Morning Report: Small Business Optimism falls 10/10/17

Vital Statistics:

Last Change
S&P Futures 2547.8 4.0
Eurostoxx Index 391.2 0.0
Oil (WTI) 50.2 0.6
US dollar index 86.6 -0.3
10 Year Govt Bond Yield 2.36%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 3.9

Stocks are higher this morning after Walmart announced a $20 billion buyback. Bonds and MBS are flat.

Neel Kashkari speaks at 10:00 am.

Small Business Optimism fell in September as the hurricanes hurt retail spending in Texas and Florida. We did see a weakening in the labor market, not just in Florida and Texas, but in 2/3 of all Census regions. The hurricanes will probably boost the economy into Q4 and Q1 next year, but at the moment they are depressing things. 57% of firms are trying to hire, but the vast majority of those are finding few or no qualified applicants.

The US foreclosure and seriously delinquent rate remain very low, according to CoreLogic. The national Foreclosure rate was 0.7%, down from 0.9% last year. The Seriously Delinquent ratio was just under 2%. This is all July data, so pre-hurricane. We are starting to see the effects of the drop in oil prices in some of the energy intensive states like Alaska and Louisiana.

Home Prices continue to rise, jumping 0.9% MOM and 6.9% YOY in August, according to CoreLogic. Their models hold that half of the largest 50 MSAs are now overvalued, which has been driven by low inventory.

Fannie Mae is offering assistance to borrowers affected by the recent spate of hurricanes. Borrowers will be able to temporarily stop making monthly payments for 3 months (up to 12 months) without late fees, negative comments on their credit reports, or a requirement to get back current in one fell swoop.

The IMF took up their forecast for global growth to 3.6% this year and 3.7% next year. At the margin, this means reduced demand for safe haven assets like Treasuries, which would mean higher interest rates going forward. That said, we have several real estate bubbles overseas at the moment, and when they bust, it should be bond bullish (i.e. encourage lower rates).

14 Responses

  1. A good description of our current state of affairs…

    https://www.commentarymagazine.com/american-society/the-roots-of-our-frustration/

    Liked by 1 person

    • jnc (from the article):

      Eventually, Chase bought back the Warwicks’ loan from Schneider, along with 12 others, and honored the promised loan forgiveness.

      I am trying to understand how this outcome translates into forgiving loans with other people’s money.

      Like

      • jnc:

        Also, I am trying to figure out how “Lauren and Robert Warwick were two of the shell game’s many victims.” They got their loan forgiven. How does that make them a victim?

        Liked by 1 person

      • My impression is that outcome only occurred because their neighbor was in the state government and that there’s a much broader swath of people for whom it’s still a problem.

        The figure pointing between JPM and the company they sold their paper to is interesting.

        Like

        • jnc:

          My impression is that outcome only occurred because their neighbor was in the state government and that there’s a much broader swath of people for whom it’s still a problem.

          That was definitely the impression the article intended to convey, but if that was indeed the case, why did it highlight as an example of this injustice one of the few cases that was actually resolved in a seemingly just and responsible manner? Why not pick an example from that broader swath of people?

          And I still don’t see how the borrowers themselves have been victimized. The bottom line for borrowers is either 1) they continue to have to service the loan or 2) the loan is forgiven. There may be some confusion about who exactly they are supposed to be paying, but apart from that it seems to me that the worst case scenario is status quo, and best case scenario is a huge win for the borrower.

          The only potential victim in the situation seems to me to be an investor who bought a loan, but then somehow had it forgiven without his consent, which frankly I find hard to believe could ever actually hold up, if indeed it happened.

          Like

        • The only potential victim in the situation seems to me to be an investor who bought a loan, but then somehow had it forgiven without his consent, which frankly I find hard to believe could ever actually hold up, if indeed it happened.

          No, that is pretty much how it works. The servicer is supposed to have a fiduciary duty to the investor. However, in the aftermath of the financial crisis, the servicers were co-opted by the government. Which is why the government didn’t even attempt to cut a deal with investors, they went after the servicers who don’t have any skin in the game.

          Like

        • Brent:

          However, in the aftermath of the financial crisis, the servicers were co-opted by the government.

          So servicers are authorized by the government to unilaterally alter the terms of loans without consent of the owner of the loan? I suppose that shouldn’t surprise me at this stage, but it does.

          Like

        • Well servicers are supposed to use their discretion. The government informed them that the lenders would lose less money if loans were modified than they would if the loans were foreclosed upon. Which of course is bullshit when the real estate market is in free-fall. But they will get less push-back from servicers (ain’t their money) than they will from lenders…

          Like

    • haven’t had a chance to read it carefully, but i think the Nation is confusing JPM the servicer with JPM the bondholder. Servicers generally don’t have any financial skin in the game, they just administer the loans for the ultimate investor. It is a shitty business if they get wrapped around the axle on advances. Ocwen had a near-death experience back then and began to refuse advances.

      Like

      • I was unclear as well as to whether or not JPM was the originator of the mortgages. Have you seen any pieces on this from a less biased source?

        Like

        • No I have not. And FWIW, confusing originators, investors, and servicers is not an uncommon thing, especially on the left. I listened to Elizabeth Warren screw that up in a speech to the Mortgage Bankers Association.

          Like

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