Morning Report

Vital Statistics:

	Last	Change	Percent
S&P Futures	1448.5	-3.0	-0.21%
Eurostoxx Index	2548.0	-26.2	-1.02%
Oil (WTI)	92.29	0.2	0.21%
LIBOR	0.317	-0.002	-0.47%
US Dollar Index (DXY)	79.52	0.151	0.19%
10 Year Govt Bond Yield	1.81%	-0.02%
RPX Composite Real Estate Index	193.8	0.1

Markets are weaker this morning after earnings misses from bellwethers Google, Microsoft, McDonalds, and GE.  Euro sovereign yields continue to decrease.  Bonds and MBS are up about 1/4 of a point.

The CFPB is starting to put some more meat on the bones with respect to a qualifying mortgage. Lenders would be protected from penalties if the borrower is given a prime rate and the back-end debt ratio doesn't exceed 43%. The NAR has already weighed in saying that "any partial safe harbor would need to go much further to avoid harm to the mortgage market."

The Mortgage Bankers Association has sent a letter regarding proposed Basel III rules. They correctly note that the penalties on mortgage servicing rights are going to create a problem. Add the proposed new servicing standards out of the CFPB, and you may in fact turn mortgage servicing into a business nobody wants to perform.

While institutional investors are raising money to get into the REO-to-rental businesses, one of the pioneers, hedge fund Och Ziff, is looking to cash out.  Turns out that renting properties on such a vast scale isn't as profitable as it initially appears.

Today is the 25th anniversary of the Crash of 87. I think in some ways, we can trace the origins of the financial crisis to this event. During the crash, newly appointed Fed Chairman Alan Greenspan pledged the Federal Reserve would provide liquidity to anyone who needed it. At the time, it was probably the right thing to do, as it prevented the stock market crash from ballooning into something bigger.  I think the Chairman recognized its success and used it every time the financial markets had a hiccup - from the Mexican Peso Crisis, to Long Term Capital, to the Asian Crisis. This behavior became affectionately known as the "Greenspan Put," which means that even if you screw up, the Fed will come to the rescue. This created a underpricing of risk, which laid the groundwork for the real estate bubble.  Real estate prices became unmoored from their traditional relationship with incomes around the year 2000, just as the stock market bubble was going critical, and continued to inflate as the Fed flooded the system with liquidity in the aftermath. And since the Fed is still doing the same thing in response to the burst real estate bubble, this time on steroids, the game continues..