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News of the Competition (12/19/14)

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  • WASHINGTON (12/19/14)-- Wells Fargo was hit with a $1.5 million fine this week by the Financial Industry Regulatory Authority (FINRA) for its role in a number of anti-money-laundering failures ( The Wall Street Journal Dec. 18). The big bank's financial advisory arm, Wells Fargo Advisors, failed to take the necessary steps to verify the identities of nearly 220,000 new customer accounts between 2003 and 2012, eliciting the fine, the Journal reported. Proper verification would have required Wells Fargo to establish and maintain a written customer identification program that verified all customers who had opened new accounts. "Firms must be vigorous in the testing of their electronic systems to ensure they are operating correctly, including those designed to ensure compliance with critical aspects" of anti-money-laundering rules, said Brad Bennett, FINRA enforcement chief, in a statement ...

Mortgage rates hit lows for 2014: Freddie Mac

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WASHINGTON (12/19/14)--Mortgage rates tracked by Freddie Mac continue to drive lower, as the government-sponsored mortgage giant reported Thursday that rates have hit their lowest points for 2014.

According to Freddie Mac's Primary Mortgage Market Survey, the 30-year fixed-rate mortgage fell to 3.8% for the week ending Dec. 18, a drop from the 3.93% seen last week. In 2013, the rate averaged 4.47% ( Dec. 18).

"The 30-year fixed mortgage rate dropped to its lowest point of 2014 this week," said Frank Northaft, vice president/chief economist for Freddie Mac. "Mortgage rates fell along with 10-year Treasury yields, which closed at their lowest level since May 2013."

The 15-year fixed-rate mortgage rate dropped to 3.09% for the week, falling from 3.2% the week prior and 3.52% from its year-ago level.

Further, the five-year Treasury-indexed adjustable-rate mortgage rate slipped to 2.38%, down from 2.98% the prior week, and the one-year Treasury-indexed adjustable-rate mortgage rate fell to 2.38%, a slight drop from 2.98% the prior week.

"November housing starts came in at a seasonally adjusted annual rate of 1.028 million starts, down 1.6% from an upwardly revised October value," Northaft said. "Housing starts for the calendar year will likely come in around 1 million, above the 2013 pace but lower than forecasters had expected at the start of 2014."

Bankrate reported similar falling mortgage rates, with rates dropping for the sixth consecutive week based on its data ( Housingwire ).

The 30-year fixed-rate mortgage rate tracked by Bankrate fell to 3.94% from 4.03%, and the 15-year fixed rate fell to 3.21% from 3.28%.

News of the Competition (12/18/14)

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  • WASHINGTON (12/18/14)--The Financial Industry Regulatory Authority (FINRA) has fined Merrill Lynch, Pierce, Fenner and Smith $1.9 million for violating fair pricing and supervisory laws in more than 716 cases of retail customer transactions of distressed securities (MarketWatch Dec. 16). FINRA also has ordered Merrill Lynch, a unit of Bank of America, to pay the affected customers $540,000 for the infractions. FINRA asserts that Merrill Lynch bought notes from Motors Liquidation Co., the name used by General Motors after the company went bankrupt, for prices well below their market value, and then sold them to brokers at, or above, market prices. The government agency also alleges that Merrill Lynch failed to conduct post-trade best execution or fair pricing reviews for any of the transactions, according to MarketWatch. Merrill Lynch has not admitted to or refuted FINRA's findings ...

Patience a key for FOMC in rate-setting process

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MADISON, Wis. (12/18/14)--A change in wording in the statement released by the Federal Open Market Committee (FOMC) Wednesday at the conclusion of its two-day policy meeting could mark a shift in forward guidance in terms of rate setting.

While the FOMC stopped short of taking out the words "considerable time" from its statement when referring to when it will begin to raise interest rates from their near-zero levels, the Fed also inserted the word "patient," which could signal that a rate hike isn't all that far off.  

According to Moody's analysts, there is a precedent for this type of language in FOMC policy statements.

"The Fed has used this language in 2004," said Ryan Sweet, Moody's analyst ( Dec. 17). "If the Fed follows the same script, the first increase in the fed funds rate won't occur for a least six months."

Federal Reserve Chair Janet Yellen just about said as much in her post-meeting press conference Wednesday.

"At this point we think it unlikely that it will be appropriate that we will see conditions for at least the next couple of meetings that will make it appropriate for us to decide to begin normalization," Yellen said (MarketWatch Dec. 17).

A major obstacle that could be keeping pressure on the FOMC to take its time in this decision is the sluggish inflation that has dogged the U.S. economy. Inflation continues to crawl below the Fed's 2% target rate. The Fed largely pinned weak inflation on thinning energy prices.  

While many may focus on the FOMC's use of "considerable time" and "patient" in the statement, meanwhile, Sweet believes another word should also receive attention.

"The Fed used 'transitory' to describe energy prices' impact on inflation," he said. "This is the norm for the Fed, but the central bank needs to be careful. Inflation has been too low for too long, and that has economic costs."

An appreciating dollar, which could put downward pressure on core goods prices, also could be affecting inflation, said Sweet, who added that this new development likely caught the eye of the FOMC as well.

"The Fed noted the mixed message on long-term inflation expectations, but given its assessment, policymakers appear to be putting more stock in survey-based rather than market-based measures," Sweet said.

NEW: Fed remaining 'patient' on rate-hike decision

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WASHINGTON (12/17/14, UPDATED 2:25 p.m. ET)--The Federal Open Market Committee (FOMC) left the words "considerable time" in its policy statement today, potentially signaling that the Federal Reserve may raise short-term interest rates later than currently anticipated.

Analysts have said that removing the words from the statement would have indicated that the FOMC was planning to raise rates sooner, but the Fed said that keeping rates at their near-zero levels remained appropriate.

"In determining how long to maintain this target range, the committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2% inflation," said the FOMC in its statement following the conclusion of its two-day policy meeting. "Based on its current assessment, the committee judges that it can be patient in beginning to normalize the stance of monetary policy.

"The committee sees this guidance as consistent with its previous statement, that it likely will be appropriate to maintain the 0% to 0.25% target range for the federal funds rate for a considerable time following the end of its asset-purchase program in October, especially if projected inflation continues to run below the committee's 2% longer-run goal."

The Fed added, however, that if incoming economic data points to faster economic progress, the committee may then hike interest rates sooner than they presently expect.

In assessing the overall economy, the Fed noted that the labor market continues to make improvements, with solid job gains and a lower unemployment rate recorded of late. Further, household spending continues to climb and business fixed investment is rising as well.

The housing market continues to make slow progress, though.

"The committee sees the risks to the outlook for economic activity and the labor market as nearly balanced," the FOMC said. "The committee expects inflation to rise gradually toward 2% as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate."

Fed walkup: 'Considerable time' will tell

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WASHINGTON (12/17/14)--The intentions of the Federal Open Market Committee (FOMC) on when it plans to begin nudging up short-term interest rates may be revealed this afternoon when it releases its statement at the conclusion of its two-day policy meeting.

Should the words "considerable time" appear in that statement, it could signal that sluggish inflation has persuaded the Federal Reserve to push back its timeline on when it will begin raising short-term interest rates.

If the Fed leaves those words out, however, chances are the FOMC is giving a heads up to the market that it's gearing up to raise rates in the middle of next year, as many economists have predicted it would.

"It's reasonable to think about taking that language out now," Jim O'Sullivan, economist with High Frequency Economics, told USA TODAY (Dec. 16).

Policymakers are "likely to start trying to reshape market expectations gradually" rather than surprising investors with an abrupt increase in rates, added Drew Matus, economist for UBS (USA TODAY).  

Market conditions, which will weigh heavily on the Fed's decision on when to raise rates, largely have proven favorable in recent months, as the economy grew by 3.9% in the third quarter, U.S. employers continue to add jobs at a healthy clip and the unemployment rate continues to taper.

But then there's that pesky inflation.

Bottomed-out oil prices and a weakening global economy have pinned down inflation in the United States below the Fed's annual 2% target, which could give the FOMC reason to hold off on any rate increases (USA TODAY).

O'Sullivan told USA TODAY, however, that because the Fed relies on "core" inflation, which leaves out food and energy costs, inflation could still rise to an acceptable level for the FOMC.

And if gas and energy prices continue to flounder, consumer spending may reap the benefits, which could boost economic growth and encourage the Fed to raise rates just the same.

Non-mortgage credit balances at 5-year high: Equifax

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ATLANTA (12/16/14)--Non-mortgage credit balances in the United States topped $3.1 trillion in November, the highest level in more than five years, according to Equifax.

Auto-loan balances climbed 9.6% annually in November to $965 billion; retail-issued credit card balances jumped 4.8% to $71 billion; and bank-issued credit cards increased 4.7% to $611.7 billion.

The total balance of non-mortgage write-offs through November was $73.4 billion, the second-lowest level in eight years, according to Equifax. Further, the total balance of home-finance write-offs through November was $91.2 billion, also the second-lowest in eight years.

"The Great Deleveraging has clearly ended and U.S. consumers are back in the borrowing business, but how they borrow has greatly changed from prior to the Great Recession," said Amy Crews Cutts, senior vice president/senior economist at Equifax. "Today, while auto loans make up 30.9% of non-mortgage consumer debt--just as they did in December 2007 at the recession's start--student loans have grown from 20.2% to a whopping 37.3%, and bank- and retailer-issued credit cards are down to 21.9% of consumer debt from 31.4%.

"One way to read this change is that consumers now value investment (in their education and durable goods like cars) over immediate consumption, which is good for our economy over the long run," Crews Cutts said. "But, with the exception of new-car production, sluggish consumption slows economic growth in the short term, partially explaining the slower-than-hoped-for economic recovery."

Additional data from the report:
  • The total number of auto loans outstanding year-to-date in November topped 70 million, the highest level in five years;
  • The total number of new auto loans originated between January and September came in at 19.2 million, a 4.7% jump annually;
  • The total amount of new credit originated year-to-date in September was $183.9 billion, a six-year high and a 25.9% increase over the same period last year;
  • The total number of new cards issued year-to-date in September was 37.7 million, also a six-year high and a 20.1% increase over the same period last year;
  • Delinquent first mortgages represented 4.54% of outstanding balances in November, down from 5.87% the previous year; and
  • The total balance of seriously delinquent first mortgages, those 90 days past due or in foreclosure, was $198.8 billion in November, a decrease of more than 29.8% the previous year and the lowest level in more than five years.