Morning Report: Fed Funds forecast and mortgage rates

Vital Statistics:

 

Last Change
S&P futures 2895.75 0.75
Oil (WTI) 51.89 -0.62
10 year government bond yield 2.11%
30 year fixed rate mortgage 4.12%

 

Stocks are flat this morning as we enter Fed week. Bonds and MBS are flat as well.

 

The big event this week will be the FOMC meeting which starts Tuesday. Given the disconnect between the market’s perception of the road ahead and the Fed’s prior forecast, something has to give. FWIW, the market is now assigning a 20% chance they will ease by 25 basis points at this meeting. By the December meeting, the market is forecasting the FOMC will cut rates either 2 or 3 times!

 

fed funds futures dec 19

 

Compare that to the March 2019 dot plot, which showed most members of the FOMC thought rates would be unchanged for the year and about 1/4 of the members wanted to see a rate hike:

 

dot plot Mar 2019

If the Fed Funds futures are correct and we are looking at a 1.5% Fed Funds rate, where will mortgage rates go? If history is any guide, probably nowhere. The last time the Fed Funds rate was around 1.5% (late Dec 2017), the 30 year fixed rate mortgage (according to the MBA) was in the low 4% range, in other words, right about here.  Long term rates have already priced in the move. MBA 30 year FRM chart:

 

MBA mortgage rate

 

Quicken Loans settled with the DOJ over false claims allegations regarding FHA origination going back to 2015. The case was dismissed and Quicken settled for $32.5 million with no admission of guilt. Quicken fought the case the entire way, and eventually narrowed it down to a tiny fraction of what the Obama Administration wanted. Quicken Vice Chairman Bill Emerson said: “I think the current HUD administration realized how faulty the previous administration’s tactics were, and frankly, as we’ve said before, we viewed them as extortionist tactics and we just could not go along with that,” Emerson said. “We know we didn’t do anything wrong and so we continued to fight, and if that somehow caused the new administration to evaluate it differently, then great.”

 

Ed Demarco discusses the ways that private capital can be drawn back into the mortgage market. First, the CFPB’s ATR and QM rules need to change to bring down the allowable DTI ratios on Fannie and Freddie loans to that of the rest of the market. This is known as the QM patch, which basically says that any loans that meet F&F criteria meet the ability to repay test. The problem is that the QM laws specify a max DTI ratio of 43% and the GSEs allow up to 50%. This gives Fan and Fred a huge advantage over other lenders. The second issue revolves around the SEC and refining the data definitions in the registration rules. Third, Fan and Fred have all sorts of mortgage performance data that is unavailable to the broader market, and leveling the playing field would mean allowing other participants to see that data. Note however that DeMarco is only looking at the issue from the standpoint of originators. Buyers of private label securities have other issues that are still unresolved, especially when the issuer of the bonds also retains servicing. There is a conflict of interest issue that must be resolved as well. I discussed this about a year ago in Housing Wire.

 

Profitability improved for independent mortgage bankers in the fist quarter of 2019. Average revenue per loan came in at $9584, while average cost per loan was $9,299, or a net gain of $285 per loan, compared to a loss of $200 a loan in the fourth quarter. It looks like mortgage bankers reported a loss in the first quarter of 2018 as well.

12 Responses

  1. Interesting read, even if you don’t agree with the remedies being proposed:

    https://reason.com/2019/01/21/washington-forced-segregation/

    & the Jacobin rebuttal:

    https://www.jacobinmag.com/2019/06/the-color-of-law-richard-rothstein-review

    Like

  2. https://www.kff.org/health-reform/poll-finding/kff-health-tracking-poll-june-2019/

    TL;DR: people think they can keep their private coverage under Medicare for All

    Like

    • to be honest, ever intel weenie i ever met was strange. not surprised obama named a communist to run the CIA.

      Like

  3. Good read

    “If Only Elites Controlled Our Internet Access and Social Media Opinions …
    Matt Bivens, MD
    Jun 17

    But this was the obsession of our intelligence communities at the time: Americans had been getting to see third-party presidential candidates like Bernie Sanders and Jill Stein on RT because the Russians want to “highlight the alleged ‘lack of democracy’ in the United States.” O-o-o-k-a-y … And Americans had been getting to see “anti-fracking programming, highlighting environmental issues and the impacts on public health” on RT. Why? Well, “this is likely reflective” of a deep Russian chess game to keep U.S. methane (better known by its preferred marketing term “natural gas”) off of the global energy market.

    And all of this was meddling.

    Meddling in our affairs.

    The problem with this line of reasoning is that, followed to its logical conclusion, it frog-marches us in a straight line to life in Communist China. With a government-policed Great Firewall, dividing our Internet and citizens from the rest of the world.”

    https://medium.com/@mattbivens_34439/if-only-elites-controlled-our-internet-access-and-social-media-opinions-c1757d68fc3f

    Like

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