WEEKLY BRIEFING HOUSING: POLICY & FINANCE 1/14/2013 KEY DEVELOPMENTS STUMPF: NO DOUBT CORNER WAS TURNED, A POSITIVE

FOR ECONOMY AND WELLS FARGO The mortgage-banking giant Wells Fargo posted record earnings at $5.1 billion for the fourth quarter of 2012, up 24% year-over-year, finishing the year at $18.9, up 19% from 2011. Wells booked $3.1 billion of noninterest income, of which $125 billion came from originations. The company also adjusted the value of its mortgage servicing rights (MSRs) upward to $220 million, due to increased costs associated with servicing and foreclosures. Both CEO John Stumpf and CFO Timothy Sloan said expenses remain elevated due to higher operating losses, partly owed to the recent Independent Foreclosure Review Settlement. The total settlement amounts to $3.3 billion in cash payments and $5.2 billion in additional assistance. Wells Fargo recorded a pre-tax charge of $644 million in the fourth quarter in order to reserve against settlement expenses. Total cash settlement for the company is $766 million. Overall, Stumpf believes the U.S. housing market is headed in a positive direction: There is no doubt that a corner was turned, he said. He remains concerned, however, about U.S. fiscal policy and new regulation currently in the pipeline, saying, Uncertainty is the enemy of businessand we simply cannot afford that today. QUALIFIED MORTGAGE (QM) RULE INTERPRETED AS BALANCED, INCLUDES SAFE HARBOR Theyve finally arrived, all 804 pages. The final QM rules arent expected until this Thursday, but the document released this past week contains much of the information needed to interpret the new rules. Overall reactions by D.C. industry leaders were favorable, for the most part. Per PoliticoPro, housing advocates such as Mike Calhoun, president of the Center for Reasponsible Lending, said the rules were reasonable. Industry groups, such as the Mortgage Bankers Association, said they applaud the CFPB for offering a legal safe harbor to lenders. Though, banking analyst Brian Gardner of KBW expressed skepticism that the rules would alter the market, stating, We doubt it will be a game changer. In its call to investors, Wells Fargos Stumpf was more optimistic, stating that the new rules were broad, provides clarity, and will help more Americans get more credit, he said. The Mortgage Bankers Association released a helpful two-page outline discussing the most common rules.

WHAT TO WATCH FOR IN THE WEEK AHEAD (Jan. 14-18) This week will be busy for economic data releases. The core inflation measures of PPI and CPI for December are scheduled for release this Tuesday and Wednesday, respectively. Industrial Production and the Philadelphia Fed Survey will provide clarity on the state of U.S. manufacturing this week, and the Feds Beige Book, scheduled for release on Wednesday, are the economic conditions the Fed uses when making FOMC decisions. Monday news will center around Ben Bernankes conversation on monetary policy, recovery from the global financial crisis, and future challenges facing the U.S. economy. The University of Michigans Dean Susan M. Collins will host the speech in an on-campus auditorium. We will hear from a newsworthy nine total speeches by Federal Reserve district Presidents throughout the week.

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WEEKLY BRIEFING HOUSING: POLICY & FINANCE 1/14/2013 A number of large financial institutions release earnings this week. Look for Goldmans report Wednesday, and Blackrock, Citi, American Express, and Bank of America to report on Thursday. Bank of America has all but exited the mortgage business in recent years, and many market participants believe its not finished, expecting more sales of mortgage servicing rights in the coming year. Morgan Stanley will cap the week, reporting earnings this Friday.

ECONOMIC CALENDAR (Jan. 14 18)

Indicators & Reports Monday 1/14 Tuesday 1/15 Wednesday 1/16 Thursday 1/17 Friday 1/18 Producer Price Index

Congressional Hearings Fed Activity & Events John C. Williams Speaks House of Representatives Dennis Lockhart Speaks in session Ben Bernanke Speaks Eric Rosengren Speaks Narayana Kocherlakota Speaks Charles Plosser Speaks Jeffrey Lacker Speaks Narayana Kocherlakota Speaks Richard Fisher Speaks Dennis Lockhart Speaks

MBA Applications Industrial Production CPI Housing Index Housing Starts Jobless Claims Philadelphia Fed Survey Consumer Sentiment

CFPB Event

SOURCES: HPS INSIGHT, BLOOMBERG, FEDERAL RESERVE, CALCULATED RISK, LINKTANK

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WEEKLY BRIEFING HOUSING: POLICY & FINANCE 1/14/2013 TOP NEWS AND RESEARCH Politics Counts: The Housing Industrys Waiting Game Wall Street Journal 1/11/2013 By: Dante Chinni "As Washington debates how to fix the economy, one essential piece of the puzzle, the housing market, remains a drag. Wells Sees Mortgage Earnings Rise, Marks Up MSRs, Keeps GSE Loans Inside Mortgage Finance 1/11/2013 By: Paul Muolo Wells Fargo & Co., posted another stellar quarter of mortgage earnings, booking $3.1 billion of noninterest income in its residential finance division, and foregoing $340 million of fee revenue by opting to keep certain loans on its books as opposed to selling them into the secondary market. CFPB Mortgage Rule is Less Restrictive than What Was Feared American Banker 1/11/2013 By: Katie Gillespie Despite widespread fears by lenders that a 800-page rule released Thursday by the Consumer Financial Protection Bureau would end mortgage lending as we know it, the final regulation appeared to be significantly less onerous than many expected. Cheat Sheet: What the CFPBs Qualified Mortgage Rule Means to Lenders American Banker 1/10/2013 By: Rachel Witkowski The CFPB released its long-awaited final rule laying out how lenders must ensure borrowers have the ability to repay a loan, including creating a carve-out for qualified mortgages. Homeowners With No Mortgage Offer Clues to Recovery CNBC 1/10/2013 By: Diana Olick As federal regulators and banks argue over whether new lending standards will make mortgage credit too tight or too expensive, one important fact about the housing market goes largely overlooked: More than 20 million American homeowners own their homes outright. No mortgage. Special Report: The latest foreclosure horror: the zombie title Reuters 1/10/2013 By: Michelle Conlin The Kellers are caught up in a little-known horror of the U.S. housing bust: the zombie title. Six years in, thousands of homeowners are finding themselves legally liable for houses they didn't know they still owned after banks decided it wasn't worth their while to complete foreclosures on them. New Mortage Rules: The Reviews Come In Wall Street Journal 1/10/2013 By: Alan Zibel The day the lending industry has been nervously anticipating has finally come. The federal Consumer Financial Protection Bureau has rolled out new rules that reshape the U.S. mortgage industry, and are designed to ensure that lenders dont return to the lax standards that fueled the housing markets boom and bust. Ten Questions on the New Mortgage Rules Wall Street Journal 1/10/2013 By: Nick Timiraos Regulators issued new mortgage rules on Thursday designed to prevent a return to lending practices that cratered the housing market and brought the financial system to its knees during the past decade.

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WEEKLY BRIEFING HOUSING: POLICY & FINANCE 1/14/2013 Who Should Be the Next Fed Chairman? Wall Street Journal 1/10/2013 By: Phil Izzo Who should be Federal Reserve chairman in 2014? One in five respondents in the latest Wall Street Journal forecasting survey say it should continue to be Ben Bernanke. Tim Geithner is one of the most important Treasury secretaries in history Washington Post By: Neil Irwin January 10, 2013 With the nomination of his successor this morning, Timothy Geithner is presumably eyeing the exits at the Treasury building even more eagerly than he has for the last couple of years, which was already pretty eagerly. Blackstone Rushes $2.5 Billion Purchase as Homes Rise Bloomberg 1/9/2013 By: John Gittelsohn & Heather Perlberg Blackstone Group LP (BX), the largest U.S. private real estate owner, accelerated purchases of single-family homes as prices jumped faster than it expected. The Latest Myth About the Governments Mishandling of the Housing Market ProPublica 1/9/2013 By: Jesse Eisinger No matter how many times people debunk the notion that government policy created the housing bubble, it doesn't die. Finding Little Evidence Of Foreclosure Fraud, Feds Give Up Forbes 1/8/2013 By: Daniel Fisher With a pair of terse notices yesterday, the Office of the Comptroller of the Currency basically admitted that its elaborate process for turning up evidence of fraud in hundreds of thousands of loan files was a waste of money. Fitch: QM and QRM resolution will restart private RMBS market Housing Wire 1/8/2013 By: Christina Mlynski The recent announcement by the Consumer Finance Protection Bureaus intention to issue a final rule on the ability to repay requirement as part of the final Qualified Mortgage definition are key milestones for the private-label residential mortgage-backed securitization market. Real Estate Is Far From a Free Market, Report Says Wall Street Journal 1/8/2013 By: Conor Dougherty The federal government spends about $450 billion a year on real estate, a sum that includes direct spending, loan guarantees and tax breaks like the mortgageinterest deduction, according to a report released today by Smart Growth America, an organization that pushes for so-called smart growth that centers around denser neighborhoods and public transit. Big Banks Settle Mortgage Hangover Wall Street Journal 1/7/2013 By: Shayndi Raice, Nick Timiraos, and Dan Fitzpatrick Major banks agreed to pay $20 billion to settle mortgage-related legal disputes, in Wall Street's latest bid to put alleged abuses of the home-lending process in the rearview mirror. Question #8 for 2013: Will Housing inventory bottom in 2013? Calculated Risk blog 01/7/2013 By: Bill McBride Over the last few years, weve seen a dramatic plunge in existing home inventory. Will inventory bottom in 2013?

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WEEKLY BRIEFING HOUSING: POLICY & FINANCE 1/14/2013 ECONOMIC CALENDAR Monday, Jan. 14, 2013 House of Representatives back in session John C. Williams Speaks San Francisco Federal Reserve Bank President John C. Williams keynote speech to the SEMI ISS 2013 Industry Strategy Symposium on the economic outlook in Half Moon Bay, California. Dennis Lockhart Speaks Atlanta Federal Reserve Bank President Dennis Lockhart speech on the economic outlook to the Rotary Club of Atlanta. Ben Bernanke Speaks Federal Reserve Chairman Ben Bernanke speaks at University of Michigan in a conversation with Ford School Dean Susan M. Collins on monetary policy and the U.S. economy. Tuesday, Jan. 15, 2013 Producer Price Index The PPI measures prices at the producer level before they are passed along to consumers. By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months. Eric Rosengren Speaks Boston Federal Reserve Bank President Eric Rosengren speech on the economic outlook at a breakfast meeting in Providence, Rhode Island. Narayana Kocherlakota Speaks Minneapolis Federal Reserve Bank President Narayana Kocherlakota speech on Fed actions and the macroeconomy to the Financial Planners Association of Minnesota in Golden Valley, Minn. Charles Plosser Speaks Philadelphia Federal Reserve Bank President Charles Plosser speech on the economic outlook to the 34th Annual Economic Seminar Rochester, NY. Hamilton Place Strategies | 805 15th Street NW, Suite 700 | Washington, DC 20005 Wednesday, Jan. 16, 2013 MBA Purchase Applications The Mortgage Bankers' Association compiles various mortgage loan indexes. The purchase applications index measures applications at mortgage lenders. This is a leading indicator for single-family home sales and housing construction. Industrial Production Industrial production rebounded in November with notable help from recovering from Hurricane Sandy and a boost in auto assemblies. Industrial production rebounded 1.1 percent, following a decline of 0.7 percent in October. In November, the manufacturing component increased 1.1 percent after dropping 1.0 percent in October. According to the Fed, nearly all the decline in factory output in October was estimated to have been related to Hurricane Sandy, and the increase in November reflected a post-hurricane rebound in production as well as the solid advance in the output of motor vehicles and parts. Consumer Price Index The consumer price index is the most widely followed monthly indicator of inflation. The CPI is considered a cost-of-living measure since it is used to adjust contracts of all types that are tied to inflation. Housing Market Index This report provides a gauge of not only the demand for housing, but the economic momentum. By tracking economic data such as the housing market index, investors can gain specific investment ideas as well as broad guidance for managing a portfolio. Narayana Kocherlakota Speaks Minneapolis Federal Reserve Bank President Narayana Kocherlakota speech on Fed actions and the macroeconomy (repeat of Jan. 15 speech) in Eden Prairie, Minn.

WEEKLY BRIEFING HOUSING: POLICY & FINANCE 1/14/2013 Richard Fisher Speaks Dallas Federal Reserve Bank President Richard Fisher speech on too big to fail to the Committee for the Republic in Washington. Thursday, Jan. 17, 2013 Housing Starts The housing starts report is the most closely followed report on the housing sector. Housing starts reflect the commitment of builders to new construction activity. Purchases of household furnishings and appliances quickly follow. Philadelphia Fed Survey The general conditions index from this business outlook survey is a diffusion index of manufacturing conditions within the Philadelphia Federal Reserve district. This survey, widely followed as an indicator of manufacturing sector trends, is correlated with the ISM manufacturing index and the index of industrial production. Jobless Claims New unemployment claims are compiled weekly to show the number of individuals who filed for unemployment insurance for the first time. An increasing (decreasing) trend suggests a deteriorating (improving) labor market. The four-week moving average of new claims smoothes out weekly volatility. Dennis Lockhart Speaks Atlanta Federal Reserve Bank President Dennis Lockhart interview at a business forum in New York. Friday, Jan. 18, 2013 Consumer Sentiment A survey of consumer attitudes concerning both the present situation as well as expectations regarding economic conditions conducted by the University of Michigan. Five hundred consumers are surveyed each month. The level of consumer sentiment is directly related to the strength of consumer spending.

ABOUT HAMILTON PLACE STRATEGIES This report was prepared by Patrick Sims and Russell Grote. Hamilton Place Strategies is a policy and communications consulting firm based in Washington D.C. As a firm, our focus and expertise lie at the intersection of government, business and media. Our deep experiences in all of these dimensions allow us to serve industry leaders seeking to navigate the paths between Washington and the private sector.

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