UK Election, Qatar, Puerto Rico: Wealth Economic Update June 9, 2017

U.S. and World News

  • UKflag-518908074_360The decision to hold snap elections in the United Kingdom seems to have back-fired on Prime Minister Theresa May and her Conservative Party as they lost their majority with the Labour Party gaining significant ground in Thursday’s vote. In April, Theresa May decided to hold the snap general election in an attempt to gain a significant majority for her ahead of the Brexit negotiations but with the poor results there have been calls for her resignation. The split parliament could make Brexit negotiations with the UK’s European Union partners more difficult.
  • Four Arab states (Saudi Arabia, Egypt, the United Arab Emirates and Bahrain) have cut off diplomatic ties with Qatar, as well as closing air and sea routes. This marked a significant escalation of a rift between the Persian Gulf countries that has been brewing for a few months. President Trump stated that he wished to “de-escalate” the situation but appeared to support the isolation of Qatar, noting that his message against funding terror and extremism is being heeded by those other countries in the region.
  • Citizens of Puerto Rico are voting this weekend in a referendum on the island’s political status. There will be three choices on the ballot: statehood, “current territorial status” and independence. It’s not clear what would happen in the case of any of these choices winning decisively or how Congress would interpret the results. This is the island’s fifth referendum since 1898 and comes amid a crippling economic crisis.

Markets

  • Markets were mixed this week. The S&P 500 dropped by 0.27% and closed at 2,432. The Dow Jones gained 0.33% for the week and closed at a New All Time High 21,272. Year to date, the S&P is up 9.57% and the Dow is up 8.84%.
  • Interest rates edged higher this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.77% and 2.20%, respectively.
  • The spot price of WTI Crude Oil lost 3.80% this week, closing at $45.85 per barrel. Year to date, Oil prices have fallen 14.65%.
  • The spot price of Gold ended the week higher, closing at $1,267.45 per ounce. Year to date, Gold prices are up 10.45%.

 Economic Data

  • Initial jobless claims decreased by 10,000 from last week, coming in at 245,000. Most of the decreases in claims were attributed to California and Tennessee, reversing their increases last week. The four week moving average for claims moved up to 242,000.

Fact of the Week

  • The New York Stock Exchange (NYSE) has more than twice the number of listed securities as the NASDAQ exchange (8,500 vs. 3,100). Despite this difference, The NASDAQ, which lists mostly technology companies, averages more than double the daily trading volume of the NYSE (2 billion shares for the NASDAQ vs. 880 million for the NYSE). (Average daily trade volume based on 1-month average figure)

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

Climate, Illinois downgraded: Wealth Economic Update June 3, 2017

U.S. and World News

  • weather-171576532_360President Trump has announced that the United States will withdraw from the Paris Climate Accord. The landmark 2015 agreement between 195 nations aimed at fighting climate change and promoting clean energy, however Trump has been staunchly against the deal as he feels that it puts America at an economic disadvantage compared to many of the other countries in the agreement. While according to the language of the agreement makes it so the U.S. can’t officially withdraw until 2020, the administration says they will simply not enforce any of the provisions of the deal until that time. Trump added that the U.S. could begin negotiations to re-enter the Paris accord down the road or “a new transaction on terms that are fair to the United States, its businesses, its workers, its people, its taxpayers.”
  • Standard and Poor’s has downgraded the debt rating of the State of Illinois down to BBB- from BBB, one notch above ‘Junk’ status. This was the third downgrade of Illinois’ debt by S&P in the past year. Illinois is by far the lowest rated state and it is the only state that S&P has in the BBB tier and indications are that the rating could fall further in what was described as a ‘negative credit spiral’. Gabriel Patek of S&P noted, “If lawmakers fail to reach agreement on a budget with provisions designed to reduce the state’s structural deficit, it’s likely we will again lower the ratings.”

Markets

  • Markets ended the week on a positive note. The S&P 500 rose by 1.01% and closed at 2,430. The Dow Jones gained 0.69% for the week and closed at 21,144. Year to date, the S&P is up 9.87% and the Dow is up 8.48%.
  • Interest rates edged higher this week. The 5 year and 10 year U.S. Treasury Notes are now yielding 1.72% and 2.16%, respectively.
  • The spot price of WTI Crude Oil lost 4.14% this week, closing at $47.74 per barrel. Year to date, Oil prices have fallen 11.13%.
  • The spot price of Gold ended the week higher, closing at $1,279.17 per ounce. Year to date, Gold prices are up 11.47%.

 Economic Data

  • Initial jobless claims increased by 10,000 from last week, coming in at 248,000. Most of the increases in claims were attributed to California and Tennessee. The four week moving average for claims ticked up to 238,000.
  • The Headline PCE index (measure of inflation) rose 0.2% in April, in line with expectations. Over the last year, PCE inflation has risen 1.7%.
    • Core PCE (excludes food and energy, preferred inflation measure of the Federal Reserve) rose by 0.15% in April, slightly better than expectations of 0.1%. Core PCE has risen 1.5% over the last 12 months.
  • The Case Shiller home price index rose by 0.9% in April, in line with expectations. Prices rose in all 20 cities measured with Minneapolis (+1.3%), Detroit (+1.2%), Seattle (+1.1%) and New York (+1.1%) showing the largest monthly increases. Over the last 12 months, home prices as measured by the index have risen 5.9%.

Fact of the Week

  • Apple (AAPL) reported cash and cash equivalents of $256.8B at the end of Q1. That is enough cash to purchase any company held in the S&P 500, outside of the top 10 holdings. Alternatively, Apple could purchase all of the bottom 45 companies held in the S&P 500. (Based on Market Capitalization)

Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Steve Meves, CFA® – (630) 801-2217 – smeves@oldsecond.com
Brad Johnson CFA®, CFP® – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder, SVP – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg CFP® – (630) 966-2462 jrunnberg@oldsecond.com
Ed Gorenz, VP – (630) 906-5467 ejgorenz@oldsecond.com

Visit Old Second Wealth Management

Non-deposit investment products are not insured by the FDIC; not a deposit of, or guaranteed by, the bank; may lose value.

The Fixer-Upper Mortgage

Roger Legner, Vice President—Residential Lending legnerr_in0006qc

It seems like there is at least one in every neighborhood: a home in need of some TLC. Whether it’s a property that might have been neglected due to the foreclosure process, a property that was owned by someone who allowed the home to succumb to deferred maintenance or perhaps it’s your own property and in need of a facelift, the Federal Housing Administration (FHA) 203(k) Rehabilitation Mortgage was intended to provide financing in any of these situations.

203(k) Mortgage Programs: Standard and Limited (or Streamlined)

The two programs are open to both homeowners who want to refinance and buyers interested in fixing up a home.

Both programs:

  • Require the property to be owner occupied—they are not for investors who want to flip the home
  • Have low-down-payment requirements (3.5%) and, even then, the money may be gifted to the applicant
  • Are underwritten to standard FHA credit and income guidelines
  • Can be combined with any other FHA program available that the borrower may qualify for

The standard version of the 203(k) loan is used for more substantial repairs. These include things like moving walls, adding a room or repairing structural damage, in addition to cosmetic repairs. Essentially, this loan covers restoration that will exceed $35,000.

The limited, or streamlined, program is used for more basic repairs, such as replacing or fixing a roof or furnace, replacing windows, remediating mold or lead-based paint, purchase and installation of appliances, finishing a basement or improving accessibility for disabled inhabitants, etc. It’s limited to a maximum of $35,000.00 of repairs (including contingency reserve).

Since the purpose of both loan programs is to rehabilitate homes, the mortgage proceeds cannot be used to add luxuries like a pool or new outdoor kitchen, for example.

Go in With Open Eyes and Good Estimates

When using a 203(k) loan to purchase a home in need of repair, you are well-advised to walk through the property with a licensed contractor before submitting an offer. This helps ensure all the necessary repairs are accounted for and priced into your offer. It also helps to pay close attention during the appraisal and inspection phases of the purchase as well.

The program also requires borrowers to have licensed contractors bid on the work to be done. This is not a loan program for do-it-yourselfers.

Get Fixed Up Here

“Fixer-upper loans,” as 203(k) loans are sometimes called, are not a standard product. Many banks do not offer them, because they are quite a bit more complicated to close than conventional or standard FHA mortgages.

As a community bank, we have participated in the 203(k) program for years. We see it as another way to help our communities continue thriving while supporting homeowners and properties in need of a little extra TLC. We’d be happy to discuss the specifics of this program with you

When it comes to home-related financing, you can count on us to find a solution that fits your needs and helps you move on and into the home of your dreams. Contact me, Roger Legner, at 815-361-6469 or visit us online where you can begin your mortgage application right away, if you prefer. We can’t wait to talk to you about what we can do for you today.

Terms of Confusion: Straight Talk About Mortgages

Steve Weber, Executive Vice President—Residential Lending fullsizerender

It’s not you— it’s us, and we apologize. When it comes to talking about home loans, we sometimes forget that not everyone speaks the language of mortgages.

What sounds like code to you, often is—frequently it’s legal code. From 203 (k) loans to TRID, the mortgage process is riddled with references to the legal statures that lead to certain provisions, requirements or types of loan structures. To cope, we just start talking in shorthand. 

Deciphering Our Acronyms

Some of the most used terms within the industry are the hardest to understand. It’s not intentional. We just forget that we can lose you in the acronyms if you aren’t familiar with the language.

For instance…

APR (Annual Percentage Rate)

This is the total yearly cost of your mortgage, which is stated as a percentage of your loan’s amount. APR is not the same as your interest rate. The interest rate just refers to one expense. APR includes the cost of mortgage insurance (if you are paying it) and the loan origination fee or any points you paid. When you compare mortgage programs—or lenders’ rates—APR provides you with an apples-to-apples comparison to determine what will be most cost effective for you.

DTI (Debt-to-Income Ratio)

DTI is a key determinant in mortgage lending. We calculate it for every application. It’s used to qualify you for a mortgage by comparing your total monthly housing expense plus what you pay on your other debt obligations to the total amount of money you have coming in each month. The lower the DTI, the easier it will be for you to afford the mortgage amount you seek and typically, the easier it is for us to approve the request.

PMI (Private Mortgage Insurance)

Just for the record, PMI—which is also referred to as MIP under some loan programs—is the fee you pay if you buy a home with a down payment that is less than 20 percent of the purchase price, under most loan programs. The insurance is not on you, or your home, but on your ability to pay. What that means is that when a person puts down less than 20 percent, the loan is considered riskier for the lender. More risk means the higher the interest rate you are likely to be charged. But, mortgage insurance guarantees that the lender, or whoever ultimately holds your loan, will be paid even if the loan defaults. It also enables us to offer better terms than if you were to borrow without it.

These are just a few of the many terms and abbreviations that may crop up in a conversation during the mortgage application and approval process. As they do, please stop your lender. Call us out on our “secret” language and have us explain what we are talking about in plain terms. It’s your money and your home. You deserve explanations of the terms and conditions related to financing it.

When it comes to home loans, you can find your answers here. Contact us at 877-966-0202 with your questions or if you need an immediate definition, visit our online Mortgage Glossary. We can’t wait to talk to you about what we can do for you today.

What May Surprise You About Treasury Management at Old Second Bank

Juwana Zanayed, First Vice President/Director—Treasury Management

Juwana ZanayedIn today’s world, access to treasury management tools is beneficial to companies of all sizes. But, how you gain access to those tools, their level of sophistication and the support you receive once you sign up for them can vary greatly. At Old Second, we offer all the same big bank products, on a local level and with personal hands-on service.

At their most basic, treasury management products and services help your business in at least one of three ways:

  1. Increase cash flow through remote deposit or lockbox services
  2. Tailor treasury management services to reduce accounts receivables
  3. Streamline operations through improved efficiencies

As technological innovations have enabled more banks to offer these products to companies of all sizes, there has been a tendency for some of the larger banks to package these services into off-the-shelf solutions. There are some efficiencies to be gained from doing this—at least from a bank’s perspective. But, taking a one-size-fits-all approach to bringing treasury management products to mid- to small-sized companies isn’t always a more efficient option for each client.

For this reason, we customize the suite of services we offer to your firm’s needs and then scale those services to the size of your company, not the other way around. Taking a right-sized approach enables us to not only give more clients access to the latest innovations in treasury management as soon as they are available, it also ensures you only pay for the services that are right for you.

One-Stop Shop Thanks to a Team Approach

Each relationship manager has an in-depth understanding of and can suggest best practices in treasury management. This allows us to look at the customer relationship as a whole, drawing in experts from across different service areas of the bank as needed.

As a result of this approach, each client is assigned a dedicated team of experts—including a lender, treasury advisor and a wealth manager. Regardless of whom you reach out to on the team, each knows the history of your relationship and will take a hands-on approach to answering your questions and resolving any issues that may arise.

What You Need Today

In addition to treasury management and credit tools, including our BusinessManager® [DIRECT LINK to previous blog] product, we find what businesses are most in need of today is confidence that when they are transacting business online it’s secure.

Our commercial online banking platform allows you to manage your accounts twenty-four hours a day with secure access from any computer with Internet access.

For this reason, we provide our clients with access to multi-layered protection in a variety of ways. We use Trusteer Rapport, a security software, to protect online banking communication from being stolen by detecting malicious browser tampering. It can also remove existing financial malware from employee machines and prevent future infections.

Security Manager, is another software feature. It offers password authentication by generating single-use, text passcodes. Old Second also uses multi-layered security and encryption to keep bank and account information secure.

In addition, we offer two fraud prevention tools:

  • Positive Pay protects against fraud by validating each item on each check to ensure only authorized checks are cleared through your accounts.
  • ACH Fraud Protection blocks and filters information to protect against electronic fraud.

For more information our treasury management services click here. To determine which are appropriate for your firm—contact a commercial representative at 877-866-0202. We can’t wait to talk to you about what we can do for you today.

 

Wealth Management Weekly Update December 9, 2013

U.S. and World News

  • Japan has approved a ¥18.6 trillion ($182 billion) stimulus plan to offset a hike in sales tax that is due to go into effect in April. The government plans on using the new tax revenue to finance the spending and will forgo raising new debt. The cabinet expects the measures to add 1% to GDP and create around 250,000 jobs, although many economists aren’t as optimistic.
  • The state of Illinois’ Senate and House have approved an overhaul of the state’s pension system, one of the most underfunded in the country with an funding gap of almost $100 billion. The plan is designed to fully fund Illinois’ five pension systems by 2044 by saving an estimated $160 billion over 30 years with cuts and other measures. The state’s unions strongly oppose the proposals and intend to go to court to try to block them, although it is not clear if the unions actually have an alternative plan.
  • ?????????The House of Representatives has overwhelmingly passed legislation designed to discourage patent trolls from filing frivolous lawsuits by requiring them to disclose more information about who owns the intellectual property involved. The Innovation Act as it’s called, also requires judges to decide early on in the proceedings of a case whether a patent is valid, thereby potentially saving companies millions of dollars on discovery. The legislation now heads to the Senate.

Markets

  • Stock markets rallied on Friday to end the week mostly flat as the S&P 500 Index was unchanged, closing at 1,805. The Dow Jones Industrial Average was down 0.37% to close at 16,020. The S&P and the Dow respectively are up 26.57% and 22.25% year to date.
  • Treasury yields rose this week based on better economic data. The 5 year and 10 year treasury are now yielding 1.49% and 2.86% respectively.
  • The spot price of WTI Crude Oil rallied this week with prices rising by 5.37% and closing at $97.70 per barrel. Year to date, oil is now up 6.40%.
  • The spot price of Gold fell a bit this week, dropping 1.96% and closing at $1,228.81 per ounce. Gold is now down 26.65% this year.

 

Economic Data

  • Initial jobless claims fell from last week to 298,000 vs. consensus estimates of 320,000. The four week moving average for claims fell to 322,000. The Labor Department noted that while no states estimated claims, seasonal adjustment around the holidays may be affecting claims numbers.
  • The monthly nonfarm payrolls number increased by more than expected, showing gains of 203,000 jobs vs. expectations of 185,000. The unemployment rate fell to 7.0% vs. expectations of 7.2%. The labor force participation rate also saw a gain (although it remains near cycle lows) which is a positive sign. The strong data leaves open the possibility of a December Fed taper, although it is probably unlikely to occur before the end of the year.
  • Retail sales data over the Thanksgiving holiday weekend came in mixed. The National Retail Federation estimated that consumers spent $57.4 billion from Thursday through Sunday, which was down 2.7% from last year even with the number of shoppers increasing to 141 million from 139 million a year ago. Meanwhile, Adobe estimates internet sales on Cyber Monday climbed 16% from last year to a record $2.29 billion. Internet sales over the five-day Thanksgiving shopping period rose by 26% over last year to $7.4 billion.

Fact of the Week

  • The number of banks in the United States has dropped to below 7,000 for the first time since records began in 1934. The number of banks fell to 6,891 as of the end of the 3rd quarter from a peak of over 18,000. Reasons for the trend include consolidation and failure, while tighter regulation makes it harder to open banks.

 Please contact a member of the Wealth Management Department if you have any questions about this information.

Rich Gartelmann CFP® – (630) 844-5730 rgartelmann@oldsecond.com
Jean Van Keppel CFA® – (630) 906-5489 jvankeppel@oldsecond.com
Brad Johnson – (630) 906-5545 bjohnson@oldsecond.com
Joel Binder – (630) 844-6767 jbinder@oldsecond.com
Jacqueline Runnberg – (630) 966-2462 jrunnberg@oldsecond.com

Visit Old Second Wealth Management