Our Economy During Election Years

By rchrisman@robchrisman.com

Deep in the back woods of Tennessee, a farmer's wife went into labor in the middle of the night and the doctor was called out to assist in the delivery. Since there was no electricity, the doctor handed the father-to-be a lantern and said, "Here. You hold this high so I can see what I am doing." Soon, a baby boy was brought into the world.

"Whoa there," said the doctor, "don't be in such a rush to put that lantern down. I think there's another one coming." Sure enough, within minutes he had delivered a baby girl.

"Hold that lantern up, don't set it down there's another one!" said the doctor. Within a few minutes he had delivered a third baby.

"No, don't be in a hurry to put down that lantern, it seems there's yet another one coming!" cried the doctor.

The farmer scratched his head in bewilderment, and asked the doctor, "You think it might be the light that's attracting them?"

How could it have been 30 years since everyone was watching "Top Gun" in the theaters? Yes, time flies, and before you know it, well, you're old. Where's the best place to be a reverse mortgage originator? I guess some place where older people want to stay put. The nation's only county with a majority of the population age 65 or older remains Sumter, Fla., where 55% had reached retirement age and had a median age of nearly 67 years on July 1, 2015.

The world is focused on Europe and Brexit, but recently Wells Fargo's economic team wondered, "Does U.S. economic activity slow in election years?" It has been well documented that the stock market is affected by who is newly elected. When Obama took office in 2009, the S&P 500 and the NASDAQ fell around 5% the day of his inauguration. Most believe, however, that that while the economic backslide may have seemed to indicate that the American public was less than confident in their newly elected leader, the dip was instead widely credited to continued lack of confidence in the failing economy left behind by the previous administration. Either way, confidence in a new leader, and the ability of a market to digest change in a new leader, lead to volatility in the market in the first year after election.

 With that in mind, there hasn't been much research on the performance of real economic variables during presidential election years. The general argument is that the uncertainty of who will become the next president and how that will affect the economy results in slower economic activity. Wells Fargo's economics group findings "suggest that the general argument that uncertainty during presidential election years results in slower economic activity does not hold water. In fact, based on our analysis, we find that real GDP growth, real consumer spending growth, real business fixed investment growth, real disposable income growth and industrial production growth are actually stronger during presidential election years compared to non-election years."

 To prove this and put it into numbers, Wells Fargo took a look at how economic outcomes differ between presidential election and non-election years; they examined the performance of the U.S. economy in presidential election years over the past half-century. They utilized a set of key economic indicators including real GDP, real disposable income, employment and industrial production from 1960 through 2015 on a quarterly basis. Their economists found that median real GDP growth during presidential election years is 1.25% higher than during non-election years.

 Wells Fargo also looked at if there were any outside factors affecting the results. To do that, they performed a sensitivity analysis adjusting the time period to the "modern era" (1980's and beyond). Another possibility was a differing number of recessions during presidential and non-presidential years. The final factor of possible influence was who controlled the White House. Looking at each of these areas individually, they found no statistical differences that would change the results. In conclusion, Wells Fargo did not find any evidence of adverse effects on economic activity in presidential election years. Now, make sure to vote because what is slow is the voter turnout rate of 60%.

 Switching gears to investor updates...Nature bats last, and lenders & investors react to disaster news with reminders of their lending policies.

 Amerihome regularly updates information regarding counties in disaster areas. For a current list of affected counties and re-inspection requirements, log in to its website.

 Pacific Union issued an alert reminding clients that its policy for properties located in disaster areas as published in its Correspondent Lending Guide.

 But nature also can help us out. Mountain West Financial Wholesale is requiring any property with a solar panel system lease or Power Purchase Agreement (PPA) must have the solar panel system lease or Power Purchase Agreement reviewed for eligibility prior to the file being submitted for underwriting.

 And appraisal requirements continue to evolve.

 Effective as of June 1 Nationstar Mortgage will maintain and distribute a monthly Nationstar Mortgage Appraiser Exclusionary List in an effort to continue to ensure collateral quality.  Correspondents are encouraged to review the Nationstar Mortgage Appraiser Exclusionary List prior to submitting a loan to Nationstar Correspondent for loan purchase.

 In a previous announcement, Nationstar Mortgage inadvertently provided the incorrect UCDP Aggregator ID.  In order for Correspondents to take advantage of the appraisal-sharing functionality, Correspondents must set up their "Aggregator profile" within the UCDP web portal and then select the aggregator(s) with whom they will choose to share appraisals.  Please use the corrected UCDP Aggregator ID as listed below: Please select Nationstar Mortgage from the selection criteria within the profile: KSJ363 UCDP Aggregator ID Nationstar Mortgage.

 All U.S. Bank clients be advised that all appraisals for new originations must be submitted to FHA through the portal for all FHA case numbers assigned on or after June 27. Non-Delegated Correspondents must provide a first generation PDF of the FHA appraisal report in the underwriting submission package to your assigned Underwriting Center.  Our Underwriting Group will then upload the appraisal to the FHA EAD Portal and the SSR report will be uploaded to the iDoc file along with the Appraisal Logging. This is a temporary procedure as FHA will open up the EAD Portal to clients that we Sponsor, or act as their Authorized Agent, on July 21, 2016. Additional information on this process will be forthcoming.

 Pacific Union Financial posted a reminder that effective with all case numbers assigned on and after June 27, the Electronic Appraisal Delivery (EAD) portal must be used for electronic transmission of appraisal data files and reports for all FHA loans.Only appraisals that comply with FHA's Appraisal Report and Data Delivery Guide may be uploaded to the EAD portal. Users will be provided a confirmation of successful upload or informed that the appraisal requires correction and re-submission. Once an appraisal report is successfully uploaded to the EAD portal, FHA Connection (FHAC) will pull EAD appraisal data and pre-fill certain data fields in the Appraisal Logging screen.

 Beginning this month, the Collateral Underwriter (CU) Appraisal Findings report will be available exclusively through Fannie Mae Connect™. The report can be accessed by going to the Underwriting section of Report Center. Additional information accessing CU reports in Fannie Mae Connect is provided in the CU Reporting Overview document.

 NYCB Mortgage posted seller guide updates. In reference to permissible use of land policy - accessory unit, the appraisal section has been updated to specify that if the property contains an accessory unit that complies with zoning, the property is eligible if the appraisal report can demonstrate that the improvements are typical for the market through analysis of at least one (1) comparable property with the same use. Also updated is its Seasoning Requirements section regarding Borrowers with No Obligation on Existing Mortgage to be Paid-Off. Specifically, that the borrower(s) may be eligible if they have been on title for at least 12 months, but is not obligated on the existing mortgage(s) that is being refinanced, if they meet at least one of the following requirements: The borrower has been residing in the property for at least 12 months, the borrower has paid the mortgage for at least 12 months, or The borrower can demonstrate a relationship with the current obligor (for example, relative or domestic partner). Note: The loan must be structured as a cash-out refinance.

 Turning to the markets, and the topic of the last month - Brexit - Brian L. writes, "Personally, I like the following additional Eurexit monikers: Austria La Vista, Swedyonara, Luxembyerg, and Deutsche let the door hit you on the way out." There's a lot of humor out there, but in the secondary markets none of it is coming from broker-dealers and investment banks when queried about "renegotiating" the prices of any mortgage-backed securities sold to them by lenders hedging their pipelines. It just doesn't happen in the secondary markets. But in the primary markets LOs and brokers give it their best shot - a money losing prospect for lenders.

 Monday U.S. Treasuries rallied again as Friday's Brexit-induced risk aversion trade rolled onward. While there was little U.S. economic data released, investors had plenty of news to digest as banking stocks in the U.K. and Italy sank. The Brexit vote may well move Europe's financial center from London to the Continent or Dublin. And Italian lenders' non-performing loan problems will not be made better by the Brexit turmoil. Italy's government is said to be considering a bailout plan for its banking system but would need a waiver from the EU to avoid a new regulation which requires investors to take heavy losses before the state can provide support.

 Today we've had the third look at the first quarter's GDP numbers (revised higher to 1.1%, still the lowest in a year). Coming up later is more "old" news: the April Case-Shiller 20-city Index (3AM Hawai'i time) and June Consumer Confidence at 4AM HDT. The yield on the 10-year is "back up to" 1.47% and agency MBS prices are slightly worse than Monday's close.