A weekend topic starting with the Globe and Mail in Canada. "Jamie Dimon said it was over, but it isn’t. The calm lasted two days. By Wednesday, contagion fear was prevalent again. PacWest Bancorp, a small regional lender based in Los Angeles, closed the week down 43 per cent, and Memphis-based First Horizon Corp. lost 38 per cent after mutually agreeing to scrap its takeover by Toronto-Dominion Bank, citing regulatory hurdles. Over all, the KBW Nasdaq Regional Banking Index lost 8 per cent of its value this week – and is down 30 per cent since Silicon Valley Bank started to wobble in early March. Save for the early days of the pandemic, the last time the index was this low was 2016."

"Small-and-mid-sized lenders are struggling to adjust to rapid interest-rate hikes, and it’s a theme the U.S. has seen before. More than 1,000 lenders failed during the Savings & Loan crisis in the 1980s and early 90s. There are many parallels to that era, which means investors could use it for guidance. Just like S&Ls, the banks faring the worst today are those that either rely on traditional lending to drive profits or overextended themselves when deposits were cheap. Sometimes both."

"The expensive rate is problematic for banks because the U.S. yield curve is currently inverted – which means longer-term interest rates are actually lower than short-term rates, which is commonly seen before a recession. Banks usually make money by borrowing at low short-term rates, and then lending that money out for longer periods through products such as mortgages. In late March, Chris McGratty, head of U.S. bank research at Keefe, Bruyette & Woods, summarized the problem in a note to clients: 'An upside-down funding base is unsustainable.'"

"In normal times, an upside-down funding model wouldn’t be the end of the world. Even if banks report some quarterly losses, they all have much more capital – effectively excess cash – to absorb them than they did during 2008. But in this market, fear outweighs calm and short-sellers that bet against bank stocks are out for blood."

From Reuters. "The government-brokered purchases of First Republic, Signature and Silicon Valley banks have created a vicious cycle in which troubled lenders need to fail -- and get government assistance -- before buyers will step up, industry sources say. 'After what happened with First Republic, banks don't want to buy any other bank before the FDIC takes over,' said Mayra Rodríguez Valladares, a financial risk consultant at MRV Associates who trains bankers and regulators. 'It's cheaper, the stock price goes down and you don't have the natural problems in M&A (mergers and acquisitions) negotiations that may not end in a deal.'"

"The phenomenon is stoking fears the current turmoil will accelerate the concentration of the banking sector in the United States around a handful of institutions, reducing competition for consumers and deepening the risk if a giant bank fails. Market participants are watching to see if regulators become more open to consolidation or accelerate takeover approvals, said Jan Bellens, who heads the global banking and capital markets practice at EY, an accounting firm."

"'I don't think we're at the end of the turmoil yet' for regional banks, Bellens said. 'Investors need to be confident that there's not going to be further accidents or challenges.'"

The Spokesman Review in Washington. "Greg Deckard, CEO of State Bank Northwest said he's fielded non-stop calls from customers who want to make sure that their deposits are safe. And each time, he tries to assure them to keep their funds local. SVB, which he considered a national bank, catered to venture capitalists by providing loans to start-up companies, including some in Spokane. However, the bank relied almost exclusively on backing those loans by investing in 10-year treasury bonds. 'Regulators were asleep at the switch,' Deckard said. 'As soon as the venture capitalists heard about it, they started calling everybody to get their cash out of there.'"

"First Republic built its business model on catering to affluent customers with low-interest loans and mortgages. 'There are some commonalities with all three,' Deckard said. 'They all had rapid growth in the last three years using exotic business models with a high reliance on uninsured deposits.' All three banks 'mismanaged in a rising-interest rate environment and suffered the results,' he said."

"'Generally speaking, when (interest) rates rise, values of investment portfolios go down,' Deckard said. 'If you bought it at a low price and rates rise, you are underwater if you had to sell that bond today. That's exactly what happened with the savings-and-loan crisis,' he continued. 'A mismatch between liabilities and assets. It's banking 101.'"

"Banks don't need more rules, Deckard said. He just wants the current rules to be evenly applied. Just this past week, Deckard said he received the post-mortem report on the failure of Silicon Valley Bank. Federal Reserve regulators sent notices 31 times to SVB's board warning them that their assets and liabilities were out of balance. 'But it never escalated above board attention. No punitive actions were ever taken,' Deckard said. 'That infuriates me and everyone else in the industry.'"

425 Business in Washington. "April housing data showed year-over-year drops in new listings, pending sales, and closed sales, more active listings, and lower prices overall for the 26-county region NWMLS covers. These results also played out in King and Snohomish counties. On the Eastside of King County, the median price of single-family homes, excluding condos, was almost $1.5 million, down 15.8% from a year ago. The steepest year-over-year drop on the Eastside occurred in the Redmond/Carnation area, down 32.4% to $1.2 million. In Snohomish County, the largest drop in median sales price of single-family homes occurred in the southeast county, down 20.3% to $1 million."

The Colorado Sun. "When Ashley Knight put in an offer to buy her very first house in March, it was one of four bids. And hers wasn’t the highest.But she got it! Perhaps it was the cooling Denver-area housing market. Or that it has just one bathroom. Most likely, it was her team of real-estate pros who know the Aurora housing market. She became a homeowner last Friday. 'I didn’t expect to get my first offer to get accepted,” said Knight, who’d been sitting on the sidelines since she began window shopping for houses in 2018. 'I was very shocked,' when Realtor Kathy Casey gave her the good news."

"After a couple years of frenetic home sales in Denver and Colorado, the real estate industry is seeing, well, a little less frenzy. Median sale prices in Denver are still quite high, especially for prospective first-time buyers. But instead of rising in March, median sale prices fell 2.6% in a year to $415,000 for a condo and 5.5% to $599,900 for a house."

"The half-million-dollar universe, however, isn’t really the price range for first-time buyers who may have jobs with promising salaries but are saddled with student loan debt, rising rent payments and higher interest rates. Renters who jump into home ownership have already made the first step: They’ve decided they’re ready. 'I was like, ‘All right, I just need to do this by myself.’ I hunkered down. I dedicated myself to my career, got a really good job, a stable job,' said Knight, who’s 34, and qualified for a federal housing loan with a 3.5% down payment."

"Arthur Brown, branch manager with Fairway Independent Mortgage Corp. in Greenwood Village, guided Knight through the process of applying for a Federal Housing Administration loan, in which eligible applicants who still have debt and mediocre credit can borrow up to $1.1 million. Knight qualified for a larger home loan but didn’t want to overextend herself since she has a 6.75% interest rate. She’s paying a little more than renting a downtown Denver loft with one bathroom. Her new place has two bedrooms and a garage. She plans to refinance when rates drop. This isn’t her forever home anyway. As her income grows, she plans to move up and rent the townhouse to build her own generational wealth."

"'I like to look forward,' she said. 'I can refinance next year. That’s where my mind has been like, ‘All right, I’ll pay this now but as soon as I get the moment to refinance, I will.'"

From Forbes. "As of May 8, homeowners who are straining to pay their Federal Housing Administration (FHA) mortgages have another lifeline: the 40-year mortgage modification. The FHA has instituted a new policy allowing financially strapped borrowers to have the term of their mortgage lengthened to 40 years, thereby reducing the monthly payments. The previous term limit for a loan modification was 30 years (360 months)."

"The U.S. Department of Housing and Urban Development (HUD), which oversees the FHA, said it was making this move to give lenders the additional flexibility they need to help borrowers stay in their homes. Ideally the program would reduce a homeowner’s mortgage payments by at least 25%. But HUD acknowledges the effect is blunted as interest rates remain high."

"'While rising interest rates may keep the 40-year loan modification from providing significant payment reduction, HUD believes that rising interest rates make the 40-year loan modification more critical in circumstances where the 30-year loan modification does not sufficiently decrease the monthly payment to an amount that the borrower could afford to retain their home,' HUD’s final ruling reads."

"'A 40-year mortgage modification is not a program for which a borrower applies,' a HUD spokesperson said in an email. She explained that after the servicer evaluates the homeowner’s situation, they might conclude that 'all other home retention options are insufficient to help the borrower obtain a sustainable monthly mortgage payment.'"

"This type of loan do-over isn’t new. FHA used 40-year loan modifications during Covid to help borrowers affected by the pandemic stay in their homes. And the program was successful. Now policymakers want to make the government’s other efficient home-retention programs permanent too, says Brendan Kelleher, associate director of loan administration at the Mortgage Bankers Association. 'Many lessons were learned from the Covid-era [measures], which allowed more borrowers to stay in their homes,' he says. 'With the high-interest rate environment and a potential rise in unemployment, I think the FHA wants to get ahead of defaults and have more foreclosure prevention programs in its toolkit.'"

"Included in those lessons, Kelleher says, is the importance of keeping the application for assistance as simple as possible. He says that by streamlining the applications and limiting the amount of paperwork and proof of hardship that borrowers must provide, these programs have been more successful in preventing foreclosure. It’s a big improvement on the 'document-intensive' Home Affordable Modification Program (HAMP) that emerged after the 2008 housing crisis, he says."

"His colleague Justin Wiseman, vice president and managing regulatory counsel at the Mortgage Bankers Association, elaborates, noting that with HAMP, 'homeowners had to jump through many hoops to get approved. If we remove some of the restrictions, including requiring people to prove a reason for financial hardship, we’ll see these loss mitigation programs work much better.'"