DO AWAY WITH THEM

Posted on May 20, 2013 by markinaustin

Do Away With Them
John D. Colombo

John D. Colombo is the Albert E. Jenner Jr. professor of law at the University of Illinois College of Law. His primary research area is federal and state tax-exemption for nonprofit organizations.

May 15, 2013

The best solution to the problems with 501(c)(4) organizations is to eliminate them completely. The problem with the (c)(4) designation is that it is essentially a charity that is permitted to engage in unlimited lobbying and some significant amount of political campaign activity (as long as that activity isn’t the organization’s “primary purpose”) in exchange for denying the organization the ability to receive deductible charitable contributions.

The I.R.S, will never be able to satisfactorily police the line at which political activity becomes “primary.”

But the Internal Revenue Service will never be able to satisfactorily police the line at which political activity becomes “primary.” Since “issue advocacy” (for example, lobbying) is permitted in any amount, the problem isn’t just one of identifying when political campaign activity becomes primary; it is also identifying the line between permissible issue advocacy and political campaign activity. This line is hard enough to enforce in the 501(c)(3) context, where political campaign activity is absolutely prohibited and lobbying permitted only to an “insubstantial” degree. The loosening of these restrictions in the (c)(4) context virtually invites wholesale noncompliance, which is pretty much what we have.

Further, the (c)(4) designation has no real purpose. The best explanation, in my view, for tax exemption for charities is that it is a sort of partial government subsidy for organizations that offer services that the private market will not offer, and that government either will not or cannot offer directly. I find it hard to believe that lobbying suffers from such a serious market failure that we need to subsidize organizations whose primary activity is to lobby. In fact, it seems almost perverse that the government would subsidize organizations whose primary purpose is to lobby the government.

So let’s make it simple: if you want to be a charity, be a charity and live with the 501(c)(3) limits; if you want primarily to be engaged in the political process through lobbying or otherwise, pay taxes like everyone else or register as a 527 political organization.

Filed under: taxes | 5 Comments »

Morning Report – the week ahead 05/20/13

Posted on May 20, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1660.1 -2.9 -0.17%
Eurostoxx Index 2806.9 -11.1 -0.39%
Oil (WTI) 95.7 -0.3 -0.33%
LIBOR 0.273 -0.001 -0.18%
US Dollar Index (DXY) 84.01 -0.240 -0.28%
10 Year Govt Bond Yield 1.92% -0.03%
Current Coupon Ginnie Mae TBA 104.2 0.2
Current Coupon Fannie Mae TBA 102.7 0.2
RPX Composite Real Estate Index 198.2 0.3
BankRate 30 Year Fixed Rate Mortgage 3.66

Markets are slightly weaker to start the week on no real news. The Chicago Fed National Activity Index came in at -.53, indicating that manufacturing activity is decelerating. We saw the same thing in the Philly Fed last week. Merger Monday is back with a few new deals. Bonds and MBS are up small

This week is very data-light. The main market-moving event will be the release of the FOMC minutes from the April 30 meeting. The focus will be on the tapering of quantitative easing. We will also get existing home sales  – it will be interesting to see if the lack of inventory is concentrated only in the hot markets like Phoenix and San Francisco, or is it more widespread. New Home sales come out on Thursday – given the good earnings we have seen from the homebuilders, this number should be good. Finally, on Friday we get durable goods. Expect activity to start to tail off after the FOMC minutes. By noon on Friday, most of the street will be on the LIE ahead of the long weekend, so spreads will widen and pricing will be lousy.

Wells has briefly suspended foreclosures after new questions from the OCC. Meanwhile, the payments from the settlements has been slow to arrive.

The bond market bloodbath bumped up borrowing rates quite quickly. After bottoming out at 3.4% in early May, the average 30 year fixed rate mortgage is 3.66%. That is a big move in a short period of time. In times of excessive volatility, it makes more sense to lock than float. LOs tell your customers they are basically speculating on interest rates if they choose to float.

Filed under: Morning Report | 14 Comments »

Morning Report – No we are not in another housing bubble 05/17/13

Posted on May 17, 2013 by Brent Nyitray

Vital Statistics: 

  Last Change Percent
S&P Futures  1655.5 7.4 0.45%
Eurostoxx Index 2817.6 10.9 0.39%
Oil (WTI) 95.88 0.7 0.76%
LIBOR 0.274 -0.001 -0.18%
US Dollar Index (DXY) 84.29 0.700 0.84%
10 Year Govt Bond Yield 1.90% 0.02%  
Current Coupon Ginnie Mae TBA 104.7 -0.3  
Current Coupon Fannie Mae TBA 103 -0.1  
RPX Composite Real Estate Index 198.2 0.3  
BankRate 30 Year Fixed Rate Mortgage 3.6    

Markets are stronger this morning on good economic data. The University of Michigan Consumer Confidence index rose to 83.7, a post-bubble high and better than expected. Leading Economic Indicators increased .6%, which was better than expected. These should normally not be market-moving indices, but lately stocks can do no wrong and bonds can do no right. The market seems to be convinced that the Fed can stick the landing and end QE without any major hiccups. 

The CoreLogic / Case-Schiller Q412 report is out. House prices increased 7.3% nationwide in 2012. They are forecasting prices to rise 2.5% in 2013 as the market broadens out from the red-hot Western markets like San Francisco and Phoenix. They see a 5-year annualized trend growth of 3.9%. The areas with the largest price gains: Phoenix (+23,8%), San Jose (+17%), Detroit (+ 16.7%), Miami (+13.5%) and Lost Wages (+13.4%). The biggest declines were in Long Island (-4.3%), Virginia Beach (-2%), Richmond (-1.5%), Philthy (-1.3%) and Birmingham (-1.3%). They do note that the fast-rebounding markets could hit an air pocket as professional investor demand wanes.

They do not see evidence of a new housing bubble. I actually find it humorous that a small rally off the bottom could be considered a “bubble.” Bubbles are rare things and are based on an idea that an asset price cannot go down. We saw that mentality during the late 90s – “Buy quality companies and hold them for the long term. Stocks always go up in the long term. The biggest risk is not being fully invested” People wrote books like Dow 40,000. Similarly, during the real estate bubble, people thought prices could never fall. People who had no experience in real estate were buying “Flipping Houses for Dummies.” Nobody that experienced the stock market bubble or the real estate bubble is going to believe that these asset prices cannot fall. There may be another stock or real estate bubble, but we won’t see it. Maybe our grandkids will.

It was noted at the MBA Secondary conference that private label spreads were widening. We finally see evidence of this with Redwood’s latest private label deal. They just sold $424 million of bonds with the senior tranches priced to yield 2.82%, a spread of 190 basis points over swaps. In January, similar deals were priced at 97 bps over swaps. $5.5 billion of private label deals have been done so far this year, as compared to $3.5 billion for all of 2012. That said, during the bubble, $1.1 trillion of PL securities were issued in one year, so we are still a long way from re-living the salad days of big real estate finance.

The House is holding a hearing this morning on the IRS scandal. Whether this turns into another Watergate or not, the President’s political capital is waning quickly. The net effect could be that not much more happens in Washington for the rest of his term. For us, that means replacing FHFA Chief Ed DeMarco with Mel Watt is going to be an even tougher sell, and principal mods for conforming loans / extension of HARP eligibility dates are become less of a sure thing.

Filed under: Morning Report | 25 Comments »

For Troll

Posted on May 16, 2013 by novahockey

Star Trek sequel review from Reason’s Peter Suderman.

“Star Trek Into Darkness” is an apt title for a movie as empty as the vastness of space. The movie moves as if through a vacuum — fast and frictionless, from one scene to another, with a lot of nothing along the way. The warp-speed pacing only barely hides the fact that it never really goes anywhere at all, and doesn’t aim to either. The final frontier? Forget it. This soulless sequel to a reboot is only too happy to go where every generic sci-fi blockbuster has gone before, and not so boldly either.

Filed under: movies | 35 Comments »

Morning Report – Housing starts slump 05/16/13

Posted on May 16, 2013 by Brent Nyitray

Vital Statistics:

Last Change Percent
S&P Futures 1652.2 -2.1 -0.13%
Eurostoxx Index 2811.5 1.9 0.07%
Oil (WTI) 94.08 -0.2 -0.23%
LIBOR 0.274 0.000 0.00%
US Dollar Index (DXY) 83.81 -0.021 -0.03%
10 Year Govt Bond Yield 1.90% -0.03%
Current Coupon Ginnie Mae TBA 104.3 -0.1
Current Coupon Fannie Mae TBA 102.9 0.1
RPX Composite Real Estate Index 197.6 0.5
BankRate 30 Year Fixed Rate Mortgage 3.65

Markets are slightly lower after a barrage of negative data. The day began with Wal-Mart reporting earnings in line with estimates, but giving 2nd quarter guidance below estimates. Then, we had higher-than-expected initial jobless claims and a very disappointing housing starts number. Stock index futures are down a couple of points while bonds and MBS are up about a quarter of a point.

Initial Jobless claims increased from a revised 328,000 to 360,000 last week. This is the highest level since mid-February. The Department of Labor has noted that that there has been some seasonal gremlins in the data lately, so maybe that is what is going on.

Census reported that building permits increased by 14.3%, while housing starts fell 16.5%. Single family starts fell from 623,000 to 610,000, while multi-fam fell from 376,000 to 234,000. Multi-fam had been driving the housing starts numbers lately as investors try and get in on the rental boom. Single family has been more slow and steady. On the permits side, single family increased from 599,000 to 617,000 and mult-fam increased from 266,000 to 374,000. So maybe the April multi-fam drop was a blip.

Chart:  Housing starts 1959- Present

You can see from the chart above that even though housing starts have rebounded smartly from the recession lows, we are still at very depressed levels historically. Consider that we are more or less at the lows of the previous major recessions (73-75, 81-82, 91-92). Then factor in population growth. Conclusion:  there is a lot of pent-up demand out there..

The National Association of Home Builders released their Housing Survey yesterday, which showed builder confidence improved in May after a brief drop in April. “Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies” noted a North Carolina based builder. In fact, he notes challenges regarding the cost and availability of labor, lots, and building materials. The homebuilders reported recently and did note some of these concerns as well, but there is a geographic slant to it:  the West has the most issues, while the Northeast does not.

Filed under: Morning Report | 57 Comments »

Morning Report – Mortgage Applications dive 05/15/13

Posted on May 15, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1645.3 -2.7 -0.16%
Eurostoxx Index 2801.6 6.0 0.21%
Oil (WTI) 93.29 -0.9 -0.98%
LIBOR 0.274 0.000 0.00%
US Dollar Index (DXY) 83.94 0.343 0.41%
10 Year Govt Bond Yield 1.94% -0.03%  
Current Coupon Ginnie Mae TBA 105.2 0.3  
Current Coupon Fannie Mae TBA 102.7 0.2  
RPX Composite Real Estate Index 197.1 0.5  
BankRate 30 Year Fixed Rate Mortgage 3.65    

Markets are lower this morning after an earnings miss from John Deere (DE) and better than expected earnings out of Macy’s. The Producer Price Index fell .7% as commodity prices continue to drop. Bonds and MBS are up a quarter or so.

Mortgage Applications fell 7.3% in the last week, unsurprising given that rates have backed up so much. People will be looking at drier pipelines into early June. The purchase index fell by 4%, while the refi index fell 8%. 

The Empire State Manufacturing Survey showed manufacturing contracted in the May. The six month outlook weakened as well. Inflation remains muted. The employment-related indicators (number of employees and average workweek) declined slightly. The Fed and other economists had been predicting a second quarter slowdown, and this is evidence of it. The consensus is for a re-acceleration into the second half of the year. Certainly the stock market and the bond market are focusing more on the 2H acceleration than they are on the current slowdown.

Lots of good stuff in the latest CoreLogic Market Pulse. They discuss how residential construction has moved from a drag to a driver on the economy. While the red-hot Western markets like Las Vegas and San Francisco are seeing professional-driven buying, the markets of North Carolina and Texas are more balanced and are the healthiest new sale markets..On a price to income ratio, housing is still as affordable as it has been since the 90s. RTWT.

Filed under: Morning Report | 6 Comments »

Morning Report – Housing Scorecard 05/14/13

Posted on May 14, 2013 by Brent Nyitray
Vital Statistics:

 Last Change Percent
S&P Futures  1631.8 1.0 0.06%
Eurostoxx Index 2778.9 1.5 0.05%
Oil (WTI) 94.59 -0.6 -0.61%
LIBOR 0.274 -0.001 -0.36%
US Dollar Index (DXY) 83.34 0.065 0.08%
10 Year Govt Bond Yield 1.91% -0.01%  
Current Coupon Ginnie Mae TBA 104.9 -0.2  
Current Coupon Fannie Mae TBA 103 0.1  
RPX Composite Real Estate Index 196.6 0.4  
BankRate 30 Year Fixed Rate Mortgage 3.62    

Markets are flattish this morning on no real news. Appalloosa manager David Tepper said on CNBC that he is still bullish and the economy is getting better. Bonds finally catch a bid after a pretty brutal two week sell-off. MBS are up small.

The National Federation of Independent Business released their Small Business Optimism Survey this morning, which showed the index creeping up slightly to 92.1 from 90.7. Owners are still pessimistic about the economy, with a net negative 15% expecting business conditions to improve over the next six months. Hiring and raises are being done only grudgingly, and capital expenditures are only at maintenance levels. Yet the stock market is at record highs. So what gives? Part of it is that the big S&P 500 stocks have a lot of international exposure, which means they can offset US weakness elsewhere. Also, I think quantitative easing is playing a part. 

The Obama Administration released their monthly Housing Scorecard which showed home equity increased again last month. HAMP trial modifications jumped, while HAMP permanent mods fell. HARP refis were flat for the month. It is still looking like Mel Watt as the new FHFA Chairman is no sure thing, either. Even if he doesn’t get nominated, HARP 3.0 might still happen, which would extend the eligibility dates for HARP refis to include late 2009 and 2010 vintages. That would undoubtedly kick off another refi wave. 

Filed under: Morning Report | 99 Comments »

Morning Report – Retail Sales impress 05/13/13

Posted on May 13, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1627.3 -2.3 -0.14%
Eurostoxx Index 2776.9 -8.4 -0.30%
Oil (WTI) 95.43 -0.6 -0.64%
LIBOR 0.275 0.000 0.00%
US Dollar Index (DXY) 83.31 0.165 0.20%
10 Year Govt Bond Yield 1.94% 0.04%  
Current Coupon Ginnie Mae TBA 104.8 -0.4  
Current Coupon Fannie Mae TBA 102.8 -0.3  
RPX Composite Real Estate Index 196.3 0.5  
BankRate 30 Year Fixed Rate Mortgage 3.58    

Markets are slightly lower after vaulting to new heights last week. Earnings season is largely over; the only ones left are the retailers who start reporting this week. We will hear from Wal Mart and Kohls later this week. Bonds and MBS continue to sell off – the 30 year fixed rate mortgage closed the week at 3.58% after bottoming at 3.4% a week and a half ago.

Does the back up in bond yields mean the refi boom is over? Perhaps. At any rate, since we have been in this range of interest rates for so long, the people who have the ability to refinance already have. This is called prepayment burnout. Now, it will take home price appreciation to drive refinances. That said, there is talk of a HARP 3.0, which would allow late 2009 and 2010 vintage underwater mortgages to refinance, and there is talk that the government may allow people who have already refinanced under HARP to do so again.  New government initiatives may help keep the refi boom alive for a little bit longer.

Retail sales increased .1% in April, higher than the -.3% estimate. The movement of the Easter holiday played some role in the increase. Ex autos and gasoline, the increase was .6%. Gasoline is usually stripped out, because simple price changes can move the index. Joseph H Banks (JOSB) missed earnings estimates this morning. It is an old saw that in weak economic times, the only apparel that is purchased is children’s clothing. As the economy improves, women’s apparel starts to pick up, and when the economy really starts heating up, men’s suits start being purchased. We’ll get a read on women’s apparel when Nordstrom reports on Thursday. Bonds sold off on the retail sales number, although equities didn’t really react.

I said it on Friday and I’ll say it again. This Obama / IRS thing could be market negative in a lot of ways – first, if there is something there, it will inevitably cause marginal foreign investment money to flee the dollar, which is equity negative. Plus it will make the debt ceiling negotiations all that more acrimonious. With the S&P 500 at record highs, it is worth bearing this in mind. You could also see a serious snap-back rally in the bond market.

Filed under: Morning Report | 43 Comments »

Utah Race for the Cure (aka Sunday Open Thread)

Posted on May 12, 2013 by Michigoose

The Race went really well yesterday, and was a tribute to all the hard work that the folks I recruited to help me last fall when I was asked to take over the whole thing did.  For the first time ever I got to see the whole event from start to finish (before, when I was just in charge of the race part of it I was always setting something up or tearing something down while everything was going on) and I was floored.  This is some good coverage from our local television news sponsor.

One of the more memorable moments of the day, though, was this:

GIRLFRIEND:  Hi (to “Ask Me” volunteers)(just what it sounds like–they’re there to answer common questions)!  How do I find my runner?

ASK ME VOL.:  Well, do you have a cell phone?

G: Yes!

AMV:  Does he?

G:  No.

Me: Could he still be running?  Have you gone to the finish line?

G:  Oh, no!  He’s really fast, he finished ‘way long ago.

AMV:  Did you arrange a place to meet?

G: No

AMV:  Well, did you just agree to meet somewhere after he went home and cleaned up?

G:  No.  You people really need to have a system to arrange for people to meet.

AMV:  What do you mean?

G: Why can’t I find my runner?  You people need a system!

(OK, at this point she’s pissed me off.  I’ve been on my feet for two days straight, the volunteers have been answering questions for four hours, and the whole time she’s asking us for help she’s scrolling through her iPhone and not looking at any of us.)

Me:  No, YOU need a system.  I have 12,000 runners to keep track of, you have one.  Go find him, or I’ll make a lost kid announcement from the stage in exactly 30 seconds.  Then you can explain to him why I described him, by name, as a lost child.  Your choice.

She huffs off.

I look at the two Ask Me guys and they’re standing there with perfectly straight faces.  I said “Well.  I think I may have made her a little upset.”  They started laughing so hard that one of them had to sit down.

Yes, I can be petty, but that was fun.

Filed under: Komen | Tagged: | 12 Comments »

Morning Report – Charles Plosser and ending TBTF

Posted on May 10, 2013 by Brent Nyitray

Vital Statistics:

  Last Change Percent
S&P Futures  1625.3 0.7 0.04%
Eurostoxx Index 2780.9 7.8 0.28%
Oil (WTI) 94.53 -1.9 -1.93%
LIBOR 0.275 0.000 0.00%
US Dollar Index (DXY) 83.03 0.240 0.29%
10 Year Govt Bond Yield 1.84% 0.03%  
Current Coupon Ginnie Mae TBA 105.9 0.0  
Current Coupon Fannie Mae TBA 103.5 -0.1  
RPX Composite Real Estate Index 195.8 0.8  
BankRate 30 Year Fixed Rate Mortgage 3.52    

Markets are flattish this morning on no real news. We will get the monthly budget statement at 2:00 pm this afternoon. Bonds and MBS continue to sell off, and the 10 year is at 1.84%

The Mortgage Bankers Association reported that 90 day delinquencies ticked up to 7.25% in Q1 from 7.09% in Q4. Separately, foreclosures as a percent of total mortgages fell to 3.55% from 3.74%. This is still an elevated numbers; prior to the bubble, foreclosures were in a 1% to 1.5% range. Similarly, with delinquencies, pre-bubble the typical 90 day delinquency rate was in the 4% to 5% range. It peaked at just over 10% in Q1 2010.

Fannie and Freddie’s profits have moved the debt ceiling limit to September from August. Treasury Secretary Jack Lew said that the statutory debt limit will be reached in a few days, but that there are measures the government can take to shift around funds and that we won’t really start having issues until after Labor Day. Republicans have proposed a prioritization of creditors, which will go nowhere in the Democratically controlled Senate. My question:  How much of the interest owed is going to the Fed due to quantitative easing? They have been buying up 90% of Treasury issuance. And since the Fed’s profits and losses are just sent right back to Treasury, isn’t that just money we effectively owe ourselves? 

Anyway, the debt ceiling debate is coming up this summer and the Administration and House Republicans are sure to butt heads over raising the debt ceiling. The Administration will not accept spending cuts without tax increases and the House will not accept tax increases at all. Just saying, since the S&P 500 has been a one-way bet since last Fall. There are two exits at the front of the plane and two exits over the wings. Please take a moment to locate the nearest exit, and remember that your nearest exit may be behind you.

Philly Fed President Charles Plosser is skeptical that Dodd Frank can end Too Big To Fail (TBTF). He proposes a more systematic process, in which the ultimate decision-making would be rest with a judge and and deviations from priority would be cleared through a judicial authority and not through regulatory discretion. Derivatives and repos would be treated like other claims. Separately, he is skeptical that QEIII is going to do much good. It would be refreshing to have someone on the hawkish side replace Bernake after having doves for the past 25 years, but we’re probably going to get an even bigger dove in Yellen.

Filed under: Uncategorized | 24 Comments »

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