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The Federal Reserve Left Short-Term Interest Rates Unchanged for the sixth straight time. This year looks like last year, when Fed representatives, consistently and constantly, told everyone that rates were going higher. Then in the last meeting of the year, they raised the short-term rate a paltry 0.25%. The big difference, this time, is that the vote was 7-3. The Federal Reserve Board isn’t like the Supreme Court with split decisions. The Board generally has a unanimous decision. The last time there was a dissent was in 2005.

At September’s meeting, many Fed reps commented that conditions are very good for a rate change upwards, but they wanted to wait to the last meeting of the year to see more positive economic signs.

Community banks often lend out of their typical marketing area due to the solid relationships developed with their customers. If a long time customer of the bank wants to purchase a vacation or second home in Wisconsin or in Florida they naturally come to their hometown banker.

But what happens when an appraisal fee of $450, which was disclosed on the initial loan estimate, is revised to $800. The appraiser discovered that the home was on a waterfront, and was much larger than the other homes, making it atypical for the area. Can the bank consider this a valid changed circumstance and re-disclose within three days and pass along the increase to the customer?

Fannie Mae recently released information on historical default rates. An interesting trend popped up, current default rates are unbelievably low, at least compared to the years 2004 through 2008.

Prior to those years, the national Fannie default rate is still slightly below that trend. Some critics are saying that this proves our loan policies are too tight and need to be loosened. Are they crazy? Remember 2008?

Core Logic reported 34,000 foreclosures completed in July, nationally. This is down 29.1% from July a year ago, and down 6.8% from June, the month before. This is good news, but, there is a large ‘shadow’ inventory of bank owned properties just sitting empty. These need to be moved through the pipeline eventually and hopefully sooner rather than later. 

In the appraiser world, a mansion is generally defined as a home with at least five bedrooms and 15 rooms (and we’re not talking about two mobile homes hooked together!). You would think Miami, Chicago, or Los Angeles would all be at the top of the list, but we’d be wrong!

SmartAsset, a technology firm analyzed Census information and came up with the following list.

The top 10 mansions in metro areas

In July the ICBA’s (Independent Community Banker Association) IB Independent Banker publication listed River Valley Bank of Wausau WI as a Top Loan Producer. These are banks that serve their community by having the highest loans-to-assets ratios. The IB selects nine banks to highlight out of these top loan producers to profile, and River Valley was one. Make sure you read about their success in the July issue of the Independent Banker. 

The Federal Reserve has reported that the number of individuals under the age of 35 (Millennials) who own a credit card has dropped to its lowest point since 1989. It seems that millennials are concerned about getting over their head in debt! What a radical idea! They have seen their parents lose jobs, and sometimes their homes and aren’t about to place themselves into that situation. Congratulations to this group of savvy financial individuals.

There is an increasing discussion happening around the financial regulatory community that the banking industry (the community banker specifically) is relaxing credit risk standards, and making higher risk loans from just a few years ago.

Both Thomas Curry, the Comptroller of the Currency, and Julie Blake, Assistant Deputy Comptroller commented in industry speeches that credit risk decision making has moved to the top of the OCC’s priorities. Regulatory publications have made comments that regulators are seeing an increasing risk management issue.

With these rumblings in the public sector it is important the community banks enhance their risk practices. 

FEMA has proposed new regulations that would require new construction projects in flood zones to build on higher ground, sometimes as much as two feet higher than the 100-year flood plain. This makes sense to me. Why build on a site that you know floods every 100 years on average?  The link to the FEMA notice is below. 

Check it out - https://www.federalregister.gov/articles/2016/08/22/2016-19905/proposed-flood-hazard-determinations

Freddie Mac announced in their Primary Mortgage Market Survey that average fixed rate mortgages declined after three weeks of increasing rates. Here are the results:

15 year fixed rate mortgage – averaged 2.73 %

30 year fixed rate mortgage – averaged 2.74%

A lot of borrowers are still taking advantage of these rates by refinancing. The Mortgage Bankers Association shows refinance activity has increased 55 % from last year at this time.