Don't forget: the bond markets
close early on Thursday, and are closed entirely Friday. LOs know that any
lender taking locks will price conservatively. But today it is business as
usual, although being April 15th retailers are "giving
away" deals. I was recently asked about the differences between
"business purpose" and "consumer purpose" loans, and how to
distinguish between the two. There are roughly five primary
factors that must be considered in order to determine business purpose from
consumer purpose. The first is the relationship of the borrower's primary
occupation to the acquisition, which in all probability, the more closely
related, the more likely it is to be business purpose. The second is the degree
to which the borrower will personally manage the acquisition, once again, the
more personal involvement there is, the more likely it is to be business
purpose. The third factor is the ratio of income from the acquisition to the
total income of the borrower. The higher the ratio, the more likely it is to be
business purpose. The fourth is the transactional size; the bigger the
transaction the more likely it is a for business purposes. Lastly, and maybe
more importantly, is the loan purpose as stated by the borrower on the
application.
"There are 'business
days', and then there are business days". This is how I responded
to an email from someone inquiring as to the application, and use, of the term.
'Business Day' traditionally refers to a day on which a lender's office is open
to the public for carrying on virtually all of its business operations.
However, when applied for purposes of rescission, the term means all calendar
days except Sundays and the legal public holidays (Christmas Day, Thanksgiving,
Memorial Day, etc.). When a legal public holiday falls on a Saturday, federal
offices observe them on the preceding Friday; this means that the preceding
Friday is a "business day" and the Saturday is not a "business
day."
Let’s Look at Executive Rate Market Report;
Interest rate markets opened a little weaker this morning but
still the 10 yr is holding well under 2.70% (2.65% at 9:00). MBS
prices in early trading generally unchanged in early activity. The
Russia/Ukraine situation is roiling a little but still has not set markets into
any kind of major selling or buying treasuries. There is a big meeting coming
later this week between all the parties and NATO members; Ukraine is calling
for UN peace keeping troops but that will not happen because Russia has
ultimate veto power. Russia’s holdings of U.S. government securities fell in
February to $126.2B, the lowest level since 2011, from $131.8B the previous
month, Treasury Department data released in Washington showed. It was the
fourth straight month of declines in Russia’s holdings.
March CPI data was stronger than estimates; the
overall CPI was expected up 01% with the core also up 0.1%, as reported both
were up 0.2%. Yr/yr overall CPI +1.5% while the core yr/yr +1.7%. The April NY
Empire State manufacturing index was thought to be up to 7.5 from 5.61 in
March, as reported the index actually declined to 1.29; the new orders
component fell below zero to -2.77, the employment component at 8.16 from 5.88
in March; no noticeable reaction to the two 8:30 releases.
Janet Yellen speaking in Stone Mountain Georgia (Atlanta) said
our big banks may need more capital, implying that banks’ source of funding may
be at risk during a financial crisis. The Basil Committee on bank regs is
suggesting more capital for banks is needed. Central bankers continue to sweat
more capital for banks, we wonder why after the recent increases in capital
that have pushed banks to avoid proprietary trading and about every other risk
that might be conceived of. Are central banks beginning to worry they have no
more real effective bullets to use if the global economy slips? Yellen said
staff members at the Fed “are actively considering additional measures that
could address these and other residual risks in the short-term wholesale
funding markets.” Yellen said she was particularly concerned that reforms
to bank regulation not just bolster capital but that they also ensure liquidity
because “in 2007 and 2008, short-term creditors ran from firms such as Northern
Rock, Bear Stearns, and Lehman Brothers, and from money market mutual funds and
asset-backed commercial paper programs.” “Together, these runs were the primary
engine of a financial crisis from which the United States and the global
economy have yet to fully recover,” she said. After all of the reforms and
Dodd/Frank the concern is rather interesting.
The DJIA opened +42, NASDAQ +12, S&P +6; 10 yr 2.65% +1 bp
and 30 yr MBS price -2 bps from yesterday’s close.
Stocks doing better this morning as earnings from Johnson &
Johnson and Coca-Cola Co. offset data showing a decline in a gauge of New
York-area manufacturing. Chinese money-supply data signaled growth
in the world’s second-biggest economy is faltering, the housing sector in China
also slowing dramatically in most of the cities in the country. Data today
showed China’s broadest measure of new credit fell 19% from a year earlier and
money supply grew at the slowest pace on record, highlighting risks of a deeper
slowdown as the government tries to curb financial dangers. China is due to
report its GDP data tomorrow; estimates are for growth at 1.5% from 1.8% in the
previous quarter.
At 10:00 the April NAHB housing market index was thought to be
at 49 from 47 originally reported for March. The April index hit at 47 but
March revised to 46. The highest the index has registered in the last couple of
years occurred last August at 58, since then the housing sector has slipped.
Interest rate market are holding positive technicals but the
bellwether 10 yr has very hard resistance at 2.60%; it
functions as a brick wall when the yield falls. MBS markets also still hold
positive technical readings but won’t have the impetus to improve much unless
the 10 can somehow crack 2.60%. To do so in the present environment it
will take more selling in the equity markets. We remain very skeptical that the
stock market can hold at these near record highs, however with nowhere to turn
to make any kind of return the stock market does have solid support engineered
by the Federal Reserve and other major central banks.
Presently the MBS and treasury markets are in what we can call
limbo; not heaven and not hell. Since last February there has
been little change in rates; the 10 in a 20 basis point yield range, MBSs in a
15 bp rate range. Longer term there is almost 100% belief interest rates will
increase; the Fed will end its monthly purchases in Oct at the present pace,
economists and analysts hold that the US economy will continue to grow, and
inflation may be inching higher as the Fed wants---today’s yr/yr CPI data may
be a warning sign for increase to come later this year. All of those issues are
strong headwinds for lower rates. As noted, we believe the stock market will
decline in the next two months in a huge shake out of the bullish sentiment; if
correct we will see better rates.
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