Morning Report: Fannie and Fred are told to level the playing field.

Vital Statistics:

 

Last Change
S&P futures 3005 7.25
Oil (WTI) 57.95 -0.64
10 year government bond yield 1.69%
30 year fixed rate mortgage 3.96%

 

Stocks are higher this morning after China made some agricultural trade concessions to the US. Bonds and MBS are flat.

 

House prices rose 0.4% MOM and 5% YOY in July, according to the FHFA House Price Index. Home price appreciation has slowed across the board compared to 2018’s numbers. This is despite a meaningful drop in rates. Separately, the Case-Shiller index was more or less flat on a MOM basis and up a couple of percent annually.

 

FHFA regional

 

One of the best predictors of rising wages is the quits rate, which has been inching up slowly since the economy bottomed out in 2009. The latest reading had it at 2.6%. We are seeing an uptick in the quits rate for the bottom income brackets, with 12% of all lower income households switching jobs during the spring and early summer. For all the concern about income inequality, this is a welcome sign.  Separately, another 1.3 million workers will qualify for overtime pay due to a new Labor Department directive.

 

The FHFA has issued a directive to Fannie Mae and Freddie Mac to end guarantee fee discounts for high volume lenders. “We trying to make sure Fannie and Freddie aren’t driving consolidation in the market, but instead they’re providing a level playing field, and that’s really something we’re focused on,” Calabria said Monday at a National Association of Federally Insured Credit Unions conference. “One of the things that really concerned me before the crisis was that it wasn’t unusual where the big guys like Countrywide would come in and they pay G-fees down here and you come in and pay G-fees up here.” The ruling would level the playing field for smaller lenders, and apply the principle of “same rate of return for the same risks, regardless of size.”

 

What will be the implications of this change? Until we have a better grasp of how Fannie will make changes, it is hard to tell. It will probably push the redevelopment of the private label securities market. If other insurers can compete for the big aggregators, then we might see a more competitive marketplace, and will reduce the taxpayer’s footprint in the mortgage market.

33 Responses

  1. Interesting observation on the student climate protests:

    “Though perhaps she is moderate in speech, she can be radical in action. Thunberg’s chosen form of protest—a school strike—is uncommon in the United States, though more popular in Europe. Americans think of school as something that chiefly benefits students, not society; comparing it to a job, where a labor stoppage is a recognized form of protest, is outside our ken. But if you come to see school as part of an intergenerational exchange of welfare—students go to school now, so that in 30 years they can get jobs and pay Social Security taxes—then it aligns well with Thunberg’s overall point, which is that older generations have betrayed young people today by failing to address climate change. This almost economic argument has the virtue of being accurate.”

    https://www.theatlantic.com/science/archive/2019/09/why-greta-wins/598612/

    In Europe, it’s viewed as sort of a strike against society in that they are denying their labor to the state to fund the social welfare programs in the future. This of course only makes since if you view the state as having a claim on your labor in the first place.

    Liked by 1 person

    • The left is now using rhetorical human shields.

      Liked by 1 person

    • jnc:

      I don’t think calling this a “strike” at all, either against school or society, makes a lot of sense. When the schools and the dominant culture not only don’t object to what you are doing, but are actively encouraging you, you aren’t “striking” against either of them. You are being exploited by them.

      Liked by 1 person

      • It’s certainly not an act of rebellion.

        Like

      • Sure but the culture is separate from where the actual power. These protests are going to be irrelevant and the students are primarily hurting themselves, because this conception of who schooling benefits the most is actually correct:

        “Americans think of school as something that chiefly benefits students, not society;”

        But it reminds me a bit of the politics surrounding the old Solidarity strikes in Poland where it wasn’t just about workplace conditions but actually perceived as undermining the old communist state, because the state was presumed to be entitled to the individuals labor.

        At least that’s how I suspect the protesters see it.

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        • jnc:

          I agree with everything you say, except the idea that this is how the protestors see it. I suspect that the vast majority of the protestors haven’t thought any more deeply about it than to view it all as a lark and a way to get out of going to class.

          Like

        • I disagree. I think they are full on true believers. At least the visible ones. The ones who view it as a lark are drinking or playing video games, not blocking traffic.

          Thunberg certainly is a true believer.

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        • Yes, Thunberg is definitely a true believer. And I am sure there are others. But she is clearly a disturbed outlier. In my experience with high school kids, they just don’t care that deeply about these kinds of things, and they think even less deeply about them.

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        • In my experience it takes very little for a hormonal, emotional human to become a “true believer”. When there’s a mob forming, people can become swept up in them fairly rapidly–becoming “true believers” but not exactly “deep” believers. They just “feel very strongly” about something, and that’s enough.

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        • “In my experience with high school kids, they just don’t care that deeply about these kinds of things, and they think even less deeply about them.”

          How recent and broad is that experience? I wouldn’t try to generalize on European high school kids.

          And it’s also worth noting that the Chinese Cultural Revolution was driven by the youth.

          If you watch Amazon’s Man in the High Castle, same thing with Jahr Null.

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        • jnc:

          How recent and broad is that experience?

          Well, I had at least one teenager living in my house from 2008 until last year, and I was fairly involved with their friends and high school for most of that time. I’ve sat around a lot of tables listening to teenage conversations. Anecdotal to be sure, though. You?

          Like

  2. The overtime rule for salaried employees had been changed by the BHO Admin but it had not put its automatic update feature in the Federal Register, as I recall, so it violated the APA and was struck down. This is a less aggressive rule change, with no automatic updates. It sets the salary threshold at around $36K, IIRC. The BHO reg that was struck down set the salary threshold in the mid 40s, with presumably upticks every three years. This one is probably APA consistent.

    As for ending the fee discounts for volume mortgage lenders, do you think it will actually put more loan competitors out there? That could be good. But I assume it limits taxpayer contribution because overall fees paid by lenders would presumably be increased. If that comes from a competitive marketplace than the fees might not get completely passed on to the borrowers.

    I am sure attempts will be made to measure effects longitudinally but the multiple regression analysis required to nail down effects when there are so many variables will have to be carefully reviewed.

    I can’t see any real downside to equal fees being charged to all mortgage lenders.

    Like

  3. You don’t think we’ll be so lucky that the House votes to impeach today, do we? Because that would be AWESOME!!

    Impeachment freezes the D primary I think. That makes it Biden v Warren race. Again, AWESOME!!!

    We’re not that lucky though, are we?

    Liked by 1 person

    • Seems highly unlikely. And of all the idiotic things for their to be a rift about in the Democratic party. Amazing.

      Also interesting that the squad seems to be getting marginalized. Someone, coming to Washington and saying all the establishment Democratics are the problem as much as Republicans (or more so) and suggesting they need to get primaried and are racist isn’t great for your career in Washington. Who knew?

      Like

  4. Interesting.

    Like

  5. Recent missive from Bernie:

    Kevin –

    I want to ask you to clear your mind for a moment and count to 10.

    In those 10 seconds, Jeff Bezos, the owner and founder of Amazon, made more money than the median employee of Amazon makes in an entire year. An entire year.

    Think about that.

    We live in a time when millions of Americans, including many Amazon employees, are working 2 or 3 jobs to feed their families and the three wealthiest people in this country own more wealth than the bottom half of the American people.

    It’s absurd.

    And in order to reduce the outrageous level of inequality that exists in America today and to rebuild the disappearing middle class, the time has come for the United States to establish an annual tax on the extreme wealth of the top 0.1 percent of U.S. households.

    Add your name if you agree:

    Sign my petition — add your name as a citizen supporter of my wealth tax on the top 0.1 percent of Americans as a way to reduce the obscene levels of income and wealth inequality in this country.

    Our tax on extreme wealth would only apply to the wealthiest households in America and would cut the wealth of billionaires in half over 15 years — which would substantially break up the concentration of wealth and power of this small, privileged class.

    This is how much more in taxes some of the richest people in America would owe this year:

    The Walton family – $14.8 billion
    Jeff Bezos – $8.9 billion
    Charles Koch – $3.2 billion
    Sheldon Adelson – $2.6 billion
    Rupert Murdoch – $1.28 billion

    Our plan would raise more than $4 trillion over the next decade and anyone with a net worth of less than $32 million would not see their taxes go up under this plan.

    Now, I have never understood how someone could have tens and hundreds of billions of dollars and feel the desperate need for even more. I would think that with the amount of money the 0.1 percent of this country has, they might just be able to get by.

    But the truth is, for the past several decades there has been a massive transfer of wealth from those who have too little to those who have too much.

    And for the sake of our democracy and for working families all over America who are struggling economically, that has got to change.

    But making it happen must start with all of us making our voices heard and being clear — loudly and directly — that the greed of the billionaire class of this country is intolerable, and it must end. And that starts with you:

    Sign my petition — add your name as a citizen supporter of my wealth tax on the top 0.1 percent of Americans as a way to reduce the obscene levels of income and wealth inequality in this country.

    In my view, a nation cannot survive morally or economically when so few have so much and so many have so little. Millions of people across this country struggle to put bread on the table and are one paycheck away from economic devastation, while the wealthiest people in this country have never had it so good.

    It has got to stop.

    And when we are in the White House, it will.

    In solidarity,

    Bernie Sanders

    Definitely a communist. That’s basically a revenge fantasy–it’s not a political platform.

    Like

    • i noticed how he ignored liberals like Zuck, Warren Buffett, Larry Page, etc..

      Liked by 1 person

    • it never dawns on the left that this wealth will flee the country long before the ink is even dry. By the time it becomes law, the rich will have protected themselves.

      Like

      • Or that a president doesn’t have the power to make this happen unilaterally, and that such a large project would take more than two years–at which point President Sanders would have a congress bristling with Republicans, because that’s what would happen.

        Or that in our already byzantine tax code the extremely wealthy wouldn’t find a way out–either by fleeing the US–or making their money do so–or by moving their moneys in ways unanticipated by the writers of the wealth tax that give them virtual immunity.

        But here’s no acknowledgement that the poor and middle class are wealthier by almost every relevant metric. My dad didn’t carry around a super-computer in his pocket that gave him immediate phone access to anybody on the planet, as well as an ability to browse a gigantic encyclopedia of everything from anywhere he was in the world. My kids have that now. Certain medicines are overpriced, IMO, but the availability of medicine and the effectiveness of medical treatments are far better now than, say, the 1950s–or whatever era of greater equality Sanders is nostalgic for. Literacy is improved. Employment opportunities abound. Access to necessities and luxury goods is better now than it has ever been, as well as access to markets. There are more individuals and mom-and-pops on the internet now, catering to niche markets, than there ever were in brick-and-mortar stores.

        The objection is that the super-wealthy have gotten super-wealthier. Though I enjoy easy access to medicine and personal comforts unavailable to the richest men and greatest kings of antiquity, as do we all, it’s “immoral” that other people have so much. I may carry around a super-computer in my pocket, but I still can’t charter a private jet! Injustice!

        And there’s been no massive transfer of wealth. There has been wealth creation–of which the super-wealthy got almost all of it. But almost isn’t everything, and most of us are better off than we would have been in the 50s or 60s in most ways.

        And I have literally zero objection on progressive taxes on the super-wealthy in the abstract. Yet there is nothing in his argument that would make me want to vote for him. And plenty that would make me not want to.

        Like

      • This is a primary strategy. It’s about carving out a space separate from Warren.

        Like

  6. The PL is unanimous that this is it. They finally have impeachment.

    And Trump is going to release the full unredacted transcript of the call tomorrow.

    someone is gonna be disappointed.

    Like

    • Love this reply:

      YOU ARE STILL DOING IT

      YOU ARE ALL BUYING THE BIGGEST GOP LIE
      The parties are NOT NOT NOT NOT “the same”

      The Dems may not be “whiter than white” – but they do throw out villains when found out

      The Republicans have stopped even thinking about throwing out the villains – it now appears to be a REQUIREMENT

      Every time you say or think “They are Both BAD – you move closer to a GOP tyranny

      The WORST Dem politician may be bad – not what you want in your family – but they are BETTER than the best GOPPER

      That’s what happens when you try to speak truth to power. “No, you’re the problem!!!”

      I note the commenter does not address a single point the author raised.

      Like

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