Homebuying in a pass-through economy

So far, this earnings season is a welcome event on Wall Street because of some much needed market stability. Many companies are reporting an improving corporate environment despite the sluggish growth in the broader economic recovery. Corporate America is working in a different kind of economy. And State Street Corp. [stock STT][/stock] is a perfect example. The institutional investment advisory firm is reporting it costs more to do business. Basel 3 requirements, the implementation of Dodd-Frank and continual expenses to credit ratings agencies to have their investments rated are dragging down the bottom line, according to State Street. (Editor’s note: The firm seems especially irked at the last example. Considering the markets must rely on ratings agencies, State Street isn’t happy with the necessary evil. The company lists costs to the agencies as a future loss risk due to the “maintenance of credit agency ratings for our debt and depository obligations as well as the level of credibility of credit agency ratings.”) It cost more to do business, so State Street is charging more. For example, investment management fees, generated by State Street Global Advisors, rose 12% in the first quarter to $236 million from $211 million in the first quarter of 2010. This is interesting considering securities finance revenue fell 8% in the quarter to $66 million from $72 million a year earlier due primarily to lower volumes, offset partially by improved spreads. So business is slow, and it costs more, but State Street found a simple way to earn a profit. Future homebuyers should take note of the development of such pass-through economies. Incoming consumer protections, mortgage servicer fees, consent orders, etc., all mean the cost of business is going up. And when it comes to homebuying, the borrower unfortunately is still the bottom line. For if the consumer wants consumer protection, then the consumer has to pay for it. I just hope it’s worth it. Write to Jacob Gaffney. Follow him on Twitter @JacobGaffney.