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Sales of previously owned U.S. homes rose in January by the most in nearly a year as buyers took advantage of lower mortgage rates at the start of 2024.Contract closings increased 3.1% from a month earlier to a 4 million annualized rate, after upward revisions to the prior four months, according to National Association of Realtors data released Thursday. While the pace is the highest since August, it's still well below that seen in the years leading up to the pandemic.Mortgage rates started out the year below 7%, continuing a months-long decline on expectations that the Federal Reserve will cut interest rates this year. However, officials have repeatedly indicated they're in no rush to lower borrowing costs, which has sent mortgage rates higher in recent weeks.After the resale market ended last year as the worst in nearly three decades, NAR sees sales rebounding in 2024 as rates are expected to come down."While home sales remain sizably lower than a couple of years ago, January's monthly gain is the start of more supply and demand," said NAR Chief Economist Lawrence Yun.The number of previously owned homes for sale climbed to about 1 million last month, the highest for any January since 2021. At the current sales pace, selling all the properties on the market would take three months. Realtors see anything below five months of supply as indicative of a tight resale market.Still, inventory remains relatively limited, which is keeping upward pressure on prices. The median selling price advanced to $379,100 from a year ago, the highest ever for January and marking the seventh month of year-over-year price gains.Cash SalesCash sales represented 32% of total transactions, the highest in nearly 10 years. Yun noted that could be a factor to edge out other buyers in multiple-offer situations, and also observed that stock prices and home equity valuations are near record highs. Investors, who often purchase with cash and are therefore less sensitive to mortgage rates, made up 17% of the market.Properties remained on the market for 36 days, up from 29 days in December and the highest since the start of 2020. Yun also said that distressed, or short sales, are starting to pick up but remain very low.Existing-home sales account for the majority of purchases and are based on contract closings. Data on new-home sales, which reflect contract signings, are due next week. NAR revises its data back a few years every January to account for updated seasonal factors.Separate data Thursday showed initial applications for U.S. unemployment benefits fell to the lowest in a month last week, underscoring continued strength in the labor market that has helped sustain demand for housing.

Homebuyers must heed the risk of hail after it caused the largest percentage of insured property loss last year, a new CoreLogic report warns. Hail, along with straight-line winds and tornadoes, are the severe convective storm activity which caused insured loss in 2023 on par with a single major hurricane, the firm found. The costs are amplified by construction material and labor expenses which have grown 38.5% since 2018."Multiple factors, such as interacting climate and weather patterns, inflation and migration all have an impact on the unprecedented amount of insured loss caused by severe convective storms in 2023, and it's an important trend to pay attention to," said Jon Schneyer, catastrophe response director at CoreLogic, in a press release. That assessment comes as residential insurance premiums are skyrocketing, dampening some origination activity in coastal communities. Insurance companies have left California and Florida markets over the rising frequency of natural disasters and the climbing costs to clean up. Another factor is "social inflation" in states like Florida where rampant insurance lawsuits have driven claims up, CoreLogic Chief Actuary Howard Kunst added in emailed comments. No matter the cause of rising premiums, homeowners are paying steep prices, and experts say mortgage applicants have dropped their housing bids once they've realized higher insurance costs. The average nationwide premium was around $1,700 last year, according to the Insurance Information Institute. Floridians meanwhile pay on average $6,000 for coverage. In severe convective storm activity, more than 10 million homes last year were hit with 1 inch or more of hail between last March and November, according to CoreLogic. The firm said it recorded 141 days last year with hail of 2 inches or greater, the highest figure in 20 years. The pellets of frozen rain damage roofs, home sidings and windows, which can force homeowners to undertake significant repairs to fix their properties' structural integrity and watertightness. CoreLogic says severe storms rose last year because of weather events such as El Nino and a subtropical jet stream, but the report acknowledged the difficulty in correlating climate change to last year's activity. The firm says an incomplete historical record, i.e. more homes and people reporting via social media, leads to an uncertain conclusion. The storm risk however clashes with rising expenses such as the price of shingles, the common roof material, which shot up 40% in the past five years, CoreLogic found. Ceramic tile prices climbed 26% over the same period. Labor including roofers, glazers, painters, plasterers and tile setters cost 18% more since 2018 off of higher demand and work shortages. Unless the economy sees "deflation", reconstruction costs will continue to rise in 2024, Kunst said. States have their own insurance administrations, and some, like California's, have capped rate increases creating more pressure on insurance providers. "Add in inflation and supply chain issues related to materials, equipment and workers, and you have a recipe for increases— regardless of hazard impacts," wrote Kunst. 

Buying a home for the first time is not only a big decision, but also a complicated one, with homebuyers needing to consider if, when and where they should buy. High interest rates and low inventory for sale in 2023 meant that many prospective purchasers decided to wait, but this year, more new buyers may be feeling more confident about taking that first step.Realtor.com analyzed 2,738 cities and places with a population of more than 5,000 that are located within the 100 largest metro areas to determine the most attractive cities for first-time buyers. The rankings are based on a number of criteria, including: 25 to 34 year-old homeowner share of households; inventory per 1000 households; median listing price; price to income ratio; average travel time to work (minutes); and culture and lifestyle businesses listed on Yelp per 1000 households. The analysis uses figures as of November 2023 as well as forecasted numbers for 2024.The top 3 cities in the ranking have an average median listing price of $217,967. The 25-34 year-old homeowner share of households in these cities averages 7.7%. Scroll through to see which cities are in the top 10 and how they compare.Source: Realtor.com

Luxury homebuilder Toll Brothers Inc. rose to a record Wednesday as the company said it's optimistic about its prospects for a key selling season.Since mid-January, "we have seen a meaningful uptick in demand that has continued through this past weekend," Chief Executive Officer Doug Yearley said in an earnings call Wednesday. The builder lifted its outlook for home deliveries in its fiscal year. Shares climbed 6.1% to $109.61 at 10:09 a.m. Wednesday, the biggest intraday jump since the middle of December. Buyers have turned more to builders as shoppers grapple with a lack of listings for previously owned homes. That's benefited companies such as Toll, which reported that orders in the three months ended Jan. 31 jumped 40% from the same period a year earlier. Toll's comments signal a solid start for the builder's typically busiest season. Few of the company's buyers are choosing to accept a mortgage rate buydown option, which has been popular with other builders given that rates are more than double what they were at the start of 2022. Toll's more affluent buyers are taking other incentives instead because they don't need lower rates to qualify for a mortgage, Yearley said.Toll has been shifting from its traditional build-to-order model by offering more "spec" homes, meaning it starts construction before buyers are lined up. The company said half of orders in the quarter were to buyers who signed contracts after the foundation was poured. With the tight existing home inventory, this gives buyers an opportunity to buy houses closer to being complete and, depending on the stage of construction, to also pick their finishes."We are building spec across all of our price points, all of our product lines," Yearley said on the call.

Capital markets fintech Dv01 and research agency Fitch Ratings announced a collaboration to offer new benchmarks for non-QM and jumbo residential mortgage-backed securities. Data used to help determine the benchmarks comes from deals the data and analytics provider Dv01 helped facilitate, Fitch-rated RMBS transactions and other issuances where parties agreed to provide information to support their initiative. Benchmarks will be available free of charge on Dv01's web application and aim to provide "the most comprehensive representation," the companies said."By breaking through a historically opaque market and offering the benchmarks at no cost, we are making the non-agency RMBS sectors more accessible to both seasoned investors seeking a deeper understanding and new investors entering the space," said Dv01 CEO Perry Rabhar, in a press release, while emphasizing the level of granularity now available from the combined effort. Issuers who onboard their securitized portfolios with dv01 — whether or not rated by Fitch — will have deals pooled into a single dataset and be able to benchmark their performance against the broader market. Dv01 clients can also compare individual transactions to those benchmarks.According to the two firms, benchmark data comprise 75% of each respective loan segment. The non-QM figure includes data from over 210,000 residential originations made since 2013. Original balances of the loans exceed $100 billion.Meanwhile, the prime jumbo benchmark consists of more than 200,000 loans originated in 2013 or later, with a combined loan balance of $145 billion.Tools available on the Dv01 platform also give greater insights into risk factors when making assessments, said Kevin Kendra, Fitch Rating's managing director and head of North American RMBS. "The accessibility of the Fitch-dv01 non-agency RMBS benchmarks should offer all market participants a greater understanding of the loan characteristics that drive performance."Among the findings coming out of the new collaboration about prime jumbo RMBS was a rise in loan-to-value originations between 2018 and 2020, while mortgages with low FICO scores decreased. The past three years have seen LTVs remain stable even as home prices increased faster than household incomes. In the non-QM sector, debt-to-income loan performance remained stable over the past few years, even while home prices and interest rates surged.The latest agreement between Fitch Ratings and Dv01 is the second announced this month to make use of some of the services both offer. Parent company Fitch Group, agreed to purchase a majority stake in Dv01 in 2022, operating it as a separate division but combining resources.  In mid February, Fitch Ratings rolled out a new interactive RMBS presale report, which gives investors access to loan tapes through an embedded link to Dv01's application. The presale tapes provide greater insights into factors the agency considered in making credit risk determinations.A recent report looking at overall RMBS performance from Moody's Investors Service found mortgage securities holding up better than other types of consumer debt. But Fitch has also warned of variations between vintages and loan types, pointing out some 2023 segments are performing weaker than earlier pools due in part to their corresponding higher interest rates. 

The Federal Housing Administration has launched the final version of a long-awaited program for distressed borrowers trying to modify loans it insures in a higher-rate environment.The payment-supplement partial claim option will become available for use in May and must be implemented by Jan. 1 of next year, according to a mortgagee letter the FHA released Wednesday.The program, which has been redrafted twice, will allow borrowers to get additional payment relief for a three-year period via a mechanism through which amounts beyond arrearages are held in a custodial account and paid back to principal and interest."We know that everybody's been seeing default rates creep up and this is a brand new tool that should really help," Commissioner Julia Gordon told attendees during a government panel at the Mortgage Bankers Association's national servicing conference. Ingrid Ripley, executive director of the single-family housing guaranteed loan program for the U.S. Department of Agriculture Rural Housing Service, said her agency would be "pretty much carbon copying" the FHA's program.The strategy is emblematic of broader efforts in government servicing to recognize and address the concerns that emerge when rates rise as they have recently, said Sam Valverde, principal executive vice president of Ginnie Mae, a mortgage securitization guarantor."We learned the current tools don't work as well in a high-rate environment," he said, noting that this is an issue that Ginnie is continuing to work on multiple reforms to address in both the traditional and reverse mortgage markets.In addition to such workouts, the Department of Veterans Affairs is close to addressing the need for a successor to the pandemic-era VA partial claim.The program's end led to a call for servicers to observe a temporary foreclosure suspension for these loans until the new program could be put in place, with servicers generally directed to check in with the agency for guidance when borrowers are on that path.The VA discontinued the partial claim in October 2022. Its Executive Director John Bell told attendees at MBA Servicing 2023 that there were budgetary considerations involved. Its successor, the VA Servicing Purchase program, is more cost-effective and close to getting final approval, Bell said Wednesday. The VA also has several other foreclosure prevention tools available to borrowers."We're still moving forward, we're still working to get our program out for veterans," he said.VASP aims to streamline a routine process the department uses to modify delinquent loans purchased out of guaranteed pool, Bell said in Congressional testimony before a House subcommittee last week. He confirmed those details Wednesday."This was a no-cost to the government program. We thought that it was a very good option for us to move forward with," he said. "We're not against the partial claim. The partial claim certainly belongs in the waterfall somewhere."But the VA would have to address several challenges to bring the partial claim back now that extend beyond cost to some operational management concerns that arose when it ran the program, and limits to the agency's authorization, Bell said.The budget impasse in Congress has been an additional challenge for government mortgage agencies trying to get programs set up, Gordon said."We are making do with last year's money for this year's expenses. That is a problem," she said.

Sprout Mortgage's bankruptcy was not solely the result of market conditions but rather its CEO's scheme to siphon millions of dollars to himself and his family, a new court filing alleges. The trustee for Sprout Mortgage in its bankruptcy case is seeking funds from Michael Strauss, his holding companies and his wife and two daughters, according to a complaint filed last week. At least $27 million was transferred from Sprout's accounts to entities and insiders related to Strauss ahead of a 2023 bankruptcy filing, attorneys wrote. "This pattern of transactional activity has the hallmarks of money laundering," wrote Todd Gardella of Westerman Ball Ederer Miller Zucker & Sharfstein LLP, a special litigation counsel to the trustee. Strauss used funds he funneled from Sprout to pay for personal expenses including $2.3 million for homes in New York City and the Hamptons; $1.2 million for horse racing and breeding activities for one daughter; and $69,000 in college expenses for his other daughter, according to a court review."The millions of dollars in payments to Strauss left Sprout in a weakened financial state, by depleting its cash reserves such that the company was left vulnerable against the decline in the real estate market," Gardella wrote. Counsel on behalf of the trustee declined to comment Tuesday, while Strauss and an attorney for the former CEO didn't respond to messages seeking comment. The non-qualified mortgage lender shut down in July 2022, abruptly laying off over 600 employees. It counts $66 million in claims from industry counterparties. It also allegedly owes $15.5 million to the Internal Revenue Service for payroll taxes it failed to pay since June 2017, according to last week's complaint. Bankruptcy proceedings have also prevented a class of former Sprout workers from receiving a $3.5 million settlement over their lawsuit seeking wages from the time of their layoff. Forensic accountants in the wage case found Strauss received net transfers of $24.4 million between January 2022 and September 2022, largely through the lender's parent company Recovco Mortgage Management. Strauss received around $3.5 million more in the seven months preceding the lender's shutdown. Recovco president Craig Pino testified in the bankruptcy case he had no understanding of the funds Recovco received or transferred. Pino formerly worked as treasurer alongside Strauss at American Home Mortgage, the company at which Strauss paid a $2.45 million fine to feds over Great Financial Crisis-era fraud charges. Strauss and his wife Elizabeth also received approximately $10.59 million from Sprout passed through Midland American Capital Corp., a purported "insider" company of Strauss, in the two years preceding Sprout's bankruptcy. Other holding companies in which Strauss allegedly moved Sprout funds through include Florida-based Smart Rate Mortgage and Colorado-based Investor Funding Corp.Strauss reportedly originated over $5 million in loan volume through Smart Rate before his license was pulled. Elizabeth Strauss, under whom the company was registered to, testified to the trustee she knew very little about Smart Rate and Michael Strauss was in control. The bankruptcy trustee is seeking an injunction against Strauss' family and holding companies to safeguard against further fraudulent moves. Former Sprout executives meanwhile are seeking to dismiss themselves from their former employees' wage claims. Strauss also hasn't yet retained an attorney in that case; a joint status report is due to the court March 8.

Mary McDuffie will retire as president and CEO of Navy Federal Credit Union where she has worked for 24 years. Her successor, Chief Operating Officer Dietrich Kuhlmann, will take over on March 1. The largest credit union in the world will soon have a new chief executive.The Vienna, Virginia-based Navy Federal Credit Union said Wednesday that Dietrich Kuhlmann will become its president and CEO on March 1. He is set to succeed CEO Mary McDuffie, who announced her retirement in September.She has led the company since 2018 and ranked atop American Banker's 2023 list of The Most Powerful Women in Credit Unions.Kuhlmann joined Navy Federal in 2019 after retiring from the U.S. Navy as a rear admiral and has spent the past two years as the credit union's chief operating officer."Dietrich has shown an unwavering commitment to both his country and to his fellow men and women in uniform throughout his extensive career," Ed Cochrane, Navy Federal's chairman, said in a release announcing the succession plan. "These experiences make him the ideal person to lead this institution, and we know he will continue to serve our members superbly in the years ahead."As COO, Kuhlmann has overseen operations across the credit union's Pensacola, Florida; Winchester, Virginia; and San Diego campuses.  "I've had the pleasure of working closely with Dietrich in numerous capacities since he came on board at Navy Federal," said McDuffie, who has worked at the credit union for 24 years. "I can think of no better individual to steer us into the next phase of growth and further our mission to serve Navy Federal Credit Union's members and their families."A graduate of the U.S. Naval Academy class of 1983, Kuhlmann was a career submariner with a subspecialty in financial management. In active-duty service, Kuhlmann completed three successful operational command tours and multiple finance assignments at the Pentagon."I'm tremendously grateful to be trusted with the responsibility to lead Navy Federal Credit Union," said Kuhlmann. "This is an incredible opportunity to continue my career of service to our military community and I'm eager to build upon the progress Mary has championed on behalf of our members as CEO."During McDuffie's tenure at the helm, Navy Federal's assets swelled from about $97 billion to $171 billion, while its membership expanded from 8.2 million to more than 13.3 million at the end of 2023, according to federal regulatory data.National Credit Union Administration call report data showed Navy Federal had more members at the close of 2023 than its next five biggest peers. Those credit unions had roughly 9.6 million members combined.Navy Federal's growth is supported by a global military customer base that's relatively recession resistant. Armed forces staffing levels and budgets are more dependent on long-term U.S. defense needs than on near-term economic cycles, Jeff Voss, managing partner for consultancy Artisan Advisors, said in a recent interview.But with its rapid expansion have come some bouts of growing pains. Most recently, in late 2023, Navy Federal Credit faced a lawsuit that accused the lender of discriminating against minority home loan applicants. It is ongoing. The suit was filed after a CNN report found that the credit union approved about 77% of mortgage applications from white borrowers, but only 56% of applications from Latinos and 48% from Black applicants in 2022. Citing Consumer Financial Protection Bureau data, CNN found that this represented the greatest disparity among the 50 largest residential mortgage lenders in the U.S.Navy Federal pushed back in December in statements provided to American Banker. Management said that the institution is "a national leader in lending to the Black community, ranking third among the leading 50 lenders in the percentage of mortgage loans made to Black borrowers." It made more than $3.5 billion in mortgages to Black borrowers in 2022, the credit union said.

The recent upturn in interest rates is leaving a mark on home lending as application volumes fell for a second consecutive week, marking the largest decline in a year, according to the Mortgage Bankers Association.The MBA's seasonally adjusted Market Composite Index, a measure of application activity based on surveys of the trade group's members, plunged 10.6% week over week, the biggest downward move since mid February last year. The latest drop comes following a revised 3.3% decline from the previous survey period. Compared to the same seven-day period in 2023, volumes came in 7.9% lower. The latest dip in borrowing activity coincides with the steady upward climb in mortgage rates, reversing a sizable chunk of the early winter decreases that resulted in elevated loan volumes for much of January. The average conforming rate among MBA members has surged 28 basis points over three weeks to climb back up above 7%. "Mortgage applications dropped as a result with a larger decline in refinance applications," said Mike Fratantoni, MBA senior vice president and chief economist, in a press release. The rate for 30-year loans with balances below the conforming amount of $776,550 in most markets accelerated 19 basis points to average 7.06%, up from 6.87% seven days earlier. Borrower points to buy down the rate inched up to 0.66 from 0.65 for 80% loan-to-value ratio applications.The latest rate movements temporarily dashed hopes that housing inventory — and buying activity — would be able to sustain the growth shown earlier this winter, Fratantoni added."Potential home buyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market," he said. Last week, the seasonally adjusted Purchase Index tumbled 10.1% from the prior survey period, which saw a revised 3.2% fall. Compared to one year earlier, purchase volumes were also 13% lower. Recent rate movements are also contributing to a decline of new for-sale listings, according to a report from Redfin last week. The number of new homes listed on the market fell a seasonally adjusted 1.2% in January, the first drop since last June, the real estate brokerage said. Like the MBA, Redfin agents said interest rate levels have stymied market activity. "A lot of my customers are paying close attention to what the Federal Reserve says. Buyers and sellers came off the sidelines in December when the Fed signaled it would lower interest rates," said Hal Bennett, a Redfin agent in Bellevue, Washington, in a press release."But now some are getting cold feet because the Fed indicated that rate cuts may come later than expected." Meanwhile, the MBA's Refinance Index saw an even larger drop of 11.4% in the latest survey, with volumes flattening on a year-over-year basis. The refinance share relative to total activity also pulled back to 32.6% from 34% seven days earlier. But adjustable-rate mortgages garnered a larger share of volume, rising to 7.4% of volume compared to 7% a week earlier. As fixed rates rise, interest in adjustable-rate options typically rise in tandem, as borrowers look for ways to lower initial monthly payments. The Government Index slowed a seasonally adjusted 16.8%, declining even more than overall numbers. The share of federally sponsored activity, likewise, contracted. Federal Housing Administration-backed applications accounted for 13.2% of activity, slipping from 13.5% one week prior. Loans guaranteed by the Department of Veterans Affairs shrank to a 12.1% slice from 13.3%. But U.S. Department of Agriculture-sponsored mortgages managed to squeeze out a larger share of 0.5%, increasing from 0.4% in the previous survey.Similar to the conforming mortgage, average rates increased across all other loan categories tracked by the MBA, with the 30-year jumbo average jumping to 7.16% from 7% the previous week. Points increased to 0.45 from 0.39 for 80% LTV-ratio loans.The average contract rate of 30-year FHA-backed mortgages surged 23 basis points to land at 6.91%. Seven days earlier, the FHA average sat at 6.68%. Borrowers typically used 1.03 worth of points, up from 0.89 in the prior survey.The contract fixed rate of a 15-year loan saw a smaller rise of 8 basis points to average 6.61% from 6.53% in the previous survey. Points decreased to 0.77 from 0.94.The 5/1 adjustable-rate mortgage average increased to 6.37% from 6.3% on a weekly basis. Borrowers took 0.71 in points compared to 0.60 a week earlier. The loans start with a fixed rate for five years before becoming variable.

Under Attorney General Merrick Garland, the Department of Justice has signaled that it will take a tougher approach to bank mergers. But the department's leadership could change in early 2025, at which point the Capital One-Discover deal might still be under review.Bloomberg WASHINGTON — Capital One Financial's proposed acquisition of Discover Financial Services will spark an epic test of Washington policymakers who are increasingly skeptical of concentration in the financial industry. Competition — or the lack thereof — will be at the heart of the debate as bank regulators and antitrust officials weigh whether to approve the deal.Does Capital One's purchase of Discover create an unstoppable credit card-issuing giant? Does it help consumers by giving Discover's payments network a fighting chance against massive rivals Visa and Mastercard? Or does it do both? And if so, what should be the verdict?"The question is: Is this anti-competitive or is it pro-competitive?" said Todd Baker, a professor at Columbia Law School and managing principal at Broadmoor Consulting.The Biden administration, which has pledged aggressive scrutiny of mergers in the banking and financial sectors, would ideally like not to be approving more big-bank mergers, Baker said. "But this might actually be one which is relatively pro-competitive," he added.Monday's announcement of the proposed $35.3 billion merger immediately drew criticism from Democratic lawmakers.Sen. Elizabeth Warren, D-Mass., said that the deal "threatens our financial stability, reduces competition, and would increase fees and credit costs for American families." "Regulators must block it immediately," Warren said on X, formerly known as Twitter.Consumer groups, including the National Community Reinvestment Coalition and Americans for Financial Reform, also came out against the deal, which would combine two of the top six U.S. credit card lenders."Today's concentrated markets and behemoth banking organizations are the result of a thirty-year run of mergers and consolidation," said Patrick Woodall, senior fellow at the Americans for Financial Reform Education Fund. "It is time for the banking regulators to stop rubber-stamping these transactions and stand up for consumers, communities, and a more stable financial system by blocking this takeover."The deal's approval is not a slam dunk, experts said, nor is its rejection. But they also said there are reasons to think that the Biden administration, notwithstanding its general skepticism of large mergers, might approve this particular deal.Even if Capital One were to suddenly account for 19% of U.S. credit card loans — as some analysts calculated would be the case if the merger goes through — it would still face strong rivals such as JPMorgan Chase, Citigroup, Bank of America, Wells Fargo and American Express.But the clearer argument for approval is that, thanks to Capital One's larger balance sheet and customer base, Discover's payments network would get the lift it needs to better compete with Visa and Mastercard, which are often described as a "duopoly.""Will this introduce more competition into cards or reduce competition in banking?" asked Peter Conti-Brown, a professor at the University of Pennsylvania's Wharton School. "These are the questions on which the preliminary announcements are light, but that regulatory processes will be focused like lasers." Within the Biden administration, bank regulators and the Department of Justice don't see the risks in a uniform way, Conti-Brown said. Some officials see any concentration as something to fight, while others see bank concentration as serving useful purposes, he said.During a Tuesday morning conference call, Capital One CEO Richard Fairbank was optimistic about the deal's chances for regulatory approval. He said he expects the deal to close in late 2024 or early 2025. The timeline could be crucial. Brian Gardner, chief Washington policy strategist for Stifel, noted that, should Republicans take the presidency after the 2024 election, many of the existing dynamics involving Democratic agency heads could be moot. "At that point, things have shifted in favor of the industry," he said. Fairbank hinted that concerns about the power of Visa and Mastercard could work in Capital One's favor, saying that the deal would "position us to compete more effectively against some of the largest banks and payment companies in the United States." "We believe that we are well positioned for approval," he said. The dominance of Visa and Mastercard in card processing has been the target of recent legislation that aims to reduce credit card swipe fees. That bipartisan bill would require larger banks to offer merchants the choice of two unaffiliated card networks that aren't both Visa and Mastercard.The legislation has picked up momentum with additional co-sponsors and a potential hearing with the heads of the card networks. Shahid Naeem, a senior policy analyst at the American Economic Liberties Project, a left-leaning group that criticizes corporate consolidation, argued that regulators should not take Capital One's pro-competition arguments at face value. He said it will be tough for Discover to "become a threat" to Visa and Mastercard.Some Capital One customers may not want to ditch their current Visa and Mastercard cards and switch to the Discover network, Naeem noted."It's a tall task," Naeem said. "When these arguments are being made about, 'This is how this deal is going to improve competition,' it's important to just ask the next question … 'OK, why?' 'OK, how?' 'What's the time frame?'"Jeremy Kress, a University of Michigan professor who was recently detailed at the Department of Justice to work on bank merger policy, said that he sees "red flags" in terms of the deal's competitive effects on the credit card market, given that Capital One and Discover are already among the top issuers."Antitrust law is not a balancing act," he said. The recent rejection of the JetBlue-Spirit Airlines merger by a judge is a good example of why the Capital One-Discover deal should fail, Kress said.JetBlue had argued that allowing the two airlines to merge would help the buyer to compete better with larger, legacy airlines. But the Department of Justice contended — and the judge agreed — that it's not enough for a deal to help competition in one customer segment. If another segment will be hurt, the deal should be rejected."You could see a similar line of reasoning applying here, even if for the sake of argument, you assume competitive efficiency in the card network business," Kress said. "If it would be anti-competitive for the card issuance market, then the deal is anti-competitive." Last summer, the Department of Justice signaled that it would start taking a tougher approach to bank mergers. Jonathan Kanter, the department's top antitrust cop, said in a speech that the DOJ would expand the number of considerations in its bank merger review process.Bank regulators have also been rethinking how they approach merger applications.Late last month, acting Comptroller of the Currency Michael Hsu said in a speech that the agency he leads would remove a rule that limits the amount of time it has to consider mergers — a change that could slow the approval of deals, but which some advocacy groups still found to be anemic.  For the proposed Capital One-Discover merger, the bank regulators' review process will not follow its typical path.Such reviews typically involve careful consideration of a deal's impact on bank branches in certain areas — often dealing with concerns about financial deserts — but Discover does not operate branches.Baker said the deal would create a dominant player in the subprime credit card market, and potentially also in the near-prime market. That's a factor that might draw regulators' focus, he said."It really becomes a question, almost not of antitrust, but more around industrial policy," Baker said. "What do we want the banking and payment system to look like in the future?"