Morning Report: Mortgage banks report losses in the third quarter

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S&P futures3,963-10.25
Oil (WTI)77.35-3.02
10 year government bond yield 3.77%
30 year fixed rate mortgage 6.61%

Stocks are lower this morning on no real news. Bonds and MBS are flat.

We should have a quiet week with the Thanksgiving holiday and limited economic data. In terms of data, Wednesday will be the big day with durable goods, new home sales and consumer sentiment. We also get the FOMC minutes on Wednesday as well. Markets will be closed on Thursday and the bond market will close early on Friday.

Most mortgage banks reported a net loss during the third quarter, according to data from the Mortgage Bankers Association. The average loss was about $624 and was due to both declining revenues and rising costs. “The average pre-tax net production income per loan reached its lowest level since the inception of MBA’s report in 2008, which is sobering news given that the third quarter is historically the strongest quarter of the year,” said Marina Walsh, CMB, MBA Vice President of Industry Analysis. “The industry continues to struggle with a perfect storm of lower production volume and revenues and escalating production costs, which for the first time exceed $11,000 per loan.”

Servicing net income fell to $102. Servicing valuations have probably peaked, and there are more sellers than buyers as mortgage bankers try to sell servicing portfolios to increase liquidity. One of the facts of life about illiquid markets (and servicing is one of those) is that everyone is usually on the same side of the boat. The prepay effect is already played out and delinquencies are only going to rise as we head into a recession.

The Chicago Fed National Activity Index slipped in October as three of the four big categories – production, employment and sales – negatively contributed to the index. Only consumption was positive. The CFNAI is sort of a meta-index of a bunch of disparate economic reports, and it is saying that the economy is growing slightly below trend.

Interestingly, the Atlanta Fed GDP Now index (which is probably just a model based on a meta index similar to CFNAI) sees the economy growing at over 4% in the fourth quarter which would be well above trend.

The Wall Street Journal has a good piece that puts the current tightening cycle into perspective. The steady diet of 75 basis point increases is the most dramatic since the early 1980s and the full impact of those hikes have yet to be felt.

The increase in mortgage rates is also the biggest since the early 80s. For the housing sector, rates started inching up before the Fed actually started tightening.

24 Responses

  1. Interesting read. Seems like this sort of CEO was from a long time ago now, vs today’s social media drama.

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    • I will always remember Jack Welch for being the first CEO to play the analyst expectations game, and sandbag the Street enough such that GE’s earnings always beat the Street by a penny per share.

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  2. This should be good:

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  3. For those who don’t have Disney+ on principle, the first two episodes of Andor are being shown on ABC this Wednesday, 11/23 at 9:00 PM.

    Highly recommended.

    https://www.hollywoodreporter.com/tv/tv-news/andor-disney-star-wars-abc-hulu-fx-release-1235261390/

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    • Yeah I’m not watching Disney Star Wars on principle.

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      • you’re missing out.
        Andor is great.
        Obi-wan was okay.
        Mandalorian is excellent.

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      • What principle is that if you can watch it for free?

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        • KW:

          What principle is that if you can watch it for free?

          Presumably the principle of not contributing to ABC/Disney’s financial interests. I presume there will be commercials, and ABC/Disney expects to make money putting it on commercial TV.

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        • Presumably the principle of not contributing to ABC/Disney’s financial interests.

          I refuse to watch TV or attend movies for that exact reason. The only TV I watch is when I am on the treadmill and I’ll put some game on with the volume off.

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        • “What principle is that if you can watch it for free?”

          I’m just done, probably forever. Would take a lot to get me interested enough to invest my time in something Star Wars again. And generally done with Disney. IMO the folks who run the company spend all their time shitting on Walt’s legacy and everything I ever loved about Disney, so unless they all end up getting the boot, I’m done.

          We were in Florida this summer, and I had promised the kids to take them to Disney World (Magic Kingdom). I had no interest in it, and had done no pre-planning, and it turned out I should have reserved tickets a month in advance in the post-COVID era. But I could get them in Animal Kingdom, so I dropped them off and picked them up. Which, for me, is a big deal, because I loved Disney World twice as much as I loved Disney generally, and loved Disney as much as that Vox writer loved Twitter. But I had no interesting in dropping cash for me to go feel melancholy and resentful in Animal Kingdom. No, I didn’t want to give Disney any of my money, but even if it had been free I would have dropped off my kids and skipped it myself.

          It’d be like walking through your old beloved house that you now knew was owned by some evil landlord who planned to tear it down to build a concentration camp for boyscouts and church volunteers. It may be mostly the same place, but knowing the people who run it hate me and everyone like me, and actually kind of hate Walt Disney . . . can’t frackin’ enjoy it. So what’s the point?

          So that’s my absolutist objection. To watching Andor, after everything they’ve done to Star Wars . . . I’m just not interested. I’m the same place with Marvel. There are movies I’d kind of like to see, except them being from Disney, but remove the Disney element and the quality of the Marvel movies and TV shows that I have seen has been so low . . . just have a hard time actually being interested. When I heard there was almost no multiverse in Dr. Strange and the Multiverse of madness, I thought to myself: of course there wasn’t. It’s just the title of the movie and that’s what everybody who is coming to the movie wants to see. When I heard there was no Black Panther in Wakanda Forever, I thought: of course there’s not, why would they put Black Panther in the sequel to Black Panther?

          When I hear that they are going to have Indiana Jones go back in time, and then the young version of him sacrifices himself to save the new Woman Who Will Be Indiana Jones, and then you see a montage of all the previous Indiana Jones movies with her replacing Harrison Ford . . . I know that’s not going to happen, but I’m thinking that’s an intentional leak in order to soften the inevitable Strong, Stunning and Brave Woman to Carry on Legacy of Indiana Jones that is going to be happening. Although frankly Kingdom of the Crystal Skull pretty much killed any future Indiana Jones for me years ago.

          Maybe one day. I was done with Star Wars at the end of Revenge of the Sith. I was very much over it. Then Disney bought Lucasfilm and announced a new Star Wars movie with the original cast and I let myself get excited. Then after TFA never brought Han, Leia, Luke and Chewie together for one scene, and even though they killed Han in a very stupid way, and even though there was no Luke Skywalker in it when that was the biggest promise of new movies, and even though Rey started acting like she had seen Star Wars and could quote the lines . . . I thought maybe it will get better. There were parts I didn’t hate.

          And then there was TLJ, my worse cinema experience of my life. It cost me over $100 to see the film (having to take family, buy stuff) and after I would have rather taken that money and set it on fire or paid someone to punch me in the face. I hated that movie up and down, left and right. I never saw Rise of Skywalker but from what I’ve heard, things didn’t get better. In any case when I heard Colin Treverrow bailed from directing Rise of Skywalker because Leia had been a key part of his script, and when Carrie Fisher died he had begged Rian Johnson and Kathleen Kennedy not to kill off Luke and they refused . . . that just tainted it further. I’m not going to say you couldn’t pay me to watch Rise of Skywalker, because you could, but it would need to be at least a grand.

          I did try the Mandalorian, Season 1 and 2 and then Gina Caranno got fired by Disney for saying people should be nice to each other, because being mean can lead to bad things like Hitler. And that was it for me and Disney+. I canceled D+ same day, squeezed in Wandavision before my subscription expired, and it wasn’t horrible, but it wasn’t very good, IMO. I didn’t feel like I was going to be missing anything.

          And other news out of Disney since has not inspired me to want to give them any more money or spend any more time on them, except to complain, like I am now.

          If things change and people I trust on entertainment swear up and down they’ve got their shit together (and at present I’m thinking mostly of critics who dislike modern Disney Star Wars and Marvel as much as I do) then I might dip a toe back in again. Otherwise no.

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        • Ok. Andor’s still great though. If you liked Rogue One, you will like Andor.

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        • Rogue one was fine but I’ve had enough of Disney. I’m glad they’ve made something that doesn’t shit all over the things I grew up loving, but they’ve done that enough that it’s kind of tainted my experience of anything they might accidentally get right.

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    • “Taliban Quits Twitter To Protest Return Of Trump”

      https://babylonbee.com/news/taliban-quits-twitter-to-protest-trumps-reinstatement

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    • This is great:

      “Turkey Denied Presidential Pardon After Photos Emerge Of It Attending January 6”

      https://babylonbee.com/news/turkey-denied-presidential-pardon-after-photos-emerge-of-it-attending-jan-6-riot

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    • Vox is unironic:

      “The weird sorrow of losing Twitter

      Grieving a loss, when the loss is the hell-bird site you weren’t supposed to love.

      By Aja Romano
      Nov 22, 2022, 7:30am EST”

      https://www.vox.com/culture/2022/11/22/23466381/leaving-twitter-saying-goodbye-social-media

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      • Having Trump, Jordan Peterson and the Babylon Bee back on Twitter is going to do all that?

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      • If only Elon Musk would purchase Vox and fire everybody.

        “On the evening of November 17, news reports swept across Twitter that the platform had lost so many employees it likely no longer had the people behind it to keep its most vital services running. To commemorate the occasion — not unlike violins on the Titanic — longtime internet culture reporters Katie Notopoulos and Ryan Broderick hosted a massive Twitter space to discuss the demise of the service.”

        Except for millions of more active users and millions of more Tweets than a few weeks ago, Twitter is working fine. What do they base their assumption that Twitter will just “stop working”, except on the fact Elon Musk got a lot of people out of Twitter, one way or another, who didn’t work on the core product. Must has actually rolled out more new features and fixed some buggy ones (or he has gotten that to happen) in the space of two weeks, more than I think Twitter managed to do in the past two years.

        “At publish time, Twitter had yet to splutter to a stop, and it’s not a given that it will shut down.”

        “At publish time.” Christ, it’s not going to splutter to a stop. If something goes wrong, it will likely be up again in no time. But Twitter could run indefinitely with nobody working on it. Anything that large has lots of failover and a quick scripted path to bring more failover on line. The lion’s share of keeping Twitter online is server maintenance and monitoring, network monitoring–almost all of which is done by AWS, I expect, not anybody at Twitter.

        “Still, the changes made by new owner Elon Musk — both structural (like firing thousands of employees) and cultural (like breaking the verification system, reinstating banned users, and reinstating former President Donald Trump) — have contributed to a feeling that something has fundamentally changed.”

        He sounds like a Brit soldier concerned over the fate of the British crown, now that the yanks had won the Revolution.

        “while a 2015 study of digital emotions (albeit one conducted by Twitter’s marketing team)”

        An Elon probably fired most of them. It’s doomed, I tell you.

        “Even solely in terms of its content, the loss of Twitter as an archive feels overwhelming to contemplate.”

        Also a waste of time because that’s nowhere near happening. In fact, with all the restored accounts there’s more access to it as an archive than ever.

        “And yet, if any internet space deserves our sincere respect, it’s Twitter, which has functioned more like a “real” public square than any other social media platform”

        I think this is right, because a public square would likely be policed, people spouting things offensive to the local churchladies would like be carted off to jail, people might get banned for life … well, the metaphor breaks down, but basically it was a public square that kept the riff-raff out, the riff-raff being people who disagreed effectively with leftists.

        “There’s nothing like Twitter, nor will there ever be again.”

        The writer of this has serious mental health problems.

        “The worst thing about Musk’s gutting of Twitter is that if it really collapses, whole communities will be uprooted and displaced.” — She says, clearly wanting it to happen, so it illustrates that Musk is truly a monster.

        “For groups that gather across language barriers, the loss of Twitter’s easy “translate tweet” button means further separation from people who share your interests, if not your native tongue.”

        This is something any social media site that doesn’t have it could implement in a day.

        “Even if Twitter doesn’t collapse, it is changing, and you will likely lose friends, content, and the ability to retrieve memories”

        The only way you won’t be able to “retrieve memories” is if you delete your account, yourself. You’d have to actively nuke your own account. Musk isn’t looking through Twitter accounts to see whose memories he wants to delete.

        “After all, we, the end users … We were right there — we still are there — doomscrolling the wretched bird app until the end”

        Yes, but “We the end users” — that is her and 1.6 million people who weren’t using Twitter two weeks ago. And 50 million people who weren’t using Twitter this time last year. I don’t know if Musk is going to make Twitter profitable, but I do know she’s going to be doomscrolling for a very long time.

        “It’s that the people who destroyed it won’t consider it a loss at all.”

        I’m think “destroyed” in this context means “let some people I could block and mute if I wanted to back on the platform when I don’t think they should get to use Twitter with me an my special friends”.

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        • Honestly, I have never loved anything like these people love Twitter. Yeah, I’m a bit of a sociopath with limited capacity for love, but still.

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        • I’ve transferred my irrational lefty-journalist-love-of-Twitter-level love that I once had for Disney and Disney World and transferred it to travel generally. And I gotta say I probably love just getting out of town, going to a nice little resort we’ve booked in some rural part of Arkansas or the Wyndham in Nashville or out in Helen, Georgia, or Lake Lure, NC or Myrtle Beach . . . or out near Branson . . . or the actual physical location of the time-share we are always exchanging, Treetops in Gatlinburg . . . anyway, love that stuff about as much as these folks love Twitter, would be just as sad and mad as they are about Twitter if Elon Musk bought all vacation property and closed it.

          And I don’t travel but two or three times a year (less, during COVID, obviously) so it’s always special and *usually* a great experience, better than anything else is going to be during the year. But the infrequency makes it special and I get the most out of it I possibly can.

          Twitter is constant for those people. They smoke it like a non-stop chimney with a carton-a-day habit. They love their addiction. Or they’re just addicted and freaking out now that someone might take their favorite brand of social media vodka off the shelves and replace it was non-alcoholic IPAs.

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        • When I was a kid my family did a lot of camping on the weekends and over the summer. We had a boat so we’d be at a lake or at the ocean in Mexico. I’ve travelled all over Arizona and Sonora and Baja, Mexico and I think about it often even 45 years later. I hope when I retire I can get an RV or just a tent and a sleeping bag and do it again. Sounds like there is a lot of great places to see in Tennessee. Because of work Ive spent some time in Central Arkansas and am stunned at how pretty it is. Little Rock is also very pretty. Heck, Northern Florida is great. There is so much to see in this country. I guess my point is, you’re right. My favorite way to do it is by car.

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        • Eastern Tennessee is the bomb, like a lot of NC around the Smokeys. I’m in love with rural Arkansas. Stayed in Fairfield and Horseshoe Bend. Love small towns. When we were in Horseshoe Bend we went to a mom and pop theater in a strip mall where pops was selling tickets and mom worked the concession stand. Ran across a fancy millenial coffee place with lots of weird and dairy-free drinks, very hip place for middle of nowhere Arkansas. The Wal-Mart had a whole section of deer heads and antler decorations for sale. Almost got my car stuck because the GPS tools onto dirt trails that were clearly for ATVs.

          But out west is also on our future travel list. I went out west when I was 4 or 5 and again when I was 7 and that was the last time. We may rent an RV and do that in 5 or 10 years.

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