Morning Report: Change in mortgage insurance was short-lived 1/23/17

Vital Statistics:

Last Change
S&P Futures 2261.8 -4.0
Eurostoxx Index 361.2 -1.4
Oil (WTI) 52.3 1.0
US dollar index 91.1 -0.5
10 Year Govt Bond Yield 2.44%
Current Coupon Fannie Mae TBA 102.1
Current Coupon Ginnie Mae TBA 103.6
30 Year Fixed Rate Mortgage 4.19

Stocks are lower this morning on no real news. Bonds and MBS are up.

We are entering the quiet period for the Fed ahead of next week’s FOMC meeting, so bonds should be less volatile as there is no Fed-speak. We also don’t have much for market-moving data this week until Friday when we get the first look at Q4 GDP and durable goods.  We will get some housing data with existing home sales, new home sales, and the FHFA House Price Index.

HUD has suspended the planned decrease in annual MIP for the moment. It was scheduled to go into effect this week, however the new Administration wants to take a look at the health of the FHFA insurance fund before making any changes. The timing of the MIP cut was suspect to begin with – if it was such a great idea, why wait until the last minute to make a change? Note that this change will positively affect FHA and VA pricing for the higher note rates.

Separately, Donald Trump put a moratorium on all new regulations for the moment. This is something every President does as agencies often try and slip some onerous stuff in at the last moment especially when the incoming Administration has large philosophical differences with the outgoing one.

Hedge funds are pressing their short speculative bets in the Treasury market. At the same time, institutional investors are aggressively buying Treasuries after the increase in yields. This is a classic “fast money versus real money” trade and usually the real money wins by dint of sheer firepower. Much will depend on what the new Trump administration does with respect to fiscal stimulus. The first priority seems to be repealing and replacing Obamacare, not infrastructure or tax reform. Every president has a limited amount of political capital, and this one seems to be spending it on healthcare, which means a tougher road forward for infrastructure spending and tax reform. The less stimulus out of Washington, the more the Fed can take their time raising rates, and the more that rates will stay low. This also sets the stage for short squeezes in the bond market, or brief periods where rates fall dramatically. Borrowers who are on the cusp with a refi could sneak in a good rate.

One thing to keep in mind with respect to interest rates is the US dollar. For the past two decades, a strong dollar has been the mantra of both Republican and Democratic administrations. Trump has made comments that the US dollar is too strong, especially with respect to the yuan. The markets seem to be taking this as “Trump being Trump” but it bears watching. A lower dollar is good for manufacturers in the US, but generally bad for consumers. It also is bad for bonds (inflationary), which means pushing up interest rates at the margin.

The Fed may begin to shrink its balance sheet this year, as the Fed Funds rate tops 1%, Philadelphia Fed President Patrick Harker said on Friday. The Fed increased its balance sheet to $4.5 trillion from about $800 billion in assets via quantitative easing, and has been re-investing maturing proceeds back into the market. At the margin, this means somewhat higher mortgage rates unless other entities like mortgage REITs and sovereign wealth funds pick up the slack.

The appraiser shortage is clogging up the system. There were 2000 fewer appraisers in 2016 versus 2015, and the average age is 53. Many are looking to retire, and the pipeline of new appraisers is shrinking. Regulatory challenges have largely caused the problem, and the industry is looking for ways to attract new blood into the industry, via waiving the degree requirement and shortening the number of apprentice hours required. The ones that remain however have so much work that they don’t have the time to train anyone.

Interesting article from John Maudlin about the state of things in DC. The takeaways: The consensus is that Dodd-Frank, Obamacare, and the tax code will be restructured, but that is about the end of the consensus. How it will be done is anyone’s guess. As time goes on, it looks like the changes in Obamacare will be marginal, not dramatic. Second, Trump’s management style is much more in the private sector style, which will mean more turnover than is typical. This will inevitably be described as “disarray” by the press, which isn’t used to seeing this sort of style.

Black Knight Financial Services has their first look at December mortgage data. The inventory of loans in some phase of foreclosure dropped by 200,000 in 2016, the best improvement of any year on record. Loan delinquencies were 4.42%, down .91% MOM and 7.5% YOY. Prepay speeds fell 5.5%.

Finally, I will be on the panel for HousingWire’s Housing Outlook 2017: Trump’s Mortgage Nation on Jan 26 at 2:00 pm EST. I will be discussing rates and the economy, and we will also delve into the regulatory environment and mortgage insurance. Registration is free and it promises to be an informative event.

14 Responses

  1. the industry is looking for ways to attract new blood into the industry, via waiving the degree requirement and shortening the number of apprentice hours required. The ones that remain however have so much work that they don’t have the time to train anyone.

    Is this something that Vo-Tech/community college courses could help with? I know nothing about how an appraiser becomes an appraiser. . .


    Liked by 1 person

    • The problem is that you need something like 2500 hours of apprenticeship. So you have to (a) convince someone to train their competitor and (b) be able to survive on peanuts for a couple of years until you can get licensed and build up a clientele.

      Not a lot of people have those kind of resources…

      Here is some more commentary courtesy of Rob Chrisman (one of the best real estate bloggers in the business)

      “To begin with, if all it took were to raise appraisal fees to $700, then states like Oregon, Washington and Colorado wouldn’t continue to be a nightmare from a service standpoint. Fees are only one element of the problem. Raising fees won’t solve for a ‘limited resource’ (corporate speak for a shortage of appraisers) to meet changing and growing marketplaces. Well, ultimately it might solve the problem, but that’ a five to nine-year arc; 2 years interning as a Trainee to meet the requirements to sit for testing to become a Licensed Appraiser and then additional hours (and testing) to earn a Certified License.

      “And after that, nearly every lender and investor requires at least another 3 years of experience before they’ll accept reports that aren’t signed by a supervising Certified appraiser. Let’s not forget that prior to all that, a candidate needs to have acquired a 4-year college degree. By the way, that’s a degree in any field of endeavor … and I’m not aware of any place that gives a diploma in appraising. As a footnote: a college degree is not required to practice law, get a Series 7 License to sell securities, not required to sell Life Insurance (or insurance of any kind) and a number of other fields that serve the public trust. Nor is a degree required to be a Realtor or Mortgage Loan Originator. One may only need to take and pass some industry specific courses and pass a test related to that field of endeavor.

      “The solution lies in a series of changes; higher fees for one to attract the best candidates to become appraisers, modifying the barriers of entry to the profession of appraising (without sacrificing the caliber of experience-based training) is another, improving the quality and content in appraisals through enhanced technology and a deeper understanding of data, and a continuing belief of the valued role collateral plays – and how that all hinges on appraisers being independent and free from any type of coercion.

      “There are a great deal of folks working on different pieces of this problem. The Appraisal Foundation is re-examining the role of education, experience and training. At one appraisal-centric industry organization (the Collateral Risk Network), we’re looking at what role we can play in helping to resuscitate a true training program for a new generation of appraisers. The other day, the Chief Appraiser for one of the largest banks in the country said to me that the mantle of leadership around guiding and growing future appraisers had shifted from the Banks to the AMCs. I think that’s correct.

      “I also think we need to find ways to incorporate banks ‘tribal knowledge’ and experiences. We’ll also need to add the voices of the other stakeholders (NAR, MBA, IMB, and the other vendors that serve the real estate industry) to help the states modify their regulations to better serve and protect their constituents. Big jobs all – but these are challenges we urgently need to address. The real estate industry is a giant piece of our American economy and, at its core, sits a fundamental trust that an independent expert – an appraiser- is translating the complicated elements that define value that will protect both the consumer and those that supply the capital to make home ownership possible.” Thanks Mike!


      • That’s partly what I was afraid you were going to tell me (the degree requirement)–there is absolutely no need for a four-year degree to be a good appraiser. I would imagine that this was added as a “weed-out” at some point when appraisers were a dime a dozen and they were trying to restrict entrance to the field.

        This is a perfect example of why I disagree with the desire for universal college education, btw.

        Thanks for the answer!

        Liked by 1 person

        • Mich:

          This is a perfect example of why I disagree with the desire for universal college education, btw.


          If everyone had a college education, a college education would be worth the same thing that a high school education is now worth, and all the jobs that now use a college degree as a vetting tool would simply start to use an advanced degree as a vetting tool instead.

          Liked by 1 person

        • I like the idea of a universal either/or education. Either a state college or trade school education for everybody who is mentally capable of getting an education. Maybe with a path for smart kids not interested in going to college to converting 11th and 12th grade into their 2-year trade school education.


        • Agreement!



        • Maybe with a path for smart kids not interested in going to college to converting 11th and 12th grade into their 2-year trade school education.

          You might find it interesting that John/bannedagain has been making that argument for years.


  2. Like

    • How can you look away from such injustice and still call yourself a decent human being?


    • “Ashley Judd: “Scarlett Johansson, why were the female actors paid less than half of what the male actors earned?””

      Because that’s what they settle for, Ashley. There is a sexism at the root of it, but it’s not anti-women, it’s pro-men. They believe men are box office draws while women are helpful, but not essential. Ultimately, I think they’re wrong about that: they don’t have to be paying the guys what they pay them. They should take the same approach, and start paying the guys less. It’ll be “more fair” and save them some cash.

      But it’s also a blurring of the lines. These are all negotiated deals for contract work, not structural pay scales where the “women’s jobs” get half pay. The argument is generally that women all earn 70 cents for every dollar a man earns for the same job, which would be structural. Agents and studio executives taking advantage of women in Hollywood is a different problem. And once they determine that they are getting paid so much less, whose fault is it if they keep taking those jobs?


  3. Missed this a couple of weeks ago.

    “Nat Hentoff, Journalist and Social Commentator, Dies at 91

    JAN. 7, 2017 ”


  4. Once again, we owe Trump a hearty thanks for continually demonstrating how craven politicians are.


Be kind, show respect, and all will be right with the world.

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