Morning Report – Government shutdown looms 09/30/13

Vital Statistics:

Last Change Percent
S&P Futures 1670.9 -15.5 -0.92%
Eurostoxx Index 2882.4 -36.9 -1.26%
Oil (WTI) 101.7 -1.2 -1.15%
LIBOR 0.249 0.001 0.20%
US Dollar Index (DXY) 80.14 -0.382 -0.47%
10 Year Govt Bond Yield 2.61% -0.02%
Current Coupon Ginnie Mae TBA 105.7 0.1
Current Coupon Fannie Mae TBA 104.9 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.33
Markets are lower as participants contemplate a government shutdown. The Street has viewed this issue as a kabuki dance, but we are now getting to the short strokes. Bonds and MBS are rallying.
Aside from the government shutdown issues, this week also contains the all-important jobs report. The Street is at an increase of 182k and an unemployment rate of 7.3%. St Louis Fed Head James Bullard raised the possibility of tapering at the October meeting. I think if we have any sort of shutdown, tapering will be off the table until the Dec meeting at the earliest. Of course if there is a shutdown, we won’t be getting any economic data this week.
One potential issue coming down the pike is the fee limit on mortgages starting Jan 1. The cap makes sub $100k loans uneconomic for originators. I wonder how the CFPB will handle the sudden unavailability of loans below 100k. Not sure if they thought this through or they just plan on hitting everyone with fair lending / CRA lawsuits.
Housing equity rose 30% or more than $2 trillion over the past year, according to NAR.
Another interesting data point on the manufacturing renaissance in the US – low value added industries like textiles are onshoring. The problem is finding people.

Saturday Open Thread

Just thought I’d post an open thread so that folks can throw anything up. Shamelessly stolen from Ezra Klein’s Wonkblog:

    The Best Sentences We Read Today


— “I’m going to look them in the eye and say, ‘You must be confusing me with someone who gives a f— about your opinion.'”

I hope that link works. I had to google the sentence to get to the article from Wonkblog’s link.

— “So hang on tight because you are going to get some clear and true facts without rumor and innuendo, or any accompanying B.S. and mush.”

— “Chicken-sh— editors who wouldn’t touch stories like that, they love documents, so he changed the whole ball game.”

— “The Administration has had nearly two million minutes to implement this law.”

Lydia DePillis

What else do we have? Both MSU and UM have byes this week, so I don’t have much in the way of football to watch today.

Morning Report – breakdown of the government shutdown 09/27/13

Vital Statistics:

Last Change Percent
S&P Futures 1685.0 -7.5 -0.44%
Eurostoxx Index 2913.5 -9.5 -0.32%
Oil (WTI) 102.8 -0.2 -0.21%
LIBOR 0.248 0.000 0.10%
US Dollar Index (DXY) 80.22 -0.307 -0.38%
10 Year Govt Bond Yield 2.63% -0.02%
Current Coupon Ginnie Mae TBA 105.4 -0.3
Current Coupon Fannie Mae TBA 104.7 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.28
Markets are lower ahead of Continuing Resolution Weekend. Personal income rose .4% in August, while personal spending rose .3%. The prior months were revised upward. Bonds and MBS are up.
The government’s new fiscal year begins on Tuesday, and unless Congress comes up with a way to keep the lights on the government will shut down. You have all-out war between Democrats and Republicans and a civil war in the Republican party. Here is the state of play: The House passed a continuing resolution that funds the government through the end of the year, but it contains language that de-funds obamacare. The Senate passed a continuing resolution that funds the government through the end of the year, but it removed the obamacare language and sent it back to the House. So that leaves Boehner with 3 possible outcomes: 1) He can convince the Tea Party Republicans to go along with a clean continuing resolution, 2) He passes a bill with primarily Democratic party support (and that support won’t be free, plus it will probably cost him the Speakership), or 3) He attempts to pass a clean CR and it fails, which shuts down the government. Democrats are confident that any shutdown will be a replay of 1995, where the public sided with Clinton. How to handicap it:  I think the fact that the Republican leadership is so vocal against the rebellious Tea Party republicans is important and it brings them on board. #1 is the most likely scenario, followed by #2. If we do have a shutdown, it will be short.
If the government shuts down, what does that mean for the mortgage markets? Ginnie Mae will be open for business, according to HUD’s contingency plan from 2011, which supposedly would be used in this case. I have yet to see what FHA will do. Bottom line, I don’t foresee any major disruptions to the financial markets. Macroeconomic Advisers estimates that a 2 week shutdown will lop .3% off of 4Q GDP. Mark Zandi of Moody’s estimates that number to be 1.4% if it goes 3 – 4 weeks. (Mark, you didn’t get the Treasury Secretary gig – you don’t need to keep carrying water for the Administration).
Pending Home sales fell 1.6% in August, according to the National Association of Realtors. The NAR blames the drop on an acceleration of home sales in early summer, as buyers accelerated purchase decisions as interest rates began to rise. The NAR is anticipating 2014 sales to be flat with 2013 and median existing home sale prices to increase 5% – 6%. Note that almost half of all home sales right now are all-cash transactions and that number is usually close to 20%. So even if existing home sales are flat next year, year over year, the mortgage business could still improve markedly as distressed / cash sales run their course.
The number of loans in the process of of foreclosure at the end of the second quarter decreased 40% to 744k. This is an interesting statistic, MBA estimates the shadow inventory of homes to be 3.3 million. I know MBA also includes 90 day DQs, which may account for some of the difference – 90 day DQs in judicial states which haven’t been permitted to move to the foreclosure process yet. Other tidibits – the overall percent of loans that were seriously delinquent fell from 15% a year ago to 3.8%. Almost 91% of all loans in the report were current and performing.
Does the high shadow inventory number necessarily mean that cash sales will continue to be half of all existing home sales? Probably not. Professional investors who bought property for rentals are noting the increase in prices, and will certainly think about ringing the register. They won’t be selling to other professional investors, so that inventory will be coming soon. Plus, as we have seen in the D, many of these homes will be bulldozed, not sold.

Morning Report – Distressed sales and cash percentages 09/26/13

Vital Statistics:

Last Change Percent
S&P Futures 1690.2 4.4 0.26%
Eurostoxx Index 2921.3 -6.1 -0.21%
Oil (WTI) 103.1 0.4 0.40%
LIBOR 0.248 0.001 0.20%
US Dollar Index (DXY) 80.51 0.179 0.22%
10 Year Govt Bond Yield 2.65% 0.02%
Current Coupon Ginnie Mae TBA 105.6 0.0
Current Coupon Fannie Mae TBA 104.7 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.29
Markets are higher after initial jobless claims came in at 305k, better than expected and second quarter QDP was revised downward to 2.5%. Personal Consumption Expenditures increased 1.8%. Bonds and MBS are down small.
New Home Sales increased at a 421k pace in August, in line with expectations. This is an increase from July but still on the low side for 2013. Household net worth increased by 1.3 trillion in the second quarter and is now 6 times disposable personal income.
The RealtyTrac August Residential and foreclosure sales report reports that the national medial sales price rose 3% to $175,000, which is a 6 pct increase from a year ago. The median distressed price was $116,000, up 1 percent from a month ago, but down 3% from a year ago. This decline in the price of distressed properties is relatively new and bears watching. All cash purchases represented 45% of all residential sales in August, up from 39% in July and 30% a year ago. No wonder the mortgage banking business is struggling – the refi boom is over, and the percent of puchase business with a mortgage is falling as well.

Morning Report – Bank Rejection Rates 09/25/13

Vital Statistics:

Last Change Percent
S&P Futures 1690.7 -1.8 -0.11%
Eurostoxx Index 2918.0 -4.9 -0.17%
Oil (WTI) 103.9 0.7 0.70%
LIBOR 0.248 -0.003 -1.04%
US Dollar Index (DXY) 80.44 -0.120 -0.15%
10 Year Govt Bond Yield 2.64% -0.01%
Current Coupon Ginnie Mae TBA 105.4 0.0
Current Coupon Fannie Mae TBA 104.5 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.32
Markets are slightly weaker this morning as durable goods orders came in better than expected, but still weak. Ted Cruz continues to tell bedtime stories. Mortgage applications rose 5% as rates fell.
CFPB Director Richard Cordray spoke to the American Banker Regulatory Symposium yesterday. He lamented that consumers cannot sever ties with certain entities, namely debt collectors and mortgage servicers. They will also use the disparate impact theory when determining whether discrimination is taking place, which unfortunately means that FICO is all that matters, and if the value of the underlying collateral in one area is likely to be more volatile than another, tough cookies, you have to lend to both borrowers at the same rate, assuming all other risk factors are the same. The volatility of the underlying collateral is an important issue that the regulators conveniently ignore because it negates the validity of their argument. The speech is basically a shot at mortgage bankers, payday lenders, servicers, debt collectors and other unsavory financial services folks.
Ever wonder how much banks differ in their loan approval percentages? It turns out that there is a bit of a spread between the big ones and the smaller ones. The biggest banks – Wells, JPM, BOA – have the highest rejection rates, in fact JPM rejects 1/3 of its applications!

So, LOs the next time a borrower says that “Wells or JP Morgan is quoting me X% with so many points, tell them that unless they have a commitment, they are taking a risk going with a big bank. It would be a shame to go all the way through the process, only to get rejected at the last minute.

Moody’s is warning that a government shutdown may slow economic activity and would damage the nation’s credit quality. I suspect Ted Cruz knows that we aren’t going to shut down the government over obamacare, and this “filibuster” – is his last stand on the issue. Once he sits down, we’ll get a continuing resolution and a debt ceiling increase in short order. Certainly the stock market, the bond market, and the US dollar are taking that view. The risk: Democrats demand an end to the sequester and try and stick in tax hikes. I don’t think they do that because Republicans will reject that and then a government shutdown becomes a case of “he said, she said” where Democrats take some risk of getting dirty with the Republicans. Here is a list of cuts that can avert a government shutdown.

Morning Report – Homebuilder earnings 09/24/13

Vital Statistics:

Last Change Percent
S&P Futures 1692.0 -0.7 -0.04%
Eurostoxx Index 2923.4 17.0 0.59%
Oil (WTI) 102.8 -0.8 -0.79%
LIBOR 0.25 0.000 -0.16%
US Dollar Index (DXY) 80.59 0.140 0.17%
10 Year Govt Bond Yield 2.68% -0.02%
Current Coupon Ginnie Mae TBA 105 0.2
Current Coupon Fannie Mae TBA 104.4 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.39
Markets are flattish amidst a couple of big transactions – Applied Materials is buying Tokyo Electron (yes a Japanese company is being bought by an American firm) and there is a possibility of an “IPO” for Chrysler as Fiat and the UAW pension fund debate the value of the company. Bonds continue their post FOMC rally.
We have a couple real estate indices this morning – Case-Shiller increased 12.4% YOY, pretty much in line with forecasts, while the FHFA House Price Index increased 1.0% MOM. The FHFA index is more of a central tendency index because it focuses on homes with conforming mortgages attached to it – in other words, it ignores the jumbo space and cash transaction which are often distressed sales.
We have earnings from a couple of homebuilders today: Lennar (LEN) and KB Home (KBH). Orders dropped 9% on a unit basis, but increased 7% on a dollar basis. Their cancellation rate was 33%.  Revenues increased 29% and average selling prices rose 22% to 299k. KB’s increase in ASPs is due to a strategic shift on their part. The stock is down small premarket. Lennar reported ASPs of 291k, with new orders up 14% on a unit basis and 32% on a dollar basis. Cancellation rate was 18%. The stock is up 1.5% preopen.
Jeffrey Metzger, CEO of KB Home said “The fundamentals of the current housing recovery are firmly in place, supported by low inventory levels, an improving economy, and positive demographic trends. Given these factors, we believe that the recent slower pace of recovery caused by an uptick in mortgage interest rates is a temporary effect and we expect to see steady upward demand for housing as consumers adjust to both higher rates and pricing.”
Stuart Miller, CEO of Lennar said: “We continue to see long-term fundamental demand in the housing market driven by the significant shortfall of new single family and multi family homes built over the last five years. While there may be bumps along the road that may impact the short-term pace of the recovery, the long-term outlook for our business remains extremely bright.”

Morning Report – People don’t understand HARP 09/23/13

Vital Statistics:

Last Change Percent
S&P Futures 1699.3 -3.1 -0.18%
Eurostoxx Index 2914.4 -12.8 -0.44%
Oil (WTI) 104.5 -0.3 -0.24%
LIBOR 0.251 0.001 0.40%
US Dollar Index (DXY) 80.39 -0.038 -0.05%
10 Year Govt Bond Yield 2.73% 0.00%
Current Coupon Ginnie Mae TBA 104.8 0.1
Current Coupon Fannie Mae TBA 103.9 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.42
Markets are lower as they start to worry about the machinations over the debt ceiling and the continuing resolution. Bonds and MBS are more or less flat.
We will have lots of relevant data this week, with Case-Shiller and the FHFA Home Price Index on Tuesday, Lennar and KB Home earnings on Tuesday as well, and the third revision to 2Q GDP on Thursday. Note the Fed took down 2013 GDP projections by 30 basis points in its economic forecast, so maybe they know the revision is going to be bad. The Street is at 2.6%. Don’t forget Q1 GDP started at something like 2.5% and was revised downward to 1.1%.
The tea party wing of the Republican Party is demanding that obamacare be delayed or de-funded as a condition to raising the debt ceiling. Needless to say, this is going nowhere in a Democratically controlled Senate and won’t be signed by the author either. The continuing resolution will be the first hurdle, and Republicans do have something to protect in that it keeps sequestration-level spending in place. The debt ceiling is a messier affair, but Republican leadership is dead-set against defaulting on the debt, so this will get passed one way or the other, but it may cost Boehner his speakership if he passes an increase in the debt ceiling by relying on Democratic votes.
The FHFA is trying to figure out why eligible borrowers are not taking advantage of HARP. There seems to be this perception that you have to be delinquent to take advantage of it, which is false. LO’s take note.
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