Trouble in mortgage land; blockchain not ready for prime time

Receiving Wide Coverage ...

Not safe at any speed: Nonbank mortgage lenders, which currently originate about half of new residential mortgages, are poorly equipped to handle financial shocks and pose increasing risks to taxpayers, according to a paper prepared by researchers from the Federal Reserve and the University of California. “Non-bank failures could be quite costly to the government, but this issue has received very little attention in the housing-reform debate,” says the paper, which was presented at a Brookings Institution conference Thursday. “The funding and operational structure of the non-bank mortgage sector remains a significant channel for systemic liquidity risk.”

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And, those risks may grow as interest rates rise. The average rate on a 30-year fixed-rate mortgage rose to 4.46% on Thursday, up more than 50 basis points since the beginning of the year and the highest level in more than four years. The increase in rates presents “a new challenge for a housing market that has been central to the economic recovery but remains vulnerable to even modest headwinds,” the Wall Street Journal says. “Rising mortgage rates already have crimped refinancing activity and pushed would-be home buyers who are on the margins out of the market as home prices also have risen.”

In a different housing niche, manufactured home builders, which have been prohibited from steering customers to their own financing units by the Dodd-Frank law, would regain that right under the Sen. Mike Crapo's rollback bill, as long as they receive no compensation for the referrals and disclose their ties.

Wall Street Journal

Highs and lows: Sallie Krawcheck, a former senior executive at both Citigroup and Merrill Lynch and one of the most prominent women on Wall Street, discusses her best and worst investments. Krawcheck currently serves as CEO of Ellevest, a digital financial-investment firm for women.

Almost over: A federal judge sided with Lehman Brothers’ bankruptcy administrators, saying the defunct company caused $2.4 billion in damages to investors holding mortgage-backed securities the company sold them, not the $11.4 billion the investors claimed they are owed. The decision by U.S. Bankruptcy Judge Shelley C. Chapman ends one of the last remaining disputes in Lehman’s liquidation, which dates back to the beginning of the financial crisis.

Financial Times

Not quite there: Blockchain technology needs to make more progress before it can handle the enormous amount of daily cross-border payments among the world’s banks, according to Swift, the interbank messaging system, after testing the system on its own network. While Swift said the test “went extremely well, further progress is needed before it will be ready to support production-grade applications in large-scale, mission-critical global infrastructures.” In addition, many banks “would have to significantly overhaul their operations and systems before they could switch to a blockchain-based system to handle their cross-border payments,” according to the paper.

Still, “the test underlines how much of the world’s most established financial institutions are experimenting with blockchain technology to improve their performance under pressure from more technology-savvy challengers.”

Silver lining's dark cloud: Charles Scharf failed to impress stockholders at his first investor day as CEO of Bank of New York Mellon. “Mr. Scharf began the triennial event brightly, saying how much he admired BNY’s main business lines while stressing there were no ‘silver bullets’ to transform the company’s outlook,” the paper says. “But as the morning wore on, senior executives painted a gloomier picture,” and “by the end the mood was somewhat deflated,” according to one analyst.

Washington Post

Room to improve: The Federal Reserve’s regional banks fail to measure up in terms of gender, racial and occupational diversity on their boards, according to a report from Fed Up, a campaign of the Center for Popular Democracy, a left-wing advocacy group. Among the regional banks’ 107 board directors, 77% are white and 67% are male, the report said. However, some progress is being made. Among the 14 new directors appointed to the regional bank boards this year, only 57% are men and 50% are people of color, the group found.

Elsewhere

What’s in your wallet?: U.S. credit card debt pushed past $1 trillion last year, with the total growing by $67.6 billion in the fourth quarter, the largest quarterly increase in 30 years, according to a report by WalletHub based on Federal Reserve data.

Quotable

“The Federal Reserve has a legal mandate to represent the public, and as it is composed now, it does not represent the public.” — Shawn Sebastian, a director of the Fed Up campaign.