Morning Report: Fannie Mae pilots a new construction loan program 11/9/17

Vital Statistics:

Last Change
S&P Futures 2578.8 -12.3
Eurostoxx Index 391.2 -3.2
Oil (WTI) 56.9 0.1
US dollar index 87.8 0.0
10 Year Govt Bond Yield 2.34%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 3.95

Stocks are lower this morning on overseas weakness. Bond and MBS are down.

Initial Jobless Claims rose to 239k last week. We are at levels not seen since the Vietnam War.

Fannie Mae is working on an initiative to increase affordable housing, by increasing access to construction loans. Under the program being considered, lenders will be able to sell construction loans to Fannie Mae on the day construction begins instead of the day construction is completed. This will alleviate the issue of lenders having to hold a construction loan on their books for months and hopefully spur more construction activity. This will probably have only a marginal impact on housing supply, as the supply issue is being driven more by labor and land shortages, as well as regulation.”

Meanwhile, NAR is warning that the GOP tax plan will bring affordable housing construction “to a halt.” The Low Income Housing Tax Credit will remain in place, however the private activity bonds used to finance affordable housing construction will be eliminated. Second, as tax rates fall, the value of the tax credits used to encourage affordable housing construction will fall in value. Affordable housing advocates estimate that tax reform will cut affordable housing construction by 2/3.

Fannie Mae’s Home Purchase Sentiment Index fell from its highs in October. “The modest decrease in October’s Home Purchase Sentiment Index is driven in large part by decreases in favorable views of the current home-buying and home-selling climates, a shift we expect at this time of year moving out of the summer home-buying season,” said Doug Duncan, senior vice president and chief economist at Fannie Mae. “Indicators of broader economic and personal financial sentiment remain relatively steady. Overall, these results are consistent with our view that the housing market will continue its slow, upward grind through 2018.” Despite the strong employment numbers lately, the survey saw an increase in the number of people worried about their jobs.

The NYSE just launched FANG futures, which are led by Facebook, Amazon, Netflix, and Google. Definitely a bull market phenomenon – reminds me of stock split beepers, which were advertised in Barrons back in the late 90s.

Some market watchers are warning that the flattening yield curve is signalling a recession. The favorite metric is the 2s-10s spread or the difference in yield between the 10 year bond and the 2 year bond. While a flattening yield curve is often associated with longer-term economic weakness, it is also associated with Fed tightenings. In fact, the yield curve has flattened in every tightening cycle since 1980. That said, nothing in the data suggests the economy is weakening – if anything the economy is accelerating. The Fed is tightening in order to bring its unusually accommodative policy back to a semblance of normalcy, not to fight inflation (despite what they are saying about it). They are being extremely cautious and are doing everything they can to prevent a Fed-induced recession.

29 Responses

  1. There are many unintended consequences of HB1, but I doubt that tax policy drives building affordable homes as much as it drives building “unaffordable” homes. Economies of scale work in many directions here.


  2. “Affordable housing advocates estimate that tax reform will cut affordable housing construction by 2/3.”

    If true, then it’s being massively subsidized through the tax code currently.

    Liked by 1 person

  3. It’s his earnestness that makes it so funny.


  4. Lulz.

    Watch Brazile being interviewed by Tucker Carlson, she downplays her own allegations. Also, she justify’ giving debate questions to Hillary by saying she didn’t want her “blindsided.”


  5. The Roy Moore thing is interesting. A lot of people must hate Democrats and the MSM more than pedos…


    • Apparently, based on his own words, Moore dated teenagers, which was perfectly legal for a 30 something guy in Alabama then, and probably now.

      Why would a 30 something guy date teenagers? The question answers itself with serial answers – he wasn’t popular with adult women; he was looking for a brood mare, not a companion [this was a sentiment I heard in those days from adult men of 30 or so who took their obligation “to be fruitful and multiply” seriously, particularly among Assembly of God devotees]; his own emotional development was stunted; he found teens easier to bang – take your pick of any one or more.

      The allegation he denies is from a self proclaimed Trump voter and probably was not politically motivated, but it still must be taken as an allegation, not proof. I would not have voted for him anyway, so my suspicion of him is not a litmus test for anything.

      Brent, I don’t know how a woman could convince a Moore voter that he was or is a creep, 40 years after.


  6. Free abortions, FTW.


  7. Faced with a broad revolt against the common-sense liberal worldview, panicked American elites are prophesying an apocalyptic, totalitarian future for the Republic. And when it comes to “doing politics,” liberals seem keen to double down on what worked in the past.


  8. Aboot (Canadian pronunciation) what I expected.

    What bothered me was the media’s “normalizing” of him.


  9. Damn!

    And these guys are SUPER credible, amiright?


    • Super credibility not required. Standard is “more credible than Putin”.


      • I’m curious, and there isn’t a wrong answer here, is it your opinion that the Russians have “interfered” in the US election to a higher degree than in the past?


        • I don’t know how to quantify that but I would guess “yes” by reason of the profusion of accessible digital media sites making it easier for anyone to spread rumors as news.

          In the past, foreign intrusions that we knew about were by $$$, either to PACs or to support issue advertising. I don’t recall which year it was but I vaguely recall that one issue campaign was backed by India. Probably ’92 or ’96. I haven’t read anything in the published intel assesment of the Russians about that sort of stuff.

          So I can’t quantify or compare.

          As JNC says, censoring digital media is a slippery slope, and probably not a price we want to pay. But I would be all for some sort of disclosure rules that could isolate sources. Eventually, any nation that wanted to would source from inside the USA, not from Russia or China. so it would be a never ending process.


  10. I think this is a hoax because it appeared in a Antifa parody Tweet.

    Nevertheless, pitch perfect.

    Including the shop owners confusion of the, er, xi’s Gender.

    This is the Twitter account, which is the best parody account since @FakeJennniferRubin.


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