eased much since then."
Obviously lenders are trying to correct for the lax and problematic lending standards in the years leading up to the crash, but Duke listed other factors causing the problem.
Lenders apparently lack adequate capacity. Some lenders have gone out of business and others have cut staff at the same time that requirements for documentation have increased and lenders have become more cautious over fear they might have to repurchase loans. This has increased the processing time for mortgages from about 4 weeks in 20008 to around 6 weeks in 2010. Of course if lenders were eager to originate mortgages they could increase staff and invest in systems but Duke believes uncertainty is inhibiting these investments.
Uncertainty is impacting lenders in other ways. Turning first to macroeconomic uncertainty, Duke said so long as unemployment remains elevated and further house price declines remain possible, lenders will be cautious in setting their requirements for credit. The continuing effects on house prices of the large number of underwater mortgages and of the mortgages still in the foreclosure pipeline remain unclear. In one recent survey, house price forecasts for 2012 ranged from a decline of 8 percent to an increase of 5 percent.
House price uncertainty and the high volume of distressed sales make the job of residential appraisers and lenders more difficult. Appraisers may lean toward the conservative in setting a home's value and, as long a house prices continue to decline lenders may lean toward more conservative underwriting which, taken together could discourage or even disrupt sales and Duke said she hears of that happening.
Lenders have tended to be conservative in making some mortgages that are guaranteed by government-sponsored enterprises (GSEs)--loans in which lenders do not bear the credit risk in the event of borrower default--which suggests that issues other than macroeconomic risk are affecting lending decisions.
In the April SLOOS lenders said they are less likely today to originate loans to borrowers in several different categories than several years ago and when asked why about 80 percent cited the difficulty of obtaining affordable private mortgage insurance. More than half the respondents cited risks associated with loans becoming delinquent as being at least somewhat important--in particular, higher servicing costs of past due loans or the risk that GSEs would require banks to repurchase or putback delinquent loans, their right when lenders are thought to have misrepresented their riskiness. If lenders perceive that minor errors can result in significant losses from putback loans, they may respond by being more conservative in originating those loans. If technology and data standardization can be used to enhance quality control reviews at the time of purchase rather than after the loans became delinquent, it would allow errors to be corrected much earlier, resulting in better outcomes for taxpayers, borrowers, investors, and lenders.
There is also uncertainty about future standards for delinquency servicing and the associated costs. This was partially resolved by the $25 billion servicing settlement and the consent orders entered into by 14 large servicers. However these agreements cover only about two-thirds of all mortgages and the new Consumer Financial Protection Bureau (CFPB) has declared it will develop servicing rules for all mortgage loans, The conservator of the GSEs are developing a set of servicing protocols for GSE loans and federal regulators are doing the same for banks they regulate. Also affecting decisions about investing in servicing are new approaches to servicer compensation under consideration by the FHFA and new international capital standards that change the capital treatment of mortgage servicing rights
Two major areas of uncertainty arise out of regulations being written under the Dodd-Frank Act; rules that will set requirements for establishing a borrower's ability to repay a mortgage including a definition of a "qualified mortgage" or QM. Mortgages that meet the definition would be presumed to meet the standards regarding the ability of the borrower to repay. Regulators are also developing a definition for "qualified residential mortgages," or QRMs, a subset of QM that would be exempt from risk retention requirements in mortgage loan securitizations. Each one of these rules will affect the costs and liabilities associated with mortgage lending and thus the attractiveness of the mortgage lending business.
Other big uncertainty is the potential role of the government in the mortgage market, especially the future of Fannie Mae and Freddie Mac still unreserved more than three years after they were put into conservatorship. Private capital might be reluctant to enter the market until their future is settled.
Duke concluded by returning to the theme of the session, writing a prescription for housing recovery which she said would include resolving uncertainty about the strength of the economic recovery, especially the labor market which is affecting both homeowners' willingness to buy and lenders willingness to lend. The Federal Reserve remains committed to fostering maximum employment consistent with price stability, which should help reduce some of the macroeconomic uncertainty.
The efforts underway to reduce foreclosures and distressed sales will stabilize home prices and mortgage loan modifications and short sales will cut the homes in the foreclosure pipeline as will reallocating some properties to rental use. Policy changes that increase opportunities to refinance and neighborhood stabilization efforts are other solutions.
But, she said, perhaps the most important solution is that policymakers move forward with the difficult decisions that will affect the future of the mortgage market. She listed the future of the GSEs, how to promote a robust secondary market, the form of crucial regulations, "and it is unlikely that anyone will fully agree with the final decisions that are made. Nevertheless, until these tough decisions are made, uncertainties will continue to hinder access to credit, the evolution of the mortgage finance system, and the ultimate recovery in the housing market. I don't want to diminish the importance of any individual policy decision, but I do believe that the most important prescription for the housing market is for these decisions to be made and the path for the future of housing finance to be set. It's time to start choosing that path.
Thank you, we'll be in touch!