Words are great things.
(Sometimes I wish my kids would use them.) Let's take the poor financial news
headline writer who hears about a few layoffs at some bank or lender. The
writer pretty much has at their disposal cuts, slashes, slices, reduces, decreases,
cuts back, declines, drops, falls, chops, prunes, removes, expurgates, hacks,
incises, severs, or curtails, to name a few. Now let's take the statistician
who relies on numbers to tell their story, but who can be accused equally of
exaggeration. And so it is important to keep these things in mind when you
read, "Chrisman LLC cat workforce slashed by 50 Percent". It might
merely mean that I told Gusto that her services were no longer needed, leaving
me with Myrtle. Yes, the numbers went from two felines to one, but the headline
is a little sensationalized. (And yes, Gusto is a girl - it is important to
live life with gusto, right?) And if house price appreciation last year was
10%, and this year someone expects house prices to "only" be up 6%,
one headline could be, "House Price Appreciation Rate Expected to Plummet
40%." Be careful out there folks!
The Mutual Mortgage
Insurance Fund is a fund that insures mortgages made by the Federal Housing
Administration on single-family homes; the fund must make quarterly reports
to Congress. These reports are a fulfillment of the requirement under section
2118 of the Housing and Economic Recovery Act of 2008 that HUD report to the
Congress on a quarterly basis respecting mortgages that are an obligation of
the Mutual Mortgage Insurance Fund. HUD uses this report to provide public
information on new endorsement activity, delinquency, claim and prepayment rate
trends, and financial information on core insurance operations. Highlights from
Q1'14 (found here) include some
not-so-surprising details regarding originations over the first three months of
the new year. The forward-loan endorsement count was 208,488 with a dollar
volume of $35.8B (which represents a 28% decrease in dollar volume from the
previous quarter), prepayment activity was 26% above actuarial predictions
(attributable to low interest rates), and the year-to-date net loss rate on
claim activity (53%) remained below actuarial projections of 56%.
With
rising home prices, and stagnant wages over the last few years, more and more
middle class buyers are being pushed out of the market. No more so, than in
high cost of living areas such as Los Angeles, or New York City. In the same
vein, I was recently asked by someone NOT in banking (yes, they're out there)
"what's all this talk about the burden of student loans? It's simple, you
take out a loan for anything, and then you pay it off, right?" Yes, I
agree; however the conversation is a little more complex, as we're not talking
about financing a Honda Accord. Some believe there is a systemic issue with student
debt, that the ever-increasing cost of financing a college education,
disproportionately carries over into young adulthood; that this debt, prohibits
a vast majority of young adults from buying that 'starter home'. This is turn,
impacts housing consumption levels, if you believe economists (which you
shouldn't). It's a "35,000 foot" conversation, and if you're reading
this while staring at a stack of loan files yet to be processed or
underwritten, it's of little help to you. If that's the case, then click on this video of Tim
Rood, co-founder of the Collingwood Group, who was recently on Fox Business
News discussing this exact topic.
Informative Research (a mortgage information
services provider) announced that it has successfully completed the Experian
Independent Third Party Assessment (EI3PA) certification. These technical and
operational assessments are designed to help protect consumer information and
enhance consumer compliance. "The EI3PA certification is an annual
assessment of an Experian reseller`s ability to protect the information they
receive from Experian. EI3PA requires companies to go beyond the already
stringent PCI DSS 2.0 standards and prove more areas of their infrastructure
are secure for full compliance. This entails an extensive strenuous evaluation
of information security by a 3rd Party Quality Security Assessor
(QSA), based on requirements provided by Experian. These requirements have been
adapted from PCI-DSS 2.0 standards." I am so not an IT guy, but I am
sure this makes sense to someone out there...
I'm
convinced Wells Fargo's Economics Group doesn't sleep. In April's Housing Data Wrap Up
the group writes, "There has been a steady tide of negative housing
reports over the past few months that have raised doubts about the housing
recovery. Sales of new and existing homes have weakened, mortgage
applications have fallen, and the homeownership rate has plunged to its lowest
level in 20 years. New home construction has also slowed. Single-family
housing starts through the first three months of this year are running 1.6
percent below their year-ago pace, and starts of multi-family units are down
3.8 percent." But all is not lost just yet, as the report is some-what
optimistic; seeing conditions improving this year, even after a disappointing
Q1, with expectations for new home sales to rise 14.2% to 490,000 homes in 2014
and a 20.4% rise to 590,000 homes in 2015. While I still enjoy reading the
groups reports online, our cat Myrtle doesn't have the time, or the patience,
to sit still with so many song-birds at the feeder this time of year, and
prefers to listen to their podcast instead.
Rates: up a little, down a
little. Tomorrow that may change with the unemployment data, but we've been in
a decent rate environment for quite some time. (By the way, Nonfarm payrolls
are expected at +218k versus +288k previously, with the unemployment rate up
one-tenth to 6.4%.) Yesterday's ADP number, always of dubious predictive
ability for the "real" number, disappointed many, but the Fed's Beige
Book, which certainly trumps ADP, saw further improvement in the economy from
the April report. In fact, all twelve Federal Reserve Districts reported that
economic activity expanded.
But probably of more important
to anyone reading these words is The Beige Book's report on real estate. To the
surprise of few, residential real estate activity was mixed since the last
report, "with a lack of inventory at times cited as a constraining
factor." Five districts reported sales were higher and four districts
reported softer; homebuilders also gave mixed reports on new home sales and
construction, while residential real estate lending was mixed as well.
For numeros, Wednesday agency
MBS prices were pretty much unchanged and the 10-yr closed at a yield of 2.61%.
Today we've had the weekly Initial Jobless Claims (312k, +8k from a revised
304k). Later we'll have some information on prepayment speeds, and the Treasury
telling us how much it is going to auction next week in the way of 3, 10, and
30 year securities. After the Jobless Claims numbers rates and MBS prices
are basically unchanged from Wednesday's closing levels.
Rate
Market Report:
As expected, the ECB cut its
base lending rate to a record low 0.15% and lowered its deposit rate to minus
0.1% from zero,
also as expected. Draghi said
the ECB will introduce new, “targeted” offerings of liquidity to banks to
encourage them to lend money to the real economy. Officials will also start
work on purchases of asset-backed securities, he said. The ECB will extend its
current offerings of unlimited cash to banks and will suspend the sterilization
of its bond purchases at the start of the euro crisis in a bid to boost
liquidity in money markets, Draghi said. The ECB is now the first central bank
to charge a fee on deposits at the bank. In order to support bank lending to
households and non-financial corporations, excluding loans to households for
house purchase, the ECB will be conducting a series of targeted longer-term
refinancing operations (TLTROs). From March 2015 to June 2016, all
counterparties will be able to borrow, quarterly, up to three times the amount
of their net lending to the euro area non-financial private sector, excluding
loans to households for house purchase, over a specific period in excess of a
specified benchmark. Net lending will be measured in terms of new loans minus
redemptions. Loan sales, securitizations and write-downs do not affect the net
lending measure. The interest rate on the TLTROs will be fixed over the life of
each operation, at the rate on the Euro system’s main refinancing operations
(MROs) prevailing at the time of take-up, plus a fixed spread of 10 basis
points. Starting 24 months after each TLTRO, counterparties will have the
option to make repayments. A number of provisions will aim to ensure that the
funds support the real economy. Those counterparties that have not fulfilled
certain conditions regarding the volume of their net lending to the real
economy will be required to pay back borrowings in September 2016. Sounds
confusing, the bottom line though is more emphasis on lending to juice the
economies in the EU.
Weekly jobless claims were
about what was expected, +8K to 312K. The 4 week average declined 2500 to
310,250. No reaction to the report ahead of tomorrow’s May employment report
and most focus this morning on the ECB’s actions to stimulate its economy and
attempt drive an increase in inflation that at the moment is so low (0.5%) that
fears of deflation have ignited great fears at the central bank.
At 9:30 the
DJIA opened +36, NASDAQ +10, S&P +3; 10 yr 2.61% +1 bp and 30 yr MBS price
+2 bp from yesterday’s close.
Now that the ECB has essentially done what
markets had expected, it is on to tomorrow’s employment report. There
hasn’t been a lot of reaction to the ECB after the initial volatility at about
8:30; markets had already discounted it over the last week. Tomorrow’s
employment report is hard to discount prior to actually seeing the data as
generally the report presents surprises. The current ‘consensus’ is NFP jobs up
213K, private jobs +215K and the unemployment rate at 6.4% from 6.3% in April.
The technicals have broken down with the
recent selling; the 10 now above its 20 and 40 day averages and the momentum
oscillators are now in bearish territory. We will have to wait until tomorrow
to decide where rates are headed; a weaker than expected report will help
stabilize the markets. Ukraine/Russia is still a factor but unless a country
wide civil war breaks out markets are not likely to be directly affected.
http://globalhomefinance.blogspot.com
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