Morning Report: Jeb Hensarling for Treasury? 11/18/16

Vital Statistics:

Last Change
S&P Futures 2184.0 -0.5
Eurostoxx Index 339.4 -1.2
Oil (WTI) 45.5 0.1
US dollar index 91.3 0.1
10 Year Govt Bond Yield 2.28%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 4

Stocks are flat this morning on no real news. Bonds and MBS are down.

Bonds are ending their worst two week run in 25 years as the 10 year bond yield increased almost 50 basis points. Strategists are suggesting that the 10 year will be in the 2.5% – 2.75% range a year from now if Donald Trump manages to get his infrastructure spending plan and tax cut. The US dollar continues to strengthen as well.

So far, it looks like Jeb Hensarling is in the mix to take over as Secretary of the Treasury for Donald Trump. Note he is a politician, not a Wall Streeter. In fact, the banks believe he is a bit of an obstacle for getting real reform. Hensarling is generally viewed as not a friend of the big banks, and he really isn’t that interested in their input. Hensarling does have a plan to reform Dodd-Frank, which would include scrapping the Volcker Rule (which prohibits proprietary trading), reining in the CFPB, eliminating caps that banks can charge merchants for debit card transactions, and reforming the SIFI (systemically important financial institutions) rules. The big banks will need to raise a lot of capital in order to have more latitude however, as his bill requires a 10% capital cushion. Citi, for example, is at 7.4%, which means the banks would need to raise hundreds of billions in new equity capital.

The glory days of the CFPB are numbered. A court ruling that prevents the director from being fired and the potential for a business-friendly Trump Director has made it possible for a bipartisan consensus that the director be replaced with a 5 person committee, and that it be subject to Congressional appropriations. At least one expert believes that will slow down the agency and probably cut its enforcement actions in half. As of right now, if you are a graduate of a top law school and have an interest in financial regulation, the CFPB is the hot place to be.

Bottom line: we could get some regulatory relief, however it will be at the margin and probably not a wholesale change from what we have now. Will it be enough to get the private label securitization market back? So far I have not seen anything with respect to required equity tranches etc, so it is hard to tell. The only name for HUD I have heard is Westchester County Executive Rob Astorino, who is fighting HUD on zoning issues and affordable housing mandates.

After rising for several years, average home sizes are falling, as construction moves away from focusing in the high end to starter homes.

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