275  7TH Ave  7th floor New York , NY 10001                                                                                                                dcullinanecpa@yahoo.com

​                                                                                                                                                                                                     Chelsea / Lower Manhattan​​

​Daniel Cullinane CPA                                   p 848-250-9587                                                                                                                                     

​The latest count from the Identity Theft Resource Center (ITRC) reports that there have been 1,056 data breaches recorded this year through October 3 and that more than 171 million records have been exposed since the beginning of the year. The incident total is 23.2% higher than at the same time last year.

In 2016, the ITRC reported a record total of 1,093 breaches, and at the current pace that record could rise to around 1,500 in 2017.

Equifax added 2.5 million to the total number of records exposed in the company’s massive data breach. The total now stands at 145.5 million.

Last week, some 5 million credit and debit card accounts were breached at Sonic drive-in restaurants. The company has about 3,600 stores in 45 states. The stolen data were offered for sale at a dark web site on September 18, according to a report at KrebsOnSecurity.

The business sector leads them all in the number of records compromised so far in 2017 with nearly 157 million exposed records in 551 incidents. That represents 52.2% of the incidents and 91.7% of the exposed records so far this year.

The medical/health care sector has posted 27% (285) of all 2017 data breaches. The number of records exposed in these breaches totals nearly 4.6 million, or about 2.7% of the 2017 total.

The educational sector has experienced 102 data breaches since the beginning of the year. The sector accounts for 9.7% of all breaches for the year and more than 1.1 million exposed records, about 0.7% of the year’s total.

The government/military sector has suffered 52 data breaches to date, representing about 3.4% of the total number of records exposed and 4.9% of the incidents. Nearly 5.8 million records have been compromised in this sector.

The number of banking/credit/financial sector breaches now totals 66, some 6.3% of the total incidents reported so far this year. More than 2.7 million records have been reported to be compromised in the incidents.

​DATA BREACHES

​Oil pipeline operator TransCanada Corp. (NYSE: TRP) announced this morning that it will cease development efforts on two proposed pipeline projects that would have transported crude oil from the oil sands of western Alberta to Canada’s east coast. The company cited “changed circumstances” as the reason for cancelling the Energy East and Eastern Mainline projects.

The company estimates that it will take an impairment charge of about $1 billion in the fourth quarter as a result of the cancellation.

The circumstances that CEO Russ Girling referred to are of two kinds. First, regulatory delays have pushed out the date of construction and ultimate completion of the pipelines. In early September TransCanada asked the Canadian government to suspend consideration of its applications for these projects while it reviewed additional requirements.

Second, in the current crude oil pricing environment, western Alberta oil is barely competitive and that is true only for existing production sites. When existing operations run dry, the cost of building a new mine or in situ operation would be almost certain to exceed the price of crude and, therefore, uneconomic. IHS Markit in 2016 estimated a new mine would require a West Texas Intermediate price of $85 to $95 a barrel while an in situ operation could break even at $55 to $65 a barrel.

The recent approval by the White House for the Keystone XL pipeline to move western Alberta crude to the Gulf Coast also played a role in TransCanada’s decision. That project, too, still awaits final U.S. regulatory approval as well as several lawsuits. TransCanada has begun another open season — industry-speak for finding customers willing to sign up for a long-term contract to ship crude on the pipeline — on the Keystone XL and has not yet announced how successful it’s been in signing up more customers.

TransCanada appears to have put all its new transportation eggs in the Keystone XL basket. Investors have not reacted much to today’s announcement, and the stock was last seen trading flat at $48.83, in a 52-week range of $42.69 to $51.85.

​CANADA HAULTS PIPELINE

​The subprime mortgage crisis is history for most Americans, and in its wake federal regulators have implemented rules to try and avoid a repeat of the housing meltdown. Since then, both the economy and housing market have stabilized, yet regulations remain highly restrictive, contributing to some serious hassle for homebuyers who need to take a mortgage.

24/7 Wall St. discussed current regulations and conditions with housing market experts. We also reviewed various related data — including delinquency rates, income growth, debt-to-income ratios, and home prices — to identify 10 ways in which buying a house in America today is more cumbersome than it was before the crisis.

The mortgage process used to be easier, more accessible, and less expensive. In an interview with 24/7 Wall St., Michael Fratantoni, chief economist at real estate finance industry advocate Mortgage Bankers Association, said, “[T]he dollars it costs to originate a loan are much higher. They’ve essentially doubled in the past decade.”

The higher costs are due in large part to regulations that require more administrative services, paperwork, and time. This has led in turn to longer wait periods for borrowers.

Today’s mortgages do not typically include mortgage products such as interest-only loans, short term adjustable-rate mortgages, or the controversial negatively amortizing loans, which before the crisis often led to payment shock and default. There remain the popular first-time homebuyers programs, which provide reduced down payments. On the whole, however, there are fewer options. These instruments were abused, and most agree the housing market is better off without them. But for borrowers with unconventional financial positions, like self-employed individuals, it is much harder to get a loan.

The other outcome of greater regulation in a relatively healthy housing market is that some prospective borrowers are left out altogether — especially in some markets. Housing inventory is low, probably because homeowners are still waiting to recover their costs and partly because of lingering jitters from the housing crash. This has caused prices to skyrocket in some markets, and many borrowers are being priced out of these markets.

“People are getting outbid for properties, and for people who are able to buy, the price is accelerating faster than their incomes are going up,” Fratantoni said. This explains how there are fewer loans granted today compared with before the crisis.

With delinquency rates down, and incomes and home prices up, the regulations brought stability to the market and removed some of the reckless behavior in the financial industry. While the outcome of the various regulations is likely a net positive, the following inconveniences of today’s mortgage process illustrate just how far the pendulum has swung since before the crisis.


​1. Higher processing costs

The costs for loan origination — the process from loan application, processing, to disbursement of the money — have soared. Loan origination expenses — including commissions and compensation — rose to $8,887 in the first quarter of this year, according to the Mortgage Bankers Association. In comparison, the average cost to originate a loan in 2008 was about $5,985. An MBA-PricewaterhouseCoopers paper on mortgage servicing in 2014 said the cost to service a performing loan, or one not near default, nearly tripled to $156 per year in 2013 from $59 in 2008 to to $156 in 2013. These costs are passed onto consumers in one form or another. According to the paper, the higher costs are the result of greater scrutiny from regulators. To remain in compliance, loan providers have “bolstered processes, quality assurance, and customer-facing practices […] and those changes have manifested into rising servicing costs based on industry averages.’’

Source: jat306 / Thinkstock

2. More paper work

Because of the Dodd-Frank Act, borrowers and lenders must provide more documents relating to loan applications. Borrowers must document their current employment status and debt levels. Lenders must disclose all the costs involved in each loan, and they must verify a borrower’s ability to repay the mortgage. Lenders are also required to inform mortgage applicants they can receive a free copy of whatever appraisals, reviews, computer valuations, and other data used in the transaction.

Source: Thinkstock

3. Longer wait for mortgage approval

It takes longer for lenders to process the most basic loans today because of greater scrutiny from federal regulators. The average large bank underwriter could process about 165 loans per month in 2005 but can only do about 33 a month today, according to a study by the Mortgage Bankers Association.


​4. Harder to find a property

The availability of houses has tightened, with homeowners holding onto their properties to at least regain the value lost during the housing crisis. Once houses get on the market, they do not stay on for long because of the limited supply. The National Association of Realtors said last month that nationwide, properties typically stayed on the market for 30 days in August 2017. To compare, properties typically stayed on the market for 97 days in 2011. In a Realtor.com poll of 1,054 homeowners earlier this year, about 59% of respondents had no plans to sell their home in the next year.

Source: welcomia / Thinkstock

5. Less affordable homes

The national home affordability index was 100 in the third quarter of 2017, the lowest it has been since the third quarter of 2008, when the index was 86 and the housing crisis was deepening. The index, from real estate data provider Attom Data Solutions, measures whether a typical family income is sufficient to pay for a mortgage and other expenses on a typical home. The higher the index, the more affordable houses are. In 2012, for comparison, after housing prices plummeted, the index reached 154. Since then, median home prices have risen 73%, while average weekly wages have increased just 13%.


6. Fewer loans

Although interest rates remain generally low, loans are hard to come by as lenders are slow to provide them — because of high processing costs and fewer creditworthy borrowers. The current tight credit is yet another change in the post-crisis lending landscape, curbing demand for housing. As Federal Reserve Chairman Janet Yellen said in a testimony to the Senate Banking Committee in 2015, “demand for housing is still being restrained by limited availability of mortgage loans to many potential homebuyers.” Tight credit is also blamed for keeping homeownership from rising. The U.S. homeownership rate in the second quarter was 63.7%, up from 62.9% in the second quarter last year, which was the lowest since 1965. The all-time high was 69.2%, reached in the fourth quarter of 2004.

Source: AndreyPopov / Thinkstock

7. Higher credit scores required

Before the housing bubble burst, banks relaxed lending standards, issuing loans that required little or, in some cases, no documents — low-doc and no-doc loans. But the pendulum swung swiftly in the opposite direction when the housing market collapsed and only those with the highest credit score were considered for receiving loans. After the collapse of the housing market, banks were reluctant to lend to anyone with a FICO score below 700. Since then, lenders have relaxed their credit score requirements. That has coincided with improving credit scores among Americans. The Wall Street Journal reported in May that the average credit score climbed to 700 in April, its highest level since that information was first tracked by Fair Isaac Corp. – the company that created the FICO credit score metric – in 2005.


8. Stricter lending rules

Borrowers who relied on interest-only loans — loans that were widely available during the housing boom — will find it more difficult to get them. That is because these loans — that do not require borrowers to pay down the principal during an initial period — are not considered a qualified mortgage under the rules established by the Consumer Financial Protection Board after the housing bubble burst. These loans contributed to the crisis because many homeowners could not handle the larger payments once the initial interest-only period expired. Most lenders have stopped offering these loans, but they are still popular for jumbo mortgages and in high-cost areas. Similarly, the collapse of the market for subprime loans — a type of loan offered at a rate above prime to individuals who do not qualify for prime rate loans — was a major contributor to the financial crisis, then the loans fell out of favor.

Source: Roman Babakin / Shutterstock.com

9. Fewer loan products

Dodd-Frank sought to ban risky loan instruments such as negative amortization loans. But the tougher scrutiny of loan products by the government has had its downside, according to the financial community. Lenders complain that the federal rules slow down lending, stifle innovation in mortgage lending, and do not allow the industry to create new products.

Source: Elnur / Shutterstock.com

10. Tougher low down payment rules

Homebuyers who want a mortgage but can only afford a low down payment are in for high fees, especially those with a FICO score in the mid to upper 600s. These pricing changes came into effect last year. That is when lenders changed mortgage insurance premiums on loans eligible for sale to Fannie Mae and Freddie Mac because of changes in requirements by the government-sponsored enterprises. If your FICO score is 700+, however, expect a discount — even if you make a small down payment. Fannie Mae and Freddie Mac tried to address the low down payment issue in 2015 by introducing individual low down payment mortgage products in order to expand credit opportunity for first-time and minority homebuyers. This raised concerns that lending could be returning to the practices that led to the housing crisis.

​HOME BUYING

OCTOBER NEWSLETTER 5