US Inflation Firms But This Won't Change Federal Reserve Actions On Rates

By: Forbes - Tim Worstall - June 17, 2016

We all know that the Federal Reserve would really like to get inflation back up to 2% or so in order that they may get on with raising interest rates so that we get back to having something like a normal financial economy. We’ve got the report today that one variant of the consumer price index, the core one, is now over 2%. So, that means the Fed will be raising pronto, right? Nope, sadly not, nothing is that easy. We’ve any number of different inflation indices and this isn’t the one that the Federal Reserve looks at when deciding upon interest rates. Sure, it’s indicative of the way things are going but it’s still just not the right inflation measure to hold the Fed to.
The news itself:

U.S. consumer prices moderated in May, but sustained increases in housing and healthcare costs kept underlying inflation supported, which could allow the Federal Reserve to raise interest rates this year.
While another report on Thursday showed an increase in the number of Americans applying for unemployment benefits last week, the trend remained consistent with a healthy labor market. The data came a day after the Fed downgraded its assessment of the jobs market and gave a mixed view of the economy.
The Labor Department said its Consumer Price Index increased 0.2 percent last month, slowing from April’s 0.4 percent rise. Gasoline prices rose modestly and the cost of food fell.

The consumer price index, the CPI, just isn’t the one that the Fed tracks. It’s also true that the basic CPI isn’t at 2%, nothing like:

The overall price index rose 1.0% in May from a year earlier, slipping from 1.1% annual growth in April. Prices excluding food and energy climbed 2.2% on the year, marking the seventh consecutive month that annual core inflation matched or exceeded 2%.

Aaah, but the important variant of the CPI is above 2%. The thing here is that we always want to think of two different sorts of inflation. Sure, prices rising is inflation and prices rising on everything is most clearly inflation. And yet we really do want to distinguish between two different things here. If prices on average are rising because the prices of a couple of specific things are rising then that’s different than if all prices are rising across the board. Even if the final effect on the CPI is the same, we still want to distinguish between these two things.
So, we’ve two inflation measures (and many many more variants but most of them make this same distinction) in the CPI. We’ve the, well, the CPI, and we’ve the core CPI. Food and fuels we know bounce around all the time. And while, in one strict sense, changes in them are inflation or deflation we don’t really think of them in quite the same way. Core inflation is thus everything except food and fuel. And core inflation is much more like the thing we want to worry about, “real” if you like inflation, where prices are just rising because prices in general are just rising.

 

So, if the Fed were to be looking at CPI it would be core CPI they looked at and that would be above 2% so raise? Ah, no, because the Fed uses a different inflation measure:

The Fed’s preferred inflation gauge — the Commerce Department’s personal consumption expenditures measure — hasn’t reached the central bank’s 2 percent goal since April 2012. The Fed has a dual mandate of stable prices and maximum employment.

That’s actually running at about 1.6% at present. So still a bit of time before inflation becomes the trigger for the Fed. This is a little difficult though, for we know that monetary policy like raising rates takes about 18 months, perhaps 24 months, to have an effect upon inflation. So what is really being done it trying to predict what that PCE inflation rate will be 18 months in the future and then raise or not raise interest rates dependent upon that estimate. This is not science being done here folks, this is art, art by experienced and well meaning people but art all the same.
The important point to take away from this is that yes, the core CPI inflation rate is above 2%, the Fed’s target is 2% inflation, but they’re just not using this measure of inflation. So we can think of this as an interesting pointer to what we think the Fed’s preferred measure will be in the future, that PCE, but it’s not trigger time yet. And, if we’re honest about it, the inflation rate might not be the trigger they use at all. They could always (as I’ve been assuming they would for months now) use the existence of full employment as the trigger. It’s all rather like Churchill’s description of Russia, a riddle wrapped in an enigma and so on. We really don’t know quite what they’re going to do nor when they’re going to do it and we’ve not got a really good handle on what will make them do whatever either. Perhaps the major thing this speculation offers us is lots of well paid employment for economists on Wall Street trying to second guess. So, something good comes out of it after all.

Even though Private Money lenders are not affected by the interest rates it is interesting to know where the economy stands; the trends and variations that the Fed uses to measure inflation.

 

House Republicans unveil economic plan, including Dodd-Frank replacement

By: Mortgage Professional America - Ryan Smith - June 15, 2016

House Republicans on Tuesday unveiled a plan to grow the economy that included the Republican alternative to the Dodd-Frank Act.

The Republican plan called for “tackling excessive regulation,” according to a House Financial Services release. The plan included the framework of the Financial CHOICE Act, the plan to replace Dodd-Frank outlined by committee chairman Jeb Hensarling (R-Texas) last week.

“If we want strong economic growth and more freedom, we must empower Americans, not Washington bureaucrats,” Hensarling said. “We must offer all Americans greater opportunities to raise their standard of living and achieve financial independence. In a phrase, we need economic growth for all and bank bailouts for none. This is the foundation of the Republican plan to reignite growth by replacing Dodd-Frank with real reforms that work.”

The plan includes “at least 101 ideas,” according to House Republicans, including:

• Cutting nown on “needless regulations” and making “the rules we do need more efficient and effective.”
• Ending bailouts
• More affordable choices for workers and students

The full plan is available at better.gop.

How will this affect the private money lending environment?

Consumers Positive Despite Weak Employment Data

DSNEWS - Daily Dose - June 14, 2016 - Brian Honea



Consumer Positivism is a great sign, but is that enough for private money investors?


The BLS employment situation for May did not bring good news—only 38,000 jobs were added, which was the lowest total for one month in almost six years.
But one would never know that May's jobs report was so weak by looking at a survey of consumer expectations from the Federal Reserve Bank of New York released on Monday. According to the May 2016 Survey of Consumer Expectations from the New York Fed, more consumers expect to find jobs and fewer consumers expect to be leaving jobs anytime soon.
Consumers' expectations for the labor market rebounded in May after declining in April. According to the New York Fed's poll of 1,200 household heads via the Internet, the mean probability of losing one's job in the next 12 months dropped from April to May by nearly a full percentage point (from 15.8 percent down to 14.9) after a significant jump from March to April. The number of respondents who said they expect to leave their job voluntarily in the next 12 months also dropped from April to May, from 23.1 percent down to 21.8 percent.

 
While fewer consumers expect to lose their job involuntarily or leave their job voluntarily in the next year, more consumers said they expected to be able to find a job in the next three months if they were to lose their job. That number leaped from 52.9 percent up to 55.4 percent and was pronounced among younger, lower-educated, and lower-income respondents, according to the New York Fed.
The number of survey respondents who said they thing the U.S. unemployment rate will be higher a year from now dropped from 39.3 percent in April to 39.1 percent in May. The unemployment rate was the one bright spot in the May BLS report, falling from 5.0 percent down to 4.7 percent. The labor force participation rate, however, was reported to be a mere 62.6 percent, offsetting first-quarter gains.
While respondents may have been more certain about keeping a job or finding a job if one were lost, they were less certain about their income. The media one-year ahead expected earnings growth declined from April to May from 2.4 percent down to 2.2 percent, driven by mostly younger and lower-educated respondents, according to the New York Fed. Also, there was a noticeable increase in the uncertainty surrounding earnings growth for the coming year.
 

Affordability heading the right way

The level of affordability in America’s housing markets increased in the fourth quarter of 2015 according to figures from the National Association of Home Builders and mortgage lender Wells Fargo. The firms’ affordability index showed that 63.3 per cent of new and existing homes sold between the start of October and the end of December 2015 were affordable to families earning the median income of $65,800. The proportion was up around 1 percentage point from the third quarter.

“The signs point to continuing growth in home sales,” said NAHB Chief Economist David Crowe. “We’ve seen an improvement in affordability due to favorable home prices and interest rates. Steady employment and economic growth, along with rising consumer confidence and pent-up demand will also help encourage more buyers to enter the marketplace.”

The national median home price fell from $231,000 in the third quarter to $226,000 in the fourth quarter. Meanwhile, average mortgage rates edged lower from 4.18 percent to 4.09 percent in the same period.

Trump slams Manhattan developers
Presidential hopeful Donald Trump slammed developers in New York over the weekend. Trump was appearing on ABC’s The Week and was commenting on some of the tactics used by his rivals in the caucuses. He said that it was “tough politics” and called his rivals “worse than Manhattan real estate developers.” The business tycoon knows the New York market well of course with properties including Trump Tower, Trump World Tower, AXA Financial Center, the Trump Building at 40 Wall Street, Riverside South, Trump International Hotel and Tower and Trump Park Avenue; along with residential properties.

Julia Roberts buys 6.84 million Malibu home
Julia Roberts has added to her property portfolio with a Malibu ranch-style home. The deal, which was completed off-market, completed for $6.84 million according to the LA Times. The three-bedroom, 2-bathroom home in Point Dume is across the street from her current home and records show it was in foreclosure before the actress stepped in. Roberts is currently trying to sell an estate on Hawaii’s North Shore for almost $22 million.

Take advantage of the favorable home prices, low interest rates, steady employment and economic growth. Give Equity Wave Lending a call to inquire about our diverse customized financing products in our private money division.  We made private money lending fast and easy.

Morning Briefing: Cash sales at highest level since 2013

By: MPA - Steve Randall - 12 Jan 2016

Cash sales at highest level since 2013 The percentage of cash sales of US homes has risen to the highest level since 2013 according to RealtyTrac data. In November 2015 38.1 per cent of sales of single-family homes and condos were cash transactions, up from 29.8 per cent in October and 30.9 per cent in November 2014. In March 2013 the proportion of cash sales was 38.8 per cent but the increase in November was the first for 29 months.

“The jump in cash sales is likely a knee-jerk reaction to the new documentation and disclosure rules for mortgages that took effect in October, making it even more difficult for buyers using financing to compete with cash buyers in the already competitive housing market,” said Daren Blomquist, vice president at RealtyTrac. “Global economic instability may also be driving more foreign cash buyers back to the relative safety of U.S. real estate.”

San Francisco saw the largest jump in cash buyers (89 per cent) followed by San Jose, CA and Columbus, OH. Miami had the highest share of cash sales (54.8 per cent) followed by New Orleans and Oklahoma City.

Real estate entrepreneur selling Newport Coast mansion
Commercial property entrepreneur Manny Khoshbin has listed his home on California’s Newport Coast for $9.975 million. The OC Register reports that Khosbin, whose company specializes in buys and repositions commercial property in distressed markets, is selling the 10,365 square foot home with four bedrooms, massage room and poker parlor at a reduced asking price having previously sought $11 million and then $10.7 million. The listing agents are Payman Paul Daftarian and Lili Daftarian of KR Homes.

Denver lawmakers to consider construction-defect law
With the new legislative session starting Wednesday Denver lawmakers will be asked to consider introducing legislation to help homeowners claim against builders for defects in their properties. While some municipalities in Colorado have acted to stop homeowners from suing builders, in a bid to persuade developers to build more condos, the Denver Post reports that the measures have not had the desired effect.

Proponents of restricting homeowners’ rights to sue believe that strong statewide legislation could bring developers back but opponents want to see changes which would mean arbitration being the preferred option rather than litigation. A bill proposing that change was rejected last year but will be tabled again in the new session.

Complexity of TRID Brought Many Unforeseen Issues in the 11th Hour

By: DSNEWS January 5, 2016

Jonathan Kunkle is president of GuardianDocs, the document services division of Denver-based LenderLive Network Inc., an end-to-end residential mortgage services provider supporting financial institutions of all sizes and other related entities with origination, servicing and loan purchase operations. Kunkle has more than 23 years of experience in senior management roles, with 13 years in the mortgage industry. He joined LenderLive as vice president of sales in 2008 when the company purchased Guardian Mortgage Documents. There, he was responsible for all of the company’s sales initiatives. Kunkle recently spoke with DS News about the implementation of TRID with his company, both what has gone well and the challenges, and what the future holds for TRID compliance.

Has the TRID rollout been smooth overall for LenderLive or has it been a challenge?
There are many components of the TRID implementation that went well. For example, when the MBA reported a drop in applications during the first few weeks of October, as TRID took effect, LenderLive’s fulfillment clients actually increased their application flow by more than 10 percent.
Having said that, there have been some unforeseen issues for us, and the rest of the industry, in the 11^th hour. These weren’t a result of procrastination, but rather the complexity of the rule, the challenges in testing every possible scenario, and working with all of our partners to ensure their success. I think we saw it all in that 11^th hour and, despite what Richard Cordray proclaimed, it was a struggle to be compliant day one for all lenders and the service providers assisting them.

What are some of the major TRID compliance issues you have experienced or heard about from clients?.
Many challenges we saw were related to calculations within the Loan Estimate/Closing Disclosure (LE/CD). Even with an exhaustive testing suite, we still had questions as TRID was going live on unique loan scenarios that challenged our calculation engine. As an example, a seldom used but very complicated calculation is the application of a borrower (or third-party) buy down and how that buy down impacts the TOP, TIP, and worst case payment adjustments and how each is disclosed.
On the client side, we’ve heard of a few challenges around fees changing within the 10% tolerance and how to alert the borrower of that without issuing a new LE. Moreover, as these changes aggregate throughout the course of the origination process, our clients have experienced a new challenge in maintaining a source of truth, passing their compliance audits, and ensuring that the last LE has encapsulated all of the accurate costs.

Cordray’s recent response to the Mortgage Bankers Association’s David Stevens indicating that a ‘good faith effort” to comply with TRID will lead to “corrective and diagnostic, rather than punitive” action by the CFPB is very good news for the industry trying to address these compliance issues. I think the CFPB has recognized that, in order to comply with the Know Before You Owe legislation, it takes an orchestrated effort between people, including the borrower, the seller, the lender, and the settlement company, as well as the systems, including the doc prep tools and loan origination system.

Do you see TRID compliance becoming less or more of an issue in 2016, and why?
With practice, everything becomes more second nature. I also think with TRID we’ll see more loan origination systems adopt the MISMO 3.3 standard, which will help eliminate data entry within a doc provider’s website. Today, this practice of re-keying figures into yet another application just to generate docs is ripe with TRID-related compliance concerns. With MISMO 3.3, the LOS can remain the source of truth, as all of the data will reside therein and not in another system.

Business loans and non-consumer loans are exempt from the TRID regulations. Private Money Lenders specialize in this type of loans.

Fed rate decision comes in

BY: Mortgage Professional America - 16 Dec 2015

The Federal Reserve announced its benchmark rate target Wednesday afternoon and, as expected, raised the target for its benchmark rate.

“Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent,” the Fed said in a release. “The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”

The Fed committee said economic activity has been expanding at a moderate pace; household spending and business investment have increased over the past few months.

The decision was also influenced by ongoing jobs gains and declining unemployment.

“The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen,” the Fed said. “Overall, taking into account domestic and international developments, the Committee sees the risks to the outlook for both economic activity and the labor market as balanced.”

The Fed also set out a future plan for the rate.

“The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run,” the Fed said. “However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”