One
thing that will help the FHA regain the business it has lost due to high
insurance premiums is Fannie & Freddie further increasing their G-fees. MBA
president Dave Stevens sent a note out regarding potential G-fee hikes by
Freddie and Fannie (through their conservator the FHFA). The story, from
Inside Mortgage Finance's Charles Wisniowski, notes, "A coalition of
investors in Fannie Mae and Freddie Mac stock wants the Federal Housing Finance
Agency to increase the guaranty fees that the two charge their
seller-servicers, a position that lenders won't be too thrilled with. In a
comment letter to FHFA Director Mel Watt, Investors Unite Executive Director
Tim Pagliara urged the agency to take into account 'the critical purpose of
setting appropriate guaranty fees,' noting that the Finance Agency does not
have a mandate (as conservator) to manage Fannie and Freddie as
not-for-profits. Pagliara is also chairman and CEO of CapWealth Advisors. Fannie
and Freddie have 'profit-making purposes onto which public mandates are
layered' and they should charge g-fees that earn an 'appropriate market-based
return on the capital employed,' whether its taxpayer funds or private capital,
Pagliara writes. G-fees are now north of 50 basis points. 'Increasing guaranty
fees will provide more cash flow, with which the GSEs can build capital and be
restored to safe and solvent condition,' the letter added. 'Maximizing returns
is not only consistent with, but arguably required by, the conservatorship.'
The FHFA issued an official call for public comment on how the GSEs should
calculate guaranty fees and whether the agency should proceed with a planned 10
basis point hike that was announced last year but postponed."
And
while we are yammering about the agencies, Freddie Mac is pretty excited
about the ABA renewing their alliance "to help banks compete in the
mortgage market." Apparently a 0% cost of funds isn't enough!
Seriously, "the American Bankers Association - through its Corporation for
American Banking subsidiary - has renewed its Freddie Mac alliance to
provide ABA members with endorsed solutions which provide exclusive benefits to
assist in their mortgage lending business. The alliance offers ABA member banks
access to a special set of secondary market advantages including loan
origination tools, customized training, and portfolio management
services." After the usual glowing comments from officials, the release
explained, "The Freddie Mac/ABA alliance offers member banks reduced
service fees from third-party vendors and other price benefits, compliance software,
and cash sale advantages on a variety of Freddie Mac fixed-rate mortgage
products. Participants can obtain Mortgagebot at a reduced cost and
utilize the online originating software to directly access Loan Prospector,
Freddie Mac's automated underwriting service."
JPMorgan
Chase & Co. is a bank, and also sells its shares to Freddie Mac, but for a
little variety is reportedly planning a $303.7 million sale of non-agency
15-year home-loan bonds. The non-agency ice is starting to thaw a little:
Premium Point Investments LP's WinWater Home Mortgage LLC completed its
first non-agency bond transaction, a deal tied to about $250 million of jumbo
loans, and Citigroup Inc. is planning a similar $219 million offering.
Many banks are perfectly happy to put those loans on their books to match their
liabilities (deposits), of course, but, "We're seeing repeat and new
issuers attempt to bring the market back," said Michele Patterson, a
senior director at Kroll Bond Rating Agency.
Who
buys non-agency securities? Well, institutional investors do, and a group of
them, including Blackrock and PIMCO, filed a lawsuit against several
residential mortgage-backed security trustees. The lawsuit claims that trustees failed
to protect bondholder interests as they did not enforce repurchase obligations
of sponsors/originators on loans with Rep and Warranty breaches, and that
trustees failed to act upon Events of Defaults (EODs) committed by the Master
Servicer/servicers for faulty servicing practices including improper
foreclosures and robosigning, which caused meaningful losses to bondholders.
Additionally, servicers were not notifying the trust about R&W breaches
they were made aware of during the course of servicing the loans and that too
constituted an Event of Default upon which trustees failed to act.
Analysts
think that the filing of this case could have broader implications for the
RMBS market including potential disclosure of tolling agreements on
specific deals by trustees, and possible delays in reviewing JP, Citi G&B
proposed offers. I have not seen the court filing, but supposedly some of the
trustees mentioned in the suits reportedly include Deutsche Bank, US Bancorp,
Wells Fargo, Citigroup, HSBC, Bank of New York, and my dog Sweetie. (Okay, just
threw Sweetie in to see if you were reading this.) The plaintiffs claim that
the trustees failed to properly administer the mortgage trusts by not forcing
lenders and issuers to repurchase faulty loans. Trustees have long argued that
their role is far narrower and that their primary responsibility is to
administer the operations of the trust.
Lawsuits
and settlements are now a way of life for the industry. The latest noted
settlement came last week as the "FHFA notches new MBS settlement for
Freddie, Fannie", this time with the Royal Bank of
Scotland. "The Federal Housing Finance Agency has reached a settlement
with RBS Securities for $99.5 million as it works as a conservator to settle
lawsuits on behalf of Freddie Mac and Fannie Mae related to sales of
mortgage-backed securities."
Kroll
Bond Rating Agency has the advantage of not being around years ago to mistakenly
rate billions of dollars of residential mortgage-backed securities. KBRA
released its ABS Report for the 1st quarter of 2014. "KBRA
released the first quarter 2014 U.S. consumer credit update report,
(highlighting) trends within the U.S. economic and consumer landscape and
provides insight into the potential impact of these trends on the performance
of consumer asset-backed securities. Kroll, among many things, noted that
unemployment for younger cohorts remains high particularly for the 20-to-24
year old cohort, temporary employment continues to rise which bodes well for
the unemployment rate, student loan balances continued to exhibit strong
growth, auto loan balances have exhibited growth while credit card balances
have decreased, and mortgage debt levels grew slightly.
Speaking
of consumer behavior, it is obviously important, and there is a lot going on
with all of us. I took the liberty of writing a little more in-depth piece
about where the consumer is, what we're worried about, and what it might mean
for the economy.
One
of the disadvantages of being a publicly held stock is having analysts weigh in
on your company. Stonegate Mortgage found this out, with Seeking Alpha writing,
"We believe Stonegate Mortgage investors will suffer significant losses as
many issues we identify play out...We believe management changed definitions
for adjusted earnings without appropriate disclosures, and excluded recurring
expenses (that don't reconcile). Both appear violations of SEC reporting
guidelines (Reg G)...Stonegate continues to raise capital on overstated
projections and an MSR mark 32% higher than its peers..." One must ask
if these statements apply to other residential lenders as well; and note that
the analyst is short Stonegate.
This week we have a lot upon
which to chew (one never wants to end a sentence in a preposition!). Today is
Existing Home Sales, tomorrow is New Home Sales, the FHFA House Price Index
(what housing prices have done that have Fannie & Freddie loans), along the
S&P Case Shiller Indices with their two month lag, and Consumer Confidence.
Wednesday will be Durable Goods Orders and GDP - very important. Thursday we
can look forward to Personal Income and Consumption/Outlays, some PCE numbers,
along with the usual Jobless Claims, and on Friday, if anyone's still around,
the University of Michigan Consumer Confidence survey numbers.
Executive Rate Market Report:
Treasuries
and MBSs opened stronger this morning
with the 10 falling to 2.59% and testing its recent low at 2.58%. At 9:00 MBS
price +9 bps from Friday’s close and 29 bps better than at 9:30 Friday morning.
This is a big week for the bond and mortgage markets; a number of reports on
the housing sector, the final Q1 GDP, PCE reported with May personal income and
spending, Treasury auctioning $94B of notes.
Last
Tuesday after months of generally ignoring any immediate concern that inflation
would increase, the
May CPI jumped to +2.2% yr/yr. The increase shook investors and traders, then
Janet Yellen on Wednesday commented that the higher inflation in May was in her
opinion just ‘noise’ within the data, taking a little sting from the CPI. On
Thursday then, the Philadelphia Fed reported that the prices paid component in
its business index increased 12 points to 35 from 23; once again inflation
fears increased. It doesn’t take a lot to ignite inflation concerns with long
term interest rates at these current low levels; inflation is the kiss of death
for investors holding fixed income investments. Last week Treasury auctioned
inflation indexed notes, the rate bid translated to the auction suggests
investors are now expecting 2.28% inflation over the next year. Some now
changing their outlook for when the Fed would begin increasing rates from
mid-2015 to the first quarter of 2015. Stay tuned as undoubtedly inflation is
now make on investor and traders radar. The next look at inflation is Wednesday
with the Q1 GDP data, and Thursday with personal income’s PCE.
At 9:30 the DJIA opened -14, both NASDAQ and
S&P were unchanged; the 10 yr note at 2.60%, up from 2.59% at 9:00, 30 yr
MBS price +3 bp, down from +9 at 9:00.
May
existing home sales at 10:00;
estimates were for an increase of 2.2% from April to 4.75 mil units
(annualized). As reported sales increased 4.9% to 4.89 mil; the mid-west was
where most al the gains were from. The median sales price $213,400, up 1.% from
April and +5.1% yr/yr the slowest yr/yr increase since April 2012. Based on the
pace of sales in May there is a 5.6 month supply. Still no increase in first
home buyers; we believe first home buyers are not going to step up compared to
previous housing market rebounds. Young people do not have the same drive to
buy as they used to have before the recession; too much debt, can’t save enough
for a down payment, and tight credit and low incomes.
Around the
world:
- A preliminary Purchasing Managers’ Index for China, the biggest consumer of industrial metals, rose to 50.8, exceeding the 49.7 median estimate of analysts in a Bloomberg survey.
- The euro-area PMI composite gauge slipped to 52.8 in June, less than the 53.4 reading from the median of 25 estimates in a Bloomberg survey of economists.
- Fighters from an al-Qaeda breakaway group seized all Iraq’s border crossings with Jordan and Syria. Kerry headed for Baghdad today.
- Obama told CBS in an interview that will be aired in full today that the conflict could spread to other countries, including Jordan. The militants “are engaged in wars in Syria where -- in that vacuum that’s been created -- they could amass more arms, more resources,” Obama said, according to a transcript.
- European Union countries accused Russia of continuing to let fighters and weapons flow into Ukraine and demanded President Vladimir Putin make good on a pledge to back a plan for a truce as fighting continued.
- Brent oil traded near the highest level since September and West Texas Intermediate was little changed as militants in Iraq seized more territory and President Barack Obama warned that the crisis may spill over into other countries.
We are
still getting neutral technical reads on our data; the 10 yr is quiet and has been that
was since early June. A mixed set of circumstances; Iraq and Ukraine are on the
radar being monitored daily but so far the US markets are not being directly
impacted. Inflation was resurrected last week but Janet Yellen took the other
side of that view. The 10 has strong resistance at 2.58% and strong support at
2.66%. All of our models are neutral now, not bullish and not bearish. The
10:00 repot of stronger May existing home sales took a little out of the rate
markets and stopped the selling that was taking stock indexes lower.
This
Week’s Economic Calendar:
Monday,
10:00 am May existing home sales (4.75 mil, +2.2%), +4.9% as reported 4.89 mil
Tuesday,
9:00 am Apr Case/Shiller home price index (20 city yr/yr +11.4% from +12.4% in March)
Apr FHFA home price index (+0.5%, down from +0.7% in March)
10:00 am May new home sales (440K, +1.8%)
June consumer confidence index (83.7 from 83.0 in May)
1:00 pm $30B 2 yr note auction
Wednesday,
7:00 am weekly MBA applications
8:30 am May durable goods orders (+0.4%, ex transportation orders +0.3%)
Q1 final GDP (-1.8% from -1.0% on the prelim; GDP deflator +1.3% unch from the prelim)
1:00 pm $35B 5 yr note auction
Thursday,
8:30 am weekly claims (-2K to 310K)
May personal income and spending (income and spending both +0.4%; core PCE +0.2%)
1:00 pm $29B 7 yr note auction
Friday,
9:55 am June U. of Michigan consumer sentiment index (81.9 from 81.2 from 2 weeks ago)
Monday,
10:00 am May existing home sales (4.75 mil, +2.2%), +4.9% as reported 4.89 mil
Tuesday,
9:00 am Apr Case/Shiller home price index (20 city yr/yr +11.4% from +12.4% in March)
Apr FHFA home price index (+0.5%, down from +0.7% in March)
10:00 am May new home sales (440K, +1.8%)
June consumer confidence index (83.7 from 83.0 in May)
1:00 pm $30B 2 yr note auction
Wednesday,
7:00 am weekly MBA applications
8:30 am May durable goods orders (+0.4%, ex transportation orders +0.3%)
Q1 final GDP (-1.8% from -1.0% on the prelim; GDP deflator +1.3% unch from the prelim)
1:00 pm $35B 5 yr note auction
Thursday,
8:30 am weekly claims (-2K to 310K)
May personal income and spending (income and spending both +0.4%; core PCE +0.2%)
1:00 pm $29B 7 yr note auction
Friday,
9:55 am June U. of Michigan consumer sentiment index (81.9 from 81.2 from 2 weeks ago)
No comments:
Post a Comment