All Things in Moderation

Vital Statistics:

Stocks are higher this morning on no real news. Bonds and MBS are up.

Mortgage Applications fell 0.1% last week as purchases decreased 3% and refis increased 2%. “U.S. Treasury yields once again exhibited some intraweek volatility before declining sharply toward the end of the week,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “As a result, mortgage rates decreased, with the 30-year fixed rate falling below 4 percent again. In response to the lower rates, refinance applications climbed 2 percent, as homeowners with larger loan balances helped to keep the average refinance loan size elevated. Purchase applications fell slightly last week but remained almost 7 percent higher than a year ago.”

Job openings ticked down in September, according to the JOLTS survey. The quits rate fell to 2.3%, although it was lowest (1.7%) in the Northeast. The rest of the country was in the mid-2s. The Fed keeps a close eye on the quits rate as often presages an increase in wage growth. Construction job openings remain elevated, as does the quits rate for the sector.

The ISM non-manufacturing survey came in much better than expectations. Business is “brisk” and a shortgage of workers remains one of the biggest headaches. Whatever late-summer fears about an impending recession or business slowdown appear to have abated.

Productivity fell in the third quarter, according to BLS, as output increased 2.1% and hours worked increased 2.4%. Unit labor costs rose 3.3%, reflecting a 3.6% increase in compensation and the 0.3% drop in productivity. Manufacturing has been a weak spot, as decreasing demand has lowered output.

PennyMac has filed an antitrust lawsuit against Black Knight alleging that “Black Knight uses its market-dominating LoanSphere® MSP mortgage loan servicing system to engage in unfair business tactics that both entrap its licensees and create barriers to entry that stifle competition.” Basically Pennymac developed their own servicing infrastructure and Black Knight is suing them. Separately, Black Knight reported better than expected earnings this morning.

The government is getting worried about shadow banks (read independent mortgage bankers) and their market share in the mortgage origination business. Independent mortgage banks were the subject of a Brookings paper which points out they are vulnerable to financial shocks given that they rely on short-term funding in the money markets to fund their business. Note this isn’t only an origination issue – it is a servicing issue and the revolves around advances. For FHA and VA servicing these advances can spin out of control. This is probably what is behind the government’s recent moves to curb the use of the False Claims Act, which basically drove the big banks out of the FHA /  VA business. Nonbanks currently originate 90% of all GNMA loans.

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