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Inflation rose modestly last month, signaling that the U.S. economy might be feeling the effects of elevated tariffs. The Consumer Price Index increased 0.1% in May, bringing the year-over-year inflation rate to 2.4%. The monthly increase was less than the 0.2% tracked in April, but the annualized rate moved up from last month's 2.3% reading. Much of the growth in the most recent inflation report came from the shelter category, reversing a months-long downward trend in housing services costs. Food prices, from both grocery stores and restaurants, also jumped up in May, rising 0.3% on the month. Core CPI, which factors out food and energy prices, rose 0.1% for an annualized rate of 2.8%.The readings, released by the Bureau of Labor Statistics on Wednesday morning, appear to show few inklings of the tariff-induced price increases that policymakers — both at the Federal Reserve and elsewhere — have been warning about for months. In a speech last week, Fed Gov. Christopher Waller said that while the Trump administration's trade policies had not, to that point, had a noticeable impact on pricing, "that may change in the coming weeks."Just how the Fed might respond to an uptick remains to be seen and would depend on several factors including how high inflation rises, how quickly it gets there, how long it persists and whether it has any knock-on effects for the rest of the economy.Waller predicted tariffs would cause overall inflation to rise to somewhere between 3% and 5% during the next year or so before gradually trending back down toward the Fed's 2% target with a minimal uptick in unemployment. He forecasted a peak unemployment rate of about 5%, up from the current rate of 4.2%.Should this play out, Waller said he would support "looking through any tariff effects on near term-inflation when setting the policy rate" and could even see a "good news rate cut" — meaning one done because inflation is again on a sustainable downward path — later this year.But even Waller, who has been the most optimistic about the economic prospects of an elevated tariff regime, has said the Fed cannot adjust monetary policy until it has a clear view of where trade policy will settle. This puts interest rates on an effective pause at least until after the July 4 deadline for other countries to negotiate reciprocal tariffs with the U.S. Other Fed officials have expressed greater concern about higher imports having a more lasting impact on prices, pointing to potential supply-chain disruptions or opportunistic price hikes as potential ripple effects."The recent post-pandemic experience with high inflation could make firms more willing to raise prices and consumers more likely to expect high inflation to persist," Fed Gov. Lisa Cook said in prepared remarks last week.Many Fed officials have turned to readings of inflation expectations to get an early read on where prices might be heading and how confident the public is in the central bank's ability to keep price growth anchored. Waller has pointed to market-based readings — including hedging activity — as evidence that price expectations remain anchored over the medium and long terms. Fed Gov. Adriana Kugler said professional forecasts also appear to expect inflation to be around 2% after this year but noted there are some concerning findings in key consumer surveys that the Fed should be watching closely as it weighs its next move."Among data on inflation expectations, the most dramatic increases have been seen in the University of Michigan Surveys of Consumers," Kugler said, noting that the average expected inflation rate during the next five to 10 years is 4.2%. She added that, despite some critiques of the survey's findings and methodologies, it remains a "longstanding and important barometer of consumer sentiment, and I still monitor the signals it is giving us closely."The Fed's monetary policy arm, the Federal Open Market Committee, will meet next Tuesday and Wednesday to determine whether to change its interest rate benchmark or keep it at the current range of 4.25% to 4.5%. President Donald Trump has been urging the central bank to cut the rate.

Bloomberg News President Trump's efforts to unilaterally and radically reduce the workforce at the Consumer Financial Protection Bureau is teeing up a rarely-considered constitutional question: if Congress makes the laws and the president enforces them, can the courts intervene if they think those laws are not being enforced "faithfully?"Appellate judges overseeing the ongoing legal battle between the Trump administration's CFPB and the National Treasury Employees Union raised questions at a hearing this month about whether the president is upholding the laws passed by Congress. Specifically, Article II, Section 3 of the Constitution requires the president to "take care that the Laws be faithfully executed." Some legal scholars say the so-called "take care" clause places a fiduciary responsibility on the president to carry out the laws as Congress intended. But the Trump administration claims the president has wide discretion to implement the law — or not, if he chooses — and there can be no judicial oversight of the executive branch's discrete actions.  "What the Trump administration is doing is posing a difficulty to the courts that is breaking some new ground," said Peter M. Shane, distinguished scholar in residence and adjunct professor of law at New York University. "The separation of powers idea, in a general sense, is that Congress makes the law and presidents are supposed to take care that the laws be faithfully executed," Shane said. "That's what [President Trump] is arguably not doing."The appellate panel will rule on whether District Court Judge Amy Berman Jackson erred in issuing an injunction that stopped Russell Vought, the CFPB's acting director, and Mark Paoletta, the bureau's chief legal officer, from firing most of the bureau's employees through a government reduction in force, or RIF. Both hold other jobs in the Trump administration besides their CFPB posts; Vought is the director of the Office of Management and Budget, while Paoletta is OMB's general counsel.The NTEU sued Vought in February, challenging the RIFs under the Administrative Procedure Act, a 1946 law that provides a framework for how agencies create and enforce rules, and what actions can be reviewable by courts. The APA provides judicial review of agency actions with courts able to set aside actions found to be "arbitrary and capricious."  Andrew Kent, the Joseph M. McLaughlin chair and professor of law at Fordham School, said there is little case law or litigation around the Take Care Clause. "Courts say that the president has to faithfully execute the law, and if the president thinks the law is unconstitutional or the president doesn't like the policy, he still has to faithfully carry out the law," Kent said. In a recent law article, Kent and his co-authors explored the textual roots of the Take Care Clause, which date to medieval England and the colonial era. He argues that the president has a "fiduciary duty" to enforce the law in good faith and for the public interest.Garrett Epps, a law professor at the University of Oregon, agreed that the Trump administration's actions present a conundrum for the courts. The vast majority of scholars see the Take Care Clause "as a duty," Epps said. "One side claims that he has the power to do whatever he judges the law to be," Epps said. "The other side says, 'No, it's a duty or a limit on what the president does.'" Kent agreed that a president "simply saying I don't like this law, or undermining the law or destroying the law's effectiveness — that's not in the realm of what the president can do." "The executive branch is just straight up saying, 'We don't like this agency, we don't like this law, we don't like the policy," Kent said. "And that's not within the constitutional power of the president."  On May 16, the Trump administration defended its decision to fire up to 1,500 CFPB employees in oral arguments before a three-judge panel of the U.S. Court of Appeals for the District of Columbia. Eric McArthur, a Justice Department lawyer, said the president wanted to take the CFPB down to its "statutory studs," and that it requires just 200 employees to run the agency. In defending Trump's actions to gut the CFPB, McArthur claimed there can be no judicial oversight of the president's actions or inactions, which is he said would be akin to launching "a preemptive strike against the possibility that the bureau will fail to perform its statutory duties." "Under Article II, it is the president who is charged with taking care to ensure that the laws are faithfully executed," McArthur said. "And under the APA, courts have no license to engage in general legal oversight of the executive branch's implementation of the law." One of the arguments made by the Justice Department is that the judiciary — through the district court's injunction — is inappropriately intruding on the executive branch's control of the CFPB. "The preliminary injunction directly and substantially harms both defendants and the public interest by thwarting the Executive Branch from carrying out the President's directions at CFPB," wrote Yaakov M. Roth, an acting assistant attorney general, in a brief. "Plaintiffs may disagree with the President's and defendants' assessment about the appropriate size and priorities of CFPB, but such determinations are committed to Article II officials, not Article III judges acting on plaintiffs' policy preferences."Scott Pearson, a partner who leads the consumer financial services practice at Manatt, Phelps & Phillips, said the Trump administration is taking the view that the courts have no role in supervising the executive branch or the day-to-day operations of an agency. "How much do you have to do in order to take care that the laws are faithfully executed?" Pearson said. "Does that mean that you have to have enough staff to make sure that complaints are read the day that they're submitted? Or send the company the complaint  24 hours later? Where do you draw the line?"Moreover, the Dodd Frank Act of 2010 that created the CFPB gives the agency's director "quite a lot of authority over the hiring and firing of employees" and how work at the agency is divided up, Pearson noted. "There is one school of thought that says judges should be very limited in what they do, that it is their job to decide cases and to focus on resolving controversies, as opposed to looking over the shoulder of the administration and telling them how to run the agency," he said. "That's not their job." The CFPB is the primary federal regulator of financial products and services. It has supervisory authority over the largest banks and vast powers to regulate 18 consumer protection laws including the federal prohibition against "unfair, deceptive and abusive acts and practices." District court allegations Kate Judge, the Harvey J. Goldschmid professor of law at Columbia Law School, said that District Court Judge Amy Berman Jackson ran into problems getting truthful answers from the Justice Department about whether legally-required work is being done at the CFPB. But the Trump administration appeared to present conflicting facts, which the union claimed was an effort to mislead the courts. "The judiciary tends to defer to the DOJ's characterization of the underlying facts, and they  trust the attorneys to be forthcoming," Judge said. "One of the challenges is either the Justice Department doesn't have a clear account of the underlying facts or their account of the facts is inconsistent. And this is putting the judiciary in an incredibly difficult position in a host of cases."The NTEU argued that the Trump administration has been illegally stripping the CFPB of its functions, piece by piece, while falsely telling the court that legally-mandated duties are being performed. The union alleges that Vought hatched a plan in February to fire 90% of the agency's employees — and then created a record after-the-fact, specifically for the district court, claiming there was no formal policy to conduct a RIF.  "What's striking in this case is that the [Justice Department] is not even arguing anything special about executive power," said Epps. "And it's becoming clear to the judges that this administration does not regard itself as obligated to tell the truth to the courts."The union maintains that Vought's actions, taken together, amount to an effort to eliminate the agency, which can only be done by an act of Congress. The NTEU detailed in court documents how Vought hatched a plan to eliminate whole offices, divisions and units, and fire all employees, which was only stopped by the union's lawsuit. In February, Vought closed the bureau's Washington, D.C., headquarters, cancelled more than 100 contracts, fired 200 temporary employees and halted all enforcement and supervisory functions. Those actions, which the CFPB later claimed in court documents was part of the normal presidential transition process, were the first of a two-part plan to fire all the bureau's employees and shut down the agency completely."If DOJ attorneys can come into court and mischaracterize events, it could make a mockery of the judicial process and foreclose the opportunity for judicial review precisely in the circumstances when it is warranted and otherwise justified," Judge said.The Trump administration has been sued 269 times in just five months, with many of the lawsuits involving the president's power to hire and fire civil servants — including members of independent agencies. Last month, in a separate case, a district court judge blocked the Trump administration from dismantling the Education Department and ordered 2,000 employees of that agency be rehired. In May, the Supreme Court ordered two fired members of the National Labor Relations Board and Merit Systems Protection Board to remain off the job pending resolution of their suit against the administration. Nixon and "non-reviewability"The Justice Department is claiming that courts have limited power to review actions taken at the discretion of the executive branch. Yet the Take Care Clause was cited by District Court Judges Gregory Katsas and Naomi Rao — both Trump appointees — during the May 16 hearing in the NTEU case, suggesting that the CFPB's union had an Article II claim.Judge Katsas mentioned the Take Care Clause in oral arguments, telling the union's lawyer, Jennifer Bennett: "Your claim is they are not going to do a bunch of things that the statute requires them to do [like] just run the agency. And therefore, they're violating the Take Care Clause."Meanwhile, Judge Rao questioned whether the CFPB had passed a law or policy to eliminate the agency. Without a formal policy, she stated: "Maybe it's a violation of the Take Care Clause."Rao asked whether the NTEU's case was akin to a 1971 landmark Supreme Court decision in Swann v. Charlotte-Mecklenburg Board of Education, in which the Nixon administration refused to enforce mandatory busing laws. Kent cited a separate case, Adams v. Richardson from 1973, in which the DC Circuit ruled that an agency had not adequately enforced Title VI of the Civil Rights Act of 1964."You cannot categorically decline to enforce a statute," said Kent. "That's why they raised the busing issue in the CFPB case."Another case that provides a framework for understanding the limits of presidential power is a 1952 Supreme Court decision in Youngstown Sheet & Tube Co. v. Sawyer that found President Truman lacked the authority to seize steel mills during the Korean War to prevent a labor strike because the action was not authorized by Congress or the Constitution. McArthur told the three-judge panel that CFPB employees must bring their claims to the Merit Systems Protection Board, which adjudicates removals and suspensions of civil service employees. But in February, Trump fired two Democratic members of the MSPB. A majority of Supreme Court justices ruled in an unsigned order in May that the president could remove the officials "because the Constitution vests the executive power in the president."Since the hearing, CFPB employees are expecting RIF notices will be sent again when the DC Circuit panel releases its opinion. Currently, CFPB employees are being paid not to work but have been told to be in "work-ready" mode. In May, the CFPB published "FAQs about separating from the CFPB," on Beam, the bureau's internal message system, according to a CFPB employee who asked to remain anonymous for fear of retribution. The panel has been put in a difficult position because the Take Care Clause has historically not been viewed as a "justicially enforceable obligation," Shane said. "Constitutionally, what the president is supposed to be doing is make sure that agencies enforce the law faithful to the statues that have assigned them, and the duties these agencies have are duties assigned by Congress," Shane said. "A decision to simply not enforce the statute at all is a violation of the APA."If your view of the world is that the president can take everything over himself, the implication is that when an agency does something, it is dependent on the president not taking it over and letting him do something, and that's what Trump thinks he's allowed to do," Shane continued. "And that's turning the Constitution upside down."

As non-prime mortgage assets continue to make up a significant portion of mortgage-backed securities (MBS) deals, Angel Oak Mortgage Fund is preparing to issue $350.2 million in MBS secured by a portfolio dominated by mortgage loans considered non-qualified or exempt from ability to repay rules.Non-qualified mortgages account for most of the loans, at 55.2%, while ATR/qualified mortgage assets represent the smaller portion, 44.8%, according to Kroll Bond Rating Agency, the only agency to rate the deal, which is slated to close on June 17, according to Asset Securitization Report's deal database.The deal, Angel Oak Mortgage Trust 2025-7 will repay notes through a pro-rata, sequential hybrid structure, with a final maturity of June 2070, according to KBRA. The rating agency found that excess spread, representing 1.1% of the pool balance, will provide additional credit enhancement.Every month excess cashflow available up to the amount of the current period and cumulative realized losses will pay down the most senior classes of outstanding certificates on a sequential basis, KBRA said. Aside from preventing write downs, KBRA says, using excess spread this way will preserve and replenish subordination.Managers include Bank of America Merrill Lynch, Deutsche Bank Securities, Goldman Sachs and J.P. Morgan Securities.The database also finds that the A1 tranche, AAA-rated notes offer a coupon of 5.75%. Further down the deal structure the A2, AA+ rated notes carry a coupon of 5.95%, the A3 tranche, A-rated notes have a coupon of 6.10% and the BBB-rated notes offer 6.48%.As for the portfolio, KBRA found that bank statements going back 12-23 months accounted for the largest portion of underwriting in the pool, at 45.3%. Following that, debt service coverage ratio underwriting accounted for 30.8%, the rating agency said. The loans had an average balance of $484,987, and borrowers had an original FICO score of 753 on a weighted average basis.On a non-zero WA basis, borrowers had a median annual income of $271,653, with liquid reserves of $377,853, also on a non-zero WA basis.KBRA assigned ratings of BB- and B- to the B1 and B2 tranches, respectively.

Sheila Bair, former chair of the Federal Deposit Insurance Corp., in 2023. Bloomberg News The former Chair of the Federal Deposit Insurance Corp. Tuesday said she is concerned that the current push to deregulate banks could lead to a calamity in the financial system down the road.Bair, speaking before the Brookings Institution Tuesday, expressed concern with what she sees as reactive policy overcorrections under both Democratic and Republican administrations."We had [the Great financial] crisis, arguably the pendulum swung too far in favor of regulation," Bair said. "But now we're seeing the pendulum go the other way … so I just fear that we're going to go too far the other way now and [that will] lead to another crisis, and back it goes."Bair, a Republican who was nominated to chair the FDIC by then-President George W. Bush, criticized the pace of regulation following the financial crisis, saying it is "embarassing" that reforms like the Basel III endgame capital standards have been unfinished for nearly two decades. "Most of that response to the 2008 financial crisis — that should have been put to bed a long time ago," Bair said.Bair also noted that deregulatory periods have occurred across administrations of various parties, citing both the Clinton and Bush eras as periods in which the pendulum swung towards lighter-touch regulatory approaches. In many cases, she noted, these trends overcorrect for what came before them, noting the deregulation of derivatives and the weakening of bank capital standards set the stage for the 2008 crisis. Bair also pushed back on the idea that Dodd-Frank was a relic of a bygone era. Bank industry allies — including Rep. Andy Barr, R-Ky., who serves as chair of the House Financial Services Committee's financial institutions panel — have criticized Dodd-Frank as a blunt and onerous tool that did not adequately tailor regulation to bank size. Federal Reserve Vice Chair for Supervision Michelle Bowman called for a review of the law's regulatory reforms in February, calling them "backward-looking." Bair appeared to agree with critiques of post-crisis reform, but argued that many of the problems that Dodd-Frank was designed to solve would return if the Dodd-Frank reforms are rolled back. "Regulation … should be forward looking, it should be dynamic, it should be responsive to the issues that we see today — but so many of those issues are … exactly the same issues that we confronted in 2008, like excessive bank leverage, like risk-based rules that create distorted incentives about where you're going to allocate your capital," she said. "These are just issues … that are creating instability in our financial system, and people need to remember what happened in 2008, or need to remember those lessons in crafting any kind of a future regime."The concept of agency independence was another theme throughout Bair's remarks at the Brookings event. An executive order by President Trump in February wrested some control away from independent agencies like the FDIC by compelling the agency to submit draft rulemakings to the White House's Office of Management and Budget for review. When asked what worries her most about the loss of supervisory independence, Bair said she believes the current approach will have a chilling effect on supervision. "I think it will make the examiners timid," she said. "[Examiners are] highly sensitive to the tone at the top … because they will read whatever the statement you made and they'll take it maybe farther than you want to go."During her time at the FDIC, Bair recounted incidents where the White House had made its policy preferences known, leaving FDIC staff uncomfortable wielding their power in a way that is contrary to those preferences because they weren't sure whether the administration had their back. "I think robbing the independence of [agency] leadership and ability to speak with authority — 'These are my policies, this is what we're going to do, at least during my tenure,'" she said.  "Taking even that away, you're going to have a lot of scared, timid examiners."The FDIC's unresolved sexual harassment and workplace cultural issues also worried Bair. The FDIC faces festering workplace culture issues and staff attrition that threatens its ability to fulfill its regulatory responsibilities, according to a March report by the agency's Office of Inspector General. Bair said focusing on staff morale is crucial, because, "demoralized agencies don't perform." Noting the FDIC used to be ranked a top agency for staff satisfaction, she says the issue needs to be addressed for FDIC to function properly. Bair also expressed dismay that the current administration had, in her view, not prioritized addressing the workplace issues at the agency, despite some of the same leadership having raised the issue in the last administration. Acting Chair Travis Hill — previously the agency's vice chair — was vocal about the issue when the FDIC was controlled by Democrats, but Bair said the issue has not been adequately addressed during the Trump administration."I think there were real issues, but I also think it was a political cudgel that seems to have now gone away, because we have people with different political affiliations in leadership positions," she said. "And it just isn't getting priority after making a big issue of it, now that they're in control … and I'm a Republican, it just doesn't seem like a priority anymore, and that does upset me a lot."

Bloomberg News Cara Petersen, the principal deputy enforcement director at the Consumer Financial Protection Bureau, has resigned from the agency, stating in an email to staff that the bureau's leadership under the Trump administration has "no intention to enforce the law in any meaningful way."On Tuesday, Petersen sent an email to the CFPB's enforcement staff announcing she was leaving the agency after nearly 15 years. She served as the de facto acting enforcement director for the past four months after the resignation in February of Eric Halperin, the former enforcement chief, earlier this year. The Trump administration has made a pointed effort to reduce the footprint and manpower at the CFPB since President Trump took office in January. CFPB Director Russell Vought is seeking to fire 90% of the CFPB's employees and is engaged in a contentious legal battle with the National Treasury Employees Union, which is trying to block the administration's restructuring plans, which it says amounts to a dismantling of the agency. Very little enforcement is being done at the agency, which has dismissed more than 20 pending enforcement cases. "It has been devastating to see the Bureau's enforcement function being dismantled through thoughtless reductions in staff, inexplicable dismissals of cases, and terminations of negotiated settlements that let wrongdoers off the hook," Petersen wrote in an email, obtained by American Banker. Petersen called out the Trump administration for its actions toward the agency since taking office in January. Her departure means there is no current acting enforcement director at the agency. Acting CFPB Director Russell Vought and Chief Legal Officer Mark Paoletta have sought to cut the CFPB's staff to just 200 employees, down from 1,750 before Trump took office in January. Since the Trump administration took over the agency, the CFPB has dramatically cut enforcement and supervision and halted all oversight of nonbanks and Big Tech firms.Vought and Paoletta eliminated the CFPB's litigation support team and front office positions, which impacted the enforcement division's ability to conduct investigations. Though Petersen served as the acting head of enforcement, she was not consulted on widespread reductions-in-force, or RIFs, that were planned at the agency. "I have served every Director and Acting Director in Bureau's history and never before have I seen the ability to perform our core mission so under attack," she wrote. "Our job has always been to root out misconduct, compensate consumers that were harmed, and deter illegal conduct in the consumer finance sector. We stand on the front lines protecting consumers and the economy against the risks and harms of another financial crisis."Petersen was named principal deputy enforcement director in 2017 after serving as an acting regional director of the northeast region. She served in a leadership role in the first Trump administration and the Biden administration. The CFPB declined to comment on Petersen's departure or her resignation message. "It is with a heavy heart that I leave my dream job, and the agency I love, but I can no longer effectively lead Enforcement in these circumstances," Petersen said in the email.The CFPB's staff is waiting for a ruling by a three-judge panel of the U.S. Court of Appeals for the District of Columbia on whether a district court erred in issuing an injunction that stopped the CFPB leadership from cutting roughly 1,500 employees through a government RIF.  

Regulators decision to lift Wells Fargo's asset cap after seven years leaves the San Francisco-based bank better positioned for growth but won't result in significant near-term gains, CFO Michael Santomassimo said. Eric Thayer/Bloomberg Wells Fargo has more flexibility, and its bankers can go about their business in a more "front-footed" fashion, now the Federal Reserve has lifted the asset cap that long constrained the $1.9 trillion-asset company's growth, according to Chief Financial Officer Michael Santomassimo.The results of that more assertive posture should include stronger growth and an improved return on tangible common equity, Santomassimo said Tuesday at Morgan Stanley's U.S. Financials Conference in New York. But he was quick to add the rewards would accrue over time, not as a lump-sum benefit."When you look across the businesses, there should be really good growth opportunities in really all of them, mortgage aside," Santomassimo said. "That will play out over a long time. We always are a little bit cautious here. It's not a light-switch moment. It doesn't happen, Tuesday the asset cap is off, Wednesday that growth accelerates."Santomassimo's comments echoed those of CEO Charlie Scharf, who said in a June 3 appearance on CNBC's "Squawk on the Street" that the asset cap's termination changed only the perception of Wells as "being in the penalty box," and that enhanced profitability would take time."The reality is, going forward, as time evolves and as the world evolves, we have the opportunity … to expand in a very methodical way, built on the processes we built," Scharf told host Jim Cramer. Santomassimo provided a hint Tuesday of what that methodical approach will look like: Improving and expanding the bank's branch network, along with increasing its emphasis on investment banking and capital markets.Wells Fargo's branches are particularly important given the role they play driving expansion in wealth management and consumer banking, Santomassimo said. Michael SantomassimoWells Fargo He noted that Wells has been refurbishing many of its branches. "We're through 1,500 or close to 2,000 of them," Santomassimo said." I think we'll refurbish 750 of them this year alone. We're going to work our way through that."And he said that Wells is investing in its branch staff. "We're adding wealth advisors to service the affluent opportunity," Santomassimo explained. "The growth that we should see should be significant over a long period of time. … Not only growing the core checking accounts and banking business, but also cards, wealth and the other things we can do with clients coming out of that channel."Santomassimo's comments indicate Wells' has reached something of an inflection point with regards to branches, after closing more than 1,600 offices over the past seven years.Deposits are an area where Wells is likely feeling a special urgency. Its deposits totaled $1.34 trillion at March 31, roughly the same amount that the company reported following the first quarter of 2019.Most of Wells' big-bank competitors managed to increase their deposit books substantially over the same span. JPMorgan Chase, for example, reported a 56% increase in deposits, to $2.4 trillion. Bank of America grew its deposits by 43%, to $2 trillion. In a research note last week, Wolfe Research analyst Steven Chubak estimated Wells "missed out" on roughly $540 billion of deposit growth since 2019 because of the asset cap. Commercial deposit growth has been particularly constrained, according to analysts.Santomassimo also spoke Tuesday about Wells' opportunities in capital markets, which has been "the most constrained of the businesses, given the asset cap."'We just haven't been able to allocate the balance sheet we would like, so that business will have more flexibility now that the asset cap is gone," he said.In recent weeks, analysts have predicted that Wells will use the end of the asset to ignite growth in its trading business. Morgan Stanley analyst Betsy Graseck predicted in a June 4 research note that "an unconstrained Wells will put balance sheet and capital to work in markets, supporting and financing client trading activity."But even in capital markets, growth will be slow and steady, with Wells "systematically investing in technology and people to build out the right capabilities," Santomassimo said.In a recent interview, Edward Jones analyst James Shanahan predicted that Wells would have a keen interest in building its markets business."Equity and debt capital markets is an area where they could deploy capital immediately and achieve very favorable risk-adjusted returns," Shanahan told American Banker. "There isn't really a significant amount of loan growth going on right now, certainly in the world of [commercial-and-industrial] loans," Shanahan said. "There's a lot of other areas where there are going to be opportunities to grow. The way I'm thinking is they will be as cautious and prudent as they've ever been, particularly as regards to credit risk."Citigroup analyst Keith Horowitz wrote in a recent research note that economic uncertainty and tepid demand for loans, especially commercial loans, has done more to hamper new business development since the start of 2025 than the asset cap has."As we think about the implications for this year, we don't expect the asset cap removal to spur a sudden increase in loans," Horowitz wrote.The Federal Reserve imposed the asset cap on Wells in February 2018, limiting the size of its balance sheet to about $1.9 trillion. The cap, a first-of-its-kind punishment, was imposed after the disclosure of a massive phony accounts scandal. The cap crimped numerous aspects of Wells Fargo's operations, in addition to stalling deposits. It led to attrition in the bank's wealth business and impacted commercial loan growth. "In many markets across the country, we just don't have the share we think we should have," Santomassimo said Tuesday.

CrossCountry Mortgage will pay nearly $2.1 million to a former employee over age discrimination claims after losing an appeal in late May.Cheryl Shephard, a former senior accountant at CCM, filed a lawsuit in 2022 alleging she was terminated from the role she had held since 2016 because of her age. She was 65 at the time.CCM has denied the allegation, saying she was let go as part of a cost-saving reduction in force and, in part, due to poor performance. Before her termination on June 20, 2022, Shephard's duties were gradually reassigned to Adam Scher, a 29-year-old accounting manager hired earlier that year. Records show four other younger employees were also hired into the accounting department between February and June 2022, appearing to contradict CCM's cost-savings claim.Shephard and her legal team presented proof that convinced an Ohio jury that age played a factor in the accountant losing her job. As a result, the jury awarded Shephard $544,997 in compensatory damages for back pay, front pay, pain and suffering and mental anguish, over $1 million in punitive damages, and monies to cover legal fees.CrossCountry challenged the outcome on six grounds, including questioning parts of the trial process, which caused "jury confusion." However, on May 29, the Ohio Eighth District Court of Appeals in Cuyahoga County sided with the previous ruling, noting the review of the trial transcripts "shows that Shephard put forth sufficient direct and indirect evidence to establish a prima facie case of discrimination." "Reasonable minds cannot come to one conclusion favoring CCM because there is sufficient evidence to support every element of Shephard's age discrimination claim," the appeals court wrote.CrossCountry declined to comment on legal matters. Mortgage Professional America first reported on the decision of the appeals court.The mortgage lender has faced a slew of litigation in recent years, though most suits have been related to alleged poaching claims against the firm.Earlier this year, CCM and Loandepot moved to settle two separate poaching and theft of trade secrets lawsuits. Loandepot filed the complaints in 2022, accusing its competitor of raiding its branches and taking with employees thousands of confidential company documents. CrossCountry and American Mortgage Network also reached an undisclosed settlement over poaching-related claims. 

Growth in loan products across the board in anticipation of the annual home purchase season pushed mortgage credit to its loosest in over two-and-a-half years, the Mortgage Bankers Association said.However, rate lock activity fell nearly 6% in May from April, as conforming mortgage rates rose over 16 basis points during the month, a separate Optimal Blue report noted.The MBA's Mortgage Credit Availability Index increased 2.1% in May to 105.1 as the various components reached levels not seen in years. The upturn follows two consecutive months where the index was at 102.9. In May 2024, the MCAI was at 94.1. "Credit supply increased to its highest level since August 2022, driven by growth in the supply of both conventional and government loans, as lenders offered a greater variety of loan types to support the spring homebuying season," said Joel Kan, vice president and deputy chief economist, in a press release.The conventional MCAI was at its highest since June 2022, up by 1.6 compared with April."The jumbo index rose by 2.1% over the month to the highest level since February 2020, as lenders increased their jumbo loan offerings in May and growth in [non-qualified mortgage] loan programs continued," Kan said. The other part of the conventional index, for conforming loans, only rose 0.5%.What is causing rate lock volume to slowBut the lock data for May is finding homebuyers are reluctant to forge ahead.The Optimal Blue Market Volume Index was at 102 for May, which was a 5.9% month-to-month drop. Along with the monthly fall, the index was down 5.3% compared with May 2024.May's purchase MVI of 86 was virtually unchanged from April but down 8.6% from a year ago.Refinancings made up 16% of May's lock volume, down 504 basis points from the prior month. Cash-out activity was 10% lower than in April, while rate-and-term was 44%, although both were higher compared with May 2024.The Optimal Blue expanded Market Advantage report noted bank statement loans made up 34.3% of non-QM rate lock activity, down 283 basis points from one year prior, while investor/debt service coverage ratio locks were at 27.5%, 46 basis points lower."All other" non-QM loan types were up 329 basis points from May 2024, at a 38.4% share.What is happening with government-guaranteed programsThe MBA's Government MCAI reached its highest level since November 2023, up 2.9%. "Last month's increase in the government index was driven by more offerings of FHA and VA [adjustable rate mortgage] loans, along with streamline refinance loan programs," Kan said.Optimal Blue's rate lock data showed government and nonconforming activity all increasing year-over-year, although for Federal Housing Administration and Department of Veterans Affairs loans, the share was down versus AprilConforming mortgages made up 51.9% of rate locks in May, up 92 basis points from the prior month, but down by a whopping 532 basis points compared with May 2024.Nonconforming volume was up 339 basis points from the prior year to a 16.4% share, FHA, up 123 basis points to 19.7% and VA rose 57 basis points to 11.4%.How first-time home buyers are affected"Rising mortgage rates are squeezing borrower affordability, while tighter spreads are putting pressure on lenders in the secondary market," said Brennan O'Connell, director of data solutions at Optimal Blue, in a press release. "With the brief window of affordability relief now closed, the new data shows first-time buyers are feeling the strain, with modest declines in their share of conforming and FHA loan locks."First-time homebuyers made up 68% of FHA locks, down 2% month-to-month, and 42% of conforming locks, down 1%; for VA, this was up 1% from the prior month to a 48% share of locks.

Following a steady rise in filings in the first few months of the year on the heels of federal policy changes, total foreclosure numbers eased in May, even as a key metric continued trending upward. A foreclosure filing appeared in one out of every 4,009 U.S. properties last month, representing a total of 35,498 units nationwide, according to Attom's monthly report. The total decreased 1.5% from the 36,033 homes in April with a default notice, scheduled auction or repossession filed against it. On a year-over-year basis, though, May numbers were higher by 8.8%, up from 32,621.    "Foreclosure activity in May reflected a mixed picture with fewer starts but a continued rise in completed foreclosures," said Attom CEO Rob Barber in a press release. "This suggests that while fewer new defaults are being initiated, lenders may still be working through a backlog of existing cases."What may be behind rising foreclosure completionsThe latest numbers arrive after researchers at several housing data groups regularly reported activity surging throughout the first quarter after a Department of Veterans Affairs foreclosure moratorium expired at the end of last year. Starts, auctions and completions on VA loans all posted noticeable spikes to start 2025 following termination of the relief measure, with some volumes growing by their fastest pace in decades. The end of the moratorium was followed by full dissolution of the Veterans Affairs Servicing Purchase loss-mitigation program in May. Last month, though, lenders started the foreclosure process on 24,165 properties compared to 25,265 in April, a drop of 4.4%. Despite the monthly decrease, May starts were still higher by 8% from 22,385 one year earlier. On the other end, foreclosed properties repossessed by lenders accelerated 7.4% to 3,844 from 3,580 in April. Total completions in May also leaped 33.5% from 12 months prior, when it came in at 2,879.The May pullback in starts may indicate servicers have managed to successfully make their way through the sudden increase of new cases, with future numbers likely to reflect normalized conditions. An ongoing uptick in completions, though, would present worrying signals of economic stress to homeowners, including military veterans. Negotiations to introduce a new partial-claims program that would succeed VASP are currently underway in Congress, but the elimination of foreclosures is not featured in the proposal. Recent reports from ICE Mortgage Technology point to growing stress among borrowers in other lending segments that move foreclosure rates higher as well. "We'll be watching closely in the months ahead to see how these trends evolve," Barber said. Where are foreclosures occurring most frequently?Delaware led the country with its foreclosure rate of one in every 2,313 properties. Florida, where one out of every 2,536 homes had a foreclosure listing, came in second, followed by Illinois, Nevada and Indiana with rates of one in 2,668, 2,747 and 2,983 units, respectively.When comparing metropolitan areas with populations of 500,000 or more, Florida accounted for the three cities with the highest rates of foreclosure: Lakeland, Cape Coral and Jacksonville. The three states with the most starts in May were Texas, Florida and California. Texas and California also topped the list in the number of lender repossessions last month, with Pennsylvania in the third spot. 

Housing prices decelerated to their slowest growth rate in two years, offering positive signals for consumers looking to buy a home in 2025, according to a new report from Intercontinental Exchange.ICE Markets' latest Home Price Index showed housing values were up just 1.4% in May year-over-year. Seasonally-adjusted prices fell by 0.01% compared to a year ago, the first dip since 2022. The slowdown was most concentrated in the South and West where home prices have dropped in cities like Austin, Texas, and San Francisco."We continue to see an inflection in the housing market as home-price softening expands beyond the Sunbelt into the West," Andy Walden, head of mortgage and housing market research, said in a statement. "With inventory levels beginning to normalize across much of the country, prospective homebuyers are finally beginning to see some long-anticipated price relief."The drop in home prices is being driven by a combination of steady construction and weaker demand. The number of homes for sale across the country has increased 30% from last year, according to the report. Among the nation's 100 largest real-estate markets, 37 of them have either returned to or exceeded prepandemic housing inventory levels. Most of this increase has been centered in the Sunbelt and the West. California in particular has seen major increases in the number of available homes for sale, with cities like Oxnard and San Diego seeing the number of homes for sale up 70% compared to last year.At the same time, higher mortgage rates and broader economic worries about tariffs are likely making some people wary about making major home purchases. The University of Michigan's index of consumer was 52.2 in May, the lowest since July 2022, suggesting that buyers might be uncomfortable making big-ticket purchases given the potential uncertainty of tariffs and a near-term recession.The biggest drop has come in condominium prices, which were down 0.7% nationwide compared to a year ago, according to the ICE report. The decline was most pronounced in Florida, where rising insurance and maintenance costs have hurt affordability. This year, a new law took effect in the state requiring condos and other multifamily units to conduct more safety inspections in response to the 2021 collapse of a condo in Surfside. In response, many condo associations hit their residents with high fees to pay for the inspections, driving up costs for the owners. As a result, many owners have been trying to sell their condos, but buyers have been hard to find."When you take money and put it to homeowners association fees, you have less money to put towards mortgage and insurance," Walden said in an interview.Still, the nationwide slow-down in prices could be a good thing for consumers who are looking to get into a new home this year. Walden expects this trend could continue into the near future."The needle is moving away from the sell-side to a little more attractive buy-side," he said.