Morning Report – Subprime is back 1/28/15

Markets are higher after yesterday’s sharp sell-off. Bonds and MBS are flat.

Mortgage Applications fell 3.2% last week as purchases fell .1% and refis fell 5.1%.

There is anecdotal evidence (Redfin and also D.R. Horton) of buyer demand for homes, which bodes well for business this year. The wrinkle is that buyers are highly price sensitive and are not chasing homes, even though rates are lower. Existing home inventory is at 4.4 months, which is well below the mid 5s we have been seeing for years and the mid 6s, which indicates a balanced market.

Mel Watt testified before the House Financial Services Committee yesterday. Here are the prepared remarks. He more or less defended an activist government role in the housing market. On the subject of principal mods for Fannie and Freddie loans, he told the left that the check is in the mail, saying that they are still looking at the best way to serve both homeowners and the government. As the FHFA home price index is within 5% of peak levels already, this problem is melting away over time.

We will have the FOMC decision today around 2:00 pm. Nothing major is expected, as there is no press conference. I suspect any action will be in the minutes, not the statement.

Is the non-QM securitization market finally coming back? Maybe. As if now, non-QM loans are portfolio’d. However some hedge funds are thinking of selling MBS backed by these loans. Of course the big question will be how much overcollateralization the Street will require. High quality jumbos have been having something like a 50% equity tranche. That said, financial repression leads to investors reaching for yield, so this may work.

13 Responses

  1. “states with licensed brokers did not enjoy fewer foreclosures but did suffer more expensive mortgages”.

    Hunh. Who’da think it.


  2. And it’s all about finding new ways to manipulate behavior with the code.

    The observation about taxing unpaid yard work of course invokes the Beatles “Taxman”.

    If it’s going to be an income tax, flat tax with no deductions and everyone files as an individual. They can then make their own decisions about optimizing their domestic arrangements without having to bother with any specific tax consequences as a result of those arrangements.


  3. Both Republicans and Democrats need revenue for new spending (apparantly paying down accumulated debt to date is passé) and both parties are casting about for a palatable way to tax. We will have a VAT before the end of this decade. I expect it will occur before May 2017.


    • McWing:

      Curious if this is analogous to issue work permits to illegals?

      Seems a pretty good analogy to me.


      • From yesterday’s testimony by Loretta Lynch, Obama’s nominee to be the new AG:

        Senator Sessions: Who has more right to a job in this country, a lawful immigrant who’s here– a green card holder, or a citizen, or a person who has entered the country unlawfully?

        Ms. Lynch: The right and obligation to work is shared by everyone in this country, regardless of how they came here.

        Hmmm. So according to Lynch, illegal aliens have a right to work in the US. The fact that such statements (at a different point she was also unable to say whether or not the president has the authority to refuse to enforce tax laws) don’t immediately disqualify her for the job, and that she will likely be ultimately confirmed anyway suggests to me that the advise and consent role has become a complete joke, and that there is little reason to even have these confirmation hearings.


  4. That’s how I read it. It’s a remarkably Libertarian view. Good for her.


  5. ScottC: “Hmmm. So according to Lynch, illegal aliens have a right to work in the US.”

    Or there’s an implicit assumption that they shouldn’t be illegal. That’s probably more likely, but it’s an awful answer. I tend to agree with McWing that the borders should be open, but I also think that it might even be better if they were “open with a price”, that the nature of the border would be negotiated so that Mexico has to make concessions, as the poverty in Mexico is almost entirely a product of how that country is governed.

    I’ve always said we should have free trade with Cuba, on the condition that they legalize gambling. Or something. 😉


  6. @McWing: “We will have a VAT before the end of this decade. I expect it will occur before May 2017.”

    If so, then we will also have a great deal of former senators and congress-critters, and a complete route of the current members of the GOP. And empty GOP coffers, as most of the big-money donors don’t want their businesses taxed at every level of production.


  7. Kevin,

    I disagree as they will all be able to carve out their exemptions, at least temporarily. Plus, the CoC needs the government to spend money and will capitulate some to facilitate that.


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