Weekend Open Thread (Long Version)

Posted on May 24, 2014 by Michigoose

Happy Memorial Day weekend to all; I just got back from a trip to visit Mike Teng and family in Tampa. As a result I slept like a log last night and missed the meteor shower (although I’ve heard it was a bust, at least in this part of the country).

Here is a fun little ditty that I thought you’d enjoy.

Have a great time this weekend–

Filed under: Open Thread | Tagged: | 17 Comments »

Morning Report – Very little construction in the Northeast 5/23/14

Posted on May 23, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1890.5 0.3 0.02%
Eurostoxx Index 3191.9 4.3 0.13%
Oil (WTI) 104.1 0.3 0.31%
LIBOR 0.229 0.002 0.97%
US Dollar Index (DXY) 80.37 0.112 0.14%
10 Year Govt Bond Yield 2.53% -0.02%
Current Coupon Ginnie Mae TBA 106.4 0.0
Current Coupon Fannie Mae TBA 105.6 0.1
BankRate 30 Year Fixed Rate Mortgage 4.17

 

Markets are flattish this morning on no real news. Bonds and MBS are down. Today should be dull as most of the Street will probably be on the L.I.E. by noon. Bonds close early today.
New Home Sales came in at 433k, an increase from the upward-revised 407k the month before. The vast majority of the new homes are in the South, with 235k. The Northeast is deader than Elvis with only 22k new home sales. (look below for an explanation why). The Midwest and the West had 84k and 92k new sales respectively. Inventory was still low, with 5.3 months’ supply. The median price dropped from $281,700 to $275,800.
A new article out of the New York Fed addresses the hollowing out of the middle class. At least it New York, the jobs lost in the Great Recession have been in middle-skill jobs, like teachers, construction, admin support. Those jobs have not come back. The buckets where jobs are growing have been in the higher-skilled jobs like engineers, financial analysts, etc as well as low-skilled jobs like retail, food service, etc. This is IMO partly the fault of New York State’s extremely borrower-friendly (creditor unfriendly) foreclosure laws. While states like California have worked through their foreclosure inventory and are now building, there is virtually no new construction in New York State. In California, Texas, etc where there is building going on, construction workers are in high demand and wages are increasing. Yet another case of good intentions smacking into the law of unintended consequences.
Does judicial review of foreclosures create deadweight losses? The Federal Reserve Bank of Cleveland asks that question. Anecdotally, I see the effects in New York State, where may homes sit vacant while the foreclosure wends its way through the courts. While there may be a useful part of this, where we ensure we don’t throw people out on the street, many of these foreclosures are vacant. At that point, letting a vacant house sit does no one any good.
Finally, I discuss housing reform, monetary policy, and the homebuilding sector with Louis Amaya on Capital Markets Today. Lots of housing wonky goodness.

Filed under: Morning Report | 18 Comments »

Morning Report – Out: Tapering. In: Normalization 5/22/14

Posted on May 22, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1886.0 1.1 0.06%
Eurostoxx Index 3178.4 -8.7 -0.27%
Oil (WTI) 103.9 -0.2 -0.18%
LIBOR 0.227 0.000 -0.09%
US Dollar Index (DXY) 80.17 0.076 0.09%
10 Year Govt Bond Yield 2.54% 0.00%
Current Coupon Ginnie Mae TBA 106.5 0.0
Current Coupon Fannie Mae TBA 105.6 0.0
BankRate 30 Year Fixed Rate Mortgage 4.17

 

Markets are flattish after retailers Best Buy and Sears missed earnings estimates. Bonds and MBS are flat.
We finally got some economic data this morning, starting with the Chicago Fed National Activity Index, which came in below expectations. Initial Jobless Claims rose from 298k to 326k. The Markit May preliminary PMI came in at 56.2, a little better than expectations and consumer comfort remained on the low side. Finally, the Index of Leading Economic Indicators fell to .4%
Existing home sales increased to a 4.65 million rate in April, which was an increase from the prior month, but below street expectations. As anyone in the mortgage business can tell you, it is tough out there. Housing continues to punch below its weight and sales continue to be at depressed levels. On the bright side, between 40% and 50% of these transactions are all cash, compared to 20% historically. So, there is a lot of potential business out there, but we need the first time homebuyer to step up.

The new buzzword for the Fed is now “normalization,” which is all honesty is simply a euphemism for “raising rates.” There was nothing earth-shattering in the FOMC minutes yesterday (the bond market barely noticed), but the Fed did muse a bit on how monetary policy will function with a balance sheet the size of Jupiter. People forget that we are truly in uncharted territory here, with a Fed balance sheet of 4.3 trillion in assets vs 900 billion at the beginning of 2008.

The Fed noted the strength in the March industrial data, but did not pick up on the reversal in the April numbers. Even though Q1 GDP growth was below the Fed’s forecast, they chose not to revise their 2014 GDP estimates downward, as they expect a rebound in the second half of the year. Overall, if you look at the trend of the Fed’s forecasts and revisions, GDP, unemployment, and inflation forecasts have been progressively lowered. I almost wonder if the Fed’s economic models were created during an environment where recessions were caused by the classic inflation / inventory buildup cycle and that model is simply irrelevant in this climate, where the recession is caused by a burst asset bubble.
The latest CoreLogic Market Pulse is out, and it has some good articles as usual. They address short sales and the expiration of the Mortgage Debt Forgiveness Relief Act. So far, it looks like the expiration of the tax relief (mortgage debt principal mods are now treated as taxable income, where before they were not) is crimping short sales, exacerbating an already tight inventory situation. Conversely, construction employment is beginning to increase, especially in Florida. I expect construction (especially residential construction) will be the catalyst that sends us from 2% GDP growth to 3% + GDP growth. The homebuilders have been able to report increased revenues primarily by increasing average selling prices. The typical publicly-traded homebuilder was reporting double digit increases in ASPs and high single digit drops in deliveries. Once they hit the ceiling on prices (and traffic patterns suggest we are close), they will simply have to push through volume if they want to report growth. That will begin the virtuous cycle. I was hoping this would be a 2014 event, but it is looking more and more like a 2015 event. CoreLogic also discusses the excuse du jour for weak housing starts – bad weather – and finds that it doesn’t fully explain what has been going on. RTWT.

Filed under: Morning Report | 40 Comments »

Morning Report – Back from the secondary conference 5/21/14

Posted on May 21, 2014 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1875.2 7.1 0.38%
Eurostoxx Index 3175.2 11.2 0.35%
Oil (WTI) 103.1 0.8 0.75%
LIBOR 0.227 -0.001 -0.33%
US Dollar Index (DXY) 80.15 0.107 0.13%
10 Year Govt Bond Yield 2.55% 0.04%
Current Coupon Ginnie Mae TBA 106.3 -0.1
Current Coupon Fannie Mae TBA 105.5 -0.1
BankRate 30 Year Fixed Rate Mortgage 4.17

 

Markets are higher this morning on no real news. Bonds and MBS are down. Sorry for the lack of blog posts the last two days, but I was at the MBA Secondary Conference, and there really wasn’t much to talk about anyway. We had no economic data on Monday or Tuesday.
Mortgage applications increased .9% last week. Purchases fell 2.8% while refis increased 3.8%. This is a pretty disappointing number given that the 10 year bond yield fell by 10 basis points and mortgage rates fell 5 – 6 bps. Refis accounted for 52% of loans, and ARMs were 8.1%.
Later on today, we will get the minutes from the April FOMC meeting. I don’t anticipate anything earth-shattering, but I will be interested to see if the big jump in March activity was a one-time event. Certainly some of the April data (industrial production, capacity utilization etc) has been disappointing. I also want to see what they say about housing, especially credit availability.
Speaking of the Fed, there is a lot going on over the next few days, with many speakers, the Stan Fischer confirmation hearings, and the minutes. Hawk Charles Plosser warned that if the economy improves as forecast, the current taper pace may be too slow.
The MBA Secondary Conference ends today, and it seems like the mood was a little brighter than previous years, despite the difficult conditions in the mortgage business. Non-QM loans are being rolled out strictly as a portfolio product for a few lenders, but there is no talk of securitization or anything like that. The first time homebuyer is still a focus for Washington, and non-bank servicers were put on notice that New York State isn’t going away.
Retailer earnings reports are rolling in, and as we have seen, it has been a tale of two markets, with the luxury end (think Tiffany’s) outperforming the discounters (think Target and Wal Mart). In home improvement land, the Home Despot and Lowe’s both missed earnings. Generally, retailers seem to be missing. Tomorrow we will hear from bellwethers Gap and Best Buy. Again, keep in mind that there will be an asterisk with these results as poor weather in the Northeast and the Midwest depressed traffic early in the quarter.

 

Filed under: Morning Report | 30 Comments »

Tuesday 5/20/2014 Open Thread

Posted on May 20, 2014 by jnc4p

I didn’t see a notice about Brent being away, but in the interest of comment management here’s a new open thread for today.

Filed under: Open Thread | 74 Comments »

Weekend Open Thread

Posted on May 17, 2014 by Michigoose

Nothing much to comment on, so I thought I’d drop some music in on you. Aloe Blacc is one talented guy:

But, of course, there is always the incomparable Aaron Neville:

Happy weekend, all!

Filed under: music, Open Thread | Tagged: | 79 Comments »

A Business Dilemma

Posted on May 16, 2014 by lmsinca

When we bought our business a little over 13 years ago we negotiated for the exclusive right to manufacture and sell two products that were invented, patented and trademarked by the original owner. This agreement would last 20 years (until 2021) and then the tooling would revert back to the family, either to his daughter or grandchildren. My husband first came on board as part of the sales team about 35 years ago right after this product was introduced. It was the launching pad for the business and “the” main product we’re known for. The last two years it was the Number One seller in Tennis Accessories on Amazon over the holiday season.  Over the years we have added numerous other products but this one still generates about 10%-15% of our sales and has actually had a bit of a resurgence in the tennis market since internet sales in general have been increasing every year and we’re able to reach the public more easily.  Funny, there is even a little nostalgia involved.  The product was copied when the patent ran out but both copies never worked the way they were designed to because a couple of steps (trade secrets) were not part of the patent and they missed them.

The tooling is getting old and outdated and part of our agreement was that the original designer/owner of the tooling would pay for repair costs and we would pay him 5% of cost at manufacturing as a royalty. This system worked for about 10 years when the owner decided he no longer wanted to pay the tooling repair costs and so we worked out a new agreement that he would forgo his royalty checks and we would be responsible for the tooling until it reverted back to the family. He is now in his nineties and in a convalescent home at death’s door.

It’s doubtful anyone in the family is interested in really having the tooling back but I’m a little afraid to ask. We are considering if the next hurdle in repairs is worth the expense unless the tooling were to become ours permanently. It apparently needs to be converted to a manifold system which will cost somewhere between 20K and 30K and that is only one of four parts which are also old and having more problems as time goes by.

It’s a great product and makes us decent money every year but we’re just not sure it’s worth the investment. The original owner’s daughter is very unpredictable when it comes to the business.  She hated it when she worked for her Dad but enjoyed the income and while anxious to let it go, tried to screw us over several times with her lawyer’s help during the purchase process. Luckily we weren’t born yesterday so we were able to protect our interests well. I don’t trust her though.

I guess what I want to know is if it seems like it would be worth the investment if we ultimately have to return the tooling anyway or should we just return it early and let them deal with it? I believe that would be the end of a great product though.

My other concern is that I really don’t know how much longer we want to work ourselves and I don’t particularly trust Walter’s health to stick it out long enough for us to recoup the expense. I really don’t want to get stuck doing all the work myself. Our son helped occasionally with putting the parts together for large orders but he’s in CO now and the work is too strenuous for our oldest daughter although she does help out here in other ways occasionally.

I’m also trying to figure out an angle where if we made the repairs how could we end up owning the tooling as I think there is a marketable value to it and we might be able to sell it, even considering the condition it’s in.

Any suggestions?

 

Filed under: small business | 19 Comments »

Morning Report – Johnson-Crapo gets out of Committee 5/16/14

Posted on May 16, 2014 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1867.0 -0.3 -0.02%
Eurostoxx Index 3166.2 3.0 0.09%
Oil (WTI) 101.9 0.4 0.36%
LIBOR 0.229 0.003 1.22%
US Dollar Index (DXY) 80.1 0.101 0.13%
10 Year Govt Bond Yield 2.50% 0.01%  
Current Coupon Ginnie Mae TBA 106.4 -0.2  
Current Coupon Fannie Mae TBA 105.4 0.0  
BankRate 30 Year Fixed Rate Mortgage 4.16    

 

Markets are flattish after a better than expected housings starts report. Bonds and MBS are down
 
Housing starts rebounded in April to a annual rate of 1.07 million, an increase of 13.2% month-over-month. Building Permits increased to 1.08 million, an 8% increase. This is still well below the historical average of 1.5 million units a year, and still a dismal number compared to pre-bust levels. 
 
Johnsnon – Crapo (the GSE reform bill) got out of Committee today, with all the liberals voting against it. The liberals dislike the bill because they want affordable housing mandates. Given the lack of support from liberals, Senate Majority Leader Harry Reid is unlikely to bring the bill to the floor. 
 
The National Federation of Independent Business released their small business confidence survey yesterday, showing that confidence is improving, but still below par. The two biggest problems for small business remain taxes and regulations.

Filed under: Morning Report | 15 Comments »

Morning Report – lots of conflicting data 5/15/14

Posted on May 15, 2014 by Brent Nyitray

Morning Report

Last Change Percent
S&P Futures 1881.2 -4.1 -0.22%
Eurostoxx Index 3195.1 -15.4 -0.48%
Oil (WTI) 101.9 -0.5 -0.44%
LIBOR 0.226 0.001 0.22%
US Dollar Index (DXY) 80.23 0.152 0.19%
10 Year Govt Bond Yield 2.51% -0.03%
Current Coupon Ginnie Mae TBA 107 0.3
Current Coupon Fannie Mae TBA 105.6 0.1
BankRate 30 Year Fixed Rate Mortgage 4.17

 

Markets are lower this morning after Wal-Mart missed. Bonds and MBS are up.
Very mixed bag of economic data this morning:
  • Empire Manufacturing 19.01 vs 6 expected (indicates strong economy)
  • Consumer Price Index .3 vs .3 expected (doesn’t tell you anything)
  • Initial Jobless Claims 297k vs 320k expected (great number – indicates strong economy)
  • Industrial Production down .6% vs expectations of flat (lousy number – indicates weakness)
  • Capacity Utilization of 78.6% vs 79.1% (hideous number – indicates weakness)
FWIW, the bond market is taking its cue from the weak industrial numbers and the Wal-Mart miss. Speaking of which – the 10 year bond yield is now pushing 2.5% – LOs if you have any customers who missed their chance to refi last fall, wake them up. The market just let them back in. Don’t look a gift horse in the mouth.

Stonegate Mortgage released their earnings this morning, and they missed on the top line and the bottom line.
Stonegate has been an acquisitive company, so doing apples-to-apples comparisons in order to divine organic growth is difficult. They wrote down their MSR book by $8 million. They have a conference call at 11:00 am (877) 303-5863 if people are interested.. The stock is down a few percent on the open.
FHA is looking for ways to expand credit and has unveiled its “Blueprint for Access.” It is a designed to first time homebuyers, where the borrower goes through a counseling program before buying a home. If they complete the program, they get 50 bps off their upfront FHA mortgage insurance premium and receive a 10 bp reduction in their annual FHA mortgage insurance premium. If they have no serious DQs in their first two years, they get an additional 15 bp reduction in MIP fees. More info will be released in the summer and fall.

Filed under: Morning Report | 21 Comments »

Morning Report – Mel Watt speaks at Brookings 5/14/14

Posted on May 14, 2014 by Brent Nyitray

Vital Statistics:

 

  Last Change Percent
S&P Futures  1890.7 -3.6 -0.19%
Eurostoxx Index 3203.4 -8.4 -0.26%
Oil (WTI) 102 0.3 0.30%
LIBOR 0.225 0.002 0.67%
US Dollar Index (DXY) 80.02 -0.119 -0.15%
10 Year Govt Bond Yield 2.57% -0.03%  
Current Coupon Ginnie Mae TBA 106.4 0.0  
Current Coupon Fannie Mae TBA 105.2 0.1  
BankRate 30 Year Fixed Rate Mortgage 4.36    

 

Stocks are lower this morning on no real news. Bonds are up and the 10 year yield is back at the bottom of its range. LOs, if you have customers that were waiting for better rates, wake them up and tell them that if the range holds, today is about as good as it is going to get.
 

 
Mel Watt spoke at Brookings yesterday and the left has to be unhappy because they didn’t get the big things they wanted – principal mods on Fannie / Freddie loans nor did they get an extension of HARP eligibility dates. The highlights were (in no particular order):
  • No principal mods on Fan / Fred loans
  • Housing finance reform is a Congressional responsibility, not a FHFA one
  • No extension to HARP eligibility dates
  • Will provide some reps and warranties relief – 2 DQs in 36 months ok
  • Not lowering conforming loan limits
  • Will try and find a “cure” option for buybacks
  • Some sort of new neighborhood stabilization pilot program, details unclear
  • FHFA is worried about tight credit overlays
  • New securitization platform, will allow private label
  • Expect to see FNMA / Gold spread narrow as they will fall under one security
  • Will continue to shrink Fannie and Fred’s balance sheet to $250B each by 2018
Punch line: For all the sturm and drang, Mel Watt isn’t dramatically different than Ed DeMarco. The left has to be seething.
 
Mortgage Applications rose 3.6% last week. Purchases fell .1% while refis rose 6.8%. Refis are back up over 50% of the volume. Mortgage rates fell 4 bps last week.
 
Inflation picked up a little at the wholesale level, increasing from .5% to .6%, although ex food and energy it was down a little. Not enough to move the markets as inflation is still below the Fed’s target. 
 
FHA is trying to increase access to credit, and they are launching a new program which will offer a 50 basis point reduction in up-front mortgage insurance premium and a 10 basis point reduction in the annual premium for first-time homebuyers who complete the program.  

Filed under: Morning Report | 17 Comments »

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