Morning Report: Jerome Powell heads to the Hill

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Stocks are higher this morning as Jerome Powell heads to Capitol Hill. Bonds and MBS are flat.

Jerome Powell heads to the Hill for his semi-annual Humprey-Hawkins testimony. Here are his prepared remarks.

Economic activity has picked up from its depressed second-quarter level, when much of the economy was shut down to stem the spread of the virus. Many economic indicators show marked improvement. Household spending looks to have recovered about three-fourths of its earlier decline, likely owing in part to federal stimulus payments and expanded unemployment benefits. The housing sector has rebounded, and business fixed investment shows signs of improvement. In the labor market, roughly half of the 22 million payroll jobs that were lost in March and April have been regained as people return to work. Both employment and overall economic activity, however, remain well below their pre-pandemic levels, and the path ahead continues to be highly uncertain.


Loans in forbearance fell to 6.93% last week, according to the MBA. Fan and Fred loans decreased to 4.55%, while Ginnies increased to 9.15%. “The share of loans in forbearance has dropped to its lowest level in five months, driven by a consistent decline in the GSE share in forbearance,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “However, not only the did the share of Ginnie Mae loans in forbearance increase, new requests for forbearance for these loans have increased for two consecutive weeks. While housing market data continue to show a quite strong recovery, the job market recovery appears to have slowed, and we are seeing the impact of this slowdown on FHA and VA borrowers in the Ginnie Mae portfolio.”

The MBA and NAR are pushing back against proposed VA funding fee increases for IRRRL loans. “MBA and NAR have consistently registered our opposition to legislation that increases VA home loan funding fees to offset the costs associated with non-housing-related expenditures,” the letter said. “Although this proposed legislation would use the fee increase to fund job training and education programs that both organizations support, we believe the use of the VA home loan program for this purpose is inappropriate, particularly in the midst of a pandemic and a widespread economic downturn. This is exactly the time at which veterans should be encouraged to use streamlined refinancing options, such as IRRRLs, to lower their monthly mortgage payments. These savings are particularly important for those veterans who have suffered temporary job losses or reductions in income.”

The refi wave has the MBA forecasting $1.75 trillion in refis this year. The MBA believes this wave could be cresting. The MBA is forecasting that refinance volume will fall to $722 billion in 2021. That seems hard to square with the numbers out of Black Knight, who estimated that 19.3 million “high quality” refis were out there. 19.3 million loans (with an average loan size of say $350k) works out to be about $7 trillion. Taking away the “high quality” constraints (>20% equity, FICO > 720), there are 32.4 million refis (or over $11 trillion) out there. Currently 75% of homeowners have rates 75 basis points over the Freddie average rate. That 2021 forecast just seems off. The only way it can happen is if mortgage rates drift upward, which will probably require a resurgence of inflation and the Fed to take the foot off the gas with its MBS purchases.

That said, FHA loan spreads have widened compared to conforming loans, which is probably being driven by forbearance fears and the decline in servicing values, especially for FHA.

This image has an empty alt attribute; its file name is fha-spreads.jpg

The jumbo-conforming spread, after spending the last several years at negative levels (in other words, jumbos had lower rates than Fannie / Freddie loans) spreads reverted back to positive numbers and is now around 35 basis points.

Affordable suburbs outside big cities are seeing the hottest real estate markets. Places like Camden County (outside Philly), Fairfield County CT, and El Dorado CA (outside Sacramento) are booming as people can get so much more for their dollar.

30 Responses

  1. Eh, I still like Jonah Goldberg but he seems remarkably naive to me if he believes there’s any compromise to actually be reached (and honored) on holding on the appointment of a new justice.

    And I’m not clear why he should hold on appointing a new justice, period. Or why a conservative, even one who didn’t like Trump at all, would find that a compelling argument.

    But the idea that you could cut a deal with the Democrats not to pack the court and then have them respond to a clear victory by honoring that pledge–I mean, there’s no reason to think they would honor it. Honor and politics generally don’t mix.

    It might seem less likely because they’d feel less motivated . . . but if Biden wins I want to see them pack the court. Establish court packing as the new normal so the next Republican to win with a friendly senate and house can do the same thing. Keeping packing the court until there are more people in it than in the senate itself.

    The more people on the court the less power each individual has. The less important each individual appointment becomes. Frankly, I think that would be a good thing.


    • Also, wouldn’t compromising on this just indicate to the Democrats that all they have to do to get whatever they want in any situation is threaten to pack the court? The more I think about it, this compromise seems like an awful idea.


    • Neither of them seem to understand why Republican voters vote for Republican candidates in the first place.

      Confirming conservative Supreme Court nominees is near the top of that list.

      Republican Senators who oppose confirming another Supreme Court Justice will find themselves primaried.


      • jnc:

        Neither of them seem to understand why Republican voters vote for Republican candidates in the first place.

        Both Goldberg and French seem to have been hit hard by TDS.


        • I’ve never cared much for French. He strikes me basically as a progressive moderated by catholicism. If it weren’t for his sincere religious faith, he’d be a progressive.

          Goldberg is a good example of someone hit hard by TDS. He’s a solid conservative when going historical, but he sounds like any WaPo opinion writer when he starts talking about Trump, and has more than once repeated false stories (about Trump) that folks on Commentary and Ricochet and other “not trump fan” conservative podcasts get right most of the time. His take was basically that Trump told people to inject bleach to fight COVID. Down with the fine people hoax, as far as I can tell. He just really doesn’t like Trump.

          But I’m still just blown away by the idea that their “grand compromise” makes any sense. Why would either party (the party that has just completely reversed themselves on election year appointments, or the party that attempted to crucify Kavanaugh and has been crucifying Republican nominees to SCOTUS since Bork) want to enter or honor such a compromise?

          And (from a strictly “I hate politicians” viewpoint) I want to see the Democrats try and pack the court. Do it. Fail and beclown yourselves or succeed and then try and stop Republicans from doing the same thing the minute they can.


  2. Trying to imagine the reaction if Trump or the Republicans came out against Marbury v. Madison.


      • Yep. Same thing:

        “However, there has been comparatively little attention to the simplest and easiest way to get around potentially tyrannical right-wing justices: just ignore them. The president and Congress do not actually have to obey the Supreme Court.

        “All the president has to do is assert that Supreme Court rulings about constitutionality are merely advisory and non-binding, that Marbury (1803) was wrongly decided, and that the constitutional document says absolutely nothing about the Supreme Court having this power.””

        Someone should let Trump know. Apparently it’s been that easy this whole time.


      • how do you write that without referencing Jackson and the nullification crisis?


        • I didn’t want to spoil my, er, rockhardness with visions of Jackson slaughtering indians.


        • “how do you write that without referencing Jackson and the nullification crisis?”

          I personally would have found it more surprising had they been honest enough to include it.

          The entire premise of a progressive or a liberal arguing against judicial supremacy requires a massive amount of cognitive dissonance in the first place.

          Now, the Jacobin crowd I can see. They’ve always been more honest and consistent on that.


        • “with visions of Jackson slaughtering indians”.

          in college, there was a path that led from my apartment to the rest of campus. one of my roommates (it was a quad) was basically a whore. he had more girls in that room than I can remember. they came from other colleges! but, he never dated any of them. just a constant cycle.

          best they could hope for was to be the one he brought home on a Friday. they might make it to Sunday morning. so, inevitably, they would be shown the door and some would start crying.

          so, of course, as they started down that path to their car or the other side of campus, we inevitably dubbed it the “trail of tears.”


  3. “Fisher-Price Releases ‘My First Peaceful Protest’ Playset With House You Can Actually Burn Down

    September 21st, 2020”


  4. Genuine question:

    What were RBG’s primary accomplishments as a SCOTUS Justice? I realize that for a woman of her generation simply becoming a Supreme Court Justice was a true accomplishment. (To be fair it is an accomplishment for any Justice.) And I know that she was the author of several opinions on controversial cases hailed by the left. But in terms of her tenure on the Court, did she alter the Court’s direction on any particular area of law or introduce any unique approaches to the law that were subsequently embraced more widely by the Court?

    In other words, was she a notable Justice in the mold of a William Brennan or Earl Warren or Antonin Scalia or (I would certainly argue) a Clarence Thomas?


    • The most significant case I saw referenced where she wrote the majority opinion was the VMI admissions case from the 1990’s.

      I think her career as a lawyer arguing cases before the Supreme Court is the source of her primary legal significance. Reminds me a bit of Thurgood Marshall in that respect.


      • Thanks. The VMI case seems to figure large in memorials to her. But I do get the sense that it was her pre-SCOTUS career that was her real achievement.


        • Part of that is just due to the makeup of the court. I think she would have had greater significance if there had been a solid liberal/progressive majority.


        • jnc:

          Part of that is just due to the makeup of the court. I think she would have had greater significance if there had been a solid liberal/progressive majority.

          Well, Thomas and Scalia managed to have pretty big significance, most often writing in dissent. Over time they had the effect of moving other members of the court, and certainly had a big impact on how Constitutional law is taught and approached on lower courts.


        • She had some important dissents, at least one blueprinted what Congress should do to remedy the Court’s majority interpretation of a statute

          [Ledbetter]. Her dissent in the VRA case will lead to statutory changes in the next D Congress if there ever is one.

          Her mark on the Court, most appellate lawyers seem to agree, was procedural. She was a tigress on the FRAP [this is what Roberts loved about her] against any lawyer who just did not follow the rules, either side. She would be sympathetic to a side, but not if it got there without crossing all the procedural Ts. Scalia remarked on this on more than one occasion. She and later Roberts were appellate lawyers who were beloved by appellate courts for their prep, their knowledge, and their thoroughness, and both of them were impatient with second rate appeals.

          The current Court is a bit short on lawyers with extensive appellate advocacy experience.


        • Mark:

          Her mark on the Court, most appellate lawyers seem to agree, was procedural.

          Thanks, I didn’t know that.

          She was a tigress on the FRAP [this is what Roberts loved about her] against any lawyer who just did not follow the rules, either side.

          All the more ironic, then, that she so routinely flouted the “rules” of the Constitution to reach her preferred results!


        • FRAP = Federal Rules of Appellate Procedure?


        • yep


      • Thanks…will definitely read her speech.


      • I believe we are left with only Roberts and Kagan as Justices who had practiced high level appellate law before taking a bench. Alito was a US Attorney but I don’t know if he ever tried a case or argued an appeal. Kavanaugh was a staff lawyer. Breyer was an admin lawyer and famous de-regulator of the airlines industry. Thomas had five years of private practice in Mizzou but I don’t think he was a litigator at any level. Sotomayor was an ADA in NYC for 4 or five years and I assume tried some crim cases. No appellate work. Gorsuch had some trial experience and was on the committee that advises on the federal rules for several years. He was in private practice long enough that he may well have appellate experience in state court.

        I think it is no coincidence that working attorneys like the opinions of Roberts and Kagan regardless of what they are – because the two of them remember the working attorney’s desire for clarity and bright lines, where possible. RBG wrote clearly as did her mentor, SDO’C, but both of them were so content in their opinions being limited [admittedly Roberts does this too] that sometimes they added little to what was the body of law, having confined their writing to the facts of the case at hand. Again, Roberts does this too. RBG’s dissents, like Scalia’s, were more flamboyant than her opinions, as they were intended for Congress in many cases.


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