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.”

The Federal Reserve will likely raise interest rates this week. This is what happens next.

The Washington Post - By Ylan Q. Mui - December 14 at 6:00 AM

 

The Federal Reserve is widely expected to raise its benchmark interest rate this week for the first time in nearly a decade, marking the end of the central bank’s emergency response to the financial crisis but raising new questions about its next steps.

Process your conventional loan before the interest rates increase. There is always a private money loan available for people that do not qualify or need that loan to close fast.
 
The Fed dove into uncharted territory in 2008 when it took its target interest rate all the way to zero as the country slid into recession. It experimented with unconventional ways to stimulate the economy, pumping roughly $3.5 trillion into the recovery to boost the flagging economy.

 

Now, financial markets are all but certain that the Fed is ready to start pulling back. Odds of an increase in in the Fed’s target rate when the its top brass meet in Washington this week have topped 80 percent. Fed Chair Janet Yellen said earlier this month that she sees the risks to the Fed’s economic outlook as “very close to balanced” -- which many analysts see as code for a rate hike. The Fed is expected to announce it decision on Wednesday afternoon.

 

“With the meeting now just a few days away, we see very little to derail lift off at this point,” Barclays economist Michael Gapen wrote in a client note.

 

[A slim majority of Fed officials was open to hiking in September. Yellen tipped the scales.]

 

Raising rates, however, is only the first step in getting the economy -- and Fed policy -- back to normal. The process will likely take several years, and there is heated debate over whether the pre-recession standards for a strong economy and appropriate monetary policy are even achievable.
 
After deciding to increase rates, the first challenge facing the Fed is exactly how to do it. Historically, the central bank has set a target for the federal funds rate -- the amount that banks charge to lend to each other overnight -- and bought and sold Treasury bonds on the open market to hit that goal.

But that method will prove too unwieldy now that the Fed has amassed a balance sheet of more than $4 trillion. Instead, the central bank hopes to manage the fed funds rate by changing two other rates: the interest it pays to banks for reserves held at the Fed and the amount it pays other financial institutions, such as money market funds, for short-term trades known as reverse repurchase agreements. The former is expected to act as a ceiling on the fed funds rate; the latter a floor.

The mechanics are complex, highly technical -- and untested on a broad scale. Still, the Fed has been conducting smaller trials for the past two years and is confident the experiment will work.

“Monetary policy implementation is just a means to an end,” said Simon Potter, head of the Fed’s open market operations in New York, said in a recent speech. “There is no obvious single ‘right’ way to do it.”

[Top Fed official: The economy can handle a rate increase]

Once the Fed achieves liftoff, it will have to decide how long to wait before raising rates again. Officials have emphasized that it will move gradually to test the response of financial markets and the economy, both at home and around the world. The Fed’s fall forecast showed officials expect to push their benchmark interest rate up to a median of 1.4 percent at the end of next year, implying a quarter-percentage point hike at every other time the central bank meets in 2016.

Investors, however, believe those projections are too optimistic. Financial markets overwhelmingly are betting that the Fed’s rate will be below that at the end of next year. Central bank officials have tried to convince the public that they do not plan on stair-step increases, emphasizing that they can move more quickly or more slowly, depending on the progress of the recovery.

But the bar for changing course is unclear. Yellen has said she wants to see confirmation that inflation, which has been running below the central bank’s target of 2 percent for several years, is actually picking up. Meanwhile, three other top officials have argued against a rate hike this week and will likely continue to push for concrete evidence of inflation to justify additional rate increases. Others worry the Fed could wind up being overly cautious and not act aggressively enough to rein in an overheating economy.

“There remains the delicate task of guiding expectations for the future path of rates,” Millan Mulraine, a deputy chief analyst at TD Securities, wrote in a research note before the meeting. “Managing the message will be central to the Fed’s communication effort with the markets.”
 

Even with a gradual pace of increases, the Fed’s benchmark rate may not return to its historical long-run average of 4 percent. The Fed’s fall projections fell just shy of that goal at a median of 3.5 percent. Some economists believe that the stopping point could be even lower, due to the double whammy of a slowdown in productivity and a shrinking workforce that have lowered the speed limit for the American economy.

The Fed also eventually plans to shrink its balance sheet, but it also may not return to its pre-crisis level. In a strategy outlined last year, the Fed committed to maintaining the size of its balance sheet until after the first rate hike. But exactly how long afterward remains up for debate.

The central bank said it plans to reduce its balance sheet by not replacing assets as they mature, a process known as reinvestment. This month alone, the Fed committed to reinvesting $21 billion. It’s likely the Fed will slowly phase out that process, then allow its portfolio to decline naturally. It has explicitly stated that it does not expect to sell its holdings of mortgage-backed securities.   

 

 

U.S. Stocks Gain With Dollar as Gold Rally Stalls, Oil Advances

BY: Bloomberg Business - Jeremy Herron - November 16, 2015

The impact from the Paris attacks on global financial markets faded, with investors refocusing attention on the prospects for growth worldwide as the Federal Reserve considers raising interest rates.

The Standard & Poor’s 500 Index halted a three-day slide that capped its worst week since August, while European equities shrugged off declines to close higher as France expanded an aerial bombardment in Syria. An advance in gold stalled near $1,083 an ounce, while the euro weakened toward a six-month low versus the dollar. Treasuries rose with French and German bonds.

“We may not be seeing as much of a negative reaction as we could have if the tragedy occurred two weeks ago when the market was up within one percent of the highs,” said Frank Cappelleri, a market technician at Instinet LLC in New York. “Not to say that we wont get downside going forward but today at least, knowing where the market has come from, it’s helped it at least to be stable.”

The history of terror incidents around the world over the last 15 years shows market reactions are often sharp and, increasingly, short-lived. European shares initially retreated before erasing the loss in trading about one-fifth below the 30-day average. While gold climbed for the first time in five days, its gains faded as shares reversed.

Global equities fell last week by the most in two months, on speculation an October rally had gone too far, too fast amid renewed signs that economies from China to Europe were slowing. The rebound Monday was led by commodities producers that beaten down last week. Two-year Treasury notes halted an advance from last week as futures traders bet the Federal Reserve remains on track to boost rates as soon as next month.


Stocks

The S&P 500 rose 1 percent at 2 p.m. in New York, poised to halt a three-day slide that capped the gauge’s worst week since August. The S&P 500 had fallen in seven of the previous eight sessions after Fed Chair Janet Yellen said policy makers’ December meeting was a “live possibility” for a rate increase.

Shares of commodities and consumer-staples producers led gains Monday, while financial firms slipped with discretionary-product makers.

“This is going to be a market driven by U.S. economic data,” Stephen Wood, who helps manage $265 billion as chief market strategist for North America at Russell Investments in New York, said by phone. “I think the market is still keeping it’s gaze on a December Fed decision.”

The Stoxx Europe 600 Index rose 0.3 percent and the CAC 40 Index of French erased losses of more than 1 percent. Total SA and BP Plc all climbed more than 1 percent, sending the Stoxx 600 Oil & Gas Index higher for the first time in four days. Travel shares fell the most in Europe, with Accor SA down 4.2 percent and Air France-KLM Group losing 5.8 percent.

While France dispatched warplanes to bomb Islamic State’s Syrian nerve center after assailants killed at least 129 people on Friday, the history of terror incidents over the past 15 years shows market reactions can be sharp and short-lived.

“Terrible as these events are on a human level, from a market perspective the impact tends to be transitory,” said Richard McGuire, head of rates strategy at Rabobank International in London.

Private Money Lenders continue offering a great opportunity to buy or refinance before the rates go up in December.

Currencies

The euro approached a six-month low versus the dollar on concern the terror attacks will slow expansion in Europe’s economy. The euro slipped 0.8 percent to $1.0687, the lowest since April. The yen weakened 0.5 percent to 123.23 to the dollar.

U.S. inflation data are scheduled to be released Tuesday. The Fed will publish minutes from its October meeting on Nov. 18.

Bonds

U.S. Treasury two-year notes ended a four-day gain amid speculation the terror attacks won’t prevent the Fed from raising interest rates next month. The yield rose less than one basis point to 0.83 percent, while the 10-year note yield was little changed at 2.26 percent.

Futures show a 64 percent chance the Federal Open Market Committee will announce a rate increase when it meets in December, even after the attacks in Paris, which followed suicide bombs in Beirut that killed at least 43 people.

U.S. corporate debt fell for a second straight week, losing 0.028 percent , according to Bank of America Merrill Lynch Index. The losses were led by the riskiest debt with the difference in yield between investment-grade bonds and junk debt rising to the highest levels in more than a month.

French and German government bonds were little changed after five days of gains. The French 10-year yield was at 0.87 percent, while the yield on similar-maturity German bunds at 0.54 percent. Yields on Belgian, French and German two-year notes fell to the most negative on record.

Emerging Markets

Emerging-market assets bore the brunt of the shift away from risk assets in the wake of Europe’s worst terror attack in more than a decade. The MSCI Emerging Markets Index decreased 0.9 percent to a six-week low. Benchmarks in Hong Kong, South Korea and the Philippines led losses.

A gauge tracking 20 developing-nation currencies fell toward a record, as the attacks compounded concerns over deteriorating economic growth and looming U.S. interest-rate increases. South Korea’s won weakened 0.9 percent and Turkey’s lira declined 0.7 percent.

How financing affects the entire real estate market – by Maria Hopkins

BY: New England Real Estate Journal - November 13th, 2015

I think many people have underestimated the influence that financing has on the real estate market.

 

Although most people can see how lower rates can lead to higher overall real estate values, the availability of financing or lack of availability is huge.

 

Always have in mind different financing opportunities for example there is Private Money Lenders that are a great tool to move those complicated clients that just don't qualify with conventional lenders.

 

One of the factors that continues to fuel the market vs. the existence of all kinds of financing programs. VA financing is at an all time high with so many veterans now wanting to buy or refinance and with a VA loan they can borrow 100% and they are so deserving of this benefit. The property itself has to be in pretty good shape or have some repairs done in order to close the loan but it’s not as hard as some think to sell to a veteran. The process has actually less risk of having problems than many of the other financing programs. The recent changes to FHA rules for appraisals after September 14, 2015 has really made that type of financing the most difficult. (This includes USDA loans.)  The appraisers now have to inspect a property in great detail like a home inspector and require more repairs to be done. They are liable for ensuring that the condition of the property meets certain standards but because they are not home inspectors or licensed contractors, they are forced to require these professionals to inspect the property and then rely on them partially for the decisions about repairs they will have to require. The appraisal fees therefore have increased for the time and liability. The lenders that can do what they call streamline 203K loans are the best lenders to finance FHA, because they can just switch to this kind of loan if necessary to finance the required repairs.

It is amazing that rates are still so good, yet people think they should wait to buy. For those that still can, this is the greatest time to buy anything. The rates may go up next year which may affect the market. Those of you who are still thinking about it—WHAT ARE YOU WAITING FOR?  There are amazing real estate deals out there. Yes—it is time consuming to go looking for them but the payoff can be great.

 

And for those of you who think they are going to buy and “flip”—be very careful. Many are overpaying for these properties. The costs to renovate are always higher than you think. You must make allowances for those hidden costs. Carrying costs are increasing. You have to figure in the cost of the mortgage for 3, 6 maybe 9 months sometimes, while you are waiting to sell. Better yet –underprice it from the beginning.

 

The biggest problem that I see is that the real estate agents are not as educated as they need to be to give proper guidance to their sellers and buyers. They do not know enough about financing and how it can affect the real estate transaction. When I give a seminar on the topic, we get maybe 40 people who show up when there should be hundreds. If a deal falls apart because of financing issues, usually there are things that should have been known and dealt with at the negotiating stage and the Realtors just weren’t educated enough to know. During the deal is not the time to learn. Sellers and buyers deserve better. I was a realtor before I was an appraiser and I still am. I just don’t sell anymore unless it involves my own family. So I know how hard real estate agents work, sometimes with no closing at the end. Many things can happen causing a real estate transaction to fall apart. Financing has never been as complicated as it is today and real estate agents, in my opinion, have never been so uneducated. Don’t get me wrong. They try to be, but they don’t even know what they don’t know. The education is not even available fast enough to keep up with the changes.

 

So we are all learning how financing can create or destroy wealth. It is an integral part of real estate value. And one way or another, history always repeats itself in the real estate market.

 

Maria Hopkins, SRA, RA, is president of Maria Hopkins Associates, Spencer, Mass.

Mortgage Rates Set to Rise, Adding Frenzy to Real Estate Market

By: Mainstreet.com - Brian O'Connell  - Nov 10, 2015 5:11 PM EST

A highly positive October jobs report, with 271,000 new jobs created, shows the U.S. economy picking up speed, and that can mean good or bad news for the residential real estate market, depending on whether you're a seller or a buyer.

Realtor.com estimates the strong employment report will boost U.S. home sales activity and will also hike U.S. mortgage rates above 4%.

Private Money Lenders are available to help you purchase that home in this increased demand for housing environment. Fast and efficient closings will help you obtain your property before somebody else gets a pre-approval from the Institutional Lenders.

  "We should see continuing strong demand for housing in the months ahead if today's strong jobs report reflects a true return back to a strong growth trend we've seen over the last few years," says Jonathan Smoke, chief economist at Realtor.com. "The healthy strong employment results for the past two years created an uptick in household formation, which has driven increased demand for home purchases and rentals."

"The jobs report will influence the long-term bond market, so mortgage rates will increase in response," he adds. "The average 30-year conforming mortgage rate was 3.99% yesterday, having increased nine basis points in one week due to the consensus view of a strong, but not this strong, employment report. The 30-year conforming rate will likely top 4% as a result of this news."

If the Federal Reserve was waiting for proof of an economic rebound, some experts say the latest jobs number fits the bill.

Robert R. Johnson, CEO of The American College of Financial Services, says the Fed has been looking for strong evidence that the economy is recovering prior to increasing the fed funds target rate, and the jobs number should "push up" the date when the Federal Reserve raises interest rates, likely in December.

"This development is not good news for people looking to take out mortgage debt in the near future," Johnson says. "Once the Fed starts raising rates, interest rates throughout the economy, including mortgage rates, auto loan rates and other loan rates will trend upward. I believe that anyone thinking about refinancing a mortgage or buying a home and taking out an initial mortgage should not wait, as rates will rise."

Like Smoke, Johnson also believes the jobs number will boost home sales. "Many potential homebuyers may see an opportunity to buy a home and take advantage of current low mortgage rates," he adds.

There is some history on the link between a stronger jobs climate and higher mortgage rates. "In 2004, when the Fed increased interest rates for the first time in four years, it caused the booming real estate market to get more manic," says John Wake, the so-called geek-in-chief at Real Estate Decoded and a realtor with HomeSmart in Scottsdale, Ariz. "Many people expected the increase to be the first of many so they became even were more desperate to buy a house right away."

 

Wake says they were right, as the Federal Funds Rate increased from 1% in the summer of 2004 to 5% in the summer of 2006. "Sure, in the long run higher rates hurt the demand for homes, but in the short and medium run they can stoke demand," he says. "It all depends on what people think an interest rate increase today means for interest rates tomorrow."

Right now, some real estate insiders say higher mortgage rates are on the way, with the booming October jobs number insuring that day comes sooner than people might think.

Asian Markets Rebound After Wall Street Rally

By: NASDAQ - RTT News,  November 02, 2015, 09:56:00 PM EDT
(RTTNews.com) - Asian stock markets are higher on Tuesday following the overnight rally on Wall Street as well as the positive cues from European markets. The markets in Japan are closed for the Culture Day holiday.

The Australian market advanced in a broad-based rally, following the positive cues overnight from Wall Street as well as European markets and ahead of the Reserve Bank of Australia's monetary policy decision later in the day. The RBA is widely expected to keep its benchmark lending rate on hold at 2.00 percent.

 

In late-morning trades, the benchmark S&P/ASX200 Index is adding 63.00 points or 1.22 percent to 5,228.80, off a high of 5,246.40 earlier. The broader All Ordinaries Index is up 59.50 points or 1.14 percent to 5280.80.

In the mining sector, BHP Billiton (BHP) is adding 1.6 percent, Rio Tinto (RIO) is higher by 1.2 percent and Fortescue Metals is gaining 1.7 percent.

Meanwhile, gold miner Newcrest Mining is down 0.4 percent and Evolution Mining is lower by almost 1 percent after gold prices fell to four-week lows overnight.

Among oil stocks, Santos is gaining more than 3 percent, Woodside Petroleum is adding 1.5 percent and Oil Search is up 0.5 percent.

In the banking space, ANZ Banking, National Australia Bank, Commonwealth Bank and Westpac (WBK) are higher in a range of 1.2 percent to 1.5 percent.

Graincorp said it expects a fall in full-year profit amid challenging conditions in global grain markets and lower grain production in eastern Australia. Shares of the grain handler are down 0.6 percent.
Construction giant CIMIC's Leighton Contractors unit has secured a contract from BG Group'sQueensland Gas Company for setting up gas infrastructure in Queensland's Surat basin. Shares of Leighton are higher by 1.7 percent.

Port and rail operator Asciano's board has reiterated its support for Canadian giant Brookfield Infrastructure'sA$8.9 billion takeover bid for the company after logistics company Qube Holdings last week acquired an almost 20 percent stake in Asciano to block the Brookfield bid. Shares of Asciano are advancing almost 1 percent.

In the currency market, the Australian dollar has edged lower against the U.S. dollar on Tuesday, ahead of the RBA's interest rate decision. In early trades, the local unit was trading at US$0.7136, down from US$0.7140 on Monday.

Elsewhere in Asia, Hong Kong, Singapore, Indonesia and Taiwan are higher by more than 1 percent each. Shanghai, South Korea, Malaysia and New Zealand are up with modest gains.

On Wall Street, stocks closed sharply higher on Monday, partly reflecting a positive reaction to news on the merger-and-acquisition front, which suggests companies are optimistic. Traders were also reacting to the latest U.S. economic news, including a report from the Institute for Supply Management showing a slight expansion in manufacturing activity in the month of October.

The Dow climbed 165.22 points or 0.9 percent to 17,826.6, the Nasdaq soared 73.40 points or 1.5 percent to 5,127.15 and the S&P 500 jumped 24.69 points or 1.2 percent to 2,104.05.
The major European markets also ended Monday in positive territory. While the U.K.'s FTSE 100 Index closed just above the unchanged line, the French CAC 40 Index rose 0.4 percent and the German DAX Index advanced by 0.9 percent.

Crude oil prices fell Monday, holding in a stubborn trading range amid global demand worries. WTI oil futures for December delivery fell 45 cents, or 1 percent, to settle at $46.14 a barrel.

Private Money Lenders continue earning higher interest rates. Borrowers are enjoying the opportunities these lenders offer in times when the Institutional Lenders are busy managing new TRID regulations.

Federal Reserve expected to hold interest rate at zero

BY: Economics Times AFP | 27 Oct, 2015, 09.01AM IST

WASHINGTON: The Federal Reserve is expected to again delay raising interest rates when it begins a two-day policy meeting on Tuesday amid more signs of lethargy in the world economy.

With central banks in China and Europe headed in the direction of more easing and deflationary pressures all around, many economists and the debt markets are now betting that the first rate increase in more than nine years will not happen until next year.

That will buy some more time for emerging market countries and their businesses to prepare better for a long-expected and challenging tightening of US monetary policy.

But the turbulence in capital and currency markets that has accompanied the Fed's slow shift toward the increase will then likely continue, equally vexatiously.

Private Money Lenders are taking advantage of the volatile US market and are investing in the real estate loans patiently awaiting for the Federal Reserve to make its next move.

After the last Fed meeting in mid-September, Chair Janet Yellen said that the policymakers of the Federal Open Market Committee were looking for a bit more confirmation of US economic strength amid the global slowdown.

She also forecast a federal funds rate rise from the current floor of 0-0.25 percent before the end of the year.

But since then, US exports and inflation have looked weaker, more doubts have arisen over China's ability to beat back a sharp downturn and the powerful US job creation machine of the past two years has ratcheted back into first gear.

Underscoring the impact of this shift, in an uncommon public split, two members of the five-person Fed board of governors publicly declared themselves in favor of waiting since Yellen last spoke in September.

"The chances of a rate hike announcement at October's FOMC meeting are slim to none," said Kim Fraser of BBVA bank.

Fraser says the meeting takes place as third quarter growth appears likely to be much lower than the hot 3.9 percent pace of the second quarter.

"Throughout the past few months, the US economy has been hit hard by weakness abroad, with many export-oriented industries reporting a significant drop in production," she said.

Analysts said they expect the FOMC to "mark down" its assessment of the economy in its policy statement, after displaying consistent confidence since the beginning of the year.

It is not where Yellen, now in her second year at the head of the Fed, expected to be.

A year ago, FOMC members were confident enough in US growth that, on average, they were predicting the Fed funds rate would be at 1.25 percent by the end of 2015.

With the rate having sat at zero since 2008 to shore up growth, the FOMC is anxious to move away from the extreme easy-money stance, which is fueling unneeded asset speculation and which has limits to its utility.

The Fed wants, however, the jobs market to tighten -- with clear signs, yet unseen, of rising wages -- and for inflation to pick up toward 2.0 percent, when it has generally weakened.

After the people's Bank of China last week lowered its rate and the European Central Bank hinted at the possibility of more easing in December, the Fed is further boxed in: a rate increase now would strengthen the dollar more, hurting US export industries and likely overall industrial output. 

"The FOMC cited the strong dollar as a drag on net exports in the minutes to their September meeting, and also pointed out that the strong dollar holds down US inflation," said economist William Adams at PNC Bank. 

According to CME Group data, two thirds of futures contract traders do not expect any movement in the rate before next year, with a majority expecting it only in March.

Some like the economists at Macroeconomic Advisors, predict a hike in December. But subsequent increases will come "at a slower pace than previously thought," given global weakness, they said.

 

 

 

 

With foreclosure and REO inventory shrinking, firms must seek new ways to eliminate costs.

By DS NEWS - Shannon Cobb - October 2015 issue of DS News magazine.

The rebound of the mortgage and housing market is good news for all including Private Money Lenders except those who work in the counter-cyclical segments, such as foreclosure and REO services. What was a boom period in the late 2000s has now dwindled along with the national foreclosure industry. Adding to the anxiety of most businesses is an increased regulatory scrutiny being placed on many in the industry, especially servicers.

As REO-related firms look ahead to the near future, they realize that order volume will be dramatically reduced. They will be battling for market share. They will also need to find new ways to contain costs, which are only rising as regulatory-driven requirements multiply. Some actions will be obvious to any business owner, but difficult to execute. Others might not be so readily apparent. Either way, it is never a bad idea to review expenditures and the systems, policies and procedures which spawn them, asking “where is my operation inefficient?”

New Technology?
About the last thing most business owners wish to do when markets recede is invest money into infrastructure—especially technology. It seems counter-intuitive to spend money when there’s less to spend. However, the long term perspective must win out in these cases. If the technology in question is outdated, the replacement cost savings in the not-too-distant future will easily outpace the near term expenses. New compliance requirements will likely mandate the implementation of new technology solutions to some degree (e.g. TRID’s impact on loan origination systems, vendor management systems and title production technology). Technology, used correctly, is an excellent way to leverage the resources in place more efficiently. It can eliminate redundancies and tasks previously done by personnel manually and increase available space in the facility. Used properly, it can save time and increase productivity. Unless your firm is facing extremely bad circumstances, consider this as the time to shore up your systems before the next market upswing arrives.

Make Better use of Human Resources
It is an unfortunately reality in our world that the most expensive asset a company can have is its personnel. Although it’s never easy, downsizing staff is generally one of the first orders of business as markets shrink. However, now is also a good time to add an element of versatility to your team. It is a good time to train specialists in multiple tasks and introduce them to other elements of the business. Although it is an investment in the short term, it can lead to increases in productivity as well as sowing the seeds for future managers (who generally are more effective when they have a broader understanding of the operation). It will also save on training expenses and time should there be a need to further trim staff in the future.
Ours is an industry that, for decades, has been willing to outsource some services, but not others. A firm that outsources its tax, accounting and IT functions, for example, might balk at using title search products or vendor management providers. However, it’s highly likely that some of the firm’s highest expenditures (whether as a function of time or cost) can be outsourced with no loss of quality.  Although many outsourcing providers, at one time, tended to cut quality for the sake of speed and cost, that is no longer the case. Any business process outsourcing firm or outsourced product producer won’t be in business long if the services or products rendered fail to meet higher standards.
An inaccurate or poorly composed element of the larger real estate transaction can have surprisingly major repercussions, and may be an indicator that the firm providing the product or service has produced subpar results on a larger, systemic level. The secondary market, government enforcement agencies, and clients won’t tolerate the risk associated with poor products or services. Thus, the outsourcing industry is involved. As is the case with using any vendor, of course, decision makers should be sure to kick the tires on any potential partners, including but not limited to sending them sample orders and visiting their facilities if at all possible. Due diligence should also be performed by collecting formal references from the potential vendor and informally soliciting the opinion of all network connections about their experiences with the vendor. Engaging the right vendor after a sufficient vetting process could be the difference between profit and loss in a down market.

Cut Operational Costs 
A slowing market also signals that it may be time to examine the entire operation, top to bottom, for needless or redundant costs. One major expense to any firm is the brick-and-mortar operation and its related expenses. Unless your function absolutely depends on having a physical presence, how many offices are needed need to manage the existing clientele and, perhaps, add some scalability through centralization of tasks? Centralizing standardized tasks is a way to reduce cost because it eliminates redundant staff and tasks within the organization and gives flexible capacity abilities when the need to reduce or add scale comes into play. Closing an office need not be the only recourse. Can you reduce the amount of space you are leasing in a particular building? Is the commercial market such that there is some leverage to renegotiate? Many firms open new branches when order counts rise. However, it’s much more difficult to shutter those same sites when the market dips. Nonetheless, it may have to happen.
Location isn’t just important for those seeking to buy or sell a home. The location of the office can have an impact on costs. It may be time to trade an office in a trendy urban location for a suburban home if the difference in taxes, utilities and space is significant. It’s easy to be sentimental when it comes to a business that has been in a certain office for a long time. But that sentimentality may be harming the actual business in the form of unwarranted costs.
Even the layout of an office or offices can have an impact on costs. Is the workspace laid out efficiently to allow staff to capitalize on all of the resources available to them? For example, if the firm still utilizes copiers and scanners, are the personnel who use them located nearby? Are the resources the team needs to complete its tasks readily available to them? Is the office setting relatively pleasant environment? Lean staffs tend to have lower morale, leading to lower productivity. Responsible executives must do everything possible to ensure that the workplace is a setting conducive to a positive outlook from employees. The operation ultimately depends on the performance of the team.

Manage Risk
The threat of being audited and/or fined or losing a client because of a failure to comply with regulatory and client requirements is today higher than ever before. More lenders are doing more onsite audits to ensure NPI (Non-Public Information) is thoroughly protected. More state regulators are paying greater attention to our industry. If compliance and security is not a priority for the organization, now is the time. Business will be more difficult to gain in a down market. The success of the organization should not be impeded because of an in ability or unwillingness to acclimate itself to the new reality. Client and consumer communication regarding, encryption, the storage of sensitive data (limited server access ), and even which desks are near first floor windows (clean desk policy) are potential points of risk to the business if a cohesive strategy has not been implemented.
Risk doesn’t rest upon internal operations alone. Partners and vendors should be audited regularly with several contingencies considered. Are they protecting client NPI? How do they monitor the quality of their products or services? How does their compliance policy work? In a day and age where a mortgage lender is liable for the actions of its service providers, that lender will want to know how closely vendors down the line are being monitored. Now is the time to implement a successful vendor audit program. The potential financial consequences will seem doubly harsh in a down market.

Trimming outlays in a down market is certainly no revolutionary concept. But it is something few enjoy doing. It’s always more enjoyable to simply increase sales efforts in thriving markets to cover one’s expenses. However, with foreclosed and REO inventory sinking quickly, it will be the businesses willing to answer the hard questions and make the difficult moves which maintain acceptable profit levels.

Shannon Cobb is an EVP with American Tax and Property Reporting. He is responsible for the sales and operations of title search product SmartProp and other planned products in the mortgage lender and real estate information segments. Shannon has over 20 years of experience in the title and settlement services industry.

Federal Reserve expected to hold interest rate at zero

BY: The Economic Times Business - AFP | 27 Oct, 2015, 09.01AM IST

Throughout the past few months, the US economy has been hit hard by weakness abroad, with many export-oriented industries reporting a significant drop in production. Private money lenders are desperately looking for opportunities to invest their money in something with less turbulence than the US economy.

WASHINGTON: The Federal Reserve is expected to again delay raising interest rates when it begins a two-day policy meeting on Tuesday amid more signs of lethargy in the world economy.

With central banks in China and Europe headed in the direction of more easing and deflationary pressures all around, many economists and the debt markets are now betting that the first rate increase in more than nine years will not happen until next year.

That will buy some more time for emerging market countries and their businesses to prepare better for a long-expected and challenging tightening of US monetary policy.

But the turbulence in capital and currency markets that has accompanied the Fed's slow shift toward the increase will then likely continue, equally vexatiously.

After the last Fed meeting in mid-September, Chair Janet Yellen said that the policymakers of the Federal Open Market Committee were looking for a bit more confirmation of US economic strength amid the global slowdown.

She also forecast a federal funds rate rise from the current floor of 0-0.25 percent before the end of the year.

But since then, US exports and inflation have looked weaker, more doubts have arisen over China's ability to beat back a sharp downturn and the powerful US job creation machine of the past two years has ratcheted back into first gear.

Underscoring the impact of this shift, in an uncommon public split, two members of the five-person Fed board of governors publicly declared themselves in favor of waiting since Yellen last spoke in September.

"The chances of a rate hike announcement at October's FOMC meeting are slim to none," said Kim Fraser of BBVA bank.

Fraser says the meeting takes place as third quarter growth appears likely to be much lower than the hot 3.9 percent pace of the second quarter.

"Throughout the past few months, the US economy has been hit hard by weakness abroad, with many export-oriented industries reporting a significant drop in production," she said.

Analysts said they expect the FOMC to "mark down" its assessment of the economy in its policy statement, after displaying consistent confidence since the begin ..

It is not where Yellen, now in her second year at the head of the Fed, expected to be.

A year ago, FOMC members were confident enough in US growth that, on average, they were predicting the Fed funds rate would be at 1.25 percent by the end of 2015.

With the rate having sat at zero since 2008 to shore up growth, the FOMC is anxious to move away from the extreme easy-money stance, which is fueling unneeded asset speculation and which has limits to its utility.

The Fed wants, however, the jobs market to tighten -- with clear signs, yet unseen, of rising wages -- and for inflation to pick up toward 2.0 percent, when it has generally weakened.

After the people's Bank of China last week lowered its rate and the European Central Bank hinted at the possibility of more easing in December, the Fed is further boxed in: a rate increase now would strengthen the dollar more, hurting US export industries and likely overall industrial output.

"The FOMC cited the strong dollar as a drag on net exports in the minutes to their September meeting, and also pointed out that the strong dollar holds down US inflation," said economist William Adams at PNC Bank. 

According to CME Group data, two thirds of futures contract traders do not expect any movement in the rate before next year, with a majority expecting it only in March.

 

Some like the economists at Macroeconomic Advisors, predict a hike in December. But subsequent increases will come "at a slower pace than previously thought," given global weakness, they said. 

Is the Federal Reserve Really the Evil Empire?

BY: Barrons  - John Kimelman  - October 21, 2015

Where does Private Lenders stand?  Would we want to return to a world free of interest-rate meddling by the Fed?

So what do we think of the Federal Reserve, the people who run it, and the role it plays in setting short-term rates and even influencing investment portfolios?

 

While the modern Fed has its supporters, the detractors seem to get most of the ink.

 

As veteran financial journalist Roger Lowenstein wrote in a recent column for The Wall Street Journal, “No federal agency, except the Internal Revenue Service, is held in lower regard than the Federal Reserve, according to public opinion surveys. The left accuses the Fed of being too cozy with banks; the right says it is planting the seeds of a massive inflation.”

 

Sen. Rand Paul (R., Ky.), an outspoken critic of the Fed, wrote in a recent Journal op-ed: “The master fallacy underlying so much economic commentary is to imagine that a handful of experts in Washington should be setting the price of borrowing money.”

 

The never-ending debate about the worthiness of the Federal Reserve and the economists who run it has received some fresh oxygen in the form of two news books: Lowenstein’s America’s Bank: The Epic Struggle to Create the Federal Reserve and former Fed chair Ben Bernanke’s A Courage to Act, his memoir about the financial crisis.

 

Both books have triggered a fresh round of discussion about the modern Fed, and I’ve chosen to call out some of the more interesting reactions.

 

In his op-ed piece, Sen. Paul, a GOP candidate for the presidency and a self-professed libertarian, argues that the monetary policy function shouldn’t even be the Fed’s job: It should be the work of the free market.

“The sooner Fed officials withdraw their artificial monetary injections and let interest rates rise to their natural level set by free markets rather than government decree, the sooner the economy can return to genuine, sustainable growth,” he writes.

 

But would we want to return to a world free of interest-rate meddling by the Fed?

 

In a recent article in the New York Times that explores the new Lowenstein book on the Fed’s origins, writer Adam Davidson takes us back to the free-wheeling times before the Fed came to be.

 

“The decades leading up to the Fed’s creation were punctuated by repeated financial crises, culminating in the ferocious panic of 1907,” Davidson writes. “The shortage of cash was so great that, as Lowenstein puts it, the nation seemed to be ‘reverting toward barter.’ These disruptions may have been severe and frequent, but they were largely problems of liquidity, not episodes of widespread insolvency. Lowenstein explains how harvest season routinely produced financial turmoil. Without a centralized mechanism to adjust the supply of currency or to lend to solvent banks experiencing liquidity pressures, the demand for money to pay workers and to finance the purchase of agricultural goods drove interest rates up and reduced the availability of credit. This stifled growth precisely when it should have been accommodated.”

 

Davidson adds that “Lowenstein contrasts the relative stability of the major European economies with American financial instability during the period. He shows that the United States needed what Europe had, but we lacked: a central banking arrangement that could mobilize reserves across the entire system, to serve as lender of last resort to solvent banks and to provide an ‘elastic currency’ that could be expanded when demand for currency increased or contracted when times became too frothy.”

 

Fast forward to the Fed in recent times. In his new book, Bernanke gives a blow by blow account of his role in handling the 2008 financial crisis that had the potential to inflict more damage on the economy than came to pass.

 

In his review of the Bernanke book on the Politico Website, Zachary Karabell, head of global strategy at Envestnet and a regular contributor to Barrons.com’s Wall Street’s Best Minds column, makes the case for both Bernanke and the Fed during challenging times.

 

He writes that “Bernanke and the Fed were the grown-ups in the room during a period of crises unprecedented since the Great Depression, regardless of whether you believe they have conducted themselves brilliantly or poorly.”

 

As he puts it, “the larger message is that Ben Bernanke is a wonk, an academic, a policy economist and a central banker who utterly lacks the arrogance and self-aggrandizement so evident in so many in Washington. He came to the Fed with a low-key, low charisma mien, and he left the Fed with that largely intact. He also did some truly extraordinary things under pressure, especially, for a fairly conservative, Republican-appointed Fed chief, and often in defiance of political expedience.”

 

Though Karabell’s column focuses on Bernanke, many of his comments seem to apply to Bernanke’s successor, Janet Yellen, and many of the other earnest economists who crunch the data and seek to use monetary policy to stabilize both the economy and financial markets.

 

If the inflation zealots are right about the Fed’s propensity toward super-low interest rates, where is the inflation after all these years of cheap money? Why is unemployment rate at a low 5.1%, on the cusp of the standard definition of full employment? And why is gold, a classic inflation hedge and harbinger of doom, in the doldrums?

 

As Lowenstein adds, “it is hard not to conclude that the Fed is doing at least a reasonable job.”

Millennials and Boomers Are Competing to Ruin an Urban Real Estate Market Near You

By: Jezebel Madeleine Davies - 10/19/15 3:50pm

Private Money Loans are an essential tool for baby boomers as they are willing to pay a premium if you can get them what they want in this competitive market.

Twenty-somethings are facing surprising new competition when it comes to finding nice condos in cool urban areas: their own dang parents. The baby boomers are coming for your city’s best apartments and—unlike you—they’re ready to pay premium.

 

“Roughly 10,000 baby boomers are retiring each day, and recent data shows that half of those who plan to move will downsize when they do,” reports Ylan Q. Mui of the Washington Post. “Many are seeking the type of urban living that typically has been associated with young college graduates—so much so that boomers are renting apartments and buying condos at more than twice the rate of their millennial children.”

 

While this is bad luck for millennials (either because they can no longer afford places to live or their parents are their new neighbors), it’s great news for real estate agents.

 

“Boomers will pay a premium if you can give them exactly what they want,” real estate agent Matt Robinson tells the Post. “Something closer to what was in their house, and that pushes up the price; they’re happy to pay for it.”

Meanwhile, people in their twenties are also paying for something closer to their former homes—in that many of their apartments are the size of their childhood bedrooms.

 

As Mui points out, most millennials are entering the real estate market at a disadvantage, having come of age during the recession when good work was scarce, student loan debt was high, and saving money was a more difficult task. Sadly, things are not likely to look up:

Analysts worry that the trend is making affordable housing more scarce at all ages — including for some boomers. Nationally, the cost of rent has made a double­-digit jump since the recession and hit a record $803 a month, according to government data. At the same time, the [Harvard University’s Joint Center for Housing Studies] estimated that the number of families who pay more than half their income in rent is expected to rise 11 percent to 13.1 million over the next decade.

Leave it to baby boomers to make young, upper-to-middle class gentrifiers look good.

China economy logs weakest growth since 2009

BY: REUTERS Markets | Mon Oct 19, 2015 9:13am EDT

Private Money Loans keep growing at a faster rate due to nervous investors noticing China's growth slow and risk of deflation heightens.

China's economic growth dipped below 7 percent for the first time since the global financial crisis on Monday, hurt partly by cooling investment, raising pressure on Beijing to further cut interest rates and take other measures to stoke activity.

The world's second-largest economy grew 6.9 percent between July and September from a year ago, the National Bureau of Statistics said, slightly better than forecasts of a 6.8 percent rise but down from 7 percent in the previous three months.

That hardened expectations that China would avoid an abrupt fall-off in growth, with analysts predicting a more gradual slide in activity stretching into 2016.

"Underlying conditions are subdued but stable," said Julian Evans-Pritchard, an analyst at Capital Economics in Singapore. "Stronger fiscal spending and more rapid credit growth will limit the downside risks to growth over the coming quarters."

Chinese leaders have been trying to reassure jittery global markets for months that the economy is under control after a shock devaluation of the yuan CNY=CFXS and a summer stock market plunge fanned fears of a hard landing.

Some analysts were hopeful that the third-quarter cooldown could mark the low point for 2015 as a burst of stimulus measures rolled out by Beijing comes into force in coming months, but muted monthly data for September kept such optimism in check.

"As growth slows and risk of deflation heightens, we reiterate that China needs to cut reserve requirement ratio (RRR) by another 50bps in Q4," economists at ANZ Bank said in a note to clients.

"Looming deflation risk suggests that the People's Bank of China will also adjust the benchmark interest rates, especially lending rate, down further."

In its battle against China's worst economic cooldown in more than six years, the central bank has cut interest rates five times since November and reduced banks' reserve requirement ratios three times this year.

Despite the spate of easing, Monday's GDP reading was still the worst since the first quarter of 2009, when growth tumbled to 6.2 percent.

POLICY SUPPORT
While Chinese officials put a brave face on China's economic woes, describing the slowdown as being "reasonable", senior leaders have occasionally voiced worries.

President Xi Jinping told Reuters in an interview over the weekend that the government has concerns about the economy and was working hard to address them.

Policymakers think they can stem a rapid rundown of the country's foreign exchange reserves and ease pressure on the currency by pump-priming the economy to meet this year's growth target of about 7 percent, sources involved in policy discussions say.

But key parts of the economy are still losing steam.

Factory output in September rose 5.7 percent from a year ago, missing forecasts for a 6 percent rise, and fixed-asset investment (FAI) climbed 10.3 percent in the first nine months, below estimates of 10.8 percent.

September retail spending alone bucked the trend, growing at an annual rate of 10.9 percent, slightly beating forecasts for 10.8 percent.

"The overall downturn pressure on the Chinese economy is still huge," said Zhou Hao, a senior economist at Commerzbank in Singapore, who expects government will lower the annual growth target in its next five-year plan at the end of this month.

The latest Reuters quarterly poll showed economists expect the central bank will cut interest rates by another 25 basis points (bps) and lower the amount banks must hold as reserves by 50 bps by year-end.

The same poll predicted economic growth of 6.8 percent in the fourth quarter, easing to 6.7 percent in the first of 2016.

China's consumer inflation cooled more than expected in September, while producer prices extended their slide to a 43rd straight month, highlighting the urgency for the central bank to tackle deflationary pressures.

To shore up growth, the government has quickened spending on infrastructure and eased curbs on the ailing property sector. The latter have helped revive weak home sales and prices but have not yet reversed a sharp decline in new construction.

Data released separately on Monday showed China's government spending surged almost 27 percent in September from a year ago.

Some market watchers believe current growth is much weaker than government figures, though officials deny allegations that the numbers are inflated.

Despite weak exports and imports, factory overcapacity and a cooling property market, Beijing reported annual economic growth of 7.0 percent in the first two quarters, in line with its full-year target.

However, some economists think the statistics may be underestimating strong consumption and service sector growth, putting too much weight on the cyclical and structural weaknesses in manufacturing.

(Reporting by Kevin Yao; Additional reporting by Winni Zhou, Shao Xiaoyi, Koh Gui Qing in BEIJING; Pete Sweeney in SHANGHAI and Shanghai Newsroom; Editing by Will Waterman)

Jeffrey Tesch: Private Lending—Turning Trash Into Treasure

By: CPExecutive.com - Jeffrey Tesch - October 15, 2015

While Dodd-Frank is putting the squeeze on traditional bank lending, Private Money Lenders are proving to be a much more viable and reliable option.

Lean in. We’re going to let mortgage brokers in on a little secret: There’s a ton of money to be made in private lending, and brokers today have a unique opportunity to cash in on this interesting scenario.
At a time when Dodd-Frank is putting the squeeze on traditional bank lending, private lenders are proving to be a much more viable and reliable option for developers and investors, and those who are tapping this unknown resource are experiencing a boon in taking advantage of a new profitable stream of income.
With limited funding options in today’s real estate market, it’s private lending that’s proving to be the path forward. But rest assured, the broker is always protected, and very well compensated in these transactions.
The key to success, however, is to first establish a relationship with a private lender, before the customer comes in looking for a loan. This can be a real game changer.
While no lending scenario is the same, the mortgage broker is always the liaison. The bottom line is that with every different lending scenario, private lending provides a myriad of options to create an innovative financing solution.
It may be all the same in a residential deal, but in a private lending scenario, for commercial loans on residential homes, every deal is different.
For example, a mortgage broker may have an investor who owns all kinds of properties and wants to buy another property. Or, the broker may have an investor who just wants to buy a property to fix and flip it.
Then there’s how to qualify the borrower: Some have a lot of cash on hand; others have very little, but have great equity. It’s all about working with that borrower to find the right solution for a private loan.
Traditional vs. Private
First, let’s review the differences between traditional bank lending versus private lending:
We begin with the purchase of an owner-occupied house, i.e. homeowner is moving into the house. This of course is not a deal that private lending underwrites. However, if the purchase is a non owner-occupied home, while some banks may like it, private lending lives on it.
And when it comes to the purchase of a home that’s in foreclosure, some banks may approve it, depending on whether the home has a certificate of occupancy; private lenders do these types of deals all day long.
For traditional bank financing on mixed-use properties, it depends on the bank’s appetite. Some banks in more urban areas are comfortable with mixed-use. Private lenders on the other hand covet the opportunity to finance mixed-use properties. It’s a win-win scenario for private lenders, brokers, and developers with rents downstairs of a commercial nature and apartments upstairs for residential living. It’s a perfect situation for the diversity of income.
Even for borrowers who have filed for bankruptcy, while lots of banks are turning these customers away, private lenders are a viable solution, especially if the borrower is coming out of bankruptcy better than ever.
With traditional banks, it’s all about fitting that borrower into a box. Private lenders take into account a series of outside variables. We don’t know exactly how the borrower’s poor credit score is going to impact the loan. However, if the borrower has cash, and is making money, then a private lender will do that loan.  If the borrower’s score got beat up because of foreclosures or short sales in 2009, 2010, or 2011, it’s not an issue for private lenders.
We want to know exactly what’s going on today with that borrower – not what happened in the past.
For distressed properties, i.e. if the property is beat up and has the opportunity to be repaired, private lending is exactly where it can help investors succeed.
And for investors with multiple properties, while many banks will place a cap on the amount of properties a borrower can have on their books, private lenders don’t have a cap. It’s all about track record. We want to know that the borrower is churning through those properties and making money.
Advantages of Using a Private Lender 
Intelligent Lending Criteria
Private lenders can establish their own lending criteria, which gives an investor a greater opportunity to qualify for a loan. This means there’s nobody in Washington DC telling me what my rate is going to be, or telling me what the credit score has to be on my borrower. It’s our money, so in the commercial world, we’re going to set the rate and we’re going to set the term. So if we don’t get paid, it’s our problem, not the taxpayers’ problem.
A borrower can receive funding for a distressed non-owner occupied property, rehab property and new construction.
When traditional lenders can’t provide investors solutions, private lenders have more room for negotiating and can come up with creative answers. For example, if a borrower owns a home with a lot of equity that they’re renting out, and they don’t have cash, we will be happy to put a mortgage on that existing property, pull out some cash, and put that towards a new home that they would like to purchase.
It’s these creative solutions that private lending does all the time.
Alternative Loan to Value
A private lender may lend a higher Loan to Value than a traditional bank.
Quick Loan Closing Time
Private lenders will typically respond to all loan inquiries within the same day.
Closing in two weeks, no problem.
This is precisely where private lending really shines over traditional bank lending. Most private lenders will provide short-term, bridge financing for Straight Acquisition, Acquisition/Rehab (fix & flip), Refinance, Cash-Out and Lines of Credit.
The flexibility and ability to close quickly can provide borrowers with a clear business advantage and afford them a competitive edge based on speed.
While a traditional loan can take up to ninety days to close, private lenders can often close a loan in as little as two weeks, or even a few days. This can give the borrower a greater sense of security early on in the loan process.
How do brokers make more money?
Some brokers like to have minimal involvement, while others like to have heavy involvement. The amount of compensation earned depends on the broker’s level of involvement and the loan scenario. It’s just that simple.
On the minimal side, maybe a broker’s business is booming and he/she doesn’t have time to deal with a private loan, then he/she would hand it off to the private lender. Once the deal is final and we close, we send the broker a point, and the check gets cut at closing.
If the broker wants to be actively involved in the private loan, and wants to control the deal, we will ask the broker to help collect documents and put the package together, and then split the points at closing.
Compensation
All fees that are earned by the broker are disclosed on the commitment letter up front. Origination fees are charged up front, and private lenders split points with the mortgage broker.
Broker fees are memorialized on the HUD and a transaction-specific agreement is provided. There’s no ambiguity.
A check is sent directly to the broker at closing.
Basic Loan Qualifying Factor
Traditional rules apply in the world of private lending, and the common sense approach works every time when it comes to underwriting. It all comes down to income, credit, and equity. If they have two out of the three, then we’re going to do that deal. If the borrower only has one, then we’re going to have a problem.
Exit strategy is at the top. The first question is how will the borrower pay us back? Since most loans are only 12-18 months, exit strategy is key. We want to know how we’re going to get paid back.
Experience and background are fundamental. We like to know that the people we’re dealing with know what they are doing. As great as the HGTV shows are when it comes to fix and flip, it’s not the real world education that we’re looking for when it comes to making private loans.
Existing leases also help when qualifying a loan. This shows good solid income upfront, and typically comes to play when buying a multifamily home or small apartment complex.
Of course, cash reserves cure all problems. When a borrower with a poor credit rating comes to us after declaring bankruptcy, but has a great track record of fixing and flipping homes, and has $200K in cash, we’re going to make that loan.
Private loans are not for everyone, but can be a financial game-changer for those with poor credit or those who are self-employed. Mortgage brokers have a unique opportunity to grow and expand their own business through this creative funding source as well. Rather than disregard private lending as cumbersome or out of reach, brokers should embrace the chance to make money outside traditional forms of bank financing.

Bank of America (BAC) Citigroup (C): Feeling The Pain Of Rate Hike Delays

By: CNA Finance - October 10, 2015

Big Banks are suffering with the news that the Federal Reserve is actually considering a negative interest rates to avoid future economic complications while private money investors keep gaining higher rates of return despite the Federal Reserve actions.


Bank of America Corp (NYSE: BAC) | Citigroup Inc (NYSE: C) Big banks were looking great about a month ago, just before the Federal Reserve meeting in September. However, after recent comments by the Federal Reserve with regard to the coming rate hike, big banks like Bank of America and Citigroup are having a rough time in the market. Today, we'll talk about how the Federal Reserve's interest rate affects banks, what we heard from the Federal Reserve, and what we can expect from BAC and C moving forward. So, let's get right to it... What Do Big Banks Have To Do With The Federal Reserve Interest Rate? When thinking about profits for banks like Bank of America and Citigroup, what is the first thing that comes to mind? If you're like most, you're thinking about loans. One of the biggest revenue drivers for these banks is the interest that consumers and businesses pay on loans. To borrow this money from the Federal Reserve, the banks have to pay the Federal Reserve's interest rate. So, in order to earn a profit, these banks add a markup to the Federal Reserve's rate; that markup turns into revenue for the banks! This is why big banks and big bank investors want the Federal Reserve to increase its rate. In general, big banks charge a percentage markup on the Federal Reserve's rate. So, the lower the Federal Reserve's interest rate is, the lower the margin for the banks. Adversely, when the Federal Reserve increases its rate, the margin banks earn on loan interest rises leading to higher profits. What We Heard From The Federal Reserve The Federal Reserve has been planning to increase its interest rate by the end of the year 2015. However, that doesn't seem like it's going to happen anymore. In fact, it's possible that the current rate of 0.25% will be reduced sometime soon. The Federal Reserve is concerned that worldwide economic concerns are going to lead to economic problems here in the United States - and for good reason. The reality is that the United States economy, like any other economy around the world, is closely tied to other world economies. That's because of the free trade environment that has created what's known as the global economy. Essentially, if big players in the global economy struggle, consumers in the countries that are struggling aren't going to be as willing to pay for American made products. This will take a heavy toll on the United States economy. While 0.25% is a record low interest rate for the United States, the Federal Reserve is actually considering a negative interest rate to avoid future economic complications. Here's what William Dudley, president of the New York Federal Reserve had to say on Friday...

“We decided – even during the period where the economy was doing the poorest and we were pretty far from our objectives – not to move to negative interest rates because of some concern that the cost might outweigh the benefits... Some of the experiences suggest maybe we can use negative interest rates and the costs aren't as great as you anticipate...”

What This Means For Big Banks Moving Forward

Moving forward, I'm expecting to see more bearish movements out of US bank stocks. The reality is that investors were banking on the idea that the Federal Reserve was going to increase interest rates. Now that the Fed is considering negative interest rates to avert the next economic crisis, those expectations have been thrown out of the window which will likely lead to more declines.

Nonbank Lenders are Growing in Popularity and Capability

By ABA Banking Journal - Ashley Gunn - October 8, 2015


Nonbank Lender's or better known as Private Lenders have escalated their operations and reputations to the point where they attract institutional investors on a global scale.

According to a recent article published in the September issue of the Scotsman Guide, nonbank lenders are growing in popularity, making them more competitive against traditional bank lenders. The article claims that commercial mortgage brokers — who are knowledgeable about private, nonbank lending — will be best positioned to take advantage of this growing industry.

“Private lenders are no longer the questionable hard money lenders of a decade ago, when private money was regarded in a somewhat-negative manner,” the article said. “Today’s nonbank lenders sometimes control billions of dollars of funds that are available for investment…many of them have escalated their operations and reputations to the point where they attract institutional investors on a global scale.”

Initially these private lenders were financing riskier projects that banks were unable to underwrite due to strict regulatory requirements. Successful financing of these projects has propelled private lenders into this niche market, and wider client bases have “led to the gradual evolution of many private lenders into powerful nonbank commercial lending sources,” according to the article.
The article concluded by outlining the similarities between banks and nonbank lenders, including nearly identical transaction processes: “In many ways, qualifying for nonbank financing is as rigorous as qualifying for bank financing.”

Given these similarities, ABA is advocating for the regulatory environment to have a “level playing field” for all types of lenders. ABA recently expressed this opinion in response to the Treasury’s request for information on marketplace lending.

What Overregulation? How Regulation Will Increase Over the Next Decade

BY: October 2015 issue of DS News Magazine

Overregulation has led-and will continue to lead-to a dramatic increase in the scope and level of regulation in the financial services industry including private money lenders.

By Neal Doherty
In response to the financial crisis of 2008, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”), the most sweeping and comprehensive financial services legislation since the 1930s. One of the central features of Dodd-Frank was the creation of the Consumer Financial Protection Bureau (CFPB), a single federal agency responsible for all consumer protection functions. More importantly, Dodd-Frank essentially re-defined the existing regulatory structure by changing the roles of the various regulators, the scope of industries they regulate, and the tools they use to identify future problems. This structural change has led—and will continue to lead—to a dramatic increase in the scope and level of regulation in the financial services industry.

Who Regulates? Limitations to Exemptions of State Law 
“It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” 
This concept—with the states operating as laboratories of democracy, experimenting with new laws and policies—was described in 1932 by U.S. Supreme Court Justice Louis Brandeis in the case New State Ice Co. v. Liebmann. Prior to Dodd-Frank, many state laws attempting to regulate the activity of national banks were preempted by federal regulators, who asserted that the state laws overlapped or conflicted with federal law. Dodd-Frank changed this dynamic by raising the standards that must be met before federal regulators can assert preemption. The change fundamentally increased the importance of the role of the states in the regulatory process, and will result in increased legislative and regulatory activity as states are further empowered to act independently to achieve their own policy goals based on local conditions.

Increased Importance of State Attorneys General
As the individuals who enforce and often push for these laws, the state Attorneys General received a regulatory windfall under Dodd-Frank. Specifically, under § 1042, a “State regulator may bring a civil action or other appropriate proceeding to enforce the provisions of this title or regulations issued under this title with respect to any entity that is State-chartered, incorporated, licensed, or otherwise authorized to do business under State law…” State Attorneys General are rarely shy about using the power they have been granted and many have already brought actions by using these new Dodd-Frank powers—for example, the Illinois A.G. suing a predatory lender in Chicago; Connecticut and Florida in a joint lawsuit against a mortgage rescue company; and Mississippi bringing charges against a credit reporting agency.
This power also extends to other state regulators who may have been previously hamstrung by the law of their own states. For example, under New York General Business Law § 349, the Attorney General is the only state official empowered to bring an action for an unfair or deceptive act or practice. Dodd-Frank, however, extended this power such that other state regulators can bring these types of actions. Benjamin Lawsky, the former Superintendent of New York’s Department of Financial Services, was thus empowered, frequently wielding this new authority prior to his departure.

Increased Cooperation between CFPB and States
As a result of this expanded role for state regulators, the relationship between the states and federal regulators—in particular the CFPB—takes on new importance. In order to aid in this relationship, state regulators and the CFPB have entered into agreements to enhance cooperation. For example, in 2011, the CFPB and Conference of State Bank Supervisors signed an agreement to work together to achieve examination efficiencies and to avoid duplication of time and resources. Also in 2011, the National Association of Attorneys General and the CFPB agreed to a Joint Statement of Principles, establishing a framework for regulation of financial products and services. This cooperation has resulted in numerous joint enforcement actions starting with the 2012 National Mortgage Settlement with the country’s five largest mortgage servicers. This cooperative framework will lead to further public and private enforcement actions as the CFPB and states share information and cooperate to achieve common goals and objectives.

Who is Regulated? The Larger Participant Rule
Another major change caused by Dodd-Frank is re-defining the type of companies covered by federal regulation, including many companies that were previously regulated under state law, or perhaps not regulated at all. Dodd-Frank authorizes the Bureau to define by regulation larger participants of certain markets for financial products or services. These “larger participant” rules extend the CFPB’s oversight into markets which may not have been regulated in the past.
Dodd-Frank § 1024 specifically gives the Bureau supervisory authority over all nonbanks offering three specific types of consumer financial products or services: (i) mortgages; (ii) private education loans; and (iii) payday loans. The law also grants CFPB supervisory authority over “larger participants” (as defined by the Bureau) in markets for other consumer financial products or services. While defining a company as a larger participant does not impose new substantive consumer protection requirements, it does subject these companies to the Bureau’s regulatory and enforcement authority.
The Bureau is authorized to supervise these entities for purposes of: (i) assessing compliance with federal consumer financial law; (ii) obtaining information about the companies’ activities and compliance systems or procedures; and (iii) detecting and assessing risks to consumers and consumer financial markets. In order to accomplish this, the Bureau conducts formal examinations of these entities—or it may simply request information from supervised entities without conducting examinations. The Bureau prioritizes its activity among these companies based on, among other things, the size and risk to a particular market, the extent of relevant overlapping state regulation, and any market information that the Bureau has on the company, including, for example, any consumer complaints about the company which have been submitted to the Bureau.
The Bureau has defined larger participants in five markets to date: consumer reporting, consumer debt collection, student loan servicing, international money transfers, and most recently, automobile financing. This regulatory expansion was an intended goal of Dodd-Frank which will continue in the future.

How Regulation Happens
Collection Consumer Complaints
In addition to expanding the scope of what entities and industries are regulated by the CFPB, Dodd-Frank also instructs the Bureau on how it should make those determinations. One of the biggest changes as a result of Dodd-Frank is the reliance on consumer complaints to inform the regulatory agenda. In its 2015 Semi-Annual Report, the CFPB explains that information obtained from consumers “informs every aspect of the Bureau’s work, including research, rule writing, supervision, and enforcement.” Formation of regulatory policy based on the complaints of those who are impacted, without meaningful verification or interpretation as to the causes of the complaints, is a profound change in the way that regulation is formed.
Under Dodd-Frank § 1013, the Bureau is required to receive complaints from consumers, specifically by establishing a unit - the Office of Consumer Response - “whose functions shall include establishing a single, toll-free telephone number, a website, and a database or utilizing an existing database to facilitate the centralized collection of, monitoring of, and response to consumer complaints regarding consumer financial products or services.”

This extension is particularly intrusive—and unnecessary, considering we live in an age of social media which allows real-time feedback by consumers through a multitude of channels.

To facilitate the submission of complaints, the CFPB launched its Consumer Complaint Database on June 19, 2012. It was initially populated with credit card complaint data, but has since been expanded to include other products, including mortgages, bank accounts, student loans, vehicle and other consumer loans, credit reporting, money transfers, debt collection, payday loans, and prepaid cards. As of March 1, 2005, the Bureau has handled nearly 560,000 complaints, with mortgages and debt collection being the most frequently covered areas.
On March 19, 2015, the Bureau announced that it was finalizing rules to allow consumers to add narratives about their complaints. The addition of the consumer narratives will increase the significance and impact of these complaints. According to the Bureau, “consumer narratives provide a first-hand account of the consumer’s experience, and adding the option to share them will greatly enhance the utility of the database. The narratives will provide context to complaints, spotlight specific trends, and help consumers make informed decisions. The narratives may encourage companies to improve the overall quality of their products and services, and more vigorously compete over good customer service.”
In this respect, the CFPB’s function of collecting consumer complaints to inform its regulatory priorities, as required by Dodd-Frank, has morphed into a mechanism to police the quality of companies’ products and customer service, extending the Bureau’s regulatory oversight into the private relationship between a company and its customers. This extension is particularly intrusive—and unnecessary, considering we live in an age of social media which allows real-time feedback by consumers through a multitude of channels.

Data Collection 
Another new regulatory tool at the CFPB’s disposal is the requirement that it collect information on the financial markets in order to determine its regulatory priorities. Under Dodd-Frank § 1022, the CFPB is directed to “monitor for risks to consumers in the offering or provision of consumer financial products or services, including developments in markets for such products or services.”
The CFPB performs this monitoring by gathering and compiling information from “variety of sources, including examination reports concerning [companies], consumer complaints, voluntary surveys and voluntary interviews of consumers, surveys and interviews with [companies], and review of available databases.” In addition, the CFPB can gather information by requiring companies to provide other information as necessary for it to “fulfill the monitoring, assessment, and reporting responsibilities imposed by Congress.” This section of the law was enacted because prior to the financial crisis, Congress felt there was a lack of data on consumer financial products and services that hindered federal oversight and regulation.
The CFPB’s data collection regime has been the target of extensive criticism, especially from privacy advocates. In September 2014, the Government Accountability Office (GAO) published a report in which it reviewed the CFPB data collection program.  According to the GAO report, the CFPB has conducted large-scale data collections including one where it obtained 173 million mortgage loans from a data aggregator.
While the GAO found that other federal regulators (e.g., the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency), collect similarly large amounts of data, it did determine that the CFPB “lacks written procedures and comprehensive documentation for a number of processes, including data intake and information security risk assessments. The lack of written procedures could result in inconsistent application of the established practices,” including “assessing and managing privacy risks,” “monitoring and auditing privacy controls,” and “documenting results of information security risk-assessments consistently and comprehensively.” The GAO’s finding is ironic, given the CFPB’s continued emphasis on the importance of companies having written policies and procedures in the context of effective compliance programs.
Beyond the obvious privacy and data security risks, the CFPB’s collection of large amounts of consumer data will fundamentally change the way regulators act. To reiterate, this was part of Dodd-Frank’s goal and is not an unintended consequence; its impact, however, will be dramatic as regulators utilize “big data” to more easily spot trends and trouble spots earlier—all of which will lead to increased regulation.

Conclusion
Although viewed by many as an overreaching agency run amuck, the CFPB is largely following the rules as established by Dodd-Frank. As a result, barring a major change in the law, the Bureau will continue to expand its reach, with a corresponding increase in the regulation of the financial services sector. The calls for regulatory reform and amendments to Dodd-Frank do not currently have the necessary political support. Until they do, this expanding regulatory environment will continue unabated.
WALZ Chief Compliance Officer, Maria Moskver, also contributed to this article.