Morning Report – Subprime is back 2/26/14

Posted on February 26, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1849.0 2.7 0.15%
Eurostoxx Index 3142.2 -15.3 -0.48%
Oil (WTI) 102.4 0.6 0.55%
LIBOR 0.233 0.000 -0.13%
US Dollar Index (DXY) 80.29 0.150 0.19%
10 Year Govt Bond Yield 2.71% 0.01%
Current Coupon Ginnie Mae TBA 105.8 0.0
Current Coupon Fannie Mae TBA 104.5 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.3
Markets are higher this morning on no real news. Mortgage Applications fell 8.5% last week. Both purchase and refi apps fell. We will get new home sales at 10:00am
Toll Brothers didn’t have anything earth shattering to say on its earnings conference call, but here are some bullet points: Remember, Toll is in the McMansion business so they will outperform in places with strong economies (DC / Texas) or quality of life (California).
  • Consumer Confidence still “a bit fragile”
  • Company is “a bit stumped by low demand”
  • Texas and California sales are “fabulous”
  • Minnesota is slow, Virginia is stronger than Maryland
  • Toll will be more careful about raising prices this year
  • Construction costs rose $1,700 per home in quarter
  • Incentives fell
  • Toll will slow land buying over the next 12-18 months
Fun fact: the average size of a new home has increased 300 square feet from 2009 to 2013. This is part of the reason we have been seeing such growth in average selling prices from the builders and why you shouldn’t automatically assume existing homes will see similar appreciation. Funny, I thought the end of the real estate boom was supposed to close the curtain on gaudy oversized McMansions. Guess not.
Cool slideshow on the housing boom and bust.
Annaly Capital reported earnings yesterday, which came in better than expected. The company continues to de-leverage, and has been swapping out of RMBS into CMBS. Leverage dropped to 5:1 from 5.4:1 in Q3 and 6.5:1 a year ago. The company is primarily invested in agency fixed rate MBS. Annaly’s activity affects TBA pricing which in turn affects mortgage rates, so it pays to keep tabs on what the big agency REITs are doing. As the Fed reduces their footprint in the MBS market, the REITs will dominate again.
Hey interested in a no-money down mortgage with no credit score check and a rate under 4%? Bank of America has funded a non-profit lender who wants rekindle the subprime market for “underserved” communities. (I guess no-no loans under 4% would probably be money-losers, so the “non-profit” label is a bit superfluous). Will the CFPB come after them given that roughly 15% of the loans would not meet QM standards? Looks like we have the first lender to stick their neck out of the QM box… Not sure why BOA would fund such a thing, (they get no upside and all the downside) unless they get CRA points for it. FWIW, the guy behind this (Bruce Marks) is a CRA bomb-thrower going way back, so maybe figured out a way to extort BOA into giving him money to do this by threatening protests in front of their branches if they didn’t.

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Morning Report – Home Price Appreciation is moderating 2/25/14

Posted on February 25, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1844.2 -1.7 -0.09%
Eurostoxx Index 3145.9 -11.4 -0.36%
Oil (WTI) 101.6 -1.2 -1.20%
LIBOR 0.234 -0.001 -0.32%
US Dollar Index (DXY) 80.08 -0.119 -0.15%
10 Year Govt Bond Yield 2.72% -0.02%
Current Coupon Ginnie Mae TBA 105.5 0.0
Current Coupon Fannie Mae TBA 104.4 0.2
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.35
Markets are lower this morning on no major news. We had earnings from the Despot and Toll, who both reported better than expected numbers. Later on today, we will get numbers from mortgage REIT giant Annaly.
Case-Shiller reported home prices increased 13.42% year-over-year, while FHFA reported prices were up 7.7%. The FHFA index only looks at sales with a conforming mortgage so that accounts for the difference between the two indices. Case-Shiller includes distressed (cash only) sales as well as luxury sales. They noted that the month-over-month increases have been declining, signalling that momentum is starting to fall. That said, mid teens price appreciation is simply an unsustainable pace and a slowdown was inevitable.
McMansion builder Toll Brothers reported better than expected first quarter earnings with deliveries up 52% in dollars and 24% in units. Contracts however have slowed – they only rose 14% in dollars and dropped 6% in units. Toll is beginning to have some tough comps so the numbers will moderate a bit. Weather was a factor again, as roughly half of their business is in the Northeast, Mid-Atlantic and Midwest. Toll is optimistic on the spring selling season, which has been echoed by other builders like Horton and Pulte.
The hits keep coming… JPM is cutting 8,000 jobs in consumer and mortgage banking. Dimon said that JP Morgan sets goal of “fortress” compliance / control environment. That choice of words encapsulates the current relationship between regulators and the regulated perfectly.
John Boehner travels to the White House for a rare meeting with Obama. (the last one was in 2012). I am sure the subject will be the minimum wage and immigration reform which are contentious subjects to say the least. Obama intends to go hyper-partisan into 2014, and his budget was basically a left-wing wish list, so I don’t know what he intends to accomplish here, except to add a talking point that he met with House Republicans leaders and couldn’t get anywhere with them.

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Morning Report – upcoming earnings and data 2/24/14

Posted on February 24, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1838.0 3.7 0.20%
Eurostoxx Index 3137.6 6.0 0.19%
Oil (WTI) 102.5 0.3 0.29%
LIBOR 0.234 -0.001 -0.21%
US Dollar Index (DXY) 80.28 0.045 0.06%
10 Year Govt Bond Yield 2.73% 0.00%
Current Coupon Ginnie Mae TBA 105.5 0.1
Current Coupon Fannie Mae TBA 104.2 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.35
Markets are higher this morning on no real news. Bonds and MBS are flat.
This week contains some important economic data, starting with the real estate price indices Case Shiller and FHFA. Wednesday, we will get new home sales. Thursday we get durable goods orders, and Friday is the second revision to Q4 GDP. The Street is forecasting a big revision downward – the advance estimate of Q4 GDP came in at +3.2%; The forecast for the second estimate is 2.5%.
This week contains a lot of earnings reports which are related to the real estate business. We will hear from big box home improvement retailers Lowe’s and The Despot, Agency MBS REIT giant Annaly, luxury builder Toll Brothers, and servicing biggies Ocwen and Nationstar. It will be interesting to see if management of NSM or OCN weighs in on the latest hostilities out of Washington or steers clear.
Ally (ex-GMAC) is planning to go public in March and hopefully give the government an exit from their position. The government owns 37% and is expected to be the only one selling. As of now, it seems like they are sticking with the auto loan business, but we’ll see if they get back into resi lending.
Good article on why the current housing weakness my be temporary.

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Morning Report – Is the REO-to-Rental trade played out? 2/21/14

Posted on February 21, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1838.3 2.1 0.11%
Eurostoxx Index 3122.8 1.3 0.04%
Oil (WTI) 102.4 -0.3 -0.34%
LIBOR 0.235 -0.001 -0.32%
US Dollar Index (DXY) 80.36 0.076 0.09%
10 Year Govt Bond Yield 2.77% 0.02%
Current Coupon Ginnie Mae TBA 105.4 0.0
Current Coupon Fannie Mae TBA 103.9 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.35
Markets are up small this morning on no real news. Bond and MBS are down. HP’s earnings beat consensus. Nat Gas continues to move higher based on forecasts of another polar vortex to hit next week. Nat Gas is up 36% over the past two weeks.
Fannie Mae posted a profit for the fourth quarter and will distribute $7.2 billion to Treasury. At this point, Fannie Mae has sent Treasury $121 billion, more than the $116 billion in aid it has received. The stock continues to climb, but emails have shown that the Obama Administration has no intention of letting the common shareholders have anything. So why do the common shareholders still exist? Because as long as the government holds under 80% of the company (they hold 79.9%), Fannie Mae’s debt doesn’t get consolidated on the government’s balance sheet (which incidentally was the reason why LBJ spun out a piece of Fannie Mae in the first place – so that Fannie Debt is not counted as sovereign debt. Of course the Obama Administration will have to deal with court cases from Perry and Fairholme so the Administration’s edict is not necessarily the last word.
The MBA just released fourth quarter delinquency and foreclosure data. The delinquency rate for 1-4 family homes was 6.39% in the fourth quarter, a drop of 2 bps from the 3rd quarter and 70 bps from a year ago. The foreclosure inventory was 2.86%, the lowest since 2008. The remaining inventory is concentrated in the judicial states on NY, NJ, CT, FL, IL.
Investors are beginning to focus more on buying distressed mortgages as a cheap way to secure property as the supply of foreclosed inventory has shriveled up, at least out West. Blackstone is beginning to wind down the amount of additional capital they are putting in the business. As I said yesterday, given that the big price increases are probably in the past and forecasts are predicting a more normal mid-single digit price appreciation pace going forward, the returns in this business today look a lot different than they did two years ago. When the smart early entrants are starting to eye the exit, you know the trade is getting played out.
The government regulators have trained their sights on the non-bank servicers which is evident from the stock prices of Ocwen and Nationstar. Ocwen’s sale of bonds tied to MSRs raised less than expected. New York has placed an indefinite hold on Ocwen’s purchase of a Wells MSR portfolio. The CFPB also gave a tongue-lashing to the industry at a MBA conference. So, while the servicers should have an interest rate wind at their backs, the regulators are dominating the news flow, which has put a damper on valuations.

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Morning Report – Some housing affordability numbers 2/20/14

Posted on February 20, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1828.6 3.1 0.17%
Eurostoxx Index 3095.7 -25.2 -0.81%
Oil (WTI) 103.3 0.0 -0.01%
LIBOR 0.236 0.002 0.86%
US Dollar Index (DXY) 80.22 0.080 0.10%
10 Year Govt Bond Yield 2.75% 0.01%
Current Coupon Ginnie Mae TBA 105.4 -0.1
Current Coupon Fannie Mae TBA 104.1 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.31
Markets are higher this morning on no real news. Inflation at the consumer level and initial Jobless Claims came in as expected. Bonds and MBS are down small.
The latest CoreLogic Market Pulse is out, and it has some really good stuff on the state of the first time homebuyer. The rise in real estate prices (especially on the coasts) has hit first time homebuyers harder than existing homebuyers (in other words, buyers who currently own a home). Existing homeowners aren’t as affected by increasing home prices because they have equity in their existing home. First time homebuyers do not. Of course, historically housing remains very affordable.

CoreLogic also has a piece on the new rental boom, and whether we are experiencing a new age in the single family rental market. We have seen a massive conversion of single family homes into rentals as professional investors have scooped up distressed properties and put them out for rent. Certainly the demand for rental housing has been somewhat driven by a lousy economy, and lousy economies don’t last forever. On the supply side, don’t forget that professional investors are driven by the economics of a trade going forward, and the potential returns from single family rentals may look a lot different today as the easy money in distressed properties has already been made and future home price appreciation may be harder to come by. For the first time homebuyer, the buy vs rent decision is still almost as skewed towards buying as it has ever been:

If professional investors begin to let some of their rental property go (and given the tight inventory, they would be wise to) we will begin to see some of this property absorbed by “real” buyers – in other words, buyers with a mortgage. This will be the next big change in the mortgage banking industry – the exit of cash-only buyers and the return of a more normal mix of cash buyers vs buyers with a mortgage.

Following on this, tomorrow we will get existing home sales, which is expected to come in around 4.7 million. In normal times, that number is over 5 million and during booms it will approach 7 million. The thing to keep in mind however is that cash sales represent 40% – 50% of all transactions right now, while historically, that number is closer to 20%. In terms of “gettable” business right now, 55% of 4.7 million homes is about 2.6 million purchase mortgages. If we get back to a normal cash / mortgage ratio of 20%, that number becomes 3.8 million, an increase of 46%. And if we get back to historical existing home sales numbers, it become goes above 4 million. As a purchase shop, we are in a good position to pick up that incremental business.

So LOs, this lousy environment too shall pass. Better days lie ahead, even if the refi boom doesn’t return.

Filed under: Morning Report | 41 Comments »

Morning Report – Housing Starts buried by snow 2/18/14

Posted on February 19, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1832.3 -5.1 -0.28%
Eurostoxx Index 3111.5 -6.0 -0.19%
Oil (WTI) 102.7 0.3 0.24%
LIBOR 0.234 -0.001 -0.41%
US Dollar Index (DXY) 80.08 0.067 0.08%
10 Year Govt Bond Yield 2.68% -0.03%
Current Coupon Ginnie Mae TBA 105.7 0.1
Current Coupon Fannie Mae TBA 104.5 0.3
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.32
Stocks are lower this morning after a weak housing starts number. Bonds and MBS are benefiting from the riots in Ukraine. Mortgage applications fell 4% last week. Inflation at the wholesale level remains under control.
January housing starts came in at 880k, well below the 950k forecast. December was revised upward by 50k. Bad weather certainly played a part, and the low number would be consistent with the weak homebuilder sentiment number yesterday.
Bad weather doesn’t account for the entire drop in homebuilder sentiment – a shortage of lots, rising materials prices, and a dearth of skilled labor contribute to the problem. Many skilled construction workers left the industry after the collapse and went to work in the energy patch. Interesting fact: The average age of a mason in Texas is over 60. Apparently wages have increased 50%.
Later on today we will get the FOMC minutes. Don’t expect anything market moving in there, but you never know. While the dovish tilt of the Chair remains in place, we picked up some more hawkish members. New voting member Charles Plosser is in favor of ending QE ASAP.
Servicers are coming under closer scrutiny. We saw NY State block a MSR deal between Wells and Ocwen. Consumer Advocates are criticizing servicers for not modding enough loans (as if more mods are more better).

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Morning Report – Economists are taking up their numbers for 2014 GDP 2/18/14

Posted on February 18, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1835.2 0.2 0.01%
Eurostoxx Index 3115.1 -3.8 -0.12%
Oil (WTI) 101.4 1.1 1.09%
LIBOR 0.235 -0.001 -0.23%
US Dollar Index (DXY) 80.08 -0.053 -0.07%
10 Year Govt Bond Yield 2.73% -0.01%
Current Coupon Ginnie Mae TBA 105.8 0.0
Current Coupon Fannie Mae TBA 104.2 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.33
Markets are flat coming off a 3 day weekend. Bonds and MBS are up small. The Empire Manufacturing Survey came in lower than expected. We also have a big merger in the pharma space with Forest Labs buying UK-based Actavis.
We should get the FOMC minutes this week, but judging by the way the market behaved after the FOMC decision, it should be a yawner. Plus, we just had Janet Yellen in front of Congress last week so I can’t really imagine much coming out of the minutes that wasn’t already addressed there.
This week will have some interesting housing-related data, but nothing much that should move markets or create rate volatility. We have inflation numbers this week, but the Fed isn’t really concerned about inflation these days. On Thursday, we get housing starts and building permits, and on Friday existing home sales and leading economic indicators.
The Philly Fed has put out a projection of economic forecasts based on a survey of professional economists. 2014 GDP forecasts have been taken up from 2.6% to 2.8% and unemployment has been taken down from 7% to 6.5%. They are forecasting a 5.5% to 6% increase in home prices for 2014.

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Morning Report – blame the weather 2/14/14

Posted on February 14, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1828.2 3.9 0.21%
Eurostoxx Index 3114.2 16.3 0.53%
Oil (WTI) 99.73 -0.6 -0.62%
LIBOR 0.236 0.000 0.00%
US Dollar Index (DXY) 80.2 -0.124 -0.15%
10 Year Govt Bond Yield 2.74% 0.01%
Current Coupon Ginnie Mae TBA 106 -0.2
Current Coupon Fannie Mae TBA 104.3 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.27
Markets are higher in spite of some disappointing manufacturing data this morning. Bonds and MBS are flat. We are headed into a 3 day weekend, so volumes should be somewhat light.
Industrial Production and Manufacturing Production came in well below estimates, and capacity utilization dropped by 80 bps, a huge amount. Weather seems to have been the culprit so that is why the market is shrugging off the numbers.
Consumer confidence came in unch’d for February.
The spring selling season is off to a slow start, according to Redfin. FWIW, the homebuilders are reporting exactly the opposite.

Filed under: Morning Report | 125 Comments »

Morning Report – Snowmageddon issue 2/13/14

Posted on February 13, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1812.7 -4.4 -0.24%
Eurostoxx Index 3074.2 -20.7 -0.67%
Oil (WTI) 100.2 -0.1 -0.14%
LIBOR 0.236 0.000 -0.11%
US Dollar Index (DXY) 80.33 -0.347 -0.43%
10 Year Govt Bond Yield 2.74% -0.02%
Current Coupon Ginnie Mae TBA 106 0.3
Current Coupon Fannie Mae TBA 104.5 0.3
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.28
Markets are lower this morning after a lousy retail sales number. Bonds and MBS are up small. Initial Jobless Claims came in at 339k.
Another major snowstorm has hit the New York area today, so expect volumes to be on the light side and rates to be a little more volatile than normal.
The low retail sales number was based on bad weather, so it might be tough to read too much into it.
Big merger in the cable TV space – Comcast is buying Time Warner cor $45 billion. Gives the arbs something to chew on for a while. And brings the NFL network to the New York area.
Delinquencies continue to drop. According to TransUnion, only 3.85% of mortgages were 60 days down, the lowest in 6 years.
In a true “man bites dog” situation, Ralph Nader is contesting the effective nationalization of Fannie and Freddie. Just before the companies started generating cash, the WH changed the rules and decreed that all funds must flow to Treasury and that they would not count as “debt repayment.” In other words, they nationalized the company without taking the existing shareholders out. The fate now resides in the courts.

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Morning Report – “Viligant” Janet data dump 2/12/14

Posted on February 12, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1818.5 4.9 0.27%
Eurostoxx Index 3098.2 21.1 0.69%
Oil (WTI) 101.1 1.2 1.19%
LIBOR 0.236 -0.001 -0.21%
US Dollar Index (DXY) 80.8 0.166 0.21%
10 Year Govt Bond Yield 2.75% 0.03%
Current Coupon Ginnie Mae TBA 105.9 0.0
Current Coupon Fannie Mae TBA 104.3 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.25
Markets are stronger this morning on no real news. Bonds and MBS are down. Stocks loved the Yellen testimony yesterday, bonds not so much..
Janet Yellen’s testimony was pretty much as expected. She is a primary architect of the Fed’s current course of action, so it makes sense she will pretty much continue with doing what they have been doing. Her Congressional testimony had few interesting tidbits, although she is pretty unconcerned about the debt. According to her, it should become an issue in about 30 years. She also sees no bubbles right now (of course when has the Fed ever seen bubbles until after it is too late?). She also made a comment regarding the decline in the labor force participation rate – saying that some of it is structural. So, once unemployment hits their target, the Fed may not wait for the labor force participation rate to return to pre-recession levels because in their minds, it won’t.
Maxine Waters praised Janet for her “viligance.”
Mortgage applications fell 2% last week, which is disappointing given that rates fell a couple basis points. Both purchases and refis fell, but purchases fell the most.
The House passed a clean debt limit bill, so that takes the risk of another debt ceiling hike off the table. Separately, the House is working on a bill to clip CFPB’s wings a little, and subject it to some sort of Congressional oversight.

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