Morning Report: Jumbo loans remain cheaper than conventional loans

Vital Statistics:

 

Last Change
S&P futures 3120 8.25
Oil (WTI) 58.69 0.24
10 year government bond yield 1.81%
30 year fixed rate mortgage 3.94%

 

Stocks are higher this morning on optimism for a trade deal. Bonds and MBS are down.

 

China maintained that tariffs must be cut if there is to be a phase 1 deal before new tariffs go into effect December 15. Chinese officials said the two sides remain in close communication.

 

Despite the weak ADP print yesterday, other labor market indicators look healthy. Outplacement Firm Challenger Gray and Christmas reported that announced job cuts fell 11% MOM and 13% YOY to 44,569. Tech was the biggest sector this month however retail is the leader for the year. Year-to-date, companies have announced 556,000 job cuts versus 1.2 million planned hires. Note that Challenger and Gray only looks at press releases, not actual cuts. Separately, initial jobless claims fell to 203,000 for the holiday-shortened week.

 

The service sector continued to expand, albeit at a slower rate in November, according to the ISM survey. Employment plans accelerated, while production decelerated. “Tariffs are impacting prices for a broad array of products used in the delivery of services and completion of projects for our clients. Upward pressure is impacting suppliers and their pricing to customers. We are seeing no relief from our customers, so we’re being negatively impacted by tariff-driven price increases. Numerous suppliers report looking for alternative manufacturing/supply locations outside of China, but with limited or no success so far.” (Management of Companies & Support Services)

 

The government has ended the limits on VA mortgages, which means veterans can borrow as much as their incomes and credit allow. So theoretically veterans can buy million dollar homes with no money down.

 

Mortgage credit increased in November, according to the MBA, especially in the jumbo space. “Most notably, the jumbo index climbed to yet another record high, as investors increased their willingness to purchase loans with lower credit scores and higher LTV ratios,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Additionally, the government index saw its first increase in nine months, driven by streamline refinance programs.”

 

Speaking of jumbos, the spread between 30 year conforming loans and jumbos remained negative this year, which means jumbo rates are less expensive than conforming rates. This is odd given that conforming loans are government guaranteed and jumbos are not. The spread did rise a bit this year, largely driven by staffing issues. Still, what is going on? According to CoreLogic, an “increase in GSE guarantee fee, a reduction in the GSE funding advantage, and portfolio lenders’ desire to hold jumbo loans explain much of the variation in the jumbo-conforming spread.” The issue of portfolio lenders could be translated to: banks are subsidizing jumbo loans because they are interested in the cross-selling opportunities, especially wealth management services. 

 

jumbo conforming spread.PNG

22 Responses

    • Lord.

      She thanks her husband for the gift, though it seems as though she did not initially ask for the exercise machine in the first place.

      That’s full assumption. Maybe she wistfully said how much she’d love one, but she knew they didn’t have the space or couldn’t afford it or any of the number of ways women hint for gifts they don’t think they’ll really get. Jeeze louise. I’ve gotten stuff for my wife like that: stuff she made it obvious she’d love to have, but she didn’t think we’d ever actually get it.

      Perhaps it’s the idea that a working mother has the time to record her daily fitness regimen for her husband’s viewing pleasure — and is she doing so against her will?

      This kind of projection and fantasizing is close to mental illness, and should only be seriously engaged in if creating a humorous parody ad for SNL.

      Or maybe it’s the use of the schmaltzy anthem “She’s So High,” a relic of an era when depictions of these marital dynamics were widespread?

      If the marriage dynamics have changed and we no longer have to buy our spouses gifts, I’m all for that.

      but critics have knocked the privileged consumers they portray and market to.

      Who else are likely to have space and money for a Peleton? They aren’t going to be marketing to people whose idea of eating out is a .99¢ burrito from Taco Bell.

      In the modern era, everybody is a troll and a critic (and also complains about trolls and critics in other areas, almost simultaneously).

      Like

      • Blue Check Twitter aka the Cultural Ministry has spoken.

        What I find interesting is that hot 30 year old women are at the apex of the pyramid of culture. And Blue Check Twitter makes her out to be a victim.

        Like

  1. Is the credit worthiness for jumbos typically better than 30 years?

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    • generally yes… they usually require higher down payments and most jumbo lenders won’t go below 680 on a credit score. Conventional lenders usually won’t go below 620. And FHA will accept damn near anyone.

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      • Strikes me as a further extension of the bifurcation of credit and the economy in general.

        When I got my new Audi, the bank did a straight personal loan for $95k without requiring the title or any other collateral. Only stipulation was it had to be automatic ACH payments every month to minimize processing costs.

        You would think that the larger the loan the more stringent the provisions, but I’ve found the opposite to be true as I’ve gotten older.

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        • Ultra-low interest rates are a killer for insurance companies. Their actuarial risks grow at 5%+ and it is hard to generate a conservative return like that in the bond markets…Causes them to take risks they otherwise wouldn’t…

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  2. This will turn out well:

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    • Not that they necessarily have a financial interest in doing so, but couldn’t the insurers possibly sue? I feel there’s a very strong argument to be made that California’s forestry and forest fire management policies–as well as, apparently, their power and electric companies–have more to do with fire risk in CA than climate change. Thus, there’s an argument that California should shoulder some of the risk burden, because their own policies–irrespective of climate change–make forest fires more likely.

      That being said, insurers don’t have to write new policies covering fire in CA, do they?

      Like

    • And I love how people in government–well, primarily progressives–so often think they can wave a magic wand and what they say will just happen, without perverting market incentives or having any secondary impacts. They’ll just order companies and people to do X, and they will do X.

      How long until they outlaw businesses and individuals moving out of California?

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      • no law you have to do business in California. If the regulators make it impossible to earn a living there, they are going to leave.

        And of course they will try and outlaw people from leaving. Just like the USSR did.

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        • Don’t both California and New York (or cities therein) try to tax people who have left, sometimes have been gone for a decade, for bullshit reasons about still having some property or interest in the state/city for some reason? If there ever is a mass exodus, I’m betting there will be a lot more of that.

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    • that will be his achilles heel. trump is going to bait him so bad

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    • Next time they want to bait him, bring his brother into it as well, and cite Politico, not just “the TV”.

      https://www.politico.com/magazine/story/2019/08/02/joe-biden-investigation-hunter-brother-hedge-fund-money-2020-campaign-227407

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    • I think the focus would be on turning it around and talking about how fat Trump is. That being said, they seemed to have backed off a lot on Trump’s insults, at least as far as I’ve seen. Perhaps if they can make them about being racist or homophobic, they’d get excited again. I certainly remember how they complained about him making fun of a disabled person.

      Not sure how well that works for them. Biden has numerous, numerous problems (his potential dementia is scarier than Trump’s penchant for word salad–I’ve heard trump be incoherent many times, but we never got anything from Trump like Biden’s leg hair story)–but I don’t care if Biden is mean to a fat person.

      That being said, the encounter does point to something that’s very Trumpian and more concerning:

      Biden proceeded to challenge the man to a push-up competition.

      That’s generally not the kind of thing I feel like a presidential candidate should be doing. It just feels like a really bad sign to me.

      Not sure how it plays on the left–probably not well–but him calling someone fat is the least of his problems. Also, the guy is fat. It would be like calling Biden “bleeding eye leg hair weirdo” or “sleepy creepy Joe”. Just accurate.

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      • Remember when Biden was going to take Trump behind the gym and kick his ass?

        https://www.npr.org/2018/03/22/596004998/trump-and-biden-taunt-each-other-over-who-would-win-high-school-fight

        Liked by 1 person

      • KW:

        I could be wrong, but I thought Trumps insults are generally aimed at either high profile people (other politicos and celebrities), members of the media, or people who work(ed) for him. I can’t remember an instance of him insulting an ordinary voter, especially to their face, in person. Not that I can’t imagine him doing it, I just don’t remember it happening, and I imagine the press would make a huge deal out of it if he did.

        That’s generally not the kind of thing I feel like a presidential candidate should be doing.

        I suppose ultimately it’s all a matter of political calculation….does it hurt more than it helps. A lot of the old assumptions have to questioned post-Trump. Although I’m not sure in either case, Biden or Trump, such “unpresidential” behavior is calculated. Possibly it is in Trump’s case, but to me Biden just seems old and unaware.

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        • BTW…this was also pretty Trumpian, in a reverse-Trumpian sort of way. Trump often uses the frame “People are saying…” when he wants to introduce some narrative that, in reality, no one else is pushing. Biden gives us this:

          Biden told the Iowa voters that, “No one has said my son did anything wrong.”

          Huh? Tons of people say your son did something wrong!

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        • I could be wrong, but I thought Trumps insults are generally aimed at either high profile people (other politicos and celebrities), members of the media, or people who work(ed) for him. I can’t remember an instance of him insulting an ordinary voter, especially to their face, in person.

          You know, I think that’s happened–although I think it was because he thought a guy was a protestor, and he wasn’t, and they guy didn’t give a darn and still loved Trump and was flattered than he was singled out, even for an insult, and incorrectly.

          Might have happened at some other time. I certainly think he would be capable of it. Fortunately, I think Trump would avoid challenging voters to contests of strength and endurance, however.

          Also, I’d argue that some of the people–the NYT reporter who he mocked–was certainly pushing it. But, admittedly, the guy was a reporter for the NYT.

          Tangent: The press made almost no issue of Biden’s bloody eye and very little of some of his rambling instances of apparent dementia, but always make a big deal of Trump’s word salad (and have had quasi-medical people come talk about how it might be Alzheimers) and when Trump made an unplanned stop at Walter Reed (almost certainly prepping for Afghanistan) there was 24 hours of “OMG Trump had a heart attack!” But bloody eye Joe? Oh, that’s fine, people’s eyes bleed all the time!

          I think Trump has an intuitive sense of what can work and what he can get away with. I don’t think it’s necessarily an intellectual calculation.

          I think Biden is just off the reservation. I have no explanation for Andrew Yang’s squirting of whip cream into the open mouths of young men on their knees in front of him. Of all the things any candidate has done, that seems the most ill-advised.

          Biden should have said everybody says that Hunter’s working at Burisma was perfect, and that he was great at his job, everybody says that, just great. The best ever. And it was a perfect decision.

          I was saying that sarcastically, but as I think about it that might work as a form of tactical deflection.

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        • KW:

          Biden should have said everybody says that Hunter’s working at Burisma was perfect, and that he was great at his job, everybody says that, just great. The best ever. And it was a perfect decision.

          That would be a spectacular troll of Trump.

          Like

        • I think Trump has an intuitive sense of what can work and what he can get away with. I don’t think it’s necessarily an intellectual calculation.

          Trump has a showman’s instincts.

          Like

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