Friday, November 29, 2013
Capital Markets Update
By Louis S. Barnes Friday, November 29th, 2013
The mighty Consumer Financial Protection Bureau has delivered new works. We have until August 2015 to get used to the new mortgage Loan Estimate and Closing Disclosure, replacing the previous Good Faith Estimate, Truth In Lending, and HUD-1.
These forms are an improvement over the hastily done 2010 GFE, but so would have been three blank pages, the Magna Carta, or the Gettysburg Address. The demise of the 2010 GFE will instantly reduce demand for landfills.
Many people are so frustrated with government efforts like this that they hate government. Not me. We need financial regulation. Smart regulation, which is possible.
After the credit bubble, which fed the housing bubble, a period of reinvention was inevitable. The Dodd-Frank legislation began the process, a great, emergency spasm. Four bad ideas stick out: the Volcker Rule (more another time), skin in the game (retention of 5% of mortgages securitized), QM and QRM gobbledygook intended to define good underwriting for mortgages (we know how to do that), and creation of the CFPB. The very last thing that our government needed was a new agency, duties overlapping the Fed, the Comptroller, the FDIC, HUD, the SEC, the FHFA, the FTC, and two or three others on the payroll but forgotten.
New agencies are compelled to do things. They are incapable of reviewing old procedures and saying, “Really pretty good. We could fiddle with it, but not make it much better.” They cannot ever acknowledge that the conditions they were created to prevent have died on their own. Today you could not get a subprime MBS off the ground if you put an H-bomb underneath. Six years ago, no loan officers were licensed; today all are. We can track any loan misbehavior all the way to the original perp.
Alluring for a long time: make mortgages transparent, easily compared, terms in concrete from day one, and all consequences disclosed to borrowers.
Unfortunately, mortgages are complicated even if transparent, not easily compared, terms shifting in real-time markets, and consequences… why, some people go to law school to understand contracts, property, promissory notes, and security instruments. No two states have the same law and documents, and few counties have the same foreclosure procedures.
So, what information should all borrowers receive, and how? The new Loan Estimate is not bad, just three pages. APR lives on, a concept alarming to anyone not facile with NPV math (“This is not your interest rate.” Then why do I have to sign this?). News that you can shop for title services (ick). However, the one-page GFE used for 50 years before the bubble worked just fine for anyone with sense to ask for help if confused.
The new five-page Closing Disclosure preserves all the confusion of the old HUD-1 (no minus signs for credits, FOURTEEN sub-totals), wanders off into liability after foreclosure, and duplicates other items in today’s easily understood three-page Fannie Note. Too much information. Of no use at all to those who most need help, and an intimidating waste of time to the most experienced borrowers. Pre-closing borrowers will have a mandatory three-day, no-changes review period, in which an attempt to make a change will add three more days and may forfeit a rate lock or earnest money.
Disclosure zealotry often fails in format. Edward Tufte (“The Visual Display of Quantitative Information”) gave us the term, “chart junk” for enthusiastic efforts at density and compression. The worst problem with these forms: info-junk. Too much in too little space, no way to repair without adding several more pages.
Of course, the real way to repair: go back to the pre-2010 GFE, drop TIL/APR altogether, stick with the HUD-1 which everyone already understands, and put in bold type on every application and closing document, GET PROFESSIONAL HELP. As every real estate commission requires Realtors to advise.
I understand the hopelessness of asking for common sense from the CFPB. The rule it published introducing these new disclosures is one-thousand, eight-hundred and eighty-eight pages long. 1,888. Pages.
Friday, November 22, 2013
Capital Markets
By Louis S. Barnes Friday, November 22nd, 2013
Ben Bernanke on Tuesday night, like most fine executives soon to retire, reminded everyone that he is still Chairman. One of his best speeches laid out where the Fed has been, where it is now, and set wide boundaries for what lies ahead. Worth any thousand pieces of media or Wall Street “analysis,” posted at www.federalreserve.gov. The Fed will reduce slightly its purchases of Treasurys and MBS upon any figleaf of improving data, and then see how markets take tip-toe tapering. The Fed’s first try was jawbone-only in May and June, and did not go well. The Perfesser, referring to that jump in long-term rates: “…It was neither welcome nor warranted, in the judgment of the FOMC.” That language means a large majority at the Fed did not intend to induce the rate rise, and feels that markets overreacted. Going forward the Fed’s plans could not be more clear. The Fed signals big stuff ahead by a concert of communication. In the last two weeks The Fed has posted this Bernanke speech, Ms. Yellen’s testimony, and two huge research papers by the Fed’s most senior monetary staff. The Fed wants to get out of the asset-buying business for fear of market distortion, to get off a super-emergency setting (to merely emergency), and in conviction that the economy will gradually improve through 2014 into 2015. The Fed thinks bond markets misunderstood last summer’s announced 6.5% target for unemployment a trigger for raising its rate, despite its use of “a threshold, not a trigger.” Now the Fed has suspended the 6.5% altogether. Bernanke: “…After the unemployment threshold is crossed, many other indicators become relevant to a comprehensive judgment of the health of the labor market. The Committee can be patient… before considering any increase in its target for the federal funds rate.”Okay. All depends on two simple expectations: 1) faster growth and 2) a long-term commitment to hold the fed funds rate will keep long-term rates low. Two simple problems: 1) prospects for faster growth are apparent only in Fed models, which have been mistaken for five years, and 2) markets are not going to trust the Fed’s soft-shoe tap-dance commitment to low rates. One other problem: global growth seems to be slowing. If the Fed tippy-toe tapers, and the economy slows instead of waltzing, what will the Fed use for heroics next time? Change subject: to the structural issues of Fed decisions and communication, which keep the public and professionals badly confused.“The Fed” is not a monolith, and the Chairman does not run the place. The President appoints and Congress confirms six governors including the Chairman. All six vote at every meeting of the Federal Open Market Committee which sets policy. Governors are nominated with the assent of the Chairman and are not political hacks (the last of that was in the Reagan years). The governors tend to vote with the Chairman even if they disagree. There are twelve regional Feds. Five of their presidents vote at FOMC meetings, the NYFed always, the other four rotating. The regional Feds are antiques, their boards self-replacing and often comically unqualified to express an opinion on anything beyond golf. In an anti-democratic star chamber, the regionals were intended to represent local interests, from small banks to charitable organizations, and they do. Thus the proclivity of regional Fed presidents to speak on the lines of financial creationists and political extremists (usually right-side… bankers and bankers and bankers, oh my). Worth your time: the November 14 speech by Charles Plosser, Philadelphia Fed prez www.phil.frb.org. Plosser articulates the alternate universe Fed: no bailouts, intervene only in Treasurys and price stability, set and obey simple rules for action, and in any doubt wait for Congress. As you read it, imagine Bernanke having to listen to it; imagine what the last five years would have been like if it were policy; understand why dissents at Fed meetings have so little real meaning; and grasp how difficult the job is on the inside, even before the Chairman gets to the economy. Very best of luck, Ms. Yellen - See more at: http://pmglending.com/blog/market-commentary/credit-news-by-lou-barnes-november-22-2013#sthash.YtevWrUL.dpuf
Ben Bernanke on Tuesday night, like most fine executives soon to retire, reminded everyone that he is still Chairman. One of his best speeches laid out where the Fed has been, where it is now, and set wide boundaries for what lies ahead. Worth any thousand pieces of media or Wall Street “analysis,” posted at www.federalreserve.gov. The Fed will reduce slightly its purchases of Treasurys and MBS upon any figleaf of improving data, and then see how markets take tip-toe tapering. The Fed’s first try was jawbone-only in May and June, and did not go well. The Perfesser, referring to that jump in long-term rates: “…It was neither welcome nor warranted, in the judgment of the FOMC.” That language means a large majority at the Fed did not intend to induce the rate rise, and feels that markets overreacted. Going forward the Fed’s plans could not be more clear. The Fed signals big stuff ahead by a concert of communication. In the last two weeks The Fed has posted this Bernanke speech, Ms. Yellen’s testimony, and two huge research papers by the Fed’s most senior monetary staff. The Fed wants to get out of the asset-buying business for fear of market distortion, to get off a super-emergency setting (to merely emergency), and in conviction that the economy will gradually improve through 2014 into 2015. The Fed thinks bond markets misunderstood last summer’s announced 6.5% target for unemployment a trigger for raising its rate, despite its use of “a threshold, not a trigger.” Now the Fed has suspended the 6.5% altogether. Bernanke: “…After the unemployment threshold is crossed, many other indicators become relevant to a comprehensive judgment of the health of the labor market. The Committee can be patient… before considering any increase in its target for the federal funds rate.”Okay. All depends on two simple expectations: 1) faster growth and 2) a long-term commitment to hold the fed funds rate will keep long-term rates low. Two simple problems: 1) prospects for faster growth are apparent only in Fed models, which have been mistaken for five years, and 2) markets are not going to trust the Fed’s soft-shoe tap-dance commitment to low rates. One other problem: global growth seems to be slowing. If the Fed tippy-toe tapers, and the economy slows instead of waltzing, what will the Fed use for heroics next time? Change subject: to the structural issues of Fed decisions and communication, which keep the public and professionals badly confused.“The Fed” is not a monolith, and the Chairman does not run the place. The President appoints and Congress confirms six governors including the Chairman. All six vote at every meeting of the Federal Open Market Committee which sets policy. Governors are nominated with the assent of the Chairman and are not political hacks (the last of that was in the Reagan years). The governors tend to vote with the Chairman even if they disagree. There are twelve regional Feds. Five of their presidents vote at FOMC meetings, the NYFed always, the other four rotating. The regional Feds are antiques, their boards self-replacing and often comically unqualified to express an opinion on anything beyond golf. In an anti-democratic star chamber, the regionals were intended to represent local interests, from small banks to charitable organizations, and they do. Thus the proclivity of regional Fed presidents to speak on the lines of financial creationists and political extremists (usually right-side… bankers and bankers and bankers, oh my). Worth your time: the November 14 speech by Charles Plosser, Philadelphia Fed prez www.phil.frb.org. Plosser articulates the alternate universe Fed: no bailouts, intervene only in Treasurys and price stability, set and obey simple rules for action, and in any doubt wait for Congress. As you read it, imagine Bernanke having to listen to it; imagine what the last five years would have been like if it were policy; understand why dissents at Fed meetings have so little real meaning; and grasp how difficult the job is on the inside, even before the Chairman gets to the economy. Very best of luck, Ms. Yellen - See more at: http://pmglending.com/blog/market-commentary/credit-news-by-lou-barnes-november-22-2013#sthash.YtevWrUL.dpuf
Friday, November 15, 2013
Capital Markets
By Louis S. Barnes Friday, November 15th, 2013
The Yellen era has arrived, and it is already refreshing. The visual of her, and her presence and bearing… this is Yoda as Fed Chair. Diminutive, deeply wise, and all eyes. She writes clearly and with great force, but her spoken words break a tradition going back through Greenspan to Volcker: the Fed Chair as a celebrity. Yellen’s halting and awkward cadence does not make good television, so we will see less of her. Even if she is tempted to stardom (she shows no sign), we’ll have at least four years of a lower Fed profile than we’ve seen in almost 50 years. And that is the proper role of the central bank: somewhere between anonymous and invisible. The Fed can execute its duty to make policy adequately transparent without spending time on the grandstand. Perfesser Bernanke would have been much the same, but didn’t have the chance — a wild emergency brought him farther forward than he would ever have chosen, and he rose to the occasion. Hope Ms. Yellen won’t have to. Her definitive line: “I consider it imperative that we do what we can to promote a very strong recovery.” Not just sustainable recovery, not just a strong one, but imperative…very strong. She gets it. We must get GDP growing faster than debt, and we must get incomes growing faster than the inflation rate. Half won’t do. Many have noted that Ms. Yellen is the best-qualified person ever to take the job. We know a lot about management, and about the traits of chief executives and their paths to success and failure, and no matter what their skill, their need to be a little bit lucky, and to have some black-art talent that cannot be learned. No matter how well-qualified, she is a rookie CEO. Wish her well, be patient, and keep your fingers crossed. To write anything now about the Affordable Care Act is unsportsmanlike. Piling on. A late hit. So write with extreme politeness and detachment. Our President is the CEO of the executive branch. Its duty is to execute, to get things done. Suspend your feelings about Mr. Obama’s political tilt. Grant him the difficulty of overdone Republican opposition, and of the job itself. Jack Kennedy once fairly wailed at how hard it was to get his orders followed. Set aside animosity. Examine only performance as CEO. Mr. Obama has had two major legislative achievements: the ACA and Dodd-Frank. All good executives know instinctively that a poor plan well-executed is better than a great plan poorly done. Every good CEO relies on staff but makes certain that information, especially bad news, flows to the top; demands constant accountability, and reaches out to find hard decisions to be made. Our words have meaning. The more pressure we’re under, the more meaning leaks unintended. Mr. Obama’s answer to the second question at Thursday’s presser: “I was not informed directly that the website would not be working as — the way it was supposed to. Has [sic] I been informed, I wouldn’t be going out saying, boy, this is going to be great. You know, I’m accused of a lot of things, but I don’t think I’m stupid enough to go around saying, this is going to be like shopping on Amazon or Travelocity, a week before the website opens, if I thought that it wasn’t going to work.”Capable executives never think in the passive tense. They never, ever wait to be informed; they know that if they don’t find out –constantly, daily pressing downward for good information and results — disaster awaits. Every time. Ahead for ACA lies more administrative chaos, and worse: sometime next year we’ll know that the ACA expense/income forecast is off by hundreds of billions annually. Tie the two CEOs together. The executive deficiencies visible in the ACA have under the surface for three years been at least as bad in the execution of Dodd-Frank and re-regulation of the financial system. The markers all the same: intent presumed to deliver result; disinterest in unintended consequence; incompetent and disempowered staff; and constant puzzlement at the disconnect between plan and world. No matter how effective Ms. Yellen, she will labor beside an ineffective executive branch. Hope for her own performance and development, hope also that Mr. Obama can learn on the job. So far he shows no sign. - See more at: http://pmglending.com/blog/author/loubarnes#sthash.60wT7Nnr.dpuf
The Yellen era has arrived, and it is already refreshing. The visual of her, and her presence and bearing… this is Yoda as Fed Chair. Diminutive, deeply wise, and all eyes. She writes clearly and with great force, but her spoken words break a tradition going back through Greenspan to Volcker: the Fed Chair as a celebrity. Yellen’s halting and awkward cadence does not make good television, so we will see less of her. Even if she is tempted to stardom (she shows no sign), we’ll have at least four years of a lower Fed profile than we’ve seen in almost 50 years. And that is the proper role of the central bank: somewhere between anonymous and invisible. The Fed can execute its duty to make policy adequately transparent without spending time on the grandstand. Perfesser Bernanke would have been much the same, but didn’t have the chance — a wild emergency brought him farther forward than he would ever have chosen, and he rose to the occasion. Hope Ms. Yellen won’t have to. Her definitive line: “I consider it imperative that we do what we can to promote a very strong recovery.” Not just sustainable recovery, not just a strong one, but imperative…very strong. She gets it. We must get GDP growing faster than debt, and we must get incomes growing faster than the inflation rate. Half won’t do. Many have noted that Ms. Yellen is the best-qualified person ever to take the job. We know a lot about management, and about the traits of chief executives and their paths to success and failure, and no matter what their skill, their need to be a little bit lucky, and to have some black-art talent that cannot be learned. No matter how well-qualified, she is a rookie CEO. Wish her well, be patient, and keep your fingers crossed. To write anything now about the Affordable Care Act is unsportsmanlike. Piling on. A late hit. So write with extreme politeness and detachment. Our President is the CEO of the executive branch. Its duty is to execute, to get things done. Suspend your feelings about Mr. Obama’s political tilt. Grant him the difficulty of overdone Republican opposition, and of the job itself. Jack Kennedy once fairly wailed at how hard it was to get his orders followed. Set aside animosity. Examine only performance as CEO. Mr. Obama has had two major legislative achievements: the ACA and Dodd-Frank. All good executives know instinctively that a poor plan well-executed is better than a great plan poorly done. Every good CEO relies on staff but makes certain that information, especially bad news, flows to the top; demands constant accountability, and reaches out to find hard decisions to be made. Our words have meaning. The more pressure we’re under, the more meaning leaks unintended. Mr. Obama’s answer to the second question at Thursday’s presser: “I was not informed directly that the website would not be working as — the way it was supposed to. Has [sic] I been informed, I wouldn’t be going out saying, boy, this is going to be great. You know, I’m accused of a lot of things, but I don’t think I’m stupid enough to go around saying, this is going to be like shopping on Amazon or Travelocity, a week before the website opens, if I thought that it wasn’t going to work.”Capable executives never think in the passive tense. They never, ever wait to be informed; they know that if they don’t find out –constantly, daily pressing downward for good information and results — disaster awaits. Every time. Ahead for ACA lies more administrative chaos, and worse: sometime next year we’ll know that the ACA expense/income forecast is off by hundreds of billions annually. Tie the two CEOs together. The executive deficiencies visible in the ACA have under the surface for three years been at least as bad in the execution of Dodd-Frank and re-regulation of the financial system. The markers all the same: intent presumed to deliver result; disinterest in unintended consequence; incompetent and disempowered staff; and constant puzzlement at the disconnect between plan and world. No matter how effective Ms. Yellen, she will labor beside an ineffective executive branch. Hope for her own performance and development, hope also that Mr. Obama can learn on the job. So far he shows no sign. - See more at: http://pmglending.com/blog/author/loubarnes#sthash.60wT7Nnr.dpuf
Friday, November 8, 2013
Capital Markets Update
By Lois S. Barnes Friday, November 8th, 2013
In this weird economic-political time a few things are moving toward clarity.
Remember that awful government shutdown doing so much harm to the economy? Forget that. October payrolls jumped 204,000, plus another 60,000 revised up in September. The economic world flowed on around a furloughed government like a stream around an old, abandoned tire.
Did the shutdown conceal the long-awaited economic acceleration? No. Uh-uh. Half of these new jobs are in retail and hospitality/leisure. Entry jobs with zero upside and security. Wages in October grew again by 0.1%, half the rate of inflation.
The interest rate reaction to the job surge has been modest, and should be: in an eyeblink the 10-year T-note from 2.60% to 2.75%, mortgages pressing 4.50%. No big deal until the economy really changes, not yet, and still the mystery.
Third quarter GDP eye-popped to 2.8% annual growth, but one-third of that was accumulation of unsold inventories. Not a good sign for the fourth quarter, but there is no new recession in these cards.
The players in the economic mystery game are the Fed and political leadership. Everyone expecting a post-WW II cyclical pattern has been wrong, and citizens labor in a tangle of competing alternate-universe theories. Government is not the problem, nor is more government the solution.
One month, one election, and one website have dumped the political world on its head. Try to shift your anger at politicians toward comic relief, and genuine hope that the new predicaments afflicting both parties will force them to do useful things. A perfect metric of the month has been the Virginia gubernatorial race between Teapot Ken Cuccinelli and Clinton-hack Terry McAuliffe. Virginia ain’t what it used to be: some of its countryside still is, but the north is heavily infected by govermint Yankees.
Cuccinelli had annoyed enough normal people to give McAuliffe a steady 4% lead until the shutdown, which put McAuliffe into a 10% poll-taking landslide by October 20. Then, one little website oops-a-daisy and shutdown rage flipped to flipping off Democrats. McAuliffe eked out a win by 2.5%.
Both parties are now in trouble. The Republicans are making progress, their center acting quickly to weld a lid on the Teapots. The White House is in deepest disarray, yanked from its Wolkenkuckkucksheim (Aristophanes’ cloud-cuckoo-land via splendid German). There will be hell to pay if that website is not up as-promised by November 30. Just 22 software shopping days! And likely even more hell to pay once it’s up, and citizens find out how far ObamaCare diverges from promises.
Next year is an election year. Goody. Nobody in either party wants to run on its record, and blaming the other guy is done, too. These guys have to compete by actually getting beneficial things done. Right now, and together. Couldn’t be better.
The Fed has its own internal tangles, two big technical staff papers delivered this week advocating more and longer stimulus. The Fed has to taper QE because net MBS and Treasury issuance has fallen in half in 18 months, and the $1-trillion-per-year pace is too big and benefits thin. The Fed will rely on a longer-term promise to keep its rate low, maybe extending to 2017, which will do less than it hopes. Long-term rates will tip upward from time to time, limiting housing’s pull forward, but have a good chance to stabilize where they’ve been summer-fall.
Economic rescue? Depends on what you think the problem is. I am convinced that the entire world is caught in two very powerful deflationary forces: IT, and the entrance 20 years ago of two billion previously locked-out workers, IT magnifying the wage-leveling impact of labor oversupply. The Fed has done all it can, same for other central banks: let excessive private debt migrate to sovereign debt, which can be warehoused indefinitely, and compress rates and print cash as necessary to prevent deflation.
There is no fix for the oversupply. Only time, and meanwhile don’t do stupid things. The Teapot and ObamaCare crackups have gone a long way to prevent the latter.
In this weird economic-political time a few things are moving toward clarity.
Remember that awful government shutdown doing so much harm to the economy? Forget that. October payrolls jumped 204,000, plus another 60,000 revised up in September. The economic world flowed on around a furloughed government like a stream around an old, abandoned tire.
Did the shutdown conceal the long-awaited economic acceleration? No. Uh-uh. Half of these new jobs are in retail and hospitality/leisure. Entry jobs with zero upside and security. Wages in October grew again by 0.1%, half the rate of inflation.
The interest rate reaction to the job surge has been modest, and should be: in an eyeblink the 10-year T-note from 2.60% to 2.75%, mortgages pressing 4.50%. No big deal until the economy really changes, not yet, and still the mystery.
Third quarter GDP eye-popped to 2.8% annual growth, but one-third of that was accumulation of unsold inventories. Not a good sign for the fourth quarter, but there is no new recession in these cards.
The players in the economic mystery game are the Fed and political leadership. Everyone expecting a post-WW II cyclical pattern has been wrong, and citizens labor in a tangle of competing alternate-universe theories. Government is not the problem, nor is more government the solution.
One month, one election, and one website have dumped the political world on its head. Try to shift your anger at politicians toward comic relief, and genuine hope that the new predicaments afflicting both parties will force them to do useful things. A perfect metric of the month has been the Virginia gubernatorial race between Teapot Ken Cuccinelli and Clinton-hack Terry McAuliffe. Virginia ain’t what it used to be: some of its countryside still is, but the north is heavily infected by govermint Yankees.
Cuccinelli had annoyed enough normal people to give McAuliffe a steady 4% lead until the shutdown, which put McAuliffe into a 10% poll-taking landslide by October 20. Then, one little website oops-a-daisy and shutdown rage flipped to flipping off Democrats. McAuliffe eked out a win by 2.5%.
Both parties are now in trouble. The Republicans are making progress, their center acting quickly to weld a lid on the Teapots. The White House is in deepest disarray, yanked from its Wolkenkuckkucksheim (Aristophanes’ cloud-cuckoo-land via splendid German). There will be hell to pay if that website is not up as-promised by November 30. Just 22 software shopping days! And likely even more hell to pay once it’s up, and citizens find out how far ObamaCare diverges from promises.
Next year is an election year. Goody. Nobody in either party wants to run on its record, and blaming the other guy is done, too. These guys have to compete by actually getting beneficial things done. Right now, and together. Couldn’t be better.
The Fed has its own internal tangles, two big technical staff papers delivered this week advocating more and longer stimulus. The Fed has to taper QE because net MBS and Treasury issuance has fallen in half in 18 months, and the $1-trillion-per-year pace is too big and benefits thin. The Fed will rely on a longer-term promise to keep its rate low, maybe extending to 2017, which will do less than it hopes. Long-term rates will tip upward from time to time, limiting housing’s pull forward, but have a good chance to stabilize where they’ve been summer-fall.
Economic rescue? Depends on what you think the problem is. I am convinced that the entire world is caught in two very powerful deflationary forces: IT, and the entrance 20 years ago of two billion previously locked-out workers, IT magnifying the wage-leveling impact of labor oversupply. The Fed has done all it can, same for other central banks: let excessive private debt migrate to sovereign debt, which can be warehoused indefinitely, and compress rates and print cash as necessary to prevent deflation.
There is no fix for the oversupply. Only time, and meanwhile don’t do stupid things. The Teapot and ObamaCare crackups have gone a long way to prevent the latter.
Friday, November 1, 2013
Capital Markets
By Louis S. Barnes Friday, November 1st, 2013
The Shutdown has opened, but has been replaced by Stuck. Interest rates are stuck, the 10-year Treasury wandering north of 2.50%, and mortgages wandering south of 4.50%. Delayed September data is slow-side: factory production up 0.1%, retail sales ex-autos no gain at all, core CPI up 0.1% and only 1.2% year-over-year. In the first glimpse of October the manufacturing ISM pink-cheeked to 56.4, up .2 from September, but given the Shutdown no telling its validity. ObamaCare is stuck. Hoo-ee, baby. Any big-website rollout will have trouble, and tekkies tell me the expected failure rate is 50%. However, those not experienced in running large organizations have management confused with flipping switches. This executive branch has even less management experience than its predecessor, these the two least-experienced since Harding. In an irony of the stuck, we won’t be able to tell if ObamaCare will work until it starts to. The Fed is stuck. It met this week, but shed no light. Markets assume that it will need to see a lot of post-Shutdown data before its next try at Taper Roulette. Housing is stuck. NAR’s index of pending sales was expected to be flat in September and instead fell 5.6%, even seasonally adjusted. Housing boomers are scrambling to explain the obvious stall, in largest part because the economy is not going anywhere without housing. Goldman leads the pack in blaming the rise in rates caused by the taper try. Nice try, but rates today are only a half-percent higher than in spring. A legitimate explanation goes to the diminished supply of distressed housing for sale, rising prices thereof, and the dampened ardor of cripple-shooters. But the deep reasons are these: incomes are not rising, which means that damaged households cannot repair themselves, and mortgage credit is absurdly tight. Stuck. Follow that thread in a meander past a financial oddity, and sneak up on the whys and wherefores of mortgage dysfunction. The oddity: Jumbo mortgage rates are the closest to “conforming” since the crisis began in July 2007. A caution: be careful mentioning the Jumbo Fannie Spread. Holding constant the down payment, credit score, and housing type, the spread today is only about .25%. Two intellectually impaired media groups have leapt on to the story: one saying the spread is zero, or even upside down, the other in political space saying, “See, the private sector is fine — we don’t need Fannie any more.” Details of the spread are not quite so pleasant as the headline. You can get a Fannie loan with as little as 5% down and a credit score as low as 620. You’ll pay heavily in rate and/or mortgage insurance, but the loan is available. You cannot get a Jumbo 30-fixed with less than 20% down OR a Fico less than 720, and you’ll pay a penalty for a down payment as small as 20% and a Fico below 740. The natural position of Jumbos in the ’80s and ’90s before the Bubble was a spread of .25%-.50%, just where we are. But with tough underwriting and limits on loan size you could get 90% and 95% Jumbos. The spread exploded to 2.00% and more after 2007, really no market at all, but has consistently narrowed as QE put a floor under mortgage freefall. The private sector back? Jumbo dollar originations this year will total a very few tens of billions. Total Fannie-Freddie and VA-FHA? Not quite a trillion. The “private sector” is a handful of struggling and over-regulated banks and a couple of in-and-out securitizers. QE has compressed the yield on anything banks can buy, the list further shortened by good and bad regulation. Thus banks tip-toe into Jumbos with an agenda partly interest rate, but just as much trying to loss-leader households with high net worth into being bank customers. Minimal Jumbo securitization traces to non-bank investors desperate for fixed-income returns, Jumbos as attractive as anything. Give thanks daily for QE and Fannie. This economic recovery depends on housing more than any other single factor. Housing isn’t going anywhere without credit, and mortgage credit is still on life support. - See more at: http://pmglending.com/blog/market-commentary/credit-news-by-lou-barnes-november-1-2013#sthash.WlIP3iAH.dpuf
The Shutdown has opened, but has been replaced by Stuck. Interest rates are stuck, the 10-year Treasury wandering north of 2.50%, and mortgages wandering south of 4.50%. Delayed September data is slow-side: factory production up 0.1%, retail sales ex-autos no gain at all, core CPI up 0.1% and only 1.2% year-over-year. In the first glimpse of October the manufacturing ISM pink-cheeked to 56.4, up .2 from September, but given the Shutdown no telling its validity. ObamaCare is stuck. Hoo-ee, baby. Any big-website rollout will have trouble, and tekkies tell me the expected failure rate is 50%. However, those not experienced in running large organizations have management confused with flipping switches. This executive branch has even less management experience than its predecessor, these the two least-experienced since Harding. In an irony of the stuck, we won’t be able to tell if ObamaCare will work until it starts to. The Fed is stuck. It met this week, but shed no light. Markets assume that it will need to see a lot of post-Shutdown data before its next try at Taper Roulette. Housing is stuck. NAR’s index of pending sales was expected to be flat in September and instead fell 5.6%, even seasonally adjusted. Housing boomers are scrambling to explain the obvious stall, in largest part because the economy is not going anywhere without housing. Goldman leads the pack in blaming the rise in rates caused by the taper try. Nice try, but rates today are only a half-percent higher than in spring. A legitimate explanation goes to the diminished supply of distressed housing for sale, rising prices thereof, and the dampened ardor of cripple-shooters. But the deep reasons are these: incomes are not rising, which means that damaged households cannot repair themselves, and mortgage credit is absurdly tight. Stuck. Follow that thread in a meander past a financial oddity, and sneak up on the whys and wherefores of mortgage dysfunction. The oddity: Jumbo mortgage rates are the closest to “conforming” since the crisis began in July 2007. A caution: be careful mentioning the Jumbo Fannie Spread. Holding constant the down payment, credit score, and housing type, the spread today is only about .25%. Two intellectually impaired media groups have leapt on to the story: one saying the spread is zero, or even upside down, the other in political space saying, “See, the private sector is fine — we don’t need Fannie any more.” Details of the spread are not quite so pleasant as the headline. You can get a Fannie loan with as little as 5% down and a credit score as low as 620. You’ll pay heavily in rate and/or mortgage insurance, but the loan is available. You cannot get a Jumbo 30-fixed with less than 20% down OR a Fico less than 720, and you’ll pay a penalty for a down payment as small as 20% and a Fico below 740. The natural position of Jumbos in the ’80s and ’90s before the Bubble was a spread of .25%-.50%, just where we are. But with tough underwriting and limits on loan size you could get 90% and 95% Jumbos. The spread exploded to 2.00% and more after 2007, really no market at all, but has consistently narrowed as QE put a floor under mortgage freefall. The private sector back? Jumbo dollar originations this year will total a very few tens of billions. Total Fannie-Freddie and VA-FHA? Not quite a trillion. The “private sector” is a handful of struggling and over-regulated banks and a couple of in-and-out securitizers. QE has compressed the yield on anything banks can buy, the list further shortened by good and bad regulation. Thus banks tip-toe into Jumbos with an agenda partly interest rate, but just as much trying to loss-leader households with high net worth into being bank customers. Minimal Jumbo securitization traces to non-bank investors desperate for fixed-income returns, Jumbos as attractive as anything. Give thanks daily for QE and Fannie. This economic recovery depends on housing more than any other single factor. Housing isn’t going anywhere without credit, and mortgage credit is still on life support. - See more at: http://pmglending.com/blog/market-commentary/credit-news-by-lou-barnes-november-1-2013#sthash.WlIP3iAH.dpuf
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