Morning Report: FHA prepay speeds rise 11/8/17

Vital Statistics:

Last Change
S&P Futures 2584.3 -2.5
Eurostoxx Index 393.8 -0.9
Oil (WTI) 57.1 -0.2
US dollar index 87.8 -0.1
10 Year Govt Bond Yield 2.31%
Current Coupon Fannie Mae TBA 102.875
Current Coupon Ginnie Mae TBA 103.938
30 Year Fixed Rate Mortgage 3.95

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

Mortgage applications were flat last week as the purchase index increased 1 percent and the refi index decreased 1%. The average 30 year fixed rate mortgage fell 4 basis points to 4.18%.

The House and Senate continue to work on tax reform. Here is the latest state of play. Biggest difference between the House and Senate is the state and local tax deduction, where the Senate bill excludes all state / local / property taxes, and the House bill which allows some deductions. Lawmakers are still working on a way to prevent companies from taking advantage of lower-tax jurisdictions overseas to shelter income. Accountants and lawyers are still getting their arms around what the proposals actually entail, and as expected it will be complicated. The estate tax will probably survive in some form in the Senate.

Capital One (What’s in your wallet?) is exiting the mortgage origination business. “These businesses are in a structurally disadvantaged position, given the challenging rate environment and marketplace,” Sanjiv Yajnik, president of financial services at Capital One, said in a memo to employees. “These factors do not allow us to be both competitive and profitable for the foreseeable future.”

Mortgage Credit availability decreased slightly in October, especially on the jumbo side of things, according to the MBA. This indicates that lenders are tightening standards a little. The index has been pretty much flat for the past year.

Many FHA borrowers are refinancing into conventional mortgages, which has resulted in higher prepayment speeds than expected for FHA loans. This is low-hanging fruit for loan officers: home prices appreciation has been strong enough for most MSAs that someone who did a 3.5% down FHA loan a few years ago may be eligible for a 20% conventional and no longer have to pay MI. Serious delinquencies fell for FHA loans as well, from 5% to 4.3%.

Problems in fin-tech land? Lending Club down 20% pre-open on lousy guidance.

Morning Report: FOMC week 9/18/17

Vital Statistics:

Last Change
S&P Futures 2501.0 3.8
Eurostoxx Index 381.9 1.2
Oil (WTI) 49.6 -0.3
US dollar index 85.2 0.1
10 Year Govt Bond Yield 2.22%
Current Coupon Fannie Mae TBA 103.33
Current Coupon Ginnie Mae TBA 104.21
30 Year Fixed Rate Mortgage 3.83

Stocks are higher this morning on no real news. Bonds and MBS are down small.

The big event this week will be the FOMC meeting, which starts tomorrow. No changes in interest rates are expected, although the markets expect the Fed to announce their plan to gradually unwind their balance sheet. The market is anticipating a “baby steps” move where they reinvest less than 100% of bonds that are maturing. While it certainly won’t help MBS spreads, it probably won’t have much of an effect on mortgage rates given that QE itself didn’t have a huge impact to begin with.

Homebuilder sentiment slipped in August as the NAHB Housing Market Index fell from 67 to 64. An active hurricane season, along with labor shortages isn’t helping things. Rising costs of building materials is an issue as well.

Trump’s deal with Nancy Pelosi and Chuck Schumer to keep the government open may have increased the chances for tax reform. While the Democrat’s red lines pretty much foreclose anything aside from making the tax code more progressive on the individual side, we might see something on the corporate side. Perhaps the Trump reflation trade isn’t dead yet, but getting to agreement on tax reform will be hard since Democrats and Republicans want fundamentally different things. Here is a good discussion of what could be happening.

The MBA released a white paper on the CFPB, urging them to provide more detailed guidance to the industry as opposed to “regulation by enforcement action.” CFPB Director Richard Cordray has resisted providing guidance to the industry, believing that bright lines merely makes it easier for companies to approach, but not cross the line. The industry argues that the CFPB should provide more guidance as to how it thinks, warn the industry when it is changing rules, abide by its own guidance, and allow due process for the accused.

Here is some background on the Equifax hack. Can Equifax’s data breach affect your ability to buy a home? It probably cannot in the end, if you were a victim of identity theft. Ultimately it will be time consuming and a nuisance, however it can be overcome. Loan Officers should be aware that there could be an uptick in mortgage fraud, so be careful in the near term.

Morning Report: Mortgage Credit increases 2/8/17

Vital Statistics:

Last Change
S&P Futures 2285.3 -0.3
Eurostoxx Index 363.7 0.9
Oil (WTI) 51.8 -0.4
US dollar index 90.7 -0.1
10 Year Govt Bond Yield 2.36%
Current Coupon Fannie Mae TBA 102.1
Current Coupon Ginnie Mae TBA 103.2
30 Year Fixed Rate Mortgage 4.13

Stocks are flat this morning while bonds and MBS are up.

Mortgage applications rose 2.3% last week as purchases rose 2% and refis rose 2%. Refi activity slipped to 48% of total applications, the lowest since June 2009.

Jeb Hensarling, the Chairman of the US Financial Services Committee says that reforming Dodd-Frank is a “this year priority.” Congressional Republicans are planning to introduce legislation that will give banks relief from certain Dodd-Frank provisions if they increase their capital. He also called the CFPB a “rogue agency” and called for the President to fire CFPB Director Richard Cordray.

Given the structure of the CFPB, firing Cordray is going to be difficult, however there supposedly is a way. The DC Circuit ruled that the structure of the CFPB was unconstitutional, and that the Director could be fired at will by the President. However, Cordray can stay until the appeals process plays out. Here is the way out: President Trump orders Cordray to drop the appeal, which he has the right to do, since the CFPB must coordinate with the DOJ, and they need the Attorney General’s approval to go to the Supreme Court. So, Trump orders Cordray to drop the appeal, and the court ruling stands. If Cordray refuses then Trump can fire him for insubordination.

In expectation of an easier regulatory environment, we are seeing startup banks after a long dormant period post-crisis. Eight banks filed applications with the FDIC in 2016. This is a far cry from the salad days when you would see 250-300 applications, but it is a step in the right direction towards increasing credit.

Speaking of credit, the MBA Mortgage Credit Availability Index rose in January. The conventional, conforming, government and jumbo indices all rose, although jumbo was really what drove the increase. Since the index was benchmarked at 100 in early 2012 (probably the bottom of the housing market) the increase since then looks pretty dramatic. However, when you compare it to the longer term chart (that includes the bubble years) you can see how much things have changed.

Long-term MCAI chart: Credit probably overshot in the immediate aftermath of the bubble (and credit is probably still too tight), however we are nowhere near returning to the days when ads for “pick a pay” mortgages dominated the Super Bowl.

Will rising rates kill home price appreciation? Probably not, since inventory is so tight. At a minimum, borrowers are looking to get ahead of any increase in mortgage rates, so this could be a lagged effect. Ultimately, mortgage rates will be determined by the 10 year bond, which is influenced by the Fed Funds rate, but doesn’t move in lockstep. In fact, the correlation between the two is quite low: around .12 since 1990. Until we start seeing wage inflation, the yield curve will probably flatten as the fed hikes.

Morning Report: New Home sales drop 1/26/17

Vital Statistics:

Last Change
S&P Futures 2294.5 0.5
Eurostoxx Index 367.7 1.1
Oil (WTI) 53.1 0.3
US dollar index 91.2 0.4
10 Year Govt Bond Yield 2.53%
Current Coupon Fannie Mae TBA 102.1
Current Coupon Ginnie Mae TBA 103.2
30 Year Fixed Rate Mortgage 4.16

Stocks are flattish as earnings roll in. Bonds and MBS are down small.

New Home sales fell pretty dramatically in December, to an annualized pace of 536k from November’s revised 598k number. New home sales is a notoriously volatile number, so don’t read too much into it. The 3 month moving average has been pretty steady for the past 6 months. The median sales price was $322k (up about 7.8%) and the average sales price was $384k (up 7.2%). There were about 259,000 units for sale at the end of December, which represents a 5.8 month supply at the current rate. Sales were flat in the West, rose in the Northeast, and fell in the Midwest and South.

Initial Jobless Claims rose last week to 259k from 239k the week before.

The Chicago Fed National Activity Index improved in December to .14 from -33 the month before. This is a meta-index of about 85 different variables, some of which lag quite a bit. The 3 month moving average was still negative however. Production related indices drove the increase, while consumption and housing became somewhat less negative. Employment was flat.

The Index of Leading Economic Indicators improved to 0.5% in December versus 0.1% in November.

At 2:00 PM EST, I will be participating in Housing Wire’s 2017 outlook webinar, where I will discuss the Fed, interest rates, and why fears of further hikes in mortgage rates might be overblown. Here is the link to the webinar. Other subjects include the regulatory environment in Washington DC as well as the latest developments in mortgage insurance premiums. Registration is free.

Despite the change in MIP, Washington might be coming to a consensus that tight credit in the housing market is a problem and it might be time to roll back some of the more restrictive regulatory policies and begin to encourage homeownership. Now that the housing market is back to record highs, liberals want to see more lending to lower credit / income borrowers and are realizing that bashing the banks isn’t the best way to go about it. On the other side of the aisle, conservatives are becoming more accepting of government social engineering via the housing market and want to see housing starts rebound to some semblance of normalcy. Of course the elephant in the room is the mortgage interest deduction, which could become a casualty of tax reform.

What Dow 20,000 means for mortgage rates. Punch line: not much. It is indicative of the current “risk-on” mentality of investors, where they sell safer assets like Treasuries to buy stocks. At the margin, this does push up interest rates, however that doesn’t necessarily mean mortgage rates move up in lockstep. Note that Dow 20,000 doesn’t have nearly the hype associated with it as Dow 10,000 had. That is the difference between the tail end of a secular bull market and the tail end of a secular bear market. It took the Dow roughly 17 years to double between 10,000 and 20,000. During the 80s-90s stock bull market, the Dow quintupled from 1982-1999. Dow 10,000 was the age of stock split beepers, “poof IPOs,” and companies that found they could double their multiple by adding “.com” to their corporate moniker. This time around, investors are more jaded.

One strategist expects the Fed to begin a rapid-fire 25 basis point every quarter starting in late 2017. The consensus is that the Fed would really like to see the Fed Funds rate at 3%, which it considers a “normal” level. Much depends on what we get out of Washington and whether we get some sort of major fiscal stimulus. Aside from fiscal policy, wage inflation is probably going to be the biggest driver.

Here are the hottest markets in real estate according to Some markets are what you would expect to see (like San Francisco) while others are surprises (Fort Wayne, IN). As usual, California dominated the list with 8 of the top 10 markets. California’s housing crunch is creating pushback against laws intended to discourage development.

Morning Report: The FOMC meeting begins 12/13/16

Vital Statistics:

Last Change
S&P Futures 2258.6 8.0
Eurostoxx Index 356.3 2.6
Oil (WTI) 53.1 0.3
US dollar index 91.3 0.0
10 Year Govt Bond Yield 2.44%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 4.13

Markets are higher this morning as Italian bank Unicredito launches a restructuring plan. Bonds and MBS are up.

The FOMC meeting begins today, with the announcement scheduled for 2:00 pm tomorrow.

Despite the expectation that the Fed will hike rates tomorrow, inflation remains pretty much nowhere to be found. Import prices fell 0.3% last month and are down 0.1% on an annualized basis. Export prices were down 0.1% MOM and down 0.3% YOY.

Holiday shopping is starting out subdued, according to Redbook. Same Store Sales were up 1% for the week ending Dec 10.

Here is a comparison of the past 3 tightening cycles: 1994-1995, 2004-2006 and the current one. The biggest differences: This tightening is happening much later in the cycle (this second hike is almost 7.5 years since the expansion began), unemployment is much lower (4.9% versus 5.5% and 6.5%) and growth is much lower. Of course the biggest difference is that the prior cycles were implemented in the context of a traditional business cycle, where a buildup in inventory caused a recession. This time around, it is the context of an asset bubble, where a buildup in bad debt caused the recession. These are fundamentally different animals, and explains why the Fed is taking baby steps this time around.


One thing to watch after the FOMC announcement: Donald Trump’s twitter feed. Any sort of jawboning of the Fed by Trump will almost certainly affect bonds. In the past, Trump has been hawkish, however now that he is a politician, he might adopt a more dovish tilt, as most politicians do (at least the ones in office).

Fed watcher Tim Duy believes the markets are probably too sanguine about rate hikes in 2017. The markets are looking for two 25 basis point hikes, and he believes the risk is to the upside (i.e. a more aggressive Fed).

Small business optimism picked up in November, according to the NFIB. Expectations for an improvement in the economy and top line growth drove the improvement. We also saw a big uptick in hiring plans, although capital expenditures are still depressed. Business is looking for a cut in corporate taxes and a relaxation of regulations. Remember however, these are expectations, not a description of how business is at the moment.

Zillow has its 6 big predictions for 2017 in the real estate markets. Here are the big themes:

  • Cities will focus on denser development of smaller homes close to public transit and urban centers.
  • The drop in the homeownership rate will reverse as more Millennials become homeowners.
  • Rental affordability will improve as incomes rise and growth in rents slows.
  • New home price inflation will continue, and could be exacerbated by any sort of slowdown in immigration.
  • The suburban population will increase as city-dwellers seek more affordable housing outside of the cities.
  • Home values will grow 3.6 percent in 2017 versus 4.8% in 2016.

There were 30,000 completed foreclosures in October, according to CoreLogic. Foreclosure inventory is down 32% from a year ago. 1 million mortgages were down 90 days + which is a decrease of 25% YOY and is the lowest level since August 2007. Normalcy for foreclosures is around 22,000 a month, so we still have some wood to chop.

Donald Trump has nominated Exxon-Mobil CEO Rex Tillerson to be Secretary of State. Getting this nominee past the Senate will not be a slam-dunk, given his ties with Vladimir Putin and Russia in general. This is even more sensitive given that the CIA thinks Russia might have had something to do with the Wikileaks emails surrounding the DNC.

Separately, Donald Trump cancelled a press conference scheduled for today regarding how he will handle his business interests once he takes office.

Morning Report: Steve Mnuchin for Treasury Secretary 11/30/16

Vital Statistics:

Last Change
S&P Futures 2210.5 7.0
Eurostoxx Index 342.4 1.4
Oil (WTI) 48.8 3.5
US dollar index 91.7 0.4
10 Year Govt Bond Yield 2.39%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 4.14

Stocks are higher this morning as oil rises. Bonds and MBS are down.

Oil ministers are meeting in Vienna today and market participants are optimistic a deal can be reached to cut production. Oil is up 7.5% this morning on speculation of a deal. Ordinarily, high oil prices are bad for markets, but these days it is considered a plus.

Donald Trump has reportedly selected Steve Mnuchin for Treasury Secretary. Mnuchin is another Goldman guy, making him the third Goldman Treasury Secretary since the mid 90s. Not much is known about his position on things like the dollar and interest rates. Given Trump’s focus on manufacturing jobs, Mnuchin could be a departure from the strong dollar policy that has been in place for several administrations.

Part of Trump’s tax plan will include tax reform, where top rates will go down, however deductions will be limited. The mortgage interest deduction cap of $1 million for first and second mortgages will probably be lowered. This will probably affect only the very high end, but it is something to keep in mind for jumbo borrowers who have high DTIs to begin with. The Administration is saying that the very wealthy will get no “absolute” tax cut, but the middle class will.

Neither new Commerce Secretary Wilbur Ross nor Steve Mnuchin went out of their way to defend current Fed Head Janet Yellen, saying the decision on the remainder of her term is up to Trump. Donald Trump had been critical of Fed policy on the campaign trail, saying that interest rates were too low. Now that he is an actual politician, he may become more accepting of lower rates, as most politicians usually are. Reagan was the exception, however the 1970s inflation was so bad, people recognized that something had to be done.

Mortgage applications fell 9.4% last week as purchases fell 0.2% and refis fell 16%. Purchases held up reasonably well given the short Thanksgiving holiday.

The US added 216,000 jobs in November, according to the ADP survey. The Street was looking for 160,000 on the ADP number and has forecast 170,000 for Friday’s jobs report.

Pending home sales increased 0.1% last month as tight inventory remains an impediment to sales. Tight inventory is pushing prices up at triple the rate of wage growth, which is ultimately an untenable situation. Pending home sales rose in the Northeast, Midwest and West, while falling in the South.

The Chicago Purchasing Manager Index rose to 57.6 from 52 last month.

Personal incomes broke out of their range in October, increasing 0.6% after a string of 0.3% – 0.4% increases. Personal consumption declined however to a 0.3% increase. This bumped up the savings rate to 6% of disposable personal income, the highest since March. The PCE index for inflation is up 1.4% YOY and the PCE ex-food and energy index is up 1.7%. Nothing in this report will change the Fed’s thinking regarding the next Fed meeting.

Donald Trump announced on Twitter this morning that he will be “leaving his great business in total.” Not sure if that means a blind trust or a divestiture. A blind trust run by his kids will probably not be enough to mollify his critics.

Loan officers are painfully aware that rates have been going up. Investors have been taking it on the chin as well: the 10 year has had its worst month since 2009. Bonds have lost 2.4% this month, which is about about a years’ worth of interest at these levels. That said, the increase in rates has yet to match the 2013 “taper tantrum.” Another key piece of data: the difference between Treasuries and German Bunds is the highest on record, indicating that the correlation between US bonds and foreign bonds is breaking down. This makes sense as the Fed and the ECB have fundamentally different postures at this point. has its 5 trends for 2017. Millennials move to the Midwest, home price appreciation slows, and tight inventory remain the major trends.

Morning Report: Home Prices within 1% of peak 11/28/16

Vital Statistics:

Last Change
S&P Futures 2206.0 -58.0
Eurostoxx Index 340.9 -1.6
Oil (WTI) 47.0 0.9
US dollar index 91.7 -0.1
10 Year Govt Bond Yield 2.33%
Current Coupon Fannie Mae TBA 103
Current Coupon Ginnie Mae TBA 104
30 Year Fixed Rate Mortgage 4.14

Investors return to the markets after the Thanksgiving holiday contemplating a re-litigation of the 2016 Presidential election. Bonds and MBS are up.

Green Party candidate Jill Stein is requesting a recount in PA, MI, and WI. Donald Trump took to Twitter to condemn the effort and alleged that “millions” of votes were fraudulent. The Clinton campaign is keeping its distance but will watch to make sure outside players aren’t interfering with the process. If she manages to turn all 3 states, then she could win. One question that has come up has been whether Russia could have hacked the voting machines. That possibility looks unlikely.

Since the election, bank stocks have increased their market caps by $300 billion. The bet is that a roll-back of regulation will increase profits.

The highlight of the week will be the jobs report on Friday. The Street is looking for 170k jobs added, an unemployment rate of 4.9% and an increase in average hourly earnings of 0.2%.

The FOMC minutes from the early November meeting were a non-event, and the FOMC is definitely setting the stage for a December hike: “Most participants expressed a view that it could well become appropriate to raise the target range for the federal funds rate relatively soon, so long as incoming data provided some further evidence of continued progress toward the Committee’s objectives.” In fact, a “few” participants wanted a hike at the November meeting. The December FOMC meeting is in two weeks.

The FHFA raised the conforming limit from 417k to $424k. This was the first increase in 10 years. They also increased the high balance conforming limit to $636k.

Home Prices rose 0.1% in September and are up 5.4% YOY. Home prices are now within a percent of their peaks from June 2006.

Black Friday saw more shoppers, but less spending than in the past. About 154 million bought something in a store or online over the weekend, but they only spent about $289 as opposed to $300 a year ago. The National Retail Federation attributed the drop in spending to deep discounts offered by retailers. Black Friday online purchases were up 22% YOY.

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