Morning Report: The MBA addresses LO comp

Vital Statistics:

 

Last Change
S&P futures 2730 -15
Eurostoxx index 356.25 0.66
Oil (WTI) 66.47 0.03
10 year government bond yield 3.15%
30 year fixed rate mortgage 4.93%

 

US stock index futures are lower despite a rally overnight in Asia and Europe. Bonds and MBS are up.

 

We have a lot of Fed-speak today, which could translate into some volatility in the bond market, but I suspect bonds are just going to be driven by stocks and the risk on / risk off trade.

 

The 10 year bond touched 3.11% yesterday around noon, and then sold off as stocks recouped some of their losses. One thing to keep in mind, especially during overseas-led sell offs: First, the European markets close around 11:30 EST. Often times, the best prices (ie lowest rates) can be found right around / after the European close. Second, TBAs (which determine mortgage rates) are slow to react to big moves in the 10 year. So even though the 10 year bond might be up a half a point, it doesn’t mean the scenario you just ran will be half a point better than yesterday.

 

Mortgage Applications rebounded 5% last week as purchases rose 2% and refis rose 10%. Rates increased by a basis point to 5.11% – the highest since Feb 2011.

 

The MBA sent a letter to the CFPB asking them to address LO comp, and in particular the inflexibility of it. During the crisis, loan officers were accused of steering consumers into the loans that paid LOs the most and weren’t often the best for the consumer. In response, Dodd Frank made LO comp insensitive to product – in other words the LO makes the same on every product. While this sounds great in theory, it ignores competitive realities, the fact that LOs sometimes screw up on an application, and that state housing programs can become unprofitable for the lender if the LO makes a full commission. The MBA is asking for clearer, bright line rules from the CFPB.

 

In the sea of red yesterday, the homebuilders were a bright spot after Pulte released earnings pre-open.  Revenues were up 74%, but new orders and backlog were up only single digits. Gross margins increased to 24%. The homebuilder ETF (which hasn’t been able to get out of its own way lately) was up smartly.

 

Donald Trump escalated his attacks on Jerome Powell, the Fed Chairman yesterday in an interview with the Wall Street Journal. “Every time we do something great, he raises the interest rates,” Mr. Trump said, adding that Mr. Powell “almost looks like he’s happy raising interest rates.” While Trump acknowledged the independence of the Fed, he would prefer low rates (as would every politician on the planet). BTW, I think Powell is happy the economy is in a strong enough state that he can put some distance between the Fed Funds rate and the zero bound. Monetary policy can become completely ineffective when rates are around zero.

7 Responses

  1. Koskidz reacting about what one would expect to the Sandra Day O’Conner dementia news.

    https://m.dailykos.com/stories/1806568

    Like

  2. I never want to see the Vox crowd in power:

    “At the very least, I’d love for some governments to conduct real, bona fide experiments on lithium. Maybe a state could randomly add lithium to some of its reservoirs but not others, or, conversely, a high-lithium state could try removing it from the water. There are serious ethical questions about doing experiments like this that affect whole populations, but if lithium’s effect is real and we don’t pursue it because we lack compelling enough evidence, thereby endangering thousands of people — that’s an ethical problem too.”

    https://www.vox.com/future-perfect/2018/10/24/18010592/future-perfect-podcast-lithium-drinking-water-suicide

    Like

  3. Rock solid:

    “A top Cornell food researcher has had 15 studies retracted. That’s a lot.
    Brian Wansink is a cautionary tale of bad incentives in science.

    By Brian Resnick and Julia Belluz
    Updated Oct 24, 2018, 2:25pm EDT ”

    https://www.vox.com/science-and-health/2018/9/19/17879102/brian-wansink-cornell-food-brand-lab-retractions-jama

    Like

    • 50% reported they didn’t issue reports on studies that didn’t pan. Presumably some additional number simply didn’t admit that they only report studies tha achievean expected result.

      This is an endemic problem with studies, especially behavioral studies but also any large-system study (environmental, climatological, weather, stock market, national consumer behavior) and peer review clearly is not active as a filter on the front end.

      Like

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