AMC expansion; False Claims Act fine; we say goodbye to Elly May*

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"The first five days after the weekend are the toughest." And after two holiday weeks, this week is going to seem pretty long. And how the heck are we in 2015 already? I was just growing used to writing "2014" on my checks. (Does anyone write checks anymore?) Yes, time goes fast - just ask the CMBA. There are plenty of mortgage organizations around the country, but this is the California Mortgage Bankers Association's 60^th year. * Also from California comes more news on Friday when we all learned that Elly May is no longer with us. But fortunately not the one anyone reading this commentary was thinking of: Ellie Mae.

 In the AMC sector, Valuation Partners is on the move. This leading national AMC has made strategic personnel changes to its sales structure and added to their sales staff. These moves will further strengthen its position to drive new growth. Mark Lyons has taken on the new role of SVP- Corporate Sales Development. Lyons, a long time industry veteran, has been with the firm since 2009. In his new role, he will be responsible for leading their strategic planning initiatives, maintaining key national account relationships, and product development. Clint Reinhardt has been named Senior Vice President, National Sales & Marketing Manager andwill be responsible for leading the Valuation Partners sales team across the US.  Clint has over 25 years of business development experience in correspondent, retail, settlement services and sales management in the mortgage industry.  In his previous capacity as VP- National Sales Executive in the Central US he expanded the  Valuation Partners' client base as well as client targets for The William Fall Group.  Bob Gans named VP- National Account Executive. Bob will be responsible for selling real estate valuation services to mortgage bankers, banks and credit unions in the Midwest and North Central US. He is a proven sales executive with over 20 years of experience in the mortgage industry with extensive experience in wholesale and correspondent sales, new account development, and account management. Most recently, he was Regional Sales Manager for Sierra Pacific Mortgage. Bob will be based in Chicago, IL. 

To tell someone "how the cow ate the cabbage" means to tell the person the unvarnished truth, even if the person would rather not hear it. The homeownership rate of housing in the US was 64.4% as of Q3 2014 vs. 69.2% a decade prior (Q4 2004), or about a 7% decline overall. Many government officials don't want to hear that, but experienced lenders know that not every human deserves to be able to borrow money. And the "Ability to Repay" rules help advance that, giving secondary market investors some comfort. But yes, lenders want to lend, and there is a program with no money down, no mortgage insurance, and no closing costs: Read all about it.

 

Legal issues surround residential lending, and $4.2 million is not a drop in the bucket. But that is how much Michigan's John Adams Mortgage Company was fined for violating the False Claims Act.

 

While we're talking about legal issues, the Supreme Court will hear oral arguments on the FHA disparate impact case on Jan 21. This is an important fair lending issue, as the Obama Administration moved to make proving lending discrimination as strictly a numbers game - in other words, the CFPB does not have to prove intent to discriminate. If your numbers don't line up with the population, you are guilty, no questions asked. This one has wended its ways through the lower courts and has made it to the Supreme Court.

 

Friday we'll have the employment data noted above. Today is another business day, just like four of them last week. We did have some news Friday. Specifically, US Manufacturing lost a little momentum in December and slipped to "53.9".  Production volumes rise at weakest pace for 11 months - but they still rose. The Construction Spending estimate during November $975 billion, -0.3% from prior month but is 2.4% above the November 2013 estimate of $952.5 billion. During the first 11 months of this year, construction spending amounted to $884.6 billion, 5.7% above the $836.9 billion for the same period in 2013. And ISM Manufacturing was at 55.5% in December.

 

This week we'll have a surfeit of scheduled news that could shift rates around starting with tomorrow's Factory Orders. Wednesday is the ADP Employment Change, Trade Balance, and in the afternoon the Fed's releases of the minutes from its Dec. 16-17 FOMC conclave. Thursday is the usual weekly Initial Jobless Claims, and then Friday we'll have Nonfarm Payrolls, Hourly Earnings, and the Unemployment Rate.

 

The news this morning nudging rates around comes from a magazine article claiming that Germany is prepared to jettison Greece from the euro should a Syriza-led government come to power and abandon Athens' reform program. For those quantitatively inclined. The 10-yr risk-free U.S. T-note closed Friday at 2.12% and this morning we're sitting at 2.12% and agency MBS prices are roughly unchanged.

 

Executive Rate Market Report:

Interest rates continue to decline this morning, crude oil making another new low, and the early activity in US equity markets pointing to a weaker open. The 10 at 9:00 2.09% -3 bp and 30 yr MBS price +11 bps. The fall in energy prices is forcing other commodity prices down and bringing added concerns that deflation of prices is spreading; (regular unleaded in Indy $1.75). The Fed can’t muster anything that will get inflation to its 2.0% target. As long as inflation doesn’t increase, or the threat of it decreases the longer end of the yield curve has room to decline further pending investors’ appetite for risk in equity markets. Hard to shake the stock market bulls though, the best market in the world for possible profits.

The US dollar relentlessly climbing against foreign currencies; a 9 yr high against the euro currency this morning. Fears about the political turmoil in Greece that the country may try to exit the EU and Draghi’s constant comments recently that the ECB will launch a major stimulus plan later this month are driving the euro down. German news magazine Der Spiegel, suggested the German government is ready to let Greece drop out of the euro if needed. Draghi has talked about stimulus for months but so far it has all been talk; markets now however are expecting that the ECB will actually try and do something to keep the region from sliding into a deflationary spiral. Draghi has previously highlighted the strength of the euro as a drag on inflation, which is far below the central bank’s target. A weaker currency could also provide a much-needed boost to the region’s economy by making its exports cheaper to overseas buyers.

At 9:30 the DJIA opened -101, NASDAQ -27, S&P -12; 10 yr note 2.09% -3 bps, 30 yr MBS price at 9:3 +13 bps from Friday’s close.

Boston Fed Pres. Eric Rosengren talking about the Fed’s plan to begin increasing interest rates this year. Markets are jittery about the impact of increasing rates on equity markets; “If we do it right, we don’t put the economy off-kilter,” said Eric Rosengren , president of the Federal Reserve Bank of Boston. But “there are unusual conditions that I think complicate the normalization of rates this time.” For instance, the current low level of long-term interest rates “indicates that there may be a bumpier ride, just because there needs to be an adjustment at some point along the cycle,” he said. The Fed in December pledged to be patient, and Yellen said it was unlikely the Fed would begin raising rates at its next two policy meetings, scheduled for Jan. 27-28 and March 17-18. Mr. Rosengren, in his remarks Saturday, said patience in raising rates is justified given low inflation and slow wage growth.

This is employment week; Friday the Dec employment data will likely keep the bond and stock markets volatile and choppy. The 10 yr at 2.09% is 159 basis points higher than the German 10 yr bund, US rates being supported by the wide spread and weak global economies. The rapid increase of the dollar may not be the best for the US as the dollar climbs, making US exports pricey. Technically the 10 and MBSs are bullish on all of our work now. The fear traders face now is the absolute lows at these yields; how much lower can rates go?

This Week’s Economic Calendar:

Monday,
No time Dec auto and truck sales (16.9 mil)

Tuesday,
10:00 am Nov factory orders (-0.6%)
Dec ISM services sector index (58.0 from 59.3 in Nov)

Wednesday,
7:00 am weekly MBS mortgage apps
8:15 am Dec ADP private jobs (+235K; 208K in Nov)
8:30 am Nov trade balance (-41.5B)
2:00 pm FOMC minutes from 12/17

Thursday,
8:30 am weekly jobless claims (-9K to 290K)
2:00 pm Nov consumer credit (+$15.0B; Nov $13.2B)

Friday,
8:30 am Dec employment data (NFP jobs +245K, private jobs +238K, unemployment rate 5.7% from 5.8% in Nov, average hourly earnings +0.2%)
10:00 Nov wholesale inventories (+0.3%)

PRICES @ 10:10 AM

• 10 yr note: +17/32 (53 bp) 2.05% -7 bp
• 5 yr note: +5/32 (15 bp) 1.58% -3 bp
• 2 Yr note: +1/32 (3 bp) 0.67% -1 bp
• 30 yr bond: +46/32 (143 bp) 2.62% -7 bp
• Libor Rates: 1 mo 0.171%; 3 mo 0.255%; 6 mo 0.362%; 1 yr 0.628%
• 30 yr FNMA 3.5 Jan: @9:30 104.69 +13 bp (+34 bp from 9:30 Friday)
• 15 yr FNMA 3.0 Jan: @9:30 104.14 +3 bp (+17 bp from 9:30 Friday)
• 30 yr GNMA 3.5 Jan: @9:30 105.38 +7 bp (+34 bp from 9:30 Friday)
• Dollar/Yen: 119.68 -0.82 yen
• Dollar/Euro: $1.1924 -$0.0078
• Gold: $1195.50 +$9.30
• Crude Oil: $51.13 -$1.56
• DJIA: 17,656.06 -176.93
• NASDAQ: 4688.55 -38.62
• S&P 500: 2036.14 -22.06

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