Morning Report: Tough quarter for originators, servicers, and mortgage REITs 11/5/15

Markets are higher this morning on no real news. Bonds and MBS are flat.

Initial Jobless Claims ticked up to 276k from 260k last week. Still strong numbers – the lowest since the Nixon Administration, which is even more impressive given the growth in the population over that time period.

Challenger, Gray and Christmas announced job cuts fell 1.3% in October after rising 93.2% the month before. We are continuing to see layoffs in the energy patch.

Nonfarm productivity rose 1.6% in the third quarter and unit labor costs rose 1.4%. Productivity tends to be somewhat volatile. Productivity growth is necessary if we are going to see real wage growth.

The Bloomberg Consumer Comfort Index fell to 41.1 last week.

Mortgage originator Stonegate reported lower-than expected earnings yesterday. Originations in Q3 were up 1% on a quarter-over-quarter basis and down 2% on a year-over-year basis. The stocks of the originators / servicers have gotten absolutely hammered this year, with Nationstar down 2/3 over the past year, Stonegate down 60%, and Ocwen down 72%.

Not only has it been rough for the mortgage originators and servicers, mortgage investors have had a rough go of it as well. Pretty much all of the agency mortgage REITs got roughed up last quarter and reported decreases in book value. The volatility in the financial markets over the third quarter pushed out MBS spreads. All of the REITs are switching out of interest-rate sensitive MBS (things like 30 year fixed rate securities, or what originators are typically selling) into more commercial and credit sensitive instruments. It is a bet that the economy is recovering. At the margin, the fact that these entities are pulling back in the MBS market means that mortgage rates are a little higher than they otherwise would be.

Citi’s Head of North American Economics thinks Janet Yellen and the Fed are making a big mistake, letting the markets influence their decision-making. Economists are starting to discuss the possibility that the Fed is really subject to a triple mandate these days – not only are they supposed to keep inflation expectations in check and to minimize unemployment, they also have an unspoken mandate to keep the financial markets stable. The genesis of this really started with the Crash of 1987 when Alan Greenspan said the Fed stood buy to provide liquidity in the aftermath. The Fed rode to the rescue again after the Asian Tiger Crisis, the Long-Term Capital Management crisis, and even took prophylactic measures to prevent Y2K from becoming a crisis. Eventually this all became known as the “Greenspan put” and we have seen the endgame, which is the serial inflating of asset bubbles.

17 Responses

  1. This is the kind of thing that drives me crazy:

    For all across the country the Obama administration is aggressively imposing its claim that existing laws prohibiting sex discrimination require that public school districts, as a condition of federal funding, allow boys who think they’re girls to use the public-school bathrooms, locker rooms and showers designated for girls. As a brief (see pp. 22-25) that the Obama administration filed last week in federal court makes clear, that claim rests critically on the Department of Education’s interpretation of its own regulations —regulations that the Department of Education, under the direction of a new president, would be free to revise or re-interpret.

    So apparently whether or not something is illegal depends not on what the law actually says, but rather on what the current occupant of the Oval Office says.

    Why do we even pretend that we are a nation under the rule of law, not men?


  2. How the hell is the drag queen lobby so powerful? I just don’t get how they have the left so buffaloed…


  3. Scott, there is a labor and employment lawyer by that name who spoke at seminars and from whom I have had the pleasure of taking notes. I think he is a UT grad, which is how I recall the name, but I am sure he practices in SoCal. Or did, when I heard him speak – either in DC or in Santa Fe, some year between 1990 and 2010.


    • McWing:

      If this is true, what do we think about it?

      It is almost certainly true, and I think it show what a malignant organization the IRS has become.


    • If this is true, what do we think about it?

      George, it is problematic in many ways, but less than outrageous. This is because from the IRS viewpoint there is no harm and thus no foul. If someone uses your ss# you get the benefit of the earned income in your ss account, not the ID thief. However, if the IRS were properly funded for it and given a mandate to investigate identity theft or even to aid other agencies or assist victims in that investigation, it would be better for the public.

      Scott, the book review author appears to be the same lawyer I associated with the name.


      • Mark:

        If someone uses your ss# you get the benefit of the earned income in your ss account, not the ID thief.

        That is an interesting point, but is it really the case? The article suggests that it is the ITIN number, not the SS number, that is relevant with regard to income taxation of illegal immigrants. And since the IRS actually requires IA’s to report income earned under a false SS, and it knows when there is a disparity between the reported SS number and the ITIN, I wonder if it isn’t just assigning that reported income somewhere other than to the real SS number holder. In fact, if both the real SS holder and the fake holder had reasonable incomes, it is possible that the total income in a given year would reach the FICA cap, in which case the IRS would be sending FICA refunds back to the real SS holder, if indeed it was including the fake holder’s income as part of its SS calculations. I wonder if that is really happening.


        • That is likely true for someone over the FICA cap. Agreed.

          In any event, Congress should mandate cooperation from IRS with investigations into ID fraud, and budget the relatively nominal amount it would take to staff the effort. Assuming computers can be programmed to red flag all ITIN/SS conflicts and that one worker could handle 5000 inquiries in a tax year [20/day], and assuming there are 5,000,000 such cases in a year, then staffing 1000 workers and maybe 50 IT folks ought to cover it. I think the number of cases would reduce over time, btw.


  4. It’s only SS #’s. What the biggie?


  5. Yeah, we like our LGBT’s in the Mayors office, not in our bathrooms.


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