Morning Report: Government zeroing in on VA IRRRL churning 9/14/17

Vital Statistics:

Last Change
S&P Futures 2489.0 -6.0
Eurostoxx Index 381.9 0.6
Oil (WTI) 49.8 0.5
US dollar index 85.5 0.0
10 Year Govt Bond Yield 2.20%
Current Coupon Fannie Mae TBA 103.33
Current Coupon Ginnie Mae TBA 104.21
30 Year Fixed Rate Mortgage 3.81

Stocks are down this morning after the Bank of England made no changes to monetary policy. Bonds and MBS are flat.

Inflation at the consumer level was a little hotter than expected, but still came in below the Fed’s target rate. The Consumer Price Index rose 0.4% MOM and 1.9% YOY. Ex-food and energy it rose 0.2% / 1.7%. Damage from Hurricanes Harvey and Irma are creating temporary shortages which is pushing up the price of gasoline as well as some foodstuffs. This should be out of the system by the holiday shopping period and won’t affect the Fed’s thinking.

Initial Jobless Claims fell to 284k last week, as Hurricane Harvey is still keeping jobless claims elevated. We will see a similar effect with Irma as well, though it should be less pronounced. Meanwhile, Target anticipates hiring 100,000 employees for the holiday season.

The government is taking a look at lenders who push veterans to do VA IRRRLs that offer a de minimus benefit to the veteran. They have already addressed part of the issue in the secondary market by creating a separate Ginnie Mae security for VA IRRRLs that replaced a loan less than 6 months old. The IRRRL is subject to abuse since the fee can be financed. It ends up adding thousands to the principal of the loan in exchange for a slightly lowered payment. In a response to Elizabeth Warren GNMA President Michael Bright said they have identified some companies which seem to “churn” VA loans and they have identified some patterns of behavior that they will try to curtail. GNMA didn’t identify which companies they were, but being accused of taking advantage of veterans will be a PR nightmare for some. Serial refinances were a problem with GNMA MBS as well, which depressed the prices of these securities. This drop in price directly translates into higher mortgage rates for unrelated loans, like FHA and non-IRRRL VA loans.

Home prices rose 7.7% in August according to RedFin. The national median sales price was $293k, flat with July. Inventory continues to decline, falling 12.4% YOY, which was the biggest decrease in inventory over the past 2 years. Inventory stands at 2.8 months’ worth, which is well below the 6 months that represent a balanced market with respect to supply and demand. Median days on market fell by 5 days YOY to 39.

In the wake of their hacking attack, Equifax is waiving fees for people who want to put a lock on their credit report. Basically, this allows you to prevent potential lenders from pulling your credit, unless you specifically authorize it. This will help prevent identity theft, however it won’t be completely effective unless you do the same thing at the other two credit reporting agencies: Transunion and Experian. The stock is down 31% since announcing the hack.

9 Responses

  1. Well Democrats run against Trump in 2018?

    They may not find that a useful strategy. If they decide not to, will the media and pundits let them get away with it? I think they want. “See, we’re helping!” they say. “You forgot that it’s all about Trump!”


  2. File Under: The Left/Media Wrong On Everything:

    The citizenry responded responsibly. State and local government responded responsibly, but what was the response of the national media, or as we say the Mainstream Media? The Washington Post neatly summed up the Mainstream’s general response when it headlined an article “Florida Governor Has Refused to Recognize Climate-Change Risks, Critics Say.” In the body of this preposterous article appeared this telling line: “Scott’s office did not respond to a request for comment for this article….” Did it occur to anyone at the Post that the Governor’s office might be under water or that the Governor might be otherwise preoccupied?

    No wonder folks don’t like the media. Irrespective of polling, I imagine the general impression of the media is more negative now than ever, and will only get more and more negative. The polls may or may not reflect this.

    The members of the media come from the j-school or general university bubble, into a new bubble, and regurgitate their received wisdom upon the unwashed masses. They are detached from reality to the degree they have no idea, truly, how negative perceptions are of them, why they are perceived negatively, or how obvious their bias is. The average news program today comes across as honest and objective as an infomercial. WaPo is turning into DailyKos.

    I yesterday referenced the WaPo reference to a Bloomberg(!) article stating that Russia (in truth, capitalist in or around Russia engaging in clickbait for profit).

    This is lunacy. I would be surprised if Mueller’s team of prosecutors are focusing in on social media(!) clickbait, but Chris Strohm at Bloomberg just says it as if it’s the obvious thing that of course would happen. Then goes on to say “The ability of foreign nations to use social media to manipulate and influence elections and policy is increasingly seen as the soft underbelly of international espionage”.

    This. Is. Our. American. Media.

    If you read the whole article, and other things, you get the impression that many of the people in the media and among rank-and-file Democrats, and possible major Democratic politicians, literally believe the absurd, it-was-Unicorns! idea that National Enquirer style fake-news stories about Hillary were what swung the election. Which is insane. Only people who never, in a million years, would vote for HRC took those stories seriously. The coverage was primarily targeted at social media addicts who weren’t particularly good targets, as likely voters go.

    One hurdle for the government in responding to such state-coordinated attacks is that there are constitutional concerns about intelligence agencies monitoring social media, one official said.

    Still, no actual evidence presented that it was a “state-coordinated” attack. If so, why would the “state-coordinated” attack be clickbait designed to make money? But I also like “the one hurdle for the government in responding is the constitution” bit . . . yeah, ain’t that a b*tch?


    • which is why it isn’t being handled by the government. Censorship is coming from the Professional Left: the law firms, agitation groups, blogs, MSM, professors etc, putting pressure on Facebook, Twitter, Google, etc to voluntarily take action to prevent this sort of thing from happening again. But, since it isn’t the government doing it, there are no 1A issues to worry about.

      Liked by 1 person

  3. I take it an IRRRL is a VA Home mortgage but what do the letters stand for?

    From yesterday, I had explicitly said fiat money was subject to the same loss of faith, but history dictates that probably won’t happen. Then Kevin argued that all means of exchange were externally valued, and I agree. The only value it has is based on supply and demand.

    Marx proposed intrinsic value with his labor theory of value. But it turns out that you can work like a Hebrew slave building the pyramids and have not a thing that anyone will buy to show for it.

    Saying that utility value [beer and tortilla chips with tomatillo salsa dip has utility value] is intrinsic misses the point, I think, which is the value is in how much of it is available and how much demand there is for it relative to the supply. In other words, its utility value may be intrinsic, but if no one wants it or there is too much of it the market value approaches zero. We all know this. We are not Marxists here.

    Liked by 1 person

    • Mark:

      Then Kevin argued that all means of exchange were externally valued…

      No, he argued that “No medium of exchange has intrinsic value.” That is a different claim.

      Saying that utility value [beer and tortilla chips with tomatillo salsa dip has utility value] is intrinsic misses the point, I think, which is the value is in how much of it is available and how much demand there is for it relative to the supply.

      I think this misses my point, which is that the utility value a person gets out of smoking a cigarette or drinking a beer exists and is the same regardless of whether, in market terms, it costs $1 or $100 to obtain. It is not a function of what anyone else is willing to exchange for the good. It is strictly a function of the what the good is, in itself. It seems appropriate to call this an “intrinsic” value.

      The market value – as opposed to intrinsic value – of a good is a measure of relative value, ie the value of the good relative to the value of all other goods. But an apple that falls from my apple tree still has value to me as a consumable good, even if, because everyone else owns their own apple tree, its market value is zero.

      In other words, its utility value may be intrinsic….

      Which is pretty much what I was saying. Something that can be consumed does have intrinsic value, despite KW’s claim to the contrary.

      (As an aside, I suppose that even paper money does have some intrinsic value, in that it can be burned for heat or used as toilet paper, or rolled into a cigarette.)


      • Then currency generally has fiat value in almost all circumstances, as it provides a medium of exchange. So it is has an intrinsic value because of it’s ability to translate unlike goods into a medium that can be exchange with others, even if they have no interest in my skills or goods for barter. Also, cash money can be pretty, and eventually collectible.

        But I tend to think the concept of intrinsic value is largely inaccurate. Value is always in the eye of the beholder. I can certainly see a situation in which any item has no real value to me . . . either because of ubiquity (air) or because it is valueless to me (say, I’m allergic to apples, so cannot eat them or otherwise use them, and everyone who wants one has one so I can’t trade or sell it).


    • interest rate reduction refinance loan.

      no appraisal required, which lenders love because it takes one of the biggest risks off the table. They are quick and easy to do from the lender’s perspective.

      Here is the thing: they still require the borrower to pay the funding fee, which can be 2% of the loan value. It is financeable, but if you are paying 4 or 5 grand in fees to save 5 bucks a month on your mortgage payment, it is a lousy deal.


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