Morning Report – retail sales weak 09/13/13

Posted on September 13, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1684.9 -3.9 -0.23%
Eurostoxx Index 2858.6 -3.5 -0.12%
Oil (WTI) 107.6 -1.0 -0.89%
LIBOR 0.254 -0.001 -0.20%
US Dollar Index (DXY) 81.46 -0.030 -0.04%
10 Year Govt Bond Yield 2.88% -0.03%
Current Coupon Ginnie Mae TBA 103.7 0.0
Current Coupon Fannie Mae TBA 102.6 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.55
Markets are flattish on no real news. Bonds and MBS are up small. Liquidity should be light due to the Jewish holiday. Today is the last big data day before the FOMC meeting.
Mohammed El-Arian of PIMCO says the Fed is tapering to head off excessive risk taking. PIMCO is forecasting a “taper-lite” announcement of $10 billion in Treasuries, which would mean the Fed will continue to purchase MBS at its current rate. Given that foreigners have been net sellers of MBS and REITs have been de-leveraging (in other words, they have been net sellers too), it makes you wonder where the replacement for the Fed’s buying will come from. What does that mean for your average mortgage banker? If TBAs are weak (bond prices falling), then mortgage rates will be higher.
Twitter announced its IPO in 140 characters or less:  “We confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale.” Note that roughly half of the characters are legal disclaimer. Some things never change.
The Producer Price Index came in flat ex food and energy, showing that there is no inflation at the wholesale level. Inflation has been figuring into the Fed’s calculus for a while now, primarily on the downside. They desperately want to create a little inflation. 3% inflation and 3% wage growth feels a lot better to the average American than no inflation and no wage growth does.
Retail sales came in lower than expected, .2% on the headline number, and the same for the control group. Looks like back-to-school sales were disappointing, which bodes ill for the holiday shopping season. Since consumption is roughly 70% of the US economy, it doesn’t bode will for the 2H recovery we are supposed to be seeing according to Fed forecasts.
It will be Summers, at least according to the Nikkei newspaper. Supposedly this will be announced next week sometime. Summers would mean a quicker withdrawal of quantitative easing and a more vocal support of fiscal measures to stimulate the economy. The knives are out for Summers on the Left.

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Morning Report – Richard Cordray speaks to mortgage bankers 09/12/13

Posted on September 12, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1688.5 -0.3 -0.02%
Eurostoxx Index 2863.1 -0.3 -0.01%
Oil (WTI) 108.4 0.8 0.78%
LIBOR 0.254 0.000 0.00%
US Dollar Index (DXY) 81.64 0.126 0.15%
10 Year Govt Bond Yield 2.89% -0.03%
Current Coupon Ginnie Mae TBA 103.8 0.1
Current Coupon Fannie Mae TBA 102.5 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.56
Markets are flat this morning on no real news. Initial Jobless Claims printed below 300,000 for the first time since May 2007 on a technical glitch. Bonds and MBS are up small.
CFPB Chairman Richard Cordray spoke to a conference of mortgage lenders yesterday and told them that the new QM rules will give responsible lenders an advantage. One of the things he pointed out was that the CFPB intended to level the playing field between banks and non-banks (the banks are more highly regulated). Cordray stressed that the QM rules were intended to provide legal protection for lenders:  “You should keep this perspective in mind if you hear people dreaming up hypothetical factual disputes in an effort to sow anxiety about potential litigation,” he said.
Now that Richmond, CA has decided to go the eminent domain route, the court challenges begin. Blackrock, PIMCO, and other bondholders have asked a federal judge to halt the city’s plans to force bondholders to sell their mortgages at a discount to appraised value to a hedge fund that will modify and refinance the borrowers. The city will have to run the table on court challenges.
As the refi boom ends, banks are laying off people in their mortgage operations. J.P. Morgan is laying off 2,000, Bank of America is cutting 2,100 jobs, Wells has let 3,000 go… the list goes on. That said, while the MBA mortgage applications index fell by 13.5% last week, the purchase index fell by only 2.6%. As home price appreciation gives people equity in their homes, purchase transactions will undoubtedly increase as people can finally move. Existing home sales are just approaching historical norms of 5.5 million / year, but the difference is that 60% of these sales are cash, as estimated by Goldman Sachs. Pre-bubble, cash sales were about 20% of all sales. So, in the past, you were looking at an average 5.5 million run rate, with 80% non-cash (i.e. a mortgage), which meant roughly 4.4 million purchase mortgages a year. So far in 2013 we have averaged a 5 million run rate and with only 40% involving a mortgage, you are looking at 2 million purchase mortgages a year. In other words, purchase finance activity has to more than double just to reach normalcy. So while housing has recovered according to the home price indices and the sales volume indices, we are still in nuclear winter for the mortgage banking business. Negative equity is undoubtedly driving a lot of this, and as prices rise, this phenomenon will reverse.

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Morning Report – CA City decides to go the eminent domain route 09/11/13

Posted on September 11, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1681.2 -1.2 -0.07%
Eurostoxx Index 2858.5 7.1 0.25%
Oil (WTI) 107.6 0.2 0.18%
LIBOR 0.254 -0.002 -0.59%
US Dollar Index (DXY) 81.76 -0.059 -0.07%
10 Year Govt Bond Yield 2.94% -0.03%
Current Coupon Ginnie Mae TBA 103.3 1.0
Current Coupon Fannie Mae TBA 102.5 -0.2
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.58
Markets are flattish on no real news. Bonds and MBS are up small, which means that Syria wasn’t figuring in anyone’s market analysis.
Credit isn’t tight for everyone – Verizon just did a $49 billion bond offering at the 10 year + 225. Low interest rates – get ’em while they last. The issue is looking 2x oversubscrbed.
Negative equity took a dive in Q2, according to CoreLogic, with 2.5 million homes dropping below the 100% LTV mark. 7.1 million homes (or 14.5% of homes with a mortgage) still have negative equity. The average LTV of all homes with a mortgage is 62.5. They caution that the recent home price appreciation may not continue at the rapid pace we have been seeing over the past year.
Mortgage applications fell 13.5% last week, primarily due to the Labor Day holiday. Refis were down 20%, while purchases were down 2.6%.
Richmond CA has voted to go the eminent domain route. They intend to use the threat of eminent domain as a club to force lenders to sell the underlying loans at a deep discount to the city. SIFMA has already said that any locality that uses eminent domain will find loans originated in that locality to be ineligible for TBA trading, which makes them more or less unsecuritizable. The mayor is a Green Party Wall Street basher, so this could get interesting. For the hedge fund to be able to make money on this trade, they have to be able to buy the mortgages at a discount to appraised value, which will undoubtedly be a non-starter for the banks.

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Morning Report – Increasing employment / decreasing earnings?

Posted on September 10, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1680.0 10.9 0.65%
Eurostoxx Index 2843.9 45.6 1.63%
Oil (WTI) 107.4 -2.1 -1.96%
LIBOR 0.256 0.000 0.00%
US Dollar Index (DXY) 81.91 0.119 0.15%
10 Year Govt Bond Yield 2.96% 0.05%
Current Coupon Ginnie Mae TBA 103.2 -0.3
Current Coupon Fannie Mae TBA 102.6 -0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.56
Markets are higher on the possibility of a peaceful resolution to the Syrian crisis. Overnight, Syria has accepted a Russian framework of surrendering chemical weapons to international authorities. This has sent oil down and stock index futures up. Bonds and MBS are weaker
The NFIB Small Business Optimism Index came in at 94, a touch weaker than expected. Interestingly, the plans to increase employment increased 7 percentage points to a net 16%, however, earnings trends fell 13 points to -35%. So profitability is falling, but companies plan to increase headcount anyway? Surprising result. This survey also shows that while things are going well for the big cap S&P 500 names with international exposure, small businesses are still struggling.
Speaking of stock indices and struggling, the Dow Jones Industrial Average is making some changes. Out: Hewlett-Packard, Alcoa, and Bank of America. In: Goldman, Nike, Visa.
Higher interest rates are beginning to dampen people’s expectations for future home price appreciation, according to the latest Fannie Mae Housing Survey. The expected home price appreciation for the next 12 months has fallen to 3.4% in August from 3.9% in May.
The National Association of Homebuilders Improving Markets Index reached a record high in September as a total of 291 metro areas now qualify as improving markets. Here is a map of the improving areas:

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Morning Report – K-deals

Posted on September 9, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1657.2 3.7 0.22%
Eurostoxx Index 2788.8 -14.6 -0.52%
Oil (WTI) 110.1 -0.4 -0.40%
LIBOR 0.256 -0.001 -0.20%
US Dollar Index (DXY) 81.99 -0.160 -0.19%
10 Year Govt Bond Yield 2.88% -0.05%
Current Coupon Ginnie Mae TBA 103 3.1
Current Coupon Fannie Mae TBA 102.8 0.3
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.6
Slow news day. Markets are higher this morning on no real news. Bonds and MBS are up.
Now that the jobs report is out of the way, the markets will fret about the upcoming FOMC meeting for the next week and a half. The consensus seems to be that the Fed will make at least a symbolic reduction in asset purchases, and it will probably be Treasuries not MBS.
Are K-deals the future of residential loan securitization? Would future securitizations involve subordinate and mezzanine tranches? Essentially, a pool of mortgages would be cut up into a senior guaranteed tranche, which would resemble what we already have now, with Ginnie or GSE MBS. There would be a two additional tranches – a subordinate tranche which would bear the first losses on the pool, and then a mezzanine tranche which would bear losses after the sub piece is wiped out.

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Morning Report – Jobs day

Posted on September 6, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1659.7 6.7 0.41%
Eurostoxx Index 2779.6 5.4 0.19%
Oil (WTI) 109.1 0.7 0.66%
LIBOR 0.256 -0.002 -0.66%
US Dollar Index (DXY) 82.13 -0.499 -0.60%
10 Year Govt Bond Yield 2.89% -0.10%
Current Coupon Ginnie Mae TBA 103 0.7
Current Coupon Fannie Mae TBA 102.6 1.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.67
Stocks and bonds are higher after a disappointing jobs report. Bond investors were clearly leaning short in a big way going into the report. The 10 year was trading above 3% before the report, but has moved back down to 2.89%
The jobs report was relatively weak, although the headline unemployment number dropped to 7.3% from 7.4%. Payrolls increased 169k, lower than the 180k the Street was looking for. The prior two months were revised down by a total of 74k. The unemployment rate dropped from 7.4% to 7.3%, while the labor force participation rate dropped to 63.2% from 63.4%. For those keeping score at home, the last time the labor force participation rate was that low, “Miss You” by the Rolling Stones was the #1 song on the hit parade. Weekly earnings rose .2% while weekly hours ticked up by 6 minutes. Overall, a disappointing report.
Where does this report leave us with tapering QE? Since the default path is to start tapering, and some of the other reports are showing strength, I would expect the Fed to make at least a symbolic decrease in purchases, probably in Treasuries and not MBS.

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Morning Report – Deeply underwater homes down 14.5% year over year 09/05/13

Posted on September 5, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1655.4 2.0 0.12%
Eurostoxx Index 2764.4 6.1 0.22%
Oil (WTI) 107.8 0.6 0.56%
LIBOR 0.258 -0.001 -0.35%
US Dollar Index (DXY) 82.18 0.012 0.01%
10 Year Govt Bond Yield 2.92% 0.03%
Current Coupon Ginnie Mae TBA 103.1 -0.5
Current Coupon Fannie Mae TBA 102 -0.2
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.56
Markets are higher this morning after the ADP jobs report predicted 176 private sector jobs were created in August and initial jobless claims came in at 323k. Productivity was higher, while unit labor costs fell. Bonds and MBS are down small.
RealtyTrac is reporting that 10.7 million homeowners are deeply underwater (LTV > 125%), which represents 23% of properties with a mortgage. This number is down from 12.5 million (or 28%) a year ago. Another 8.3 million are in the 90 – 110 LTV range, and if real estate prices continue their recent appreciation, this could bring the supply / demand dynamics back into equilibrium as these homes gain equity and become available for sale. Lack of inventory has been a problem in the market and has been distorting some of the repeat-sales indices as professionals and cash buyers compete for the few homes that are available. Needless to say, this is welcome news for originators as it would boost purchase activity as refis dry up.
Washington Post has a quick and dirty on what a Summers Fed would look like. Punch line: not a lot different than a Bernanke Fed, at least as far as policy is concerned. So far, it looks like Summers is Obama’s first choice.
Yesterday’s Fed Beige Book didn’t have much new to say. Eight districts reported moderate growth while 5 reported modest growth. Residential real estate activity increased moderately, while lending activity was mixed. Lending standards were largely unchanged, while credit quality improved. Hiring and wages increased modestly.

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Morning Report – House prices within 18% of peak 09/04/13

Posted on September 4, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1637.0 -2.1 -0.13%
Eurostoxx Index 2727.4 -25.9 -0.94%
Oil (WTI) 107.8 -0.8 -0.73%
LIBOR 0.259 -0.001 -0.19%
US Dollar Index (DXY) 82.29 -0.073 -0.09%
10 Year Govt Bond Yield 2.86% 0.00%
Current Coupon Ginnie Mae TBA 103.6 0.0
Current Coupon Fannie Mae TBA 102.8 0.1
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.54
Should be a slow day with not much economic data and the Jewish holiday. Mortgage applications rose 1.3% last week. bonds and MBS are flat
Construction spending rose .6% last month and is up 5.2% year over year. Residential construction is up .6% month over month and 17.2% year-over-year. We are definitely seeing signs of life in the homebuilding sector, although the first time homebuyer is getting a bit of sticker shock from the higher rates. Pulte noted on their 2Q conference call that buyers at the lower price points (read the first time homebuyer) are backing away a bit. Toll Brothers (which is in the McMansion business) reported that the luxury homebuyer is unfazed by higher rates.
CoreLogic reported that home prices increased 12.4% year over year and and now within 18% of their April 2006 peak. Every state reported a year-over-year increase in prices if you exclude distressed sales. While they predict that August’s increase will be similar to July’s, they anticipate the appreciation to stall as seasonal demand wanes and people start to feel the effects of higher rates. As usual, the hardest hit states are reporting the strongest recoveries.
Yesterday’s ISM report showed strength in manufacturing. While manufacturing isn’t the driver of the economy that it used to be, it still matters quite a lot. The reading of 55.7 corresponds to a GDP growth rate of over 4%. Unfortunately, while manufacturing output is up quite a bit, manufacturing employment is not. Auto sales are up around the 16MM range, which is approaching pre-crisis levels. The average US car is around 11 years old, so we are due for a upgrade cycle. That will be bullish for the economy.

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Morning Report – it is all about Friday’s jobs report 09/03/13

Posted on September 3, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1645.9 14.6 0.89%
Eurostoxx Index 2766.1 -8.0 -0.29%
Oil (WTI) 107.2 -0.4 -0.38%
LIBOR 0.26 0.000 0.00%
US Dollar Index (DXY) 82.34 0.256 0.31%
10 Year Govt Bond Yield 2.84% 0.05%
Current Coupon Ginnie Mae TBA 104.1 0.0
Current Coupon Fannie Mae TBA 102.8 -0.4
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.47
Markets are stronger after a return from the long Labor Day weekend. While a short week, we will have all sorts of important data, with Friday’s jobs report the most important. Risk-on feel, as stock index futures are rallying and bonds / MBS are getting hit.
Friday’s jobs report will probably answer the September vs December question. If it is strong, the next questions will concern the actual amount and distribution of the cuts. The consensus seems to be that the Fed will reduce purchases by $10 billion a month. Will that be all Treasures, a mix of Treasuries and MBS, or all MBS? While I don’t think there is any chance the Fed will choose to do all MBS, there is a chance they could do all Treasuries. And that would be mortgage-rate positive.
Is the Syrian situation market-moving? It has the potential to be market-moving if it spreads to other countries in the Middle East, but on its own, probably not. Any sort of strike by the US will be limited and no one envisions sending troops in. The only real worry is if it drives oil higher, and that will affect Asia more than us.
The MBA Independent Mortgage Banker Report showed average profit per loan decreased to $1,528 (75 bp) in the second quarter from $1,772 (86 bp) in the first quarter. While overall volume was flat, per-loan production costs continue to rise, and we are seeing pricing pressures.
The jumbo market so far seems to be immune to rising rates.

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Morning Report – House prices still in historical value range 8/30/13

Posted on August 30, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1637.3 0.6 0.04%
Eurostoxx Index 2737.1 -21.3 -0.77%
Oil (WTI) 107.9 -0.9 -0.83%
LIBOR 0.26 -0.002 -0.65%
US Dollar Index (DXY) 82 0.055 0.07%
10 Year Govt Bond Yield 2.76% 0.00%
Current Coupon Ginnie Mae TBA 104.1 0.3
Current Coupon Fannie Mae TBA 103.3 0.0
RPX Composite Real Estate Index 200.7 -0.2
BankRate 30 Year Fixed Rate Mortgage 4.47
Markets are flat after disappointing income and spending data. Bonds and MBS are more or less flat. Expect a relatively dull day, trading wise as most of the Street will be on the L.I.E. by noon.
The BEA released July personal income and spending data this morning and it was below expectations. Both rose .1%, below expectations and below June data. Since consumption is 70% of the US economy, these numbers suggest that yesterday’s 2.5% GDP estimate for 2Q was more of a fluke than a change in trend.
Cash purchases accounted for 40% of all sales as volume increased to an estimated 5.5 million pace in July, according to RealtyTrac. The national median sales price was $174,500 in July, up 4% from June and up 6% from a year ago. Median income is estimated to be at $52,100 as of the end of June, putting the median house price to median income ratio at 3.35. Pre-bubble, this ratio tended to oscillate in a range of 3.15 – 3.35, before peaking at 4.48 during the bubble. Even with the increase in house prices over the past year, housing still remains fairly valued compared to historical norms and affordability is quite high due our (still) quite low interest rates.

Budget talks between the WH and Republicans seem to be going nowhere. The President wants to replace the sequester with more taxes, which is a non-starter for Republicans. The two sides seem far apart, but how much of this is just posturing for the various bases. If Republicans dig in their heels on de-funding obamacare and Obama digs in his heels for more taxes, then we could have a problem.

Dr. Cowbell weighs in on the recent QE-withdrawal driven slump in the emerging markets. Unsurprisingly, he concludes that the problem is deregulation, which is surprising given that developed markets all over the world tightened regulation over the financial system half a decade ago. He goes on to discuss how the Asian Tigers rebounded so quickly from the crisis, which he attributes to a drop in their currencies. What is the difference between Japan’s recovery from a deflated asset bubble and, say, Indonesia’s? Hint: One followed his Keynsian prescription to the letter and the other had austerity imposed on it by the IMF.

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