Morning Report – Subprime is back 2/26/14

Vital Statistics:

Last Change Percent
S&P Futures 1849.0 2.7 0.15%
Eurostoxx Index 3142.2 -15.3 -0.48%
Oil (WTI) 102.4 0.6 0.55%
LIBOR 0.233 0.000 -0.13%
US Dollar Index (DXY) 80.29 0.150 0.19%
10 Year Govt Bond Yield 2.71% 0.01%
Current Coupon Ginnie Mae TBA 105.8 0.0
Current Coupon Fannie Mae TBA 104.5 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.3
Markets are higher this morning on no real news. Mortgage Applications fell 8.5% last week. Both purchase and refi apps fell. We will get new home sales at 10:00am
Toll Brothers didn’t have anything earth shattering to say on its earnings conference call, but here are some bullet points: Remember, Toll is in the McMansion business so they will outperform in places with strong economies (DC / Texas) or quality of life (California).
  • Consumer Confidence still “a bit fragile”
  • Company is “a bit stumped by low demand”
  • Texas and California sales are “fabulous”
  • Minnesota is slow, Virginia is stronger than Maryland
  • Toll will be more careful about raising prices this year
  • Construction costs rose $1,700 per home in quarter
  • Incentives fell
  • Toll will slow land buying over the next 12-18 months
Fun fact: the average size of a new home has increased 300 square feet from 2009 to 2013. This is part of the reason we have been seeing such growth in average selling prices from the builders and why you shouldn’t automatically assume existing homes will see similar appreciation. Funny, I thought the end of the real estate boom was supposed to close the curtain on gaudy oversized McMansions. Guess not.
Cool slideshow on the housing boom and bust.
Annaly Capital reported earnings yesterday, which came in better than expected. The company continues to de-leverage, and has been swapping out of RMBS into CMBS. Leverage dropped to 5:1 from 5.4:1 in Q3 and 6.5:1 a year ago. The company is primarily invested in agency fixed rate MBS. Annaly’s activity affects TBA pricing which in turn affects mortgage rates, so it pays to keep tabs on what the big agency REITs are doing. As the Fed reduces their footprint in the MBS market, the REITs will dominate again.
Hey interested in a no-money down mortgage with no credit score check and a rate under 4%? Bank of America has funded a non-profit lender who wants rekindle the subprime market for “underserved” communities. (I guess no-no loans under 4% would probably be money-losers, so the “non-profit” label is a bit superfluous). Will the CFPB come after them given that roughly 15% of the loans would not meet QM standards? Looks like we have the first lender to stick their neck out of the QM box… Not sure why BOA would fund such a thing, (they get no upside and all the downside) unless they get CRA points for it. FWIW, the guy behind this (Bruce Marks) is a CRA bomb-thrower going way back, so maybe figured out a way to extort BOA into giving him money to do this by threatening protests in front of their branches if they didn’t.

45 Responses

  1. Er….Frist.

    And a good article from Forbes on ignorant critiques of the Austrians.


  2. My 5/1 ARM reset on my rental. I think it was about 5 percent when we closed in 2005. As of May 1, it will be 2.5%. 1-year LIBOR FTW


  3. typo. should be 2.75%. but yeah, they take the 1-year and add 2.25 to it.


  4. I believe its to the thousandth. it’s weird. they pull the LIBOR from, I think, 2/15 every year and it’s effective the following May. this will be the 3rd time its reset down.


  5. I just got a loan on a car (actually, two loans on two cars in three months). At 1.99% . . . now if could find someone to refinance my mortgage at that rate.


  6. @ScottC: “Perhaps this guy “identifies” as bovine, and who are we to judge anyway?”

    Not me. Of course, I don’t identify as myself anymore. I identify as you. And who is the bank to judge me?


    • Kevin:

      I don’t identify as myself anymore. I identify as you. And who is the bank to judge me?



      • The VA, model for what the left wants to impose on everyone:

        Thousands of orders for diagnostic medical tests have been purged en masse by the Department of Veterans Affairs to make it appear its decade-long backlog is being eliminated, according to documents obtained by the Washington Examiner.

        About 40,000 appointments were “administratively closed” in Los Angeles, and another 13,000 were cancelled in Dallas in 2012….

        But the practice fits a long-standing pattern at VA of falsifying reported wait-times to make it appear individual medical centers are meeting department goals of ensuring patients get the medical care they need within the deadlines set by policy.

        Also of note:

        The allegation that VA administrators falsify patient wait times to meet performance goals is not new.

        In an April 2012 hearing of the Senate Veterans’ Affairs Committee, Nicholas Tolentino, former VA mental health administrator, stated it was common practice at VA to falsify patient wait times and put “numerical performance goals ahead of the veterans’ mental health care needs.”

        Tolentino said meeting the VA performance goals was part of management evaluations tied to pay and performance bonuses, and that when he tried to report unethical “gaming” of the numbers, his complaints “fell on deaf ears.”

        Is the VA a criminal enterprise?


  7. I just got a loan on a car (actually, two loans on two cars in three months). At 1.99% . . . now if could find someone to refinance my mortgage at that rate.

    You would probably have to pay 15 points up front for that sort of rate


  8. .link only available to members.

    oh, this is awkward. 🙂


  9. Brent Nyitray: “You would probably have to pay 15 points up front for that sort of rate”

    15 points? Hell, why not just poop money and pay off the loan? I want something for nothing. Give it to me!


  10. @Brent: ” Funny, I thought the end of the real estate boom was supposed to close the curtain on gaudy oversized McMansions. Guess not.”

    I dunno. While I have a modest little home (I do not remember the square footage offhand, but I we paid $135k at pretty much the top of the market; new houses in the neighborhood were going for $175k right before the crash were smaller but fancier) if I had the money I would certainly pay for a house with more closet space. And maybe an office! And an extra bathroom. With three women a 2.5 baths . . . and a shared closet. I remember when we first got married, before we had kids, I had a bedroom that was my office and I had a closet it in it. Those were the days!

    Seems like you’ve got to move into a McMansion to get a decent-sized closet.


  11. I thought the VA was God’s gift to Progressives that single payer is the greatest? It’s always cited as a government program that is run well.


  12. Scott I was wondering why you noted the libor rate is all.


    • McWing;

      Scott I was wondering why you noted the libor rate is all.

      Ah…just pointing out what it actually was, since nova mentioned his rate and that it was set off of libor, but not what the actual 12m libor rate was. It isn’t really moving much at all, so neither good nor bad.


  13. if you have CSPAN, WTF is Rep. Polis wearing?


  14. Brent, I assume you’ve seen this?

    “Home buyers are losing confidence in the housing market

    By Dina Elboghdady
    February 26 at 12:46 pm”


  15. “Is the VA a criminal enterprise?”

    Depends on if those responsible are punished or promoted.


  16. jnc, the 13% annual price increases we have been seeing were completely unsustainable. The bottoming process of any asset usually involves a big price increase on low volume, which is exactly what we have seen here. Now, housing is more or less back to its historical relationship with incomes.

    So if you expect wages to increase about 3% next year, then a 3% forecast for house prices is about right..

    Edit: Would mention the caveat that the big price increases have been in a very few select markets, mainly California, Phoenix, etc. The rest of the country really hasn’t seen that big of a bounce from the bottom.


  17. True, but this conclusion:

    “Here is a chart Shiller, an economics professor at Yale University, provided that chronicles the results of the expectation surveys. His grim conclusion: “We’re losing our general sense of optimism about housing. It’s percolating throughout the nation.”

    seems a bit overwrought given that people shouldn’t be viewing housing as an easy money investment in the first place.


  18. One thing about these real estate indices – they are going to be colored by where the transactions are taking place. in other words, if the majority of transactions are in the hot markets (and they are) then the indices are going to reflect that. Dull markets with no transactions won’t get incorporated in the index. The real estate indices are not based on random samples, I guess.

    So, I could see how a poll of randomly sampled people would be at odds with the price indices, since the vast majority of the population don’t live in these hot markets and has not experienced any meaningful price appreciation yet.


  19. Watching the debate on anonymous speech. Fascinating how much the Dems hate it.


  20. “Watching the debate on anonymous speech. Fascinating how much the Dems hate it.”

    The Dems hate anonymous speech? Since when? Why?


  21. @ScottC: “Is the childhood obesity epidemic a myth?”

    Yup. Adult obesity is more of a problem! But Michelle Obama needed something important to do.

    Still, I suspect the general focus on childhood obesity has had an impact on obesity rates, even if Michelle Obama’s crusade has not. In that when parents are more conscious and feel their kids weight reflects on them, the more likely it is that even overweight parents will do more to encourage their children to eat healthily or more lightly.


  22. What happened to hack Sargent today? No immigration whine. Dude’s losing it.


  23. Are they picking the people to build these sites out of their ass? I really don’t understand the thinking on any of the IT side of the ATA. It’s all so horribly backwards, and all done completely wrong. If that’s how the insurance stuff is being done (which I truly don’t understand), then it’s a legitimate disaster across the board. Or will be, soon enough.


  24. Government corruption is innate.

    But the VA kicks ass!


  25. “The Dems hate anonymous speech? Since when? Why?”

    This was about disclosure behind who is funding issue ads. Seems to me the American people are capable of judging an issue on its merits. Who is funding is only helps the opposition make an ad hominem attack


    • NoVA – not only would I favor the full disclosure of who funded what political ad, I would favor an annotated IRC that stated which entities or persons presented the drafts of legislation to the Committees that were eventually made part of each section, and what entities or constituencies are being favored by the tax treatment.

      Just think how long an annotated PPACA would be!

      This is the information age and the more the better, I say.


  26. Why should the government be involved in campaign funding at all? What’s the motivation besides authoritarian control?


  27. Mark — you may find this interesting. its sets up three options for disclosure:

    Disclosure Regime: Donor, Candidate and Public Know
    Laissez Faire Regime: Donor and Candidate Know
    Anonymity Regime: Only Donor Knows … meaning the donations are funneled through a black box.


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