Friday a
little price decline, this morning started better recovering the declines on
Friday. The US stock market futures traded weaker early, supporting the bond
and mortgage markets. After the strong three day decline in rates last week the
bond and mortgage markets now consolidating the strong rally; the good news so
far is that there hasn’t been any selling, just no buying. At 9:00 this morning
the 10 yr note +6/32 (18 bp) at 2.50% -2 bps; 30 yr MBS price +14 bp.
Not much on
the economic calendar this week but what there is will draw a lot of attention.
Both existing and new home sales for April, and the minutes from the last FOMC
meeting (4/30) are the keys this week. The bond and mortgage markets continue
to take their lead by how the stock market trades; don’t be misled, traders are
moving back and forth between stocks and bonds in the last month. There is an
increasing concern now that the economy isn’t robust and the outlook for
increased growth has been lowered in the minds of many investors. This year is
not going to grow at the 3.0% rate that was the consensus a month ago. Q1 GDP
will end negative and Q2 outlook is being reduced.
At 9:30 the
DJIA opened -46, NASDAQ -14, S&P -4; 10 yr 2.50% -2 bp and 30 yr MBS price
+14 bp.
Tensions in
Ukraine are lessening (maybe); according to the news reports Putin has ordered
Russian troops near the Ukrainian border back to base, the Kremlin said,
signaling a possible easing of tensions six days before Ukraine’s presidential
election. Ukraine will hold a presidential election next Sunday. Putin said
contacts between the Kiev government and supporters of a decentralization of
powers to the country’s regions was a welcome event. The take away for the US
interest rate markets is that the Russian/Ukraine situation is becoming less a
factor on safety into treasuries. The US rate markets now are focused on the
increasing weakness in the stock market and, the what is now an inevitable move
from the ECB, to add additional stimulus. 90% of economists in the Bloomberg Monthly
Survey predict the European Central Bank president will ease monetary policy in
June after saying on May 8 that officials are “comfortable” with acting then.
The rate markets in Europe continue to decline on the strong belief another
round of QE is on the way. The fall n rates in Germany, France and other
European countries has made US treasuries cheap with our 10 yr note at 2.50%
while the German 10 yr bund is trading at 1.34%.
No direct
economic news this week until Wednesday, in the meantime there are a number of
Fed officials speaking. At 12:10 today Dallas Fed pres. Fisher; Tuesday at
12:30 Philly Fed res. Plosser; Wednesday 11:30 Janet Yellen at NYU
commencement, 12:50 pm Kansas Fed pres., George, at 1:30 Minneapolis Fed pres.
Kocherlakota.
This Week’s
Economic Calendar:
Wednesday,
7:00 am weekly MBA mortgage
applications
2:00 pm FOMC minutes from 4/30
meeting
Thursday,
8:30 am weekly jobless claims
(+13K to 310K)
10:00 am April existing home sales
(+2.1% to 469K units)
April leading
economic indicators (+0.4%)
Friday,
10:00 am April new home sales
(+8.6% to 420K units)
2:00 pm EARLY BOND MARKET CLOSE
Interest
rate markets presently working on key resistance at 2.48%, the lowest close
since last November. Technicals still looking gdod but the 10 yr note, based on
its relative strength index is at overbought levels that will likely keep rates
from declining much and may push rates a little higher as the recent rally
needs to be consolidated to test any upside trading. We expect interest rates
will continue to fall as long as the equity market remains weak. On Thursday
and Friday April home sales will be key; the housing sector has been the major
drag for the economy. Both existing and new home sales are expected to have
improved in April, if so that could roil the rate markets, As for Ukraine,
nothing is expected this week with the election scheduled for next Sunday.
PRICES @
10:00 AM
10 yr
note: +5/32 (15 bp)
2.51% -1 bp
5 yr
note: +4/32 (12 bp)
1.53% -2 bp
2 Yr
note: +1/32 (3 bp)
0.35% -2 bp
30 yr
bond: +1/32 (3 bp)
3.3.34% -0.5 bp
Libor
Rates: 1 mo 0.149%; 3 mo
0.228%; 6 mo 0.325%; 1 yr 0.534%
30 yr FNMA
4.0 June: @9:30 105.42 +14 bp (+10 bp
from 9:30 Friday)
15 yr FNMA
3.0 June: @9:30 103.69 +10 bp (-1 bp
from 9:30 Friday)
30 yr GNMA
4.0 June: @9:30 106.20 +9 bp (-20 bp
from 9:30 Friday)
Dollar/Yen: 101.16 -0.34 yen
Dollar/Euro: $1.3723 +$0.0029
Gold: $1301.10 +$7.70
Crude
Oil: $102.73 +$0.71
DJIA: 16,471.57 -19.74
NASDAQ: 4101.66 +11.07
S&P
500: 1879.55 +1.69
The
CFPB has been busy. Recently it was, "We're launching an intuitive,
easy-to-navigate electronic format of Truth in Lending regulations
(Regulation Z), which will make it easier to implement and use the recently
adopted mortgage rules. The eRegulations tool presents the text in clear,
readable form, is easy to navigate and allows the user to compare different
versions to identify changes. Check out the eRegulations tool.
This
follows on the heels of, "We're implementing changes to the format of the
Examination Reports and Supervisory Letters that we send to supervised entities
after our reviews of their compliance with federal consumer financial laws. The
main change is the creation of a single section in the report that includes all
of the items that we expect the entity to address when a review identifies
violations of law or weaknesses in compliance management. This entire section
will be referred to as "Matters Requiring Attention," regardless of
whether the Bureau is requiring specific attention by an entity's Board of Directors.
Every
lender, big or small, has exposure to the CFPB. (In fact, many believe that
arguably any financial transaction involving a consumer has exposure to the
CFPB.) The last thing that the Agency/Bureau wants is to be accused of
restricting access to credit, right? "The proposal includes two changes
that would help certain nonprofit organizations continue to provide mortgage
credit and servicing to underserved populations. The proposal also lays out
limited circumstances where lenders that exceed the points and fees cap can
refund the excess amount to consumers and still have the loan be considered a
Qualified Mortgage." Here you go: Nonprofits in the lending biz.
And
don't forget the CFPB's announcement a few weeks ago that said it was
considering allowing a cure for mortgages that were closed as QM (qualified
mortgages) but later lost their QM status. From what lenders have told me, most
of these are due to issues with the upfront points and fees exceeding the 3%
cap. The CFPB proposed a 120-day period wherein lenders could cure an
"overcharge" exceeding the cap if certain conditions were met.
Obviously
every lender out there is (overly) concerned about making the slightest
mistake, and the costs of avoiding such mistakes are, of course, passed on to
borrowers. So lenders are hopeful about the chance of correcting a loan was
originated in good faith with the belief that the loan did not exceed the 3%
cap (which can be demonstrated by policies meant to avoid mistakes). Lenders
try to be consistent in loan pricing among similar loans, but of course
mistakes can occur, and if a lender's post-closing review procedures identify
the mistake before it is brought to the lenders' attention by the consumer or
investor then perhaps it can be corrected.
The
CFPB's proposed amendments to the Qualified Mortgage points and fees
requirement in §1026.43(e)(3) to permit, under limited circumstances, the
refunding of excess points and fees within 120 days after closing in
order for the loan to meet this Qualified Mortgage requirement. Notice it is a
proposal - once it is published in the Federal Register everyone can comment on
it. And here is one law firm's analysis of
it.
Kristie
D. Kully and Eric Mitzenmacher of KL Gates did a thorough write-up,
regarding the proposals, "One of those amendments would, if finalized,
allow creditors a limited opportunity to 'cure' a loan that inadvertently
exceeds the three percent limit on points and fees for qualified mortgages
('QMs'). By making a residential mortgage loan that meets the QM criteria
spelled out in the Dodd-Frank Act and TILA regulations, a creditor is presumed
to comply with its obligation to determine the consumer's ability to repay the
loan. Among those criteria, the points and fees for a QM are limited to three
percent of the total loan amount. While keeping a loan's points and fees below
that amount is difficult, determining what amounts must be included in the
calculation is not easy task either, particularly as a loan moves from its
early application stage, through processing and underwriting, and ultimately to
closing. The Bureau recognizes that 'the calculation of points and fees is
complex and can involve the exercise of judgment that may lead to inadvertent
errors.' It uses the example of amounts mistakenly excluded as bona fide
discount points or private mortgage insurance premiums, and of miscalculated
loan- originator compensation. A creditor may, despite its best efforts,
miscalculate or exclude an amount that is later determined to be included in
'points and fees.'"
They
remind us that "There is no prohibition under the Dodd Frank Act or
TILA regulations against originating loans with points and fees that exceed
three percent, or that otherwise are non-QMs. However, a creditor of a
non-QM loan must be able to demonstrate that it otherwise complied with the
ability-to-repay determination, including the consideration of all the factors
in the regulations, which may be difficult for a creditor that intended to
originate a QM. The creditor also, of course, loses the protection of QM
status, and becomes subject to the increased uncertainty of an accusation by
the consumer or a regulator that it made the determination improperly.
Importantly, a creditor that agreed to deliver only QM loans to an investor
could be stuck with a repurchase demand, even though the creditor is willing to
fix the error by making the consumer whole."
There
will be more about this tomorrow, but this is certainly a step in the right
direction. The proposed CFPB rule change is available here.
Rates in 2014 continue to be
lower than where we began the year, and agency MBS prices are back to Halloween
levels. Is our economy really doing that poorly? Although some indicators, such
as retail sales and industrial production, came in lower than expected, there
is little reason to expect the Fed to alter its current course of monetary
policy. The inflation numbers gave some folks something to cheer about
(remember, a little inflation is good): inflationary pressures picked up in
April, with both the PPI and CPI accelerating in the month. And lower jobless
claims indicate the labor market continues to improve. Homebuilding has picked
up, indicated by solid gains for starts and permits, though the housing
recovery still remains on shaky ground.
Speaking of which, although
prices have been appreciating the housing market had been a notable weak spot
in the recovery this year, but homebuilding looks to be picking back up. Housing
starts jumped 13.2 percent in April, thanks to a surge in the multifamily
sector. Building permits picked up as well, posting its third straight month
above a 1 million-unit pace. Despite the strong reading for April, the housing
market recovery is expected to be a slow one. Single-family permits are still
lower than they were a year ago. Furthermore, the NAHB Housing Market Index
fell to 45 in May and home sales data continue to look relatively weak.
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