Morning Report: New FHFA limits 11/29/17

Vital Statistics:

Last Change
S&P Futures 2627.8 3.0
Eurostoxx Index 386.4 1.5
Oil (WTI) 57.6 -0.5
US dollar index 86.5 0.0
10 Year Govt Bond Yield 2.37%
Current Coupon Fannie Mae TBA 102.938
Current Coupon Ginnie Mae TBA 103.75
30 Year Fixed Rate Mortgage 3.89

Stocks are higher this morning on overseas strength. Bonds and MBS are lower.

The second estimate for third quarter GDP was revised upward from 3.0% to 3.3%, in line with expectations. The price deflator was revised downward by 10 basis points to 2.1% and spending was revised downward as well.

Mortgage Applications fell 3% last week as purchases rose 2% and refis fell 8%. There was an adjustment for the Thanksgiving Day holiday. Rates were more or less unchanged.

Corporate Profits rose 10% in the third quarter, an improvement from the 7.4% increase in the second.

Bitcoin hit $10,000 last night, and is a fascinating Rorsach Test for one’s political and monetary views.

The FHFA increased their conforming loan limits to $453,100 yesterday and the high balance limit to $679,650.

Growth is accelerating not only in the US, but globally as well. Goldman and Barclay’s are forecasting that global growth will hit 4% next year, the highest since 2011. Strategists are betting that Japan (the second biggest economy) has finally turned the corner, at long last. This will probably not be great for interest rates however. That said, until inflation returns, slow and steady increases will be the name of the game and the origination business might still do just fine as a wave of first time homebuyers enter the market.

Last night a Federal Judge denied the CFPB’s request for a temporary restraining order to prevent Mick Mulvaney from assuming the role of acting director for the CFPB. His first act was to institute a hiring freeze and a moratorium on new regulations.

Jerome Powell faced the Senate yesterday, and for the most part things stuck to script. He said that the case was strong for a rate hike in December, but he didn’t offer much in the way of specific policy guidance. Many Senators wanted him to opine on tax cuts, but Powell wouldn’t go there.

The MBA is calling on the Senate to change a provision that requires lenders to pay tax on the mortgage servicing right up front, even though it is a non-cash item. It wasn’t specifically directed at MSRs – it was directed at anything that is an accrual. The fact that independent mortgage originators have accumulated so much servicing has bothered many in DC, and this provision would probably encourage more of them to sell servicing to the big banks. It won’t be good for MSR valuations, that is for sure. The MBA makes this point, and also says that small independent originators will have a more volatile income stream, as an MSR portfolio has a counter-cyclical effect on the mortgage origination business. I don’t think this was necessarily a policy intention and it is an excellent example of why you don’t push through tax reform on an expedited timeline without public comment, etc.

NAR is out with their “game changers for 2018.”  They are predicting that supply will finally begin to catch up with demand and that home price appreciation will moderate. The effect will be felt at the middle to high end ($350k+) range as that is where the building has been and demand for starter homes will only increase as the Millennials age and get jobs. Tax reform will have a potential impact, however that will only be at the higher tiers.

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