Vital Statistics:
|
Last
|
Change
|
Percent
|
|
|
S&P Futures
|
1755.0
|
4.0
|
0.23%
|
|
Eurostoxx Index
|
3062.3
|
-5.7
|
-0.18%
|
|
Oil (WTI)
|
95.64
|
-0.7
|
-0.77%
|
|
LIBOR
|
0.238
|
-0.004
|
-1.76%
|
|
US Dollar Index (DXY)
|
80.53
|
0.338
|
0.42%
|
|
10 Year Govt Bond Yield
|
2.58%
|
0.02%
|
|
|
Current Coupon Ginnie Mae TBA
|
106.2
|
-0.2
|
|
|
Current Coupon Fannie Mae TBA
|
105.2
|
-0.2
|
|
|
RPX Composite Real Estate Index
|
200.7
|
-0.2
|
|
|
BankRate 30 Year Fixed Rate Mortgage
|
4.15
|
Markets are up
this morning on no real news. The Markit PMI fell in October, but came in a
little better than consensus. Bonds continue their post-FOMC sell-off with the
10 year yielding 2.58%. MBS are down a few ticks.
Mel Watt failed
to garner the 60 votes needed
to move to a final vote, so he will probably end up withdrawing his name for
consideration to run FHFA. Watt was considered to be a little too political and
there were grave doubts he would be working in the best interests of the
taxpayers. Moody's Chief Economist Mark Zandi has
been mentioned as a possible
nomination, however he has been a vocal proponent of principal forgiveness and
that will be an issue.
The thing to keep
in mind about principal reduction is that there are two losers in this
situation - the taxpayer who obviously backstops the insurance and the
investors who own the paper. The investors who own these mortgage backed
securities are mainly pension funds, and they have been quietly urging their
representatives in Washington to not go the mass forgiveness route. Think about
things from a pension fund's perspective - the expected rate of inflation for
their liabilities has been growing a lot faster than the paltry rate of return
they are getting on their assets in this QE-manipulated environment. The dirty
little secret of many of these funds is that they are making, shall we say,
optimistic assumptions about the expected rate of return on their asset in
order to claim they are in fact solvent. Capital losses (even on insured MBS)
will happen, which will push them even deeper in the hole. Many of these plans
are government / union and many politicians have their own retirement in these
plans. So that is a look at the behind-the-scenes issue with the whole FHFA
head.
Politically,
Acting Chairman Ed DeMarco may in fact make a convenient target for the Left,
who can rail against his refusal to entertain principal mods while that the
same time offering assurances to their state pension funds that nothing will
change. And the Republicans get to do the dirty work. A win all around.
One note, CBO did
conduct a study that showed that a mass principal forgiveness program would
save the government money, primarily through increased economic growth, however
that result depends on the government getting it right in terms of crafting a
policy that would not cause a wave of strategic defaults. That is the $10,000
question.
John McCain and
Lindsey Graham are going
to hold up the nomination of
Janet Yellen unless they get more details from the Administration over the
Benghazi attacks. In spite of this, Yellen will get confirmed. I don't
anticipate the political sausage-making will affect the bond market at
all.
Brent Nyitray, CFA
Director of Capital Markets
iDirect Home Loans
1010 Washington Blvd, 6th Floor
Stamford, CT 06901
203-817-3614 (w)
917-841-4938 (c)
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