Morning Report: Rates fall again

Vital Statistics:

S&P futures4,2606.2
Oil (WTI)66.14-0.25
10 year government bond yield 1.14%
30 year fixed rate mortgage 3.00%

Stocks are rebounding this morning after yesterday’s bloodbath. Bonds and MBS are up again.

The drop in rates is a global phenomenon, based on fears of a COVID resurgence and a drop in growth. The German Bund is down to -43 basis points and the Japanese Government Bond is flirting with negative rates again. While global rates don’t correlate exactly, they do move together. Expect mortgage rates to lag the move, as MBS invariably wait for confirmation that the move in the 10-year is real.

The previous forecast of a rip-roaring second half of 2021 is getting off to a rough start. Note the Atlanta Fed’s GDP Now forecast for the second quarter has fallen again to 7.5%. As the Fed has constantly preached, the economy is going to be highly dependent on the course of COVID-19, and many of its forecasts were based on the assumption that we don’t see a resurgence in cases.

One thing that is sure to happen is that mortgage servicing right valuations are about to get softer as rates fall. Since many big lenders tend to use MSR income as a way to augment lower gain on sale income we should see a detente in the margin wars going on right now.

Speaking of servicing valuations, Ginnie Mae servicing is probably going to get whacked again. Why? Ginnie Mae is looking to limit the amount of servicing issuers can hold by introducing a risk-based capital weighting. It gets complicated, but they want to limit the GNMA servicing that an issue can hold relative to its net worth. This appears to be a direct shot at non-bank servicers, and the expected impact will be that many will have to sell off big parts of their GNMA book or raise equity capital.

This (along with falling rates) will probably depress GNMA servicing valuations (and probably servicing valuations across the board). GNMA burned its bridges with the big banks after the financial crisis and now they are contemplating this. If the government wants to increase FHA lending to help lower-income borrowers, this is an odd way of going about it.

Housing starts came in at 1.64 million in June, which was a touch above expectations. Building Permits were 1.6 million, which was somewhat below what the Street was looking for. While lumber prices have eased, labor shortages remain an issue for the industry.

Loans in forbearance fell to 3.5% of servicers’ portfolios last week, according to the MBA. “Forbearance exits edged up again last week and new forbearance requests dropped to their lowest level since last March, leading to the largest weekly drop in the forbearance share since last October and the 20th consecutive week of declines,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “The forbearance share decreased for every investor and servicer category.”

24 Responses

  1. Lol


    • I have always found it amusing that the party which resorts to using the administrative state, the courts, and ESG funds to advance things that could never be passed legislatively calls itself “democrats.”


    • To be fair, fleeing the state to deny a quorum is a bi-partisian tradition.

      Republicans in Oregon did it too.


    • You beat me to it! Was just about to post that one.


    • It’s awesome.

      “NPR has not run a piece critical of Democrats since Christ was a boy. Moreover, much like the New York Times editorial page (but somehow worse), the public news leader’s monomaniacal focus on “race and sexuality issues” has become an industry in-joke. For at least a year especially, listening to NPR has been like being pinned in wrestling beyond the three-count. Everything is about race or gender, and you can’t make it stop “


    • Perfect reader comment:

      “I gave up on NPR about 4 years ago now, when Terry Gross asked the author of a book about Jim Jones, the maniac killer of many of his pathetic followers, if he saw many similarities between Jones and Trump. And of course he did! Oh my God yes! came the gist of his immediate reply. Gross of course was delighted.

      That was the moment I realized that the Left, a group I’d previously belonged to, had genuinely gone mad.”


  2. Good piece. Another likely candidate for a paying subscription from me.

    “Welcome to Year Zero
    A Tentative Beginning in a Subdued Key

    Wesley Yang
    Jul 14”


    • From the comments: “ That said, I am actually more afraid of the reaction of the right. The trumpistas are busily altering election law state by state to give them the ability to declare themselves the winners, no matter what the actual votes are.”

      This remains one of the enabling factors for the rise of the Successor Ideology: the Gell-Man amnesia effect of believing the reportage on things like that while understanding that elsewhere the media is acting as a propaganda arm for the woke.

      I have yet to see reformed election law that doesn’t seem largely reasonable, nor have. Seen anything particularly novel that isn’t already the law in New York or Colorado— at least mostly.

      But I also haven’t seen (have not done a deep live) any election reforms from the right that appear to at all be in bad faith. Obviously there is a belief that verified voting and IDs and requiring people get out of bed to vote will benefit Republicans but I find it hard to argue any of the laws being advanced are being done with the intend to Ron people of their franchise specifically.


  3. Worth noting:


    • The left wants to criminalize dissent and opposition.


      • No doubt but I think is demonstrative of something else. Islamic terrorist plots were what the FBI was planning so they could disrupt them in the mid-2000s. Well into the Obama presidency. There was plenty of monitoring of “right wing” groups but no sign that I saw they were planning terrorist plots for them that they could later disrupt and issue a press release. Now there’s this (which they are continuing to try and get mileage out of) because the incentives are changing.

        I think the FBI is moving to where the money is. Disrupting an FBI planned Islamic terrorist plot (several a year) then issuing a press release was where the money was. Now there’s likely more money in “preventing” domestic terror. This kind of story might dampen their enthusiasm for the strategy … but where the demand for domestic terror plots far exceed the supply they will either have to make them up or try and get by on vague statements of “chatter” meaning some attack might be coming so they need more money.


    • There have been indications for years that this has been the case with many of the terrorist plots “disrupted” by the FBI. First thing I thought when I heard about it.


  4. It will be funny if Schumer ends up tanking the infrastructure deal:


  5. I suspect the Republicans will cave here, but it’s funny watching the Democrats argue that having to raise the debt ceiling by themselves is somehow unfair.

    “Republicans threaten to hold up debt ceiling days before deadline, raising potential for political showdown”

    “In 2021, the U.S. government is expected to spend $5.8 trillion and bring in $3.5 trillion in revenue, leaving a deficit of $2.3 trillion, according to the Congressional Budget Office.”

    And to think it wasn’t that long ago when the deficit was under $1 trillion per year.


  6. Tough to watch, but just keep reminding yourself….no more mean tweets!


    • I have to imagine that the only possible reason Biden’s handlers allow him to make public appearances is that they know the media is one of the team and will do its utmost to hide the decline.


      • That and they know that no one really pays attention to his appearances anyway.

        Not like he’s Trump and can command an audience.

        No one is lining up around the block and staying overnight to see Biden.


      • I’m sure there are debates about it, but an expectation that the press will be understanding and “fair”.

        If the press was overtly hostile to him, they’d just stop.


    • Not sure how this happens. I guess the Democrats capable of seeming mentally there–at least as a tactical matter, if not on policy–didn’t want to run for president. Seems like there’d have been many better choices. But maybe the pool of politicians willing to run for president has become pretty thin.


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