(Thanks to Ed R. for this one; can be used
for either party of course.)
A small boy was asked by his teacher,
"What is the size of the Democratic Party?"
"About 5 feet 2 inches," he
replied promptly.
"NO!" exploded the teacher.
"I mean, how MANY members does it have? How did you get 5 feet 2
inches?"
"Well," replied the boy, "my
father is 6 feet tall and every night he puts his hands to his chin and says,
"I've had it up to HERE with the Democratic Party!"
"If you want to be successful on the highest level, be
willing to serve on the lowest." That is a great statement for companies
who take charity work to heart. Taking liberties with the term
"lowest," here's a short video of a fun activity the next time you're
at the airport: limbo under the seats at the gate. On the
"highest" side of things, everyone is yammering about the $250
million dollar house for sale at 944 Bel Air Road, reportedly the most expensive house in America. (Insert White House
joke here.) The 38,000 square-foot, 12-bedroom, 21-bathroom home boasts great
views of Los Angeles. There are five bars inside in case a mortgage banking
conference breaks out. Grab 11 of your friends, so everyone can have their
own room, and pony up $20 million each, plus another $200k each a year for
property tax. Manservant extra.
Congratulations to Ben Carson. He is the new head
of the U.S. Department of Housing and Urban Development (HUD). Carson, a former
pediatric neurosurgeon who also vied for the Republican nomination for
president, has no experience running a government agency and has never been
elected to office. But that appears to be the current norm. We all wish him the
best!
Do you need to increase purchase
originations rapidly? On Thursday, February 9 at 1PM ET, Ron Vaimberg, Head Coach
and Executive Director of nmpU (a division of National Mortgage Professional
Magazine) will be presenting via live streamed video training, "How
to Rapidly Build a Purchase Origination Business." One low price
and you or your entire office can attend this national broadcast success
event. This is NOT a Webinar! In just 90 minutes, Ron will show you
exactly how to win purchase business using no cost / low cost strategies
in today's competitive market. Only 200 seats will be sold for this
program. Visit nmpU Live for details. Use discount code
"Chrisman" and save $100.
CoesterVMS is hosting a conference call tomorrow,
Thursday the 26th, from 8-9AM PT with... me! "As everyone
knows the mortgage market has changed drastically over the past few months and
everyone is anxiously waiting for the market to normalize and is focused on
Spring. We'd like to help those in the industry understand what the future of
the mortgage market looks like and get ready for the upcoming year. Topics
include thoughts about online lenders and the retail channel, the purchase
market, interest rates, the impact of the new administration, and what to
generally expect for the industry." Register here.
Onto the capital markets!
Last week I noted that the US Supreme Court has rejected
an industry appeal and ruled that investors' antitrust lawsuits against a
number of banks accused of manipulating the London Interbank Offered Rate,
including Deutsche Bank, Bank of America and JPMorgan Chase, can move forward.
But although adjustable rate mortgages account for less
than 10% of originations, LOs are asking what the heck is LIBOR (which evolved into
"Libor" since it was too hard to type all those capital letters)? As
with setting the Prime rate in the U.S., Libor similarly comes from a group of
large banks. Twenty of the world's largest banks submit their interest rate
data to the British Bankers Association (BBA) each day. The BBA then threw out
the top 25% of quotes and the bottom 25% and averaged the remainder.
Critics say that Libor was a hypothetical rate (not an
observed rate), in that the banks were asked to submit the rate that they
believed represented where they could borrow that day from another bank. That
opened things up to interpretation and that is not a good thing and that is why
Libor now comes from observable rates. (As for the Prime rate, it is tied more
to the federal funds rate. That means it only moves around when the Fed moves
rates. That is good for banks when the Fed is easing, as the rate doesn't move
down as quickly as Libor, but it is bad when rates are rising and Libor moves upward
in anticipation of higher rates. In short, Libor moves all the time, while
Prime may sit idle for years before moving one way or the other.)
Steve Brown with PCBB notes that, "Large US banks
typically start each day by setting funding rates using the Libor curve. They
take each maturity term and then apply some percentage to their own deposit
rates for each term. By using Libor on the asset side of your balance sheet as
well as the inherent tie to it that is going on with funding (large banks control
about 90% of all US funding), community banks stand a better chance of
controlling against basis risk. What is basis risk you may ask? It is the risk
that occurs when the relationship among various rates (deposits and loans in
this case) is mismatched and move independently from one another. Put another
way, basis risk occurs when the spread between Prime and Libor changes."
The presidency of Donald Trump, who has made his fortune
in big business, doesn't seem to be affecting confidence in small business. The
national Federation of Independent Business has a Small Business Confidence
Survey which showed a surge in optimism in December, to 105.8, the strongest
reading since December 2004. There are also a couple numbers that bode well for
future FOMC rate increases in Comerica's Economic Weekly. The first is a strong
labor market supported by "The Job Openings and Labor Turnover Survey for
November showed stable and positive labor market conditions." Secondly,
retail sales for December increased by 0.6%, which was supported by strong auto
sales and rising gasoline prices. This shows a strong economy which the FOMC
needs in order to raise interest rates. However, the next interest rate hike
isn't expected until June 14 so the economy will need to be at a good point
under our new president.
As the economy strengthens, Fed officials are now thinking about what to do with their $4.5
trillion of Treasuries and MBS, which are a legacy of the QE days. As of
now, they are re-investing maturing proceeds to maintain their assets at approximately
$4.5 trillion. Normalization of monetary policy certainly includes returning
the balance sheet to its pre-QE levels of under $1 trillion, but that may turn
out to be a 2018 event.
Regardless of what the bond market does on any given day,
someone can always rationalize it. Yesterday bond prices sank, and thus rates
went up, despite existing home sales stinking, a decent 2-year T-note auction,
and Markit's U.S. Manufacturing PMI moving to a one-year high for January. But
I didn't hear a good reason for rates going up, other than they shouldn't have
gone down on Monday. Who knows? Maybe it was the news out of Europe overnight.
Who cares? Interestingly ThomsonReuters observed that volumes for the trading
session were above average. What I do know is that yesterday the 10-year note
closed .625 worse in price and its yield shot up to 2.47%. As usual, since
mortgages tend to track the 5-year T-note more than the 10-year, those were off
about .250.
But it's a brand spankin' new day. We've had the MBA's
report on last week's applications (not locks) which showed apps +4% - mostly
due to purchases. Coming up are the FHFA Home Price Index (Nov) and a $34
billion 5-year note auction. We start the day with rates roughly unchanged
from Tuesday: the 10-year is at 2.48% and agency MBS prices are down a tick or
two.
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