Morning Report – Mel is now guarding the henhouse 12/11/13

Vital Statistics:

Last Change Percent
S&P Futures 1803.5 0.4 0.02%
Eurostoxx Index 2973.6 12.7 0.43%
Oil (WTI) 98.27 -0.2 -0.24%
LIBOR 0.244 0.002 0.83%
US Dollar Index (DXY) 79.98 0.014 0.02%
10 Year Govt Bond Yield 2.82% 0.02%
Current Coupon Ginnie Mae TBA 104.8 -0.2
Current Coupon Fannie Mae TBA 103.7 -0.2
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.42
Markets are flattish on no real news. Bonds and MBS are down small. In spite of rising rates, mortgage applications rose 1% last week as refis rose 2% and purchases rose 1%
Mel Watt was confirmed by the Senate yesterday to lead FHFA. Ed DeMarco slipped in one last G-fee increase before he left – it will be interesting to see if Watt maintains it. Exhibiting his droll sense of humor, President Obama said that Mel Watt is “just the type of regulator to make sure the kind of crisis we just went through never happens again.” Regardless of anyone’s free-market inclinations, a Mel Watt FHFA is probably better for originators than Ed DeMarco was. He wants credit loosened, he wants more mortgage activity. Watt is a CRA guy to the bone.
The other possible effect (and I’m not thoroughly convinced it will happen) is that higher coupon MBS get hit as the market factors in new prepayment assumptions. Of course that isn’t relevant for new issues, but there is a relative value trade between TBAs and existing MBS. If existing MBS get hit, TBAs probably will as well. To a LO, what this means is that your borrower won’t be able to gain as much benefit going higher up in rate as before. Again, may not happen, but is something to watch over the next few months.
The new Volcker rule is out, and it is not as harsh as the banks had feared. Principal trading in a market-making context is still allowed, although the devil is in the details and it will depend on how the regulators enforce it. The main point is that liquidity in the MBS markets should remain the way it is and not contract, which would have had the effect of raising interest rates.
It is looking like a budget confrontation isn’t happening in the new year. Paul Ryan and Patty Murray came up with a deal that weakens the sequester, and cuts the deficit by raising fees in other places. Extended unemployment benefits were not part of the deal, which means that unemployment checks will stop for millions of Americans at the beginning of the year. Also, I don’t know if the debt ceiling was addressed. So we have a couple big issues still aren’t resolved.

44 Responses

  1. Am I first? OMG

    In spite of rising rates

    We paid over 9% for this house in 1987 so I don’t really imagine the so called rising rates are affecting the purchases that much, right?

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  2. Bullshit of the day from GS.

    Hi Lms!

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  3. Budget deal does not address the debt ceiling.

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  4. LMS, you would be surprised… the purchase market has been affected by increasing rates. It is all about your perspective.

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  5. Brent:

    The new Volcker rule is out, and it is not as harsh as the banks had feared. Principal trading in a market-making context is still allowed, although the devil is in the details and it will depend on how the regulators enforce it.

    Yup. This is the worst kind of law there is…one that gives regulators huge latitude to make personal judgments about whether or not a particular action is in violation. So at any given point one has no idea whether or not what one does is in violation. It depends entirely on which regulator happens to be looking at it and how he happens to feel that day. And opens the door to all kinds of politically inspired prosecutions.

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  6. Wow, maybe government spending is the best way to defeat The Ambomination!

    Oregon spent $300 million and signed up 44 people.

    Heckuva job!

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    • The whole media world has been waiting with bated breath over who Time’s person of the year would be, and with the announcement that the Pope has been selected, it seems that every outlet from National Review to the WaPo to Reuters to CNBC feels the need to trumpet the “news”. So my question: Why does anyone give a crap who Time votes as its person of the year? Why is Time’s selection of the Pope any more newsworthy than, say, The Guardian’s selection of Edward Snowden? At some point in our history, I suppose that Time was a relevant and influential cultural indicator in the US. But now? Why does anyone continue to pretend that what Time thinks about anything matters in the slightest?

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  7. Brent, how do we know it’s rising rates and not some other factor, such as student loan debt, new attitudes towards buying vs. renting, or any number of other perspectives that can affect the market? I’m not trying to be argumentative (you’re the expert after all), just curious. I’ve also heard that cash investors, here in CA at least, are snapping up the homes.

    It still seems like a buyers market to me for the most part.

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  8. BTW, I haven’t been following politics or the brouhaha surrounding the ACA at all really, too busy with other projects, but I do have a slight update on personal stories here.

    I’m not signing up even though I could have saved about $125/mo on a better policy than the one I have now. We would have lost the business deduction if I had and so we decided that for now we’re better off keeping what I have. A year and 4 months from now I’ll hit Medicare age anyway.

    Our daughter is signed up and will pay more than her Pre-existing conditions policy but has good insurance and will probably get a slight subsidy to off-set the cost a little, at least for now. Her income is improving finally so we’re not sure if she’ll actually get a subsidy or not yet.

    We have really good friends who have been without insurance for over a year now who have both signed up as individuals and are thrilled. They’re very anti-Obama and the ACA so I was really surprised when I talked to them. The husband was greatly relieved that his wife was going to have insurance coverage again.

    Other than that, I honestly don’t know what’s going on anywhere…………LOL

    I’ve had my head in the water for several months and have lost my passion for politics for now.

    Hope you’re all staying warm!

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    • lms:

      Our daughter is signed up and will pay more than her Pre-existing conditions policy but has good insurance and will probably get a slight subsidy to off-set the cost a little, at least for now.

      I thought she worked for one of the big oil companies. Do she not get employer-provided insurance through them?

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  9. Good to see you lmsinca. In case you haven’t been following PL, Sue Kazoo has been in treatment for cancer.

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  10. “Exhibiting his droll sense of humor, President Obama said that Mel Watt is “just the type of regulator to make sure the kind of crisis we just went through never happens again.” ”

    While obviously the administration hasn’t lived up to it’s hubristic claim of “most ethical administration of all time”, I don’t recall any nominee of theirs that was so obviously corrupt as Mel Watt.

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  11. I haven’t been following the PL jnc but I’ve been corresponding with Sue. I feel really bad for her. Hope you’re doing well!

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  12. “Bullshit of the day from GS.”

    Read over at Wonkblog was that it set the budget levels through 2015.

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  13. LMS, I think a few things are going on right now…. prices have risen a lot, at least in places like CA. In places like San Diego and the Bay Area, prices are up 20%+ over the past year. Between the increase in prices and the higher rates, affordability has declined (though housing is still very affordable according to historical norms).

    Low inventory has been the main feature of the real estate market. Policy has been directed towards reducing salable inventory in order to boost prices. Pros have been snapping up homes in CA, although I think the easy money has been made there, and some of them will probably want to ring the register before long. Anecdotally, I know of several first time homebuyers in our San Diego office that have been priced out of the market and cannot find anything.

    Here in the Northeast, prices have gone nowhere. NY is a judicial state, and is legendary for how long you can live in your house without paying your mortgage. There are 5 foreclosures within a square mile of me, but you would never be able to tell – the houses are occupied, Christmas decorations are up, etc. States that have worked through their foreclosed inventory (like California) have been experiencing the double digit price increases. Borrower friendly states have not.

    Finally, we are in the seasonal dead period for home sales, particularly purchases. We probably won’t see a meaningful pickup in applications until late winter. Real estate prices typically follow a seasonal mode as well, since people like to move in the summer so they don’t have to take their kids out of school in the middle of the year. So this is the time of year for bargains

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  14. Thanks Brent. As usual I think CA is a bit of an outlier in the real estate market. If we were younger we would have invested about a year ago probably.

    Scott, I care about Time just about as much as I care about whichever news org picked Adam Levine as the sexiest man alive or whatever it was………….yikes!

    ps……I’d rather read Rolling Stone than Time. One of the reasons I have so little time for politics right now is because in order to keep up, one has to access so many different news sources to get even remotely close to the facts. Even then, I’m not really sure I’ve gotten there. I just don’t have time for that now!

    I’m happy to see all of you plugging away at it though, even if it’s slightly (LOL) from a jaded perspective.

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    • lms:

      Scott, I care about Time just about as much as I care about whichever news org picked Adam Levine as the sexiest man alive or whatever it was………….yikes!

      Exactly! Can you imagine CNBC interrupting an interview with a guest with Breaking News! that Adam Levine is People Magazine’s sexiest man alive? Yet that is exactly what they did this morning after Time’s announcement. Insane.

      Scott, we have two daughters, one works for the oil company in CO and the other lives here in CA and works 3 jobs, for now.

      Ah…different daughter. Got it.

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  15. Scott, we have two daughters, one works for the oil company in CO and the other lives here in CA and works 3 jobs, for now. She’s the one who was furloughed from her teaching job almost 3 years ago now and has debilitating asthma. She’s been on CA, and then the federal, transition program to full ACA coverage (PCIP). We also have a son who is looking into the ACA for his family but I’m not sure how far he’s gotten so far. He’s also a small business owner, sort of, and is thinking about quitting his “real” job to pursue his business full time so they will lose health benefits if he does.

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  16. Scott, this is pretty much your argument but you may want to read it anyway.

    “New Volcker Rule is a bonanza for lawyers
    By Matt Miller, Wednesday, December 11”

    http://www.washingtonpost.com/opinions/matt-miller-firms-lawyer-up-as-volker-rule-is-rolled-out/2013/12/11/e6d6b8b8-6266-11e3-aa81-e1dab1360323_story.html

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    • jnc (from the link):

      It would be a different Volcker Rule consisting of a simple sentence: “Banks shall hold equity capital equal to at least 20 percent of their total assets.” Up from 5 or so percent today, depending on how you count. Maybe you’d need a few pages to make it 20 percent of “risk-adjusted” assets to account for the relative safety of certain holdings.

      Yup. The politicians and regulators (at least those who have even a marginal sense of understanding of the thing they are talking about, which may well be a small number) are simply lying about the intent of D/F and Volcker. It isn't to make banks "safer" and "protect" taxpayers. It is just another form of rent-seeking, pure and simple.

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  17. This water discovery is great for humanity.

    http://m.naturalnews.com/news/043205_freshwater_aquifers_ocean_floor.html#ixzz2nAwz99wG

    I do live the reflexive environmental impact dogma included. Who so they think their audience is? Or, is it required due to tribal identification?

    Surprised they didn’t mention Gaia.

    Still, great news for humanity. Start pumping in the Inland Empire! Let’s get the farmers working again!

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  18. jnc:

    To answer your question about USAA insurance from the PL: some states (I don’t know about VA) several years ago required any insurance company that was insuring drivers in that state to create an additional high-risk pool to insure high-risk drivers in that state–presumably charging them an arm and a leg in so doing. USAA fought it but lost, and so opened up their vehicle insurance to the high-risk pool where required. I know that they subsequently opened up other kinds of insurance in those states, but I don’t know if they’ve expanded the non-military pool to all 50 states or not. If you’re curious, you can start here.

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  19. Heh.

    In other news, the 20g chocolate ration has been increased to 15g!

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  20. Wow, not a good sign.

    Another consultant Kip Piper, agreed. “So far I’m hearing from health plans that around 5% and 10% of consumers who have made it through the data transfer gauntlet have paid first month’s premium and therefore truly enrolled,” he wrote me.

    Amazing.

    http://cornstein.tumblr.com/post/69692162567/the-key-obamacare-deadline-few-are-talking-about

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  21. NoVA:

    “Suck it up, buttercup!”

    OK, that made me do a tea spit.

    I’m meeting a SLC friend at Mon Ami Gabi in Bethesda for dinner tomorrow night. It’s kind of funny; due to the nature of their work I’ve seen a couple of them in person almost as much since I moved here as I did when I was in SLC! The one I’m seeing tomorrow works for Barrick and is in DC quarterly for meetings at State. I’m getting her to expense it. 🙂

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  22. I actually think this is what Mexico needs and is the only thing that is effective. I beleive it helped Columbia immensely.

    http://nationalinterest.org/commentary/vigilantes-mexico-warning-sign-chaos-9542

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  23. ““Suck it up, buttercup!””

    What’s that from?

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  24. jnc:

    NoVA and I were having a side conversation on Wonkblog. Evidently Mrs NoVA did the Color Run in Baltimore a few weeks ago with her sister and went “all crossfit” on her (to use NoVA’s phrase) during the run. Her sister thought it was going to be a morning jog, but not so much. . .

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  25. I’ve always enjoyed the classic “pain is nothing but weakness leaving the body.”

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  26. See, primaries work.

    Breaking: Daily Caller told that McConnell will vote against budget deal brokered by Paul Ryan and Patty Murray http://t.co/PdtGN1Iz6N

    Bet Cornyn joins him.

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    • I thought Ace’s take on Time’s person of the year selection was particularly perceptive, especially since he wrote it before the announcement.

      They will pick Pope Francis. This is for several reasons. First, and most importantly, it will sell magazines. The Pope is the head of a large church; I can’t think of anyone else on earth who is popular and who heads such a large organization, so intimately important in the everyday lives of people.

      Picking Pope Francis also allows Time to claim Serious You Guys We’re Not Anti-Religion n Stuff.

      Of course the reason they would entertain picking Pope Francis (and not Pope Benedict) is that they are anti-religious. I don’t mean Pope Francis isn’t religious. I mean Time’s interest in Pope Francis is entirely political — they seem him as an ally in their unending political fight with the Right.

      Not saying he is that — I’m saying how that’s how the left perceives him. A Polite Company Pontiff, so to speak.

      You want proof of that? Time today had to correct a caption it ran with picture of Pope Francis. The caption specified that he was popular because he rejected the teachings of the Church.

      No, seriously. Here was Time’s first attempt to summarize the importance of Pope Francis:

      First Jesuit Pontiff won hearts and headlines with his common touch and rejection of church dogma and luxury.

      Yes, the head of the Catholic Church is known for rejecting the teachings of the Catholic Church.

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  27. “Carl”–

    I’ll bet you’re right.

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  28. “Pope Francis is entirely political — they seem him as an ally in their unending political fight with the Right.”

    which is idiotic. Gerson’s column this week was equally poor. The idea that you can cram was Francis is talking about into the american political spectrum and debates over marginal tax rates or even SNAP policy is missing the point completely.

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  29. Oh, he’ll mention abortion is bad and then he’ll be right back on the left’s shit list.

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  30. Does it mean Progressives are against abortion in all circumstances now ?

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  31. Worth a read:

    “The substantial gains of the left on cultural and social issues and recent electoral victories in New York and Boston have created a misleading perception among liberals that the country is moving in the same direction on economic issues. That is not the case: an ethos of self-reliance and individual responsibility continues, as it has for the past 237 years, to grip the American imagination. A switch to an ideology founded on redistribution, with economic justice as its core principle, would require a major upheaval, the likes of which we have not seen for some time.”

    http://www.nytimes.com/2013/12/11/opinion/does-rising-inequality-make-us-hardhearted.html?pagewanted=all

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    • jnc:

      I know it is one of my hobby horses, but I can’t resist pointing out the use of language to frame the issue in such a way as to make a particular conclusion the obvious/necessary winner. From the NYT piece:

      A switch to an ideology founded on redistribution, with economic justice as its core principle, would require a major upheaval, the likes of which we have not seen for some time.

      Redistribution is effectively established by the author as “justice”, but not through any actual argument, simply by force of his premises. But, of course, the real dispute is over precisely that…does taking money/wealth from some people and redistributing it to others represent justice?

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  32. I of course consider “economic justice”, much like it’s cousin “social justice”, to be pretty much a meaningless term.

    My main takeaway from the piece is that the intelligent observers recognize the structural problems with President Obama’s “shift” to inequality as an issue.

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