Morning Report: Bank earnings better than expected

Vital Statistics:

  Last Change
S&P futures 3510 5.6
Oil (WTI) 40.82 0.79
10 year government bond yield   0.72%
30 year fixed rate mortgage   2.91%

Stocks are flattish this morning as stimulus talks fizzle. Bonds and MBS are up.

The big banks are all reporting this week and the takeaway is that loan loss provisioning is much lower than expected. The new CECL format which was instituted this year could be playing a part, but it looks like loan performance is stronger than people anticipated.

Mortgage Applications fell 0.7% last week as purchases fell 2% and refis fell 0.3%. “Mortgage applications for refinances and home purchases both decreased slightly last week, despite the 30-year fixed mortgage rate declining to a new MBA survey low of 3.00 percent,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “Applications for government mortgages offset some of the overall decline by increasing 3 percent, driven by a solid gain in government purchase applications and an 11 percent jump in VA refinance applications.”

United Wholesale reported that it closed over $54 billion in loans in the third quarter, up 81% from a year ago. “This is our best quarter in the company’s 34 years, showing that borrowers are recognizing that independent mortgage brokers offer better rates, greater speed and deeper experience,” said Mat Ishbia, president and CEO of UWM. “I’m grateful to the over 6,800 team members whose commitment to superior service, together with our proprietary industry-leading technology, support the success of our broker clients by enabling them to offer a best-in-class borrower experience.”

Inflation at the wholesale level remains well below the Fed’s target. The Producer Price Index rose 0.4% MOM and 0.4% YOY.

Fed Vice Chairman Richard Clarida said that it may take a year for the economy to reach pre-COVID levels. “That said, the Covid-19 recession threw the economy into a very deep hole, and it will take some time, perhaps another year, for the level of GDP to fully recover to its previous 2019 peak,” the central bank official told the Institute of International Finance. “It will likely take even longer than that for the unemployment rate to return to a level consistent with our maximum-employment mandate.” That last statement means that rates are going nowhere for a while.

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