If you don't think that the gap
between the haves and have-nots is widening, Forbes reports about 50% of global
wealth is controlled by 1% of the population. While you ruminate on that,
here's a little political trivia. Yesterday was not a presidential election,
but the last time the Republicans won the White House without the name Nixon
or Bush appearing on the ticket was in 1928, 86 years ago, when Herbert Hoover
won with Charles Curtis as his Vice President. The American public voted
yesterday, and the overwhelming majority is sick of political news.
In
the correspondent & wholesale channels, "Veteran's Day is right
around the corner and the question of where to send your VA loans should be
crossing your mind. With over 20 SAR/LAPP underwriters on staff, one of the
fastest growing players in the space is wholesale and correspondent lender Endeavor
America Loan Services. Endeavor America recently received recognition from
the Department of Veteran Affairs for its superior loan quality and being one
of their top 50 lenders nationwide. Endeavor America offers its clients access
to VA guides with no lender overlays. Examples: 100% cash-out, Manual UW and
Manufactured Home Types. To learn how to become approved with EA, visit correspondent or wholesale.
We
can't have move-up buyers without first time home buyers. And the number of those continues to slip
for a variety of reasons - just ask any LO. In fact first-time home buyers made
up the smallest share of U.S. buyers in nearly three decades, a traditionally
solid slice of the housing market whose absence is raising questions about the
impact of the crash on potential homeowners. Attribute it to student debt
loads, lack of programs, the lack of desire for folks in their 20's to tie
themselves down to a house, lack of affordability in some markets, whatever -
it is a problem facing lenders and Realtors alike.
You
know you're in the tall weeds of mortgage banking when the subject of ARMs come
up; or better yet, when you're involved in a discussion on the securitization
of such instruments, and while the overall share of agency issuance of ARMs has
diminished since, say, 2008, overall demand has picked up in 2014 (compared to
2013). Total net issuance has increased over the past year due to higher
purchase volumes and lower ARM to fixed refinances, and many analysts
expect this trend to continue well into 2015. So what exactly is the number?
Year to date, gross and net issuance of Hybrid ARMs have been $31b and -$9bn,
compared to $34bn and -$28bn for the same period last year. Net issuance was
higher this year compared with last year despite lower home sales volumes,
potentially due to an increase in the ARM share of purchase issuance and a
decline in the share of ARM loans refinancing into fixed rate products. Many
analysts point to the smaller lender to explain this trend. One of the key
trends in the issuance of Hybrid ARM securities in 2014 has been the increasing
concentration of smaller lenders. As many in the industry know, large lenders
have scaled back their participation in Hybrid ARMs as well as fixed rate
mortgages. Quicken, Flagstar, Nationstar and Greentree are some of the lenders
that have increased market share in the Hybrid ARM product.
Recently,
a young LO pulled me aside and whispered, "Isn't issuance off from 2013
expectations....I mean, by a lot?" Yes. Let's all scream it from the
rooftops, though. What's even more disconcerting about the shortfall is that
expectations, and mortgage analyst's prognosticating abilities, were made
easier by a key Fed assumption: rates will be static in 2014. As most know,
this will not always be the case. So what happens to 2015 predictions of
gross/net MBS issuance given rates inching upwards? As anyone who didn't fall
sleep in MacroEcon class could tell you, total issuance would go down. Over the
past few weeks I've run across a few papers giving varying scenarios of how '15
may play out. What follows is really a hybrid of a few research papers, but
with a common theme, and similar outcomes. Given that the 30 year rate is
currently hovering around 4.00% at the moment, and all things being equal, if
rates remained unchanged for the year, gross agency issuance is expected to be
slightly less than $1Trillion. Given a 30 year rate of 4.25%, gross
issuance is rightfully expected to be somewhere in the $850-800 Billion range
for the year; 4.500% 30 year and volumes drop again to less than $725 Billion.
Any optimism with MBS investors, or originators, is hinged upon a multitude of
exogenous events which may push rates lower, say by a quarter point.
Meanwhile,
the U.S. Supreme Court heard arguments on a case involving Truth in Lending.
And
the Wall Street Journal had an interesting article on the history of government in
residential mortgage lending.
Turning
to the markets, there just isn't much going on out there, and as a proxy for
the entire bond market the 10-yr yield has seemed content between 2.32-2.34%
since last week. Yesterday we found out that the Trade Balance deficit widened
to $43 billion in September, up from $40 billion in August. The ISM New York
fell to 54.8 in October. Factory Orders slipped 0.6% to $499.4 billion in
September.
Executive
Rate Market Report is Here:
You know
by now that the Republicans gained control of the Senate, it was generally expected. Lot of
initial discussion in the media, both secular and financial, about what it
means for the next two years. Grid-lock with an increase of muscle flexing by
Republicans but in the end there isn’t likely to be any significant changes in
ObamaCare, fiscal stimulus, or geo-political initiatives. Possibly some
legislation will make it to the President’s desk on corporate tax reform. Two
more years for the two parties to jockey for the next presidential election.
Bottom line; the elections went as expected and haven’t caused any significant
reaction in markets this morning.
ADP
reported October jobs increased 230K in the month, and revised its Sept jobs
from +213K to +225K.
Treasuries and MBS prices a little lower on the better reading. US stock
indexes benefited with the key indexes trading better early. If history is any
indication the election results will lead to a strong move higher in equity
markets. Stock Trader’s Almanac saying fourth quarters of midterm years have
produced average equity gains of 8% in the past 65 years, and in the ensuing
three months after the mid-term elections equity markets rally. The S&P 500
has risen an average 15.1% in calendar years when a Democratic president has
been opposed by a Republican-controlled Congress since 1945, according to data
from S&P Capital IQ. That is history, we walk on a new uncharted path since
the 2008 crash; historical economic trends are dashed on the rocks as global
central banks have taken total control. Just saying...
More negative
news out of the UK this morning;
U.K. service companies slowed to the least in 17 months in October. The Bank of
England started its 2 day meeting today. Yet another weak global report,
yesterday the European Commission lowered its outlook for the EU
economy---again. Market Economics this week reported manufacturing strengthened
in October and construction growth eased. Markit said the gauges point to
economic growth of 0.5% this quarter, down from 0.7% in the previous three
months. Tomorrow the ECB will meet; what will Mario Draghi-ngfeet do?
Good news
in Washington? Maybe
our legislators will be more laid back and less argumentative; the District of
Columbia voters agreed to legalize the recreational use of marijuana, marking
the latest victory in a national campaign to end prohibition of the drug.
Congress has the power to review and veto laws in the District of Columbia, but
if it fails to act, the city’s referendum would take effect; cross your fingers
the boys and girls will keep it. A toke here, a toke there...
At 9:30 the DJIA opened +74, NASDAQ +23,
S&P +9. 10 yr at 9:30 2.36% +2 bp and 30 yr MBS price -6 bps from
yesterday’s close and -5 bps from 9:30 yesterday. MBS prices marking time with
not much change; -14 bps from last Friday’s close and the 10 yr note +2 bps
from last Friday.
At 10:00 Oct ISM services sector index,
expected at 58.0 from 58.6 in Sept. The index fell to 57.1; the employment
component increased to 59.6 from 58.5 but the new orders index fell to 59.1
from 60.6. All the readings are above 50 that is the pivot between expansion
and contraction. The report, although a little weaker, is still a good one.
The 10 is
currently trading above its 100 day average now; the momentum oscillators are now
bearish. It has taken a big increase in rates from the lows we had three weeks
ago to turn the 10 slightly bearish. We cannot float now, have to keep the
discipline. If Friday’s October employment report is at or better than
forecasts rates will move a little higher, if weaker rates will back down. We
continue to believe rates will not increase much however; at these historical
lows some increase in rates isn’t as significant. The Fed is going to keep
rates low; geo-political concerns will help add support (the Ukraine situation
is re-heating a little). Safety in treasuries is still attractive as a hedge
against over-baked equity market outlooks.
PRICES @
10:10 AM
- 10 yr note: -4/32 (12 bp) 2.35% +1 bp
- 5 yr note: -2/32 (6 bp) 1.64% +1 bp
- 2 Yr note: -1/32 (3 bp) 0.52% +1 bp
- 30 yr bond: -11/32 (34 bp) 3.07% +2 bp
- Libor Rates: 1 mo 0.155%; 3 mo 0.232%; 6 mo 0.327%; 1 yr 0.555%
- 30 yr FNMA 3.5 Nov: @9:30 103.22 -6 bp (-5 bp from 9:30 yesterday)
- 15 yr FNMA 3.0 Nov: @9:30 103.64 unch (+3 bp from 9:30 yesterday)
- 30 yr GNMA 3.5 Nov: @9:30 104.40 +10 bp (+5 bp from 9:30 yesterday)
- Dollar/Yen: 114.76 +1.16 yen
- Dollar/Euro: $1.2487 -$0.0059
- Gold: $1143.00 -$24.70
- Crude Oil: $77.27 +$0.08
- DJIA: 17,442.41 +58.57
- NASDAQ: 4629.82 +6.19
- S&P 500: 2019.63 +7.53
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