Inflation Pressures Are Easing but Rate Cut Forecast Remains Uncertain

The New Year is beginning where the old one ended -- with uncertainty about when – or whether – the Federal Reserve will begin cutting interest rates.

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Consumer advocates and many economists have been arguing for some time that short sales represent a viable alternative to foreclosures, benefiting lenders and borrowers alike.  It appears that more lenders are beginning to agree.

Short sales increased by more than 33 percent in January compared with the prior year, exceeding foreclosure sales in a dozen markets and narrowing the gap between short sales and foreclosures overall. 

Statistics compiled by RealtyTrac indicate that short sale prices declined in January by about 10 percent year-over year – as did the time required for lenders to approve the transaction, averaging 306 days – down slightly from 308 days in the fourth quarter of 2011 but a significant improvement over the peak of 318 days in the third quarter of last year.

The time frame is likely to get even shorter as a result of new guidelines adopted by Fannie Mae and Freddie Mac, requiring lenders to approve a short sale within 30 days of receiving the proposal. They can take an additional 30 days if needed, but must provide borrowers with weekly updates on the progress of the review.   The new rules take effect June 15th.

"The Federal Housing Finance Agency(FHFA) and the [GSEs] are committed to enhancing the short sales and deeds-in-lieu process as additional tools to prevent foreclosure, keep homes occupied and help maintain stable communities," Edward DeMarco, the FHFA’s acting director, said in announcing the guidance.  "These timeline and borrower communication announcements set minimum standards and provide clear expectations regarding these important foreclosure alternatives." 


They’re calling it the ‘nay heard round the banking world,” and they’re talking about a bank, not a horse.Citibank shareholders rejected the compensation package the company’s board had recommended for CEO Vikram Pandit and four other senior executives.  Although the vote is advisory, its significance was not lost either on the Citibank board or on other financial institutions pondering compensation plans for their executives, especially since many of the negative votes were cast not by “mom and pop” individual shareholders but by institutional investors, such as Calpers, the California state pension fund and the Florida State Board of Administration, which voted their 9.7 million and 6.4 million shares, respectively, against the  $15 million annual salary the board had approved for Pandit.

Shareholders, who cast the decisive 55 percent of votes against the pay package, argued that the reward for Bandit, who accepted a token salary of $1 in 2009 and 2010, was both premature (because the bank’s performance has been less than stellar) and outsized in relation both to the bank’s performance and the performance of its peers.

Although shareholder “revolts” of this kind (which is how the compensation vote has been characterized), are not unheard of, but they are rare: Shareholders at 42 public companies voted to reject executive pay plans last year, exercising a power mandated by the Dodd-Frank Financial Reform legislation, which requires the non-binding votes. But industry analysts predict that relative trickle of pay-nays may become a flood.    

 “This is a milestone for corporate America. When shareholders speak up about issues on which they’ve been complacent, it’s definitely a wake-up call. The only question is what took so long?” Mike Mayo, an analyst with Credit Agricole Securities, told the New York Times.

"Everywhere on the political and social side we see a country that is terribly divided over compensation and economic inequality," James Post, a management professor at Harvard University, agreed.  "CEOs are the poster children for this." And financial industry CEOs are particularly large targets, because of the billions of dollars in taxpayer bailouts their institutions received.

Credit unions, on the other hand would seem to be unlikely participants in the say-on-pay warns.  But David Maus, president and CEO of Denver-based Public Service Credit Union, has come under heavy fire from members and other credit union executives for the $11 million package he received last year.

Maus and the credit union board say the compensation, consisting largely of a deferred retirement bonus, is justified by the out-sized contribution he has made to the credit union over the past 30 years. 

"There are very few credit-union executives who have been in their position with one credit union that long and who have taken them as far as what we have accomplished," Maus told the Denver Post.  But critics weren’t persuaded by that argument or by the suggestion that credit union executives are increasingly competing head-to-head with banks and need to be compensated accordingly. On the contrary, critics contend, credit unions market themselves as member-oriented alternatives to fee-oriented banks, and compensation packages should reflect that image.

"It is what the credit-union community has always expected of Wall Street, but we were shocked to see it come down to Main Street," Stuart Perlitsh, chief executive and president at Glendale Area School Federal Credit Union in California, told the Post.

"We need to get our feet back on the ground," Dale Kerslake, president and chief executive of Cascade Federal Credit Union in Seattle, WA, agreed.  "We are a tax-exempt and member-owned industry," he added.


You won’t find many business executives today who aren’t acutely aware of the danger of high-tech hacking or the potential liability they face from a major breach of their data defenses.  But you also won’t find many who are protecting themselves from those possible losses. 

Only about 25 percent of corporate risk managers are buying insurance to cover data breaches, a recent insurance industry survey has found; and those that are buying cyber-insurance policies are acquiring protection too limited to provide much coverage for a major loss.  

Although premium prices have been declining as more insurers have entered this market, companies continue to view the policies as too costly, unnecessary, or both, the survey, by Towers Watson (an insurance brokerage firm found.  Of the 153 risk managers responding, 72 said they have declined to purchase any coverage at all for loses resulting from data breaches. 

“That was probably one of the more shocking findings we saw … that was virtually unchanged from what our survey found last year,” said Corey Gooch, a senior consultant at Towers Watson, told Insurance Journal.

Nearly two-thirds of the managers who have shunned the coverage said they thought their existing controls were adequate or their risks minimal.  But more than half admitted that they do not review their risks annually, as cyber security experts advise.   


Vowing “no surprises” and “no runarounds,” the Consumer Financial Protection Bureau (CFPB) has begun talking in more detail about new rules governing the practices of mortgage servicing companies, including non-banks that have not previously been subject to bank regulations.

“These nonbank servicers used to receive little or no oversight,” Richard Cordray, the CFPB’s executive director, wrote in an op ed piece published by Politico.  The new consumer protection agency “is changing that,” Cordray said, noting, “Our new authority allows us to supervise both banks and nonbanks. Indeed, for the first time, the federal government will have the authority to look into the entire mortgage servicing market. This is a critical improvement,” Cordray added.  “We will be able to monitor all players to make sure they abide by federal consumer financial laws.”

The regulations, to be introduced formally in June, target “lack of transparency and lack of accountability, a CFPB press release explained. Key provisions would require servicers to:

  • Give borrowers standardized, easy-to-comprehend monthly statements so they can avoid “costly surprises.”
  • Provide plenty of advance notice of changes in interest rates or insurance coverage.
  • Offer “direct, easy, ongoing access to employees who are dedicated and empowered to help troubled borrowers.”
  • Make “good-faith” efforts to contact struggling borrowers and inform them of available options for avoiding foreclosure

CFPB officials have said they expect to finalize the regulations by January of next year. 


Mortgage originations may be down, but mortgage litigation is trending upward – big time.  Mortgage-related law suits set a record in the fourth quarter of last year, with 244 cases recorded in the Mortgage Litigation Index compiled by Mortgage Daily.  That’s up from 251 cases in the same quarter of 2010.  

Industry executives weren’t surprised by the increase, given the surge in foreclosures and the media attention focused on that issue.  

 “These numbers are a reflection of both a high volume of foreclosures and a high level of awareness among borrowers that foreclosure-related issues can be litigated, sometimes successfully,” Christopher Willis, author of a white paper on the index and an Atlanta-based partner in Ballard Spahr’s Consumer Financial Services Group.

Although investor actions slowed, criminal, servicing and mortgage fraud actions surged. Fraud perpetrated by individuals topped the list, but criminal indictments (mostly related to the robo-signing, also increased significantly. 

Law suits alleging excessive or improper fees also increased as did title-related actions, which increased from only 6 in the second quarter to 45 in the fourth quarter.

Fee lawsuits, which involve excessive fees collected at origination, servicing fees, loan fees that exceed state maximums, and fees to county recorders, posted an all-time record number, along with title cases, which include issues with property title and title insurance claims. Fee cases jumped to 17 this quarter compared to 2 cases during the previous quarter, and title rose to 46 from 31 during the third quarter, and 6 from the second. 

Willis sees little reason to expect the upward litigation trend to reverse, because “the phenomena that led to the surge in litigation in the fourth quarter of 2011 have only intensified in 2012….  In particular, the publicity surrounding the multi-state settlement, together with publicity surrounding other aspects of mortgage litigation, tends to stimulate borrowers and their counsel to assert claims against mortgage servicers,” Willis told DS News. “This publicity, coupled with the continuing high rate of foreclosures, suggests that the current level of mortgage-related litigation can be expected to remain stable, if not continue to increase.”