Morning Report: Dave Stevens talks at the MBA conference 10/24/17

Vital Statistics:

Last Change
S&P Futures 2567.3 3.8
Eurostoxx Index 390.5 -0.3
Oil (WTI) 52.2 0.3
US dollar index 87.2 0.1
10 Year Govt Bond Yield 2.41%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 3.9

Stocks are up this morning on strong earnings, especially from CAT. Bonds and MBS are down small.

Manufacturing continues to be strong, according to the Markit Flash PMI which came in stronger than expected.

Whoever Trump nominates to replace Janet Yellen will have a more hawkish bent than she had, and the Street is making a bet on a flatter yield curve. This means that people are betting that short term rates will increase more than long term rates as the Fed hikes, which should translate into at least stable mortgage rates despite a rising Fed Funds rate. The yield curve flattened during the last 3 tightening cycles and even inverted in one of them.

The Fed Funds futures are now pricing in a 97% chance for a December hike.

The Treasury Department has weighed in on the CFPB’s proposed arbitration rule, and concluded that it “failed to meaningfully evaluate whether prohibiting mandatory arbitration clauses in consumer financial contracts would serve either consumer protection or the public interest — its two statutory mandates.” They conclude that the CFPB’s rule will do more for trial lawyers than it ever will for consumers of businesses – it is basically a $300 million transfer of wealth to the Plaintiff’s Bar, coming from consumers and business.

The MBA National Conference is going on right now in Denver. Dave Stevens warned that the heads of the FHFA and CFPB will be replaced in the future, and that could mean big changes for the industry. Mortgage bankers have a false sense of security at the moment, with the current FHFA Chairman advocating for a strong role of government in housing finance. That could change. Making the current changes permanent will require legislation, however and housing finance reform always seems to be something down on the priority list.

76% of people renting believe it is more affordable than home ownership, and that could help explain why the homeownership rate is so low, particularly among the young. Certainly the housing indices show prices back to the heady days of 2006, however remember these indices aren’t indexed for inflation. If you make the inflation adjustment, we still have not recouped those losses. When you take into account the tax effects and interest rates, affordability hit a record in 2012 and buying is still extremely cheap compared to historical numbers.

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