Morning Report: Fannie Mae will now allow AirB&B income on refi applications 2/9/18

Vital Statistics:

Last Change
S&P Futures 2593.0 0.0
Eurostoxx Index 368.2 -5.9
Oil (WTI) 60.4 -0.8
US dollar index 84.2 0.0
10 Year Govt Bond Yield 2.83%
Current Coupon Fannie Mae TBA 102.688
Current Coupon Ginnie Mae TBA 102.938
30 Year Fixed Rate Mortgage 4.33

Stock index futures are flat this morning after yesterday’s closing sell-off. Bonds and MBS are up.

There wasn’t any real catalyst for yesterday’s sell-off, aside from the natural phenomenon of volatility begets volatility. At the margin, stock market volatility is good for interest rates, but it does have negative consequences on your blood pressure.

So far the sell-off has yet to be reflected much in credit spreads. The biggest high yield ETF has dropped a few points over the past week, but nothing major. It did hit a low of 66 during the financial crisis and also a low in the 70s during early 2016. When high yield debt begins to seriously drop, you tend to see big drops in interest rates overall. Treat this ETF like the proverbial canary in the coal mine. High yield spreads overall are still below the 5 year average, which means investors are not even close to panicking.

You might not have been aware, but the government shut down for a few hours last night. Democrats in the House (and a few Republicans) balked at the Senate bipartisan plan that adds about $300 billion in spending over the next two years and kicks the debt ceiling can down the road until 2019. This takes continuing resolutions / debt ceiling grandstanding off the table for the 2018 midterms.

Homeowners will soon be allowed to include Air B&B income on their applications for refinancings. This is a new Fannie Mae program that will initially only be offered by a few lenders.

Fannie Mae’s Home Purchase Sentiment Index hit an all-time high last month on the back of a strong economy and rising house prices. The index increase was driven by expectations of increased home price appreciation. Personal economic expectations (things like concern over losing a job / household incomes) have been in a tight range over the past year.

12 Responses

  1. “…means investors are not even close to panicking.”

    I cannot shake having seen the photo of the computer server bank in NJ that I saw posted with the caption “Investors panic.”

    Liked by 1 person

    • The ironic thing is that high frequency traders generally don’t panic to begin with – they exit their positions at the end of every day, and if the market moves too much, especially on the open, they don’t play.

      If the market gets volatile during they day, they just exit their positions, get flat and live to fight another day.

      That is why you can see huge moves to the downside, because the high frequency traders that generally stand against the tide all go away once the market is falling, and a relatively small-ish market sell order can drive a stock to zero (it has happened). All of a sudden, the bids go away, and all there is nothing left.

      So investors are probably going to be screwed if they panic during a major sell-off if they try and exit. But that is the cost of paying the price of a cup of coffee to trade a stock with a tenth of a penny bid/ask spread…


    • Brent:

      Headline of the week:

      A guy I work with bought the XIV at 100 on Monday night. By Tuesday morning it was at 15, and by the afternoon they had announced the liquidation had been triggered at 4 (I think). He lost it all in less than 24 hours. Amazing.


      • Picking up pennies in front of a steamroller. I wonder how the prospectus handled the risk factor that any sort of spike in vol will wipe out your investment completely…


  2. An interesting overtime pay lawsuit hinged on the absence of a comma. Truck drivers for Maine dairies won a big payout. The loophole has since been closed. I side with the truck drivers. The final clause did not include the parallel construction of all the other tasks which were exempted.

    Liked by 2 people

  3. smh

    Liked by 1 person

  4. It figures the media would fawn over North Korea – the media is run by Marxists (cultural and economic), but geez, fellating a murderous totalitarian regime, while simultaneously believing we currently live under one is what passes for thought & analysis at CNN these days….

    Liked by 1 person

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