Wall Street Banks See Green Light from Fed on Reserves - ABI

Wall Street banks believe they are getting a green light from supervisors to hold more Treasury debt and less cash after last month’s volatility in overnight lending markets, Reuters reported. That change could help boost liquidity in the overnight lending markets, because Treasury bonds are a common type of collateral pledged by companies and investors in exchange for cash. Banks have complained for years that the U.S. Federal Reserve can be painfully prudent with its view that Treasury bonds are not the same as ordinary dollars when used as a liquidity buffer. In recent weeks, they have intensified efforts to get Fed officials and examiners to soften their stance, and initial signs suggest the industry may finally be getting a warmer reception. In private conversations with senior bankers, supervisors have attempted to make banks more comfortable with using excess reserves to lend in repo markets rather than hold onto more cash. Banks hold regular meetings with Fed supervisors, who provide broad guidance on how to interpret regulations but do not offer formal instructions. ABI

Six-Figure Parent Loans: When College Dreams for Students Mean Nightmarish Debt for Family - ABI

The federal government’s Parent PLUS program helps make attending college a reality, closing the gap between the cost of college and what the student receives in grants and other loans. But while it may sound like a lifeline, the Parent PLUS Loan program can cause economic complications for families, USA Today reported. The loan program was introduced in the 1980s as a way for middle- and upper-income parents to help their children pay for college while keeping their assets liquid. It has since become more popular among lower-income parents. That's possible because the program does not check the ability to repay, considering only the borrower's credit history. When parents borrow, the debt can weigh down families for generations. But the burden falls particularly hard on low-income black families. Few white families with low incomes take out the loan – 10 percent of white Parent PLUS borrowers earn $30,000 or less. Comparatively, 40 percent of black Parent PLUS borrowers have incomes that low. ABI

Fed Eases Post-Crisis Rules for Domestic, Foreign Banks - ABI

The U.S. Federal Reserve yesterday unveiled a final package of rules easing capital and liquidity requirements for domestic U.S. and foreign banks that was originally introduced following the 2007-2009 global financial crisis, Reuters reported. The changes, which should reduce the compliance burden and free up funds for U.S. Bancorp, Capital One and PNC Financial, among others, mark another win for the industry after the Fed also relaxed rules on derivatives trades and banks’ annual health checks. Yesterday’s package stems from bipartisan legislation passed by Congress in May 2018 that rewrote parts of the 2010 Dodd-Frank financial reform law. That 2018 law ordered the Fed to reduce the burden on community and regional lenders, but progressive Democrats and consumer groups are likely to criticize the central bank for giving larger banks too much leeway with its final changes. Randal Quarles, the Fed’s top regulatory official, said the package allows the Fed to more closely tie stricter rules to risks and retains the toughest requirements for the largest firms. ABI

Mortgage Costs Outpaced by Drop in Interest Rates - ABI

Interest rates have been plummeting, but the cost of taking out a mortgage hasn’t fallen as fast, the Wall Street Journal reported. Since the end of June, the Treasury yield has fallen about 0.4 percentage point, but the average mortgage rate has dropped less than a tenth of a percentage point. The gap between the two rates is near its highest in more than seven years, according to an analysis by Dow Jones Market Data. The average 30-year fixed rate for a mortgage was 3.65 percent last week, according to mortgage company Freddie Mac. That is among the lowest average rates this year, but it has bounced up and down in recent months. Mortgage executives, traders and investors tend to watch the spread between the 10-year Treasury yield and the 30-year mortgage rate as a barometer of the mortgage market’s health. The spread blew out as the market imploded in 2008, when Treasury yields plummeted but lenders were slower to adjust mortgage rates. More recently, the difference has signaled that borrowers’ relatively strong appetite for mortgages is outpacing the industry’s ability to make them. Many lenders scaled back last year as mortgage demand dropped, so the current demand is stretching their capacity. ABI

Study: Banks Will Replace 200,000 Workers With Robots by Next Decade - Observer

While workers across all job sectors may someday have to compete with machines for their daily bread-winning wage work—the dystopian near-future upon which ex-Silicon Valley executive Andrew Yang is basing his presidential campaign—no industry in America is spending more on ways to eliminate the human factor than banks. Using machines like ATMs to deal with the public rather than other human beings is an example of a “technological efficiency,” one of the labor-saving shortcuts the banking industry is spending $150 billion a year to develop, as Bloomberg reported. Observer

Federal Government Has Dramatically Expanded Exposure to Risky Mortgages - ABI

The federal government has dramatically expanded its exposure to risky mortgages, as federal officials over the past four years took steps that cleared the way for companies to issue loans that many borrowers might not be able to repay, the Washington Post reported. Now, Fannie Mae, Freddie Mac and the Federal Housing Administration guarantee almost $7 trillion in mortgage-related debt, 33 percent more than before the housing crisis, according to company and government data. Because these entities are run or backstopped by the U.S. government, a large increase in loan defaults could cost taxpayers hundreds of billions of dollars. This risk is the direct result of pressure from the lending industry, consumer groups and political appointees, who lobbied for the government to intervene when homeownership rates fell several years ago. Starting in the Obama administration, numerous government officials obliged, mistakenly expecting that the private market ultimately would take over. In 2019, there is more government-backed housing debt than at any other point in U.S. history, according to data from the Urban Institute. Taxpayers are shouldering much of the risk, while a growing number of homeowners face debt payments that amount to nearly half of their monthly income, a threshold many experts consider too steep. Roughly 30 percent of the loans Fannie Mae guaranteed last year exceeded this level, up from 14 percent in 2016, according to Urban Institute data. At the FHA, 57 percent of the loans it insured breached the high-risk echelon, jumping from 38 percent two years earlier. ABI

Fed Adds $63.5 Billion to Financial System in Repo Transaction - ABI

The Federal Reserve Bank of New York added $63.5 billion to the financial system yesterday, using the market for repurchase agreements, or repo, to relieve funding pressure in money markets, the Wall Street Journal reported. Banks asked for $63.5 billion in overnight reserves, all of which the Fed accepted, offering collateral in the form of U.S. Treasury and mortgage securities. In the repo market, borrowers seeking cash offer lenders collateral in the form of safe securities — frequently Treasury bonds — in exchange for a short-term loan. The term of these loans can be as short as overnight. The Fed began offering repo loans two weeks ago after a shortage of available cash in the financial system led repo rates to climb as financial companies scrambled for overnight funding. The actions marked the first time since the financial crisis that the Fed had taken such actions. ABI

Millennials More likely to Report Losing Money to Fraud than Older Generations, New FTC Data Spotlig

Millennials are 25 percent more likely to report that they have lost money to fraud than consumers aged 40 and over, according to a new Federal Trade Commission analysis of consumer complaint data.   The FTC’s latest Consumer Protection Data Spotlight shows that millennials—those ages 20-39—are twice as likely to report losing money to online shopping fraud than those 40 and over. Online shopping fraud reports include complaints about items that are never delivered or are not as they were advertised. Millennials reported losing $71 million to online shopping fraud—out of the nearly $450 million they reported losing to all types of fraud—in the last two years. Federal Trade Commission

Zillow: Over half of renters blame student debt for delay in buying a home - HousingWire

In a paper released at the beginning of this year, the Federal Reserve estimated that about 20% of the decline in homeownership among young adults could be attributed to increased student loan debts since 2005. Based on the 2019 Zillow Group Report on Consumer Housing Trends released on Monday, that percentage may be a little low.  The report surveyed 13,000 U.S. household decision-makers about their homes, including how they search for them, pay for them and what challenges they encounter along the way. Among these findings, there was a recurrent topic of debt holding back potential buyers. From medical and credit card debt to student loans, an increasing amount of Americans are putting off buying a home. HousingWire