Morning Report – Nationstar misses 11/07/13

Posted on November 7, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1771.3 5.7 0.32%
Eurostoxx Index 3097.5 41.1 1.34%
Oil (WTI) 94.12 -0.7 -0.72%
LIBOR 0.239 0.000 0.10%
US Dollar Index (DXY) 81.39 0.903 1.12%
10 Year Govt Bond Yield 2.64% -0.01%
Current Coupon Ginnie Mae TBA 106.1 -0.1
Current Coupon Fannie Mae TBA 105.1 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.28
Markets are higher after the European Central Bank cut rates and we got a surprisingly strong 3Q GDP report. Initial Jobless Claims fell and came in slightly below expectations. Bonds and MBS are down small.
#Twittergoespublicat26.  Symbol is TWTR for those who want to watch at home. This is a punchy valuation at 12.4 time sales. The offering price was increased from $17 to $26, lets see if they got too greedy on the IPO the way Facebook did.
The advance estimate of 3Q GDP came in at 2.8%, well above the Street expectations of 2.0%. Remember, this is the advance estimate and it will be revised twice. Lately, we have seen the advance estimates come in too high, only to be revised downward – for example the first estimate for Q113 GDP was 2.5% and by the third revision it ended up being 1.1%. Given the differential between the Street and the government, I suspect the number will be revised downward.
There had been chatter in the marketplace that Nationstar (NSM)’s pricing had gotten worse and they were backing out of the market. Well, today, we saw that there was indeed something wrong; as the company missed its earnings estimate in a big way. Pro-forma EPS were $1.08 vs the Street at $1.27. They took down guidance for full year 2013 and 2014. They also announced they are selling their wholesale channel to Stonegate (SGM). Some retail The stock is down 8 bucks (about 16%) pre-open.
The mortgage REITs have been announcing earnings and for the most part, they were flat on the quarter with regard to book value per share. They have de-levereraged a lot over the past quarter, and I would almost go as far as to say that their MBS (and TBA) selling is probably close to finished. Many are lowering duration by switching to hybrid ARMs and increasing credit risk while lowering interest rate risk. REIT selling has been one of the reasons why secondary margins have been getting hit across the board.
Fannie Mae reported good earnings per share and will pay Treasury $8.6 billion in the third quarter. The stock is up 6% or so pre-market
Merger mania in the homebuilder space. Earlier this week, Tri Pointe Homes (TPH) announced it is buying Weyerhaeuser’s homebuilding unit for $2.7 billion.  Now Toll Brothers (TOL) is in a deal to to buy Shapell for $1.6 billion to increase its California exposure. As we have seen, financing availability has been a case of the haves and the have nots. If you are big enough, you can get amazing financing terms.

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Morning Report – Housing overvalued again? 11/06/13

Posted on November 6, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1764.5 8.0 0.46%
Eurostoxx Index 3056.8 20.9 0.69%
Oil (WTI) 93.94 0.6 0.61%
LIBOR 0.239 0.001 0.40%
US Dollar Index (DXY) 80.54 -0.169 -0.21%
10 Year Govt Bond Yield 2.65% -0.02%
Current Coupon Ginnie Mae TBA 106 0.1
Current Coupon Fannie Mae TBA 105 0.2
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.23
Markets are higher this morning on strength in overseas markets. Market darling Tesla Motors (TSLA) fell in premarket trading after missing its quarter. Abercrumble (ANF) was down 9% after missing as well. Bonds and MBS are up small. At 10:00 we will get the Index of Leading Economic Indicators, which shouldn’t be a market mover
Tomorrow starts the big data, with GDP and then the jobs report on Friday. The bond market has clearly been spooked by the strong ISM numbers and the language out of the FOMC statement.
In politics last night, Chris Christie cruised to a win in New Jersey, while McAuliffe won in Virginia. Dinkins got another term in New York City.
Mortgage applications fell by 7% last week as mortgage rates rose 5 basis points. The purchase index fell by 5.2% while the refi index fell by 7.9%.
Homeprices are 17% overvalued according to Fitch’s models, with much of coastal California > 20% overvalued. Their model is based on unemployment, income, rental prices, population levels, housing units, and mortgage rates. Note that the median house price to median income ratio is back above its historical range again. This is based on NAR’s median house price, which is probably over-emphasizing the red-hot California markets due to its repeat sale methodology. All real estate is local, and I doubt we are overvalued all that much outside of a few markets like Washington DC, Manhattan, and the hot West Coast markets. In the judicial states (primarily in the Northeast) we have yet to see any sort of meaningful rebound in prices.

The homeownership rate edged up last quarter to 65.3% from 65% in Q2 and is now back to levels we haven’t seen since the mid-90s, when HUD began to aggressively push to increase homeownership in this country.

Interesting article on the fiscal drag (aka “austerity”) by the AEI. Without the Fed’s stimulus, nominal GDP would have fallen by 2%. Note that most of the drag is coming from the tax increases, not the spending cuts, as the tax hikes have a much higher multiplier than spending cuts. They cite a San Francisco Fed study which found that 90% of the fiscal drag came from increased taxes. This is not surprising as taxes were increased much more than spending was cut, but I found the difference in multiplier interesting. The spending cuts have a .60 multiplier while tax hikes have a 1.8 multiplier. This means that a $1 reduction in government spending reduces GDP by 60 cents, while a $1 increase in taxes reduces GDP by $1.80.

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Morning Report – Bay Area Home Prices eclipse bubble highs 11/05/13

Posted on November 5, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1758.0 -5.0 -0.28%
Eurostoxx Index 3032.3 -28.9 -0.94%
Oil (WTI) 94.33 -0.3 -0.31%
LIBOR 0.238 0.000 -0.17%
US Dollar Index (DXY) 80.59 0.032 0.04%
10 Year Govt Bond Yield 2.62% 0.02%
Current Coupon Ginnie Mae TBA 106.3 0.3
Current Coupon Fannie Mae TBA 105.2 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.22

Markets are lower this morning on no real news. Bonds and MBS are down. Later this morning, we will get the ISM non-manufacturing survey and the IBD / TIPP economic optimism report.

SAC Capital and the government reached a deal yesterday – Cohen’s SAC Capital and the government settled insider trading charges for $1.2 billion. Cohen personally was never criminally charged. While Steve Cohen avoids jail, the firm will no longer be able to manage money, and once the client funds are withdrawn, no one on the Street will deal with him anymore. So, he can take his billions and go to the beach, I guess. The ultimate arbitrage – Cohen won this game.
The FHFA banned fees on forced placed insurance yesterday. Ultimately this move will result in a little less revenue for servicers.
Did FHA hike premiums just a little too much? It appears so. Wells, Bank of America and TD Bank are now offering loans with as low as a 5% down payment, with a requirement to have PMI until the house has 20% equity (this was the big thing FHA changed – now PMI has to exist for the life of the loan, regardless of the equity). In other words, Wells, B of A, and TD are offering a product similar to old FHA loans. Rising house prices make these worth the gamble. The government has been saying it wants to crowd in private capital; perhaps this is an intended consequence.
The CFPB will hold a hearing in Boston on Wednesday, November 20th at 11:00 am. Richard Cordray will be speaking as well as representatives from consumer groups, industry and the public. These hearings are usually used to announce new initiatives, and we may get the TILA-RESPA integrated disclosures final rule.
What is driving the growth of home prices in the Bay Area? Chinese money. Bay Area house prices are at all time highs, yes, even higher than the bubble years. Roughly 7% higher.

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Morning Report – Deutsche Bank predicting a 2.25% bond yield by the end of the year 11/04/13

Posted on November 4, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1755.0 4.0 0.23%
Eurostoxx Index 3062.3 -5.7 -0.18%
Oil (WTI) 95.64 -0.7 -0.77%
LIBOR 0.238 -0.004 -1.76%
US Dollar Index (DXY) 80.53 0.338 0.42%
10 Year Govt Bond Yield 2.58% 0.02%
Current Coupon Ginnie Mae TBA 106.2 -0.3
Current Coupon Fannie Mae TBA 105.2 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.15
Markets are up as Twitter increases the price of its IPO from $17-$20 to $23-$25. Bonds and MBS are up as well.
This week promises to be a big one with Friday’s jobs report. The bar is set pretty low – nonfarm payrolls are expected to increase 125k. Given that this report will include the government shutdown, you probably should put an asterisk next to it, but all jobs reports are huge these days. The unemployment rate is expected to tick up to 7.3% from 7.2%. The ADP report, which forecasts the same payroll number came in at 130k, weaker than the 150k estimate. Given the shutdown, I would expect a good jobs report to be bond bearish and a bad jobs report to not necessarily be bond bullish. Weakness would be taken as par for the course given the shutdown, and strength in spite of the shutdown would bring a December tapering back into the picture.
Deutsche Bank is out with a gutsy call in Treasuries – a 2.25% yield on the 10-year by the end of the year. The reason? The economy isn’t growing as strongly as forecast. That said, Friday’s ISM report was reasonably strong, but overall consumer confidence has been dropping, and we didn’t see blockbuster numbers out of the retailers for back-to-school. It certainly makes you wonder what the Fed is looking at when they talk about a strengthening economy. Remember, however the Fed has been consistently high in its economic forecasts for GDP growth. The last time rates were at that level, the Bankrate average 30 year fixed rate mortgage was below 4%.
Homebuilder Tri Pointe Homes is making a big bet on housing construction with its purchase of timber conglomerate Weyerhaeuser’s home-building division. In many ways, this deal simply recognizes the reality that there is a huge advantage to size for the builders. On one hand, you have small builders who are having difficulty borrowing money, and on the other hand the big builders are having money thrown at them by the market. Exhibit (a) for that was KB Home’s (KBH) convertible bond deal earlier this year. 10 year paper, 1.375% coupon, initial conversion premium at 50%.
71% of single family homes were built before 1990, according to RealtyTrac’s Aging Home Analysis. This speaks to the merger mentioned above (we have underbuilt for 6 years) and represents an opportunity for 203k loans.

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Football Saturday Open Thread Returns

Posted on November 2, 2013 by Michigoose

An oldie makes it back–I’ve finally had time to pull together a Football Open Thread (in week 10–oy, vey!). Enjoy!

Early games this week: Cincinnati beat Memphis Wednesday (?!!?) night, and USF lost to Houston Thursday night (sorry, Mike!) while ASU spanked WSU 55 – 21. Also, Rice lost to North Texas and LA-Monroe beat Troy. OK, on to the main attractions–

Virginia Tech is at Boston College (Noon EDT, ABC/ESPN2; line: VT, spread 6). This is one of those games that I know virtually nothing about, this season or historically. But for Scott’s sake, Go Eagles! [Update BC wins! 34 – 27. Woo hoo!!!]

Illinois is playing Penn State (Noon EDT, ESPN; line: PSU, spread 10). After being humiliated by MSU last weekend the Illini might be looking for some face-saving. Despite PSU’s poor defense, I don’t think they’ll get it (but I don’t think PSU will beat them by 10–I’m calling it a one-touchdown game). [UpdatePSU wins in overtime 24 – 17]

Wisconsin vs Iowa (Noon EDT, ABC/ESPN2; line: Wisconsin, spread 7). Good Big Ten football–not too exciting, but it gets the job done. [Update
Wisconsin smushes Iowa 28 – 9]

Wake Forest in ACC play against Syracuse (line: Syracuse, spread 3.5). I don’t know why it surprises me every year that Wake Forest has a football team, but for some reason it does. Go, Orange! (Annnnd Syracuse takes it 13 – 0)

Arizona should smush UC Berkeley (line: Arizona, spread 14.5). Go, ‘Cats! Make McWing proud by annihilating those commies from the bay! [Update: And AZ wins 33 – 28]

Minnesota is playing Indiana (line: Indiana, spread 7). Homecoming for Indiana–does anyone go to homecoming games any more? I can’t remember if, other than as a student, I’ve ever been to a single one for either college or high school. Hmm. (IU loses to UM 42 – 39)

Navy is at Mrs NoVA’s alma mater, Notre Dame (3:30 EDT, NBC; line: ND, spread 17). This is one of those nice “historical” games–although after Navy’s wild finish last week it might be more interesting than I think. Nonetheless, Go, Irish! (Navy loses 34-38)

While the truly important game–Michigan vs MSU–is on ABC (line: MSU, spread 3.5). This probably will be a tight game, but I have faith in my Spartans. As long as MSU wins, we own the Legends division and will play osu for the conference championship. Go Green! Go White!! (MSU wins 29 – 6) mustnotgloatmustnotgloatmustnotgloat!!!!!

Oh, yeah, Northwestern is at Nebraska at the same time (line: Nebraska, spread 7), as is Kansas and Texas (line: UT, spread 27–ouch!)(Nebraska and UT win handily).

Pitt is venturing down south to Yellow Jacket territory late in the day (7:00 pm EDT on ESPNU; line: Georgia Tech, spread 8)[Update: GT dominates 21 – 10] as are the land thieves (?) OSU vs Texas Tech (line: OSU, spread 2.5)[OSU 52 – 34] in a Big Twelve smackdown on FOX.

Oklahoma and Utah are off this week.

May all the right teams win!

Strangely, in one of the WordPress updates, we seem to have lost the ability to use colored fonts unless you use html code. If I’m missing an easy button or something would somebody let me know?

Filed under: Football, Open Thread | 13 Comments »

Morning Report – Mel Watt doesn’t get the vote 11/01/13

Posted on November 1, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1755.0 4.0 0.23%
Eurostoxx Index 3062.3 -5.7 -0.18%
Oil (WTI) 95.64 -0.7 -0.77%
LIBOR 0.238 -0.004 -1.76%
US Dollar Index (DXY) 80.53 0.338 0.42%
10 Year Govt Bond Yield 2.58% 0.02%
Current Coupon Ginnie Mae TBA 106.2 -0.2
Current Coupon Fannie Mae TBA 105.2 -0.2
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.15
Markets are up this morning on no real news. The Markit PMI fell in October, but came in a little better than consensus. Bonds continue their post-FOMC sell-off with the 10 year yielding 2.58%. MBS are down a few ticks.
Mel Watt failed to garner the 60 votes needed to move to a final vote, so he will probably end up withdrawing his name for consideration to run FHFA. Watt was considered to be a little too political and there were grave doubts he would be working in the best interests of the taxpayers. Moody’s Chief Economist Mark Zandi has been mentioned as a possible nomination, however he has been a vocal proponent of principal forgiveness and that will be an issue.
The thing to keep in mind about principal reduction is that there are two losers in this situation – the taxpayer who obviously backstops the insurance and the investors who own the paper. The investors who own these mortgage backed securities are mainly pension funds, and they have been quietly urging their representatives in Washington to not go the mass forgiveness route. Think about things from a pension fund’s perspective – the expected rate of inflation for their liabilities has been growing a lot faster than the paltry rate of return they are getting on their assets in this QE-manipulated environment. The dirty little secret of many of these funds is that they are making, shall we say, optimistic assumptions about the expected rate of return on their asset in order to claim they are in fact solvent. Capital losses (even on insured MBS) will happen, which will push them even deeper in the hole. Many of these plans are government / union and many politicians have their own retirement in these plans. So that is a look at the behind-the-scenes issue with the whole FHFA head.
Politically, Acting Chairman Ed DeMarco may in fact make a convenient target for the Left, who can rail against his refusal to entertain principal mods while that the same time offering assurances to their state pension funds that nothing will change. And the Republicans get to do the dirty work. A win all around.
One note, CBO did conduct a study that showed that a mass principal forgiveness program would save the government money, primarily through increased economic growth, however that result depends on the government getting it right in terms of crafting a policy that would not cause a wave of strategic defaults. That is the $10,000 question.
John McCain and Lindsey Graham are going to hold up the nomination of Janet Yellen unless they get more details from the Administration over the Benghazi attacks. In spite of this, Yellen will get confirmed. I don’t anticipate the political sausage-making will affect the bond market at all.

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