Morning Report: Fannie stock gets slammed 2/22/17

Vital Statistics:

Last Change
S&P Futures 2357.5 -2.5
Eurostoxx Index 373.2 -0.3
Oil (WTI) 54.0 0.6
US dollar index 91.3 .
10 Year Govt Bond Yield 2.40%
Current Coupon Fannie Mae TBA 102.045
Current Coupon Ginnie Mae TBA 103.17
30 Year Fixed Rate Mortgage 4.14

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

Mortgage applications fell 2% last week as purchases fell 3% and refis fell 1%. The rate on a 30 year fixed rate mortgage rose 4 basis points to 4.36%, according to the MBA.

The year got off to a strong start with existing home sales increasing at an annualized rate of 5.69 million in January, according to NAR. This is up 3.8% from a year ago, and is the strongest reading since Feb 2007. The median home price rose 7% to $228,900. Inventory is down 7% YOY and stands at 3.6 months’ worth. Days on market dropped to 50 from 64 a year ago. The first time homebuyer accounted for 33% of sales, which is inching up. Competition is strongest for homes in the low to medium price range. Fannie’s deal with Blackstone on single family rentals will probably only make the lower price points even tighter. Still, a good start for the year. If we get some regulatory relief for the smaller banks, we should see more construction for the “mom and pop” builders.

Toll Brothers reported better than expected numbers this morning, with deliveries flat in dollars but up 12% in units, contracts up 14% in dollars and 22% in units, and backlog was up 19% in dollars and 21% in units. Average selling prices fell to 773,700 from 873,500, but that was due to an acquisition, and a geographic shift to the North and East. The company raised guidance as well for 2017. The stock is up about 6% pre-open.

We have the potential for some volatility in rates this afternoon with a Fed speech at 1:00 and the FOMC minutes at 2:00 pm. Below is a chart of the current handicapping in the Fed Funds futures market. Looks like about a 30% chance of a March hike, about a 55% chance of a hike by May and a 75% chance of a hike by June. The dot plot from December is forecasting between 2 and 3 25 basis point hikes.

Donald Trump reversed Obama’s immigration enforcement policy, which will make it easier to deport people who commit crimes. Obama’s policy only deported those that were guilty of violent crimes. Trump will now include those guilty of fraud as well. The policy for “Dreamers” – those who came illegally as children – is unchanged. There are some worries that this will affect the housing market by reducing demand and making the market for construction workers even tighter. It could also tighten credit, as Dreamers are eligible for Fannie, Freddie, and FHA loans. The fear is that any sort of mass-deportation will trigger early defaults, leaving the lender on the hook for a buyback. From the look of it, the change in immigration policy is relatively minor – more for show than an actual substantive change in policy – and there are no mass deportations on the horizon.

Any sort of increase in deportations will probably make a tight labor market even tighter, which would be inflationary. That is the fear about this afternoon’s FOMC minutes. The FOMC statement from Feb 1 removed references to lower energy prices and a strong dollar, which work against inflation. Investors will also be looking to see if there was discussion around shrinking the Fed’s balance sheet. This could conceivably affect mortgage pricing, as the biggest buyer of MBS pulls away. That said, spreads didn’t do much when the Fed was aggressively buying, so the end of reinvestment probably won’t make that big of a difference either.

Fannie Mae shareholders got slammed yesterday after an appeals court rejected their bid to sue the US government over the “net sweep” dividend change. Fannie Mae stock was down 35% yesterday, while Freddie Mac was down 38%. Fannie stock has been on a wild ride since the election, rising from $1.65 to $4.50 before falling back to $2.71 yesterday. FNMA stock has always been a litigation lottery ticket, and the only reason it exists in the first place is because the government didn’t want to have to consolidate Fannie and Freddie debt on its balance sheet so it had to leave 20% outstanding. Fannie Mae’s market cap is $15.72 billion, and last year they earned $12.3 billion, which makes their P/E ratio about 1.3x. The Obama administration was adamant that FNMA shareholders should receive nothing – in their view conservatorship is tantamount to bankruptcy and in bankruptcies the common stock gets wiped out.

36 Responses

  1. Frist!

    BTW, I had dinner at Fairlington Blade’s on Sunday, and a fellow guest is a banker (what specific type I don’t remember). I shocked him by asking his opinion on Dodd-Frank and Glass-Steagal. Evidently that’s not usually a topic of conversation with women. Non-banker women, anyway.


  2. The Republican Party is a joke:

    “GOP Moves to Delay Obamacare Lawsuit
    Republicans had sued the Obama administration to block Obamacare-related funding, but they might be forced to keep it.

    By Kimberly Leonard | Staff Writer Feb. 21, 2017, at 5:03 p.m.

    House Republicans and the Trump administration on Tuesday filed a joint motion seeking to delay lawsuit proceedings that threaten to undo President Barack Obama’s health care law, the Affordable Care Act.

    The House v. Price suit – formerly known as House v. Burwell, as it was filed when Sylvia Mathews Burwell was health and human services secretary – has presented Republicans with one of their most straightforward routes toward fulfilling their stated desire to do away with or dismantle Obamacare.

    Yet in the absence of an Obamacare replacement plan, the outcome the GOP initially sought threatens to upend the insurance marketplace and jeopardize coverage for millions of people.”


    • thats different cause reasons…

      didn’t lena dunham admit she molested her sister and used to masturbate next to her in bed?


      • Yeah, in the context of a memoir. I think that’s different than Milo because he was making a policy argument and she was just relating something that happened in her past without advocating that it should be a norm.


  3. JNC, I am beginning to think the D Party will split before the Rs and I have been thinking the Rs will split for awhile, now.

    Each party is held together by old bubblegum and convenience of labeling.

    I hear today that Sanders, who is not a D and who won’t run as a D for the Senate, and who won’t share his donor list with the DNC, is actually in a position to call shots in the national party, because his adherents are more active and vocal. This is what the Ds get for letting an I [or “democratic socialist”] run in their primaries.

    In some ways it imitates the grip DJT has on the Rs, IMHO.


  4. Like

  5. What’s the difference between what Milo said versus Chris Cuomo’s desire for 12 year old chicks to look at rock-Hard dicks in the loo?


    • McWing:

      “She says it’s about the funding bodies that want to secure the biggest bang for their bucks, the peer review journals that vie to publish the most exciting breakthroughs, the institutes and universities that measure success in grants won and papers published and the ambition of the researchers themselves.”

      That doesn’t sound like the AGW industry at all.


  6. Like

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