Morning Report – Who is paying for homeowner relief? 7/23/14

Stocks are higher this morning as second quarter earnings are generally better than expected. Bonds and MBS are flat

Mortgage Applications rose 2.4% last week, according to the Mortgage Bankers Association. Purchases rose.3%, while refis rose 4.1%. The MBA backs up the data we have seen from Bankrate- as the 10 year (and TBAs) have rallied over the past month, mortgage rates are flat, except for jumbos, which have dropped 7 bps over the past month. I suspect it is evidence that riskier loans are being done.

When the government settled with the big banks and demanded debt relief, most of the relief came from portfolio loans, but some did not. About 39% of Bank of America’s relief came from loans that were investor-owned – in other words, the money came from someone else’s pocket, not Bank of America’s. It looks like the number at JP Morgan was even higher – 44%. In other words, these banks got fined, but the investors (pension funds, 401ks, mortgage REITs) ended up paying the fine. Of course the best one was Ocwen, who provided $2 billion in relief. The catch? Ocwen is a servicer and simply passes on payments from borrowers to investors. They paid their fine with other people’s money. The Association of Mortgage Investors (AMI) is rightly calling foul. The government is not commenting, although it is stuff like this that partially explains why the private label market hasn’t come back yet. Once bitten, twice shy.

Split decision yesterday on Obamacare. Looks like this one might have to be settled at the Supreme Court. Separately, the IRS destroyed hard drives in the targeting probe. Lots of partisan bickering to pedal into campaign donations before midterm elections. Democrats and Republicans pretty much despise each other at this point. Such is the political climate as Congress goes on break.

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