Morning Report: The CFPB eyes the GSE patch.

Vital Statistics:


Last Change
S&P futures 3025 1.5
Oil (WTI) 53.61 0.14
10 year government bond yield 2.05%
30 year fixed rate mortgage 4.07%


Stocks are flattish as we head into FOMC week. Bonds and MBS are up.


The FOMC begins its two day meeting on Tuesday, and is expected to cut rates by 25 basis points. We will also get the jobs report on Friday, so this should be a busy week.


While the Fed is ostensibly cutting rates to ward off a potential recession, the economic data has been surprisingly robust. Despite trade fears, GDP growth in the second quarter topped 2%, and earnings season has been robust. The “Powell Put” as it has been dubbed, is the expectation that rates are going down and that will support the stock market. That said, the global economy is slowing and that is pushing down interest rates. Note the German 10-year is again pushing negative 40 basis points, and the Chinese are having issues in their banking system. Meanwhile, the US consumer is alive and well as the biggest canary in the coal mine for the US consumer – UPS – reported a 14% increase in quarterly profit.


Last Thursday, the CFPB announced that it was willing to let the “GSE patch” expire in 2021. The GSE patch allows loans with DTI ratios above 43 to fit in the QM bucket if they are approved for sale to Fannie Mae or Freddie Mac. “The top line is the patch is going to expire,” [CFPB Director Kathy] Kraninger said in a meeting with reporters. “We are amenable to what a transition would look like.” The CFPB has put out a public request for comment on the new rules, and is working to ensure that there are no disruptions in the mortgage market. This is important given that 1/3 of the Fan and Fred loans have DTIs over 43%. It is possible that FHA will pick up the slack, however FHA has been tightening credit standards as well, requiring FICOs above 620 to go over 43%. Note that a quarter of FHA lending has DTI ratios over 50% (FHA permits up to 57%), but it is more likely that these loans will end up as securitized non-QM loans. There are still many issues to be resolved before the private label market returns to its former glory, but this may force those issues to finally get ironed out. This may be why the government considers this to be a key part of GSE reform – it will shrink the GSE’s footprint in the market, and also increase the credit quality of their loans.


The Trump Administration had indicated they wanted to get GSE reform done before the 2020 election, however that is looking like it won’t happen. Mark Calabria, head of the FHFA, think this is more likely to happen within the next 5 years. By far the biggest issue is whether the government will continue to guarantee MBS issued by the GSEs. The government guarantee was never explicit prior to the financial crisis, and the government floated a trial balloon during the crisis about not guaranteeing these securities. Bill Gross of PIMCO threatened to stop buying Fan and Fred MBS if the government did that and that was the end of that discussion. Note Bill had just loaded up the boat in his Total Return Fund with agency MBS and made a killing when the government formally guaranteed them, so he was talking his book so to speak.


Housing security is a big issue for seniors. With the end of defined benefit pension plans, most people are living on Social Security and savings. One proposal would allow seniors to use pretax earnings in their IRA or 401k plans to pay off mortgage debt without triggering taxes and penalties.

8 Responses

  1. Trump’s going to win again:

    “The Iowa Circus

    An overstuffed field of candidates is repeating the Republicans’ 2016 primary-season errors
    By Matt Taibbi”


  2. An overstuffed field of candidates is repeating the Republicans’ 2016 primary-season errors

    This seems overly charitable. The 2016 Republican field came off primarily as incompetent and anemic and lackluster. This Democratic field is coming across as overtly hostile to middle-America, Christians, anyone in flyover country, anyone who has any remotely traditional values, or likes freedom. With the exception of Biden, I can’t see any of them having the remotest hope of beating Trump. They’re all completely abandoning the right and the center, and even the left-of-center and going full hard-left and then making up their own ideas about what previously unthought of insanity can be considered “progressive” in our modern era.

    When Trump wins in 20/20, I predict a lot of McGovern/Nixon comparisons that end with Trump getting impeached or resigning in his second term, like Nixon, and I will probably wonder aloud where all the McGovern ’72 comparisons were during election season–when the lesson would be running to such a hard extreme, you are likely to lose.

    Even Trump only went extreme on a handful of issues (arguably), such as the so-called Muslim-ban. Strip away the Twitter fights and rhetoric, it was “cut taxes, avoid wars, protect the borders”. All of which are middle-of-the-road/center-right Republican-style issues. By Comparison, Hillary ran (IMO) kind of like the heir to Obama’s legacy, and she’d raise taxes and improve healthcare and, you know, fight for LGBQT rights and a woman’s choice. Again, largely typical and not federally funded abortions for men and completely open borders and outlawing private insurance. In fact, Hillary’s biggest errors (IMO) were talking about “deplorables” (which so easily comes off as talking about “flyover country”) and not ignoring the campaign in middle-America (against the advice of her husband).

    This field . . . hard to imagine a field more alienating to middle-America, old-folks, Fox-news-watchers, and rural voters.


    • “that end with Trump getting impeached or resigning in his second term”

      Why would you expect that? If Trump is reelected after everything that’s come out so far, he’ll be bullet proof on impeachment. The Democrats won’t even make the attempt and Republicans certainly won’t do it.

      Or are you saying that’s how progressives will console themselves with self delusion on Plum Line?


      • To be clear, I don’t expect Trump to get impeached. I expect that the media will start making a comparison to McGovern/Nixon, admitting the Democrats went a little too far in 72 and so lost to Nixon . . . but we all know what happened to Nixon after that!

        After failing to make very many McGovern comparisons before the election. That’s my prediction. I don’t think Trump will resign or get impeached. Not saying either scenario is impossible, I just don’t see it. Especially since the Democrats have no idea how to approach impeachment, and have continuously attacked him where he is arguably least vulnerable–on the fantasy that he is some kind of Russian sleeper agent. At least trying to suggest he has tight relationship with the mob would be a credible attack (and somewhere he has probably skirted some laws). But the Democrats and the media have no idea how to impeach Trump. So I’m not predicting that.


    • Interesting transcript of an internal Atlantic meeting following its hiring and immediate firing of Kevin Williamson last year. Scroll down a bit to get to the actual transcript. What I found most interesting was all the hand wringing over whether the thought-crime that got KW fired was beyond the line of anything that The Atlantic might ever consider publishing, and yet literally no one there seems to have the slightest clue what KW actually thinks about the issue.

      (As an aside, Ta-Nehisi Coates plays a big part in the discussion, and I continue to be baffled by the notion that he is some kind of great or interesting thinker. Here he casually advances a proposition – Republicans believe in the death penalty, and Republicans are pro-life, therefore Republicans must be in favor of the death penalty for women who get abortions – that a high school freshmen in Logic 101 would be embarrassed to put forward.)


      • I am convinced Ta-Nehisi Coates gets a lot of undeserved mileage out of his name. And he is a huge racist. And a lot of his output is the eloquent exposition of his racism.


      • Well, he’s where he’s at because any criticism of a minority (whether they are one or not) is racist.


      • In the weeks since, we’ve heard Williamson’s version of events. Preaching the story of his martyrdom in media outlet after media outlet after media outlet, the columnist has portrayed himself and even Goldberg, too, as the victims of a “Twitter mob,” forced to suffer the tyranny of our “P.C. culture.”

        Anytime any media liberal goes too far and get their hands slapped, they do they exactly the same thing. They make the victim-circuit and make martyrs out of themselves. This is not unique to Williamson, and is a reasonable response to events. If the author had encountered the same situation, they would likely do the same thing.

        Coates talks about having learned, as a young journalist, from writers who thought of black men like him as less than human.

        He rarely talks about anything else.

        Coates calls The New Republican a racist publication. I don’t understand why people take him seriously. In that conversation when he isn’t calling literally everything and everybody racist, he’s working hard to elevate himself over everybody else, to humblebrag his intellectual superiority to broader America

        They took data, 30, 40 percent of Americans agree with this sentiment.

        Was Coates saying that 40 percent of American’s literally believe that a woman who has had an abortion should be hanged? Who “took the data” on that? Ooops, sorry, he meant Republicans. My bad.

        I’m sorry, not of Americans, of Republican voters. I should be clear about that. But you know, a huge swath of Americans, like 30 or 40 percent [of Republican voters] believe that black people are not as smart as white people. Or believe black people are somehow more criminally inclined. That’s a lot of people. That’s a lot of people. And obviously that’s out of bounds for us.

        Goldberg: No, we’re never running shit like that, obviously.

        But they will run shit like that about Christians, Republicans, traditional families, flyover country, Mormons, men, the cisgendered caucasians and other freaks. Sometimes, I mean. Not all the time.

        Goldberg: That’s the funny thing, because, you know, somebody asked me the other day, what won’t we run? And I could probably reel off 200 ideas that we would never post. You know, genetic-inferiority issues.

        Coates: And that’s an ongoing debate in respectable publications right now.

        Uh huh. What respectable publication? Coates is so swaddled in his victimhood bubble I don’t think he has any idea what actually might be going on outside of it.

        But my wife had gestational diabetes, swelled up like 80 pounds while she was pregnant with my son, [and she] almost died in our apartment when I was 24 years old. And the notion that she should not have control over a process that almost killed her, I don’t think is generous.

        Gestational diabetes is almost certainly a product of carbohydrate consumption. Which a person has control of, and doesn’t require abortion. Not to divert the conversation but, you know, it’s not all black-and-white. So to speak. In that particular situation, I think he may be complaining about the wrong thing.

        I don’t think 15 years ago or 20 years ago we would have ran “The Case For Reparations.” So that means it’s opened up in a different direction. I think if we publish kick-ass stories, very little of this will actually matter.

        Goldberg: Go on about that. Talk about reporting.

        Maybe it’s me, but I don’t feel opinion pieces on reparations with some quotes from other people constitutes “reporting”.

        That whole conversation seems to involve a lot of navel-gazing.


Be kind, show respect, and all will be right with the world.

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: