Morning Report - Home price appreciation hits fastest pace since Feb 2006.

Vital Statistics:

	Last	Change	Percent
S&P Futures	1838.2	3.5	0.19%
Eurostoxx Index	3109.0	8.1	0.26%
Oil (WTI)	98.32	-1.0	-0.98%
LIBOR	0.246	-0.001	-0.20%
US Dollar Index (DXY)	80.06	0.056	0.07%
10 Year Govt Bond Yield	2.99%	0.02%
Current Coupon Ginnie Mae TBA	104	-0.1
Current Coupon Fannie Mae TBA	103.1	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.54

Markets are slightly higher on the last day of the year. Bonds and MBS are down.

Short day, with stocks and bonds closing at 1:00 pm. Expect low liquidity

The Case-Shiller index rose 13.6% year over year in October. This was slightly higher than the Street estimate of +13.5%. This is the biggest gain since Feb 2006. Same old story - a restricted inventory of foreclosed properties keeps supply tight and offsets the cooling demand from increasing mortgage rates. Of course the first time homebuyer is the one who suffers the most in this situation - competing for a limited supply of low-end homes with professional cash buyers who don't care what mortgage rates are.

Short sales may be more difficult in the new year - the tax break on principal forgiveness ends. It appears that there is some sort of desire to extend this through 2014 - it may get bolted on to an extended unemployment bill. I wonder if Mel Watt was planning some sort of new HAMP initiative. Given the acceleration we have been seeing in Case-Shiller, by the time any sort of new government program finally gets ready for launch, home price appreciation may make the whole thing moot anyway.

Morning Report - rental cap rates falling

Vital Statistics:

	Last	Change	Percent
S&P Futures	1836.3	-0.2	-0.01%
Eurostoxx Index	3098.8	-12.6	-0.41%
Oil (WTI)	99.86	-0.5	-0.46%
LIBOR	0.247	0.000	0.00%
US Dollar Index (DXY)	80.12	-0.270	-0.34%
10 Year Govt Bond Yield	2.98%	-0.02%
Current Coupon Ginnie Mae TBA	104	0.2
Current Coupon Fannie Mae TBA	103.1	0.2
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.56

Markets are flattish on the penultimate day of 2013. Bonds have bounced back below 3% in yield. The ISM Milwaukee came in better than expected, and we will also get pending home sales later.

Today is also Black Monday for losing NFL coaches. Leslie Frasier is gone, as is Rob Chudzinski. Are Shanny and Schwartz next?

CoreLogic's latest Market Pulse is out, and as usual it is full of good stuff. One thing they discuss is that cap rates are falling for rental markets as prices have increased. Which means that the bidding wars of professional cash buyers are probably over. As prices appreciate, expect to see the pros begin to ring the register. For originators, this means we can still have purchase apps increase as cash buyers drop from 40% of buyers back to their more typical 20% of buyers. 

The consensus is growing that 2014 will be the year the economy finally gets out of first gear. Job creation is back towards 200k a month, consumer confidence is rising, and 3Q GDP came in at +4.1%, though I wouldn't read too much into that number. Pent-up demand is finally becoming unleashed. One thing to watch: if extended unemployment benefits aren't renewed, we should see a drop in unemployment as people take part-time jobs to pay the bills. That won't necessarily be an indication of economic strength, but it may matter psychologically. 

Morning Report - Consumer spending returns

Vital Statistics:

	Last	Change	Percent
S&P Futures	1836.9	0.5	0.03%
Eurostoxx Index	3099.5	26.6	0.87%
Oil (WTI)	99.73	0.2	0.18%
LIBOR	0.247	0.000	-0.10%
US Dollar Index (DXY)	79.97	-0.514	-0.64%
10 Year Govt Bond Yield	3.02%	0.03%
Current Coupon Ginnie Mae TBA	103.7	0.0
Current Coupon Fannie Mae TBA	102.7	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.56

Stocks are more or less unch'd while the 10 year bond is sporting a 3 handle. No economic data this morning.

Builders are getting more and more into the jumbo business. You have seen average selling prices increasing (Toll Brother's ASPs top 700k), but even the lower end ones like Lennar have ASPs over 300k). Some of the terms are quite attractive - 270 day locks, and lower down payments (like 10%).

We saw it in the data last week, personal spending increased more than personal income increased. Does that mean we are going back to the good old (some would say bad old) days of consumers borrowing to fund a lifestyle they cannot afford? At this stage, the answer is probably "no." Auto sales are looking great for the end of the year, but that is probably due to the record age of cars on the road - around 12 years. I have said it before - this is how recessions end. The consumer starts spending not necessarily because they want to, it is because they have to. You can only defer consumption so long. Eventually the clothes become threadbare, the car dies and needs to be replaced, etc. etc. Incomes will rise once some of the slack in the labor market is taken out. 

Separately, SpendingPulse reported that holiday spending increased 3.5% this year. The consumer is more optimistic than a couple of years ago, but isn't back at 2006-2007 levels either. Discounts still reign supreme.The National Retail Federation is forecasting holiday sales will rise 3.9%. 

Morning Report - Boring Boxing Day

Vital Statistics:

	Last	Change	Percent
S&P Futures	1832.1	3.0	0.16%
Eurostoxx Index	3072.9	2.0	0.06%
Oil (WTI)	99.19	0.0	-0.03%
LIBOR	0.247	0.001	0.41%
US Dollar Index (DXY)	80.48	-0.076	-0.09%
10 Year Govt Bond Yield	2.98%	0.01%
Current Coupon Ginnie Mae TBA	103.7	-0.4
Current Coupon Fannie Mae TBA	102.8	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.51

Stocks are higher this morning on no real news. Today is Boxing Day, which means a holiday for a lot of countries. Bonds are down again, with the 10 year bond yield flirting with a 3 handle.

Initial Jobless Claims fell to 338k last week. The holidays invariably cause distortions in the data so it is tough to read too much into it. 

New Home Sales came in at 464k, a little better than expected. Sales in the Northeast and the West rose the most, while the South and Midwest lagged. At the end of October, there were an estimated 167,000 homes for sale, representing a 4.3 month supply. The median price jumped to 270,900 from 245,200 a year ago.

Tony Crescenzi of PIMCO believes the worst of the selling is over. Notes that speculators have gone from huge net long positions in Eurodollar and Treasury futures to huge net short positions. The headline is misleading - he isn't bullish on bonds in that he thinks yields are going higher, but he thinks the big dislocation happened last summer. In other words, mortgage rates aren't expected to make another big sudden move higher.

That said, pretty much everyone is in agreement that the economy is improving and 2014 could be the year that we finally break out of the post-crash malaise. You might want to note the date, because I am going to agree with a Brookings Institute economist for probably the first time in my life. Of course conventional wisdom is not always right - here were the big surprises of 2013.

The Republican establishment is working to take back control of the party from the tea party activists that have controlled it since obama took over. What does that mean? No more dingbat candidates for the Senate. Or as the Chamber of Commerce strategist Scott Reed says: "No more fools on our ticket." Actually I am surprised it took this long. Boehner doesn't like them and he has all sorts of tools to bring them to heel. Maybe he should take away someone's parking spot and put it in Anacostia as a way to send a message. 

Speaking of Congress, if it doesn't act, mortgage relief will get a lot more costly. Beginning next year, anyone who has principal forgiveness on a short sale will get a tax bill. If Mel Watt decides to go the principal forgiveness route for conforming mortgages held by the government, he may find people less willing to play along. Also, extended unemployment benefits are scheduled to end starting next year, but there is a possibility that Congress will do something next year. If the benefits do lapse, we should see a drop in the unemployment rate as previously unemployed people take part-time jobs. 

Morning Report - Lowest mortgage apps since 2000

Vital Statistics:

	Last	Change	Percent
S&P Futures	1823.3	0.5	0.03%
Eurostoxx Index	3072.9	2.0	0.06%
Oil (WTI)	99.08	0.2	0.17%
LIBOR	0.247	0.001	0.41%
US Dollar Index (DXY)	80.52	0.069	0.09%
10 Year Govt Bond Yield	2.95%	0.03%
Current Coupon Ginnie Mae TBA	103.9	-0.3
Current Coupon Fannie Mae TBA	103	-0.3
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.49

Stocks are unch'd on this short trading day. Stocks and bonds close at 1:00 pm EST today. Bonds are down.

Mortgage Applications fell 6.3% last week, taking the index down to the lowest level since December 2000. Some of this is seasonal, as the spring selling season doesn't really kick off until just after the Superbowl. Purchases were down 3.5%, while refis were down 7.7%. 

Durable goods orders increased 3.5% in November, rebounding smartly from an upward-revised -.7% in October. The print came in higher than the Street +2% estimate. Demand for autos is increasing which isn't surprising as the average age of a car in the US is pushing 12 years, an all-time record. I have said it before - this is how recessions end. Eventually the consumer simply has to spend money to replace things, which increases demand, which increases employment and wages eventually. Consumers increase spending first, and then we get wage increases. 

Consumer Confidence rebounded in December to 82.5 from 75.1 the month before. 

The FHFA reported that home prices rose .5% month-over-month in October. Year-over-year they were up 8.2%. The U.S. index is 8.8% below its April 2007 peak. This index considers properties with a conforming mortgage only, so it isn't necessarily representative of the whole U.S. residential real estate market. 

Delinquencies ticked up 2.63% month-over-month according to LPS's "First Look" mortgage report. Delinquencies + foreclosures are just under 4.5 million homes. Separately, FHFA announced that it has completed more than 3 million foreclosure prevention actions.

Finally, Merry Christmas everybody..

Morning Report - G-fee hikes and LLPA increases delayed

Vital Statistics:

	Last	Change	Percent
S&P Futures	1805.8	3.7	0.21%
Eurostoxx Index	3037.7	6.7	0.22%
Oil (WTI)	98.84	-0.2	-0.20%
LIBOR	0.248	0.003	1.02%
US Dollar Index (DXY)	80.73	0.103	0.13%
10 Year Govt Bond Yield	2.95%	0.02%
Current Coupon Ginnie Mae TBA	104	0.3
Current Coupon Fannie Mae TBA	102.8	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.52

Markets are higher this morning on news the IMF would raise its outlook for the economy. Bonds and MBS are down small.

Personal Incomes increased .2%, lower than expected, but consumer spending increased .5%. The Chicago Fed National Activity Index came in better than expected.

It looks like Mel Watt plans to delay the g-fee hike and the new LLPAs for conforming loans. He wants to evaluate the impact these would have on credit. Ed DeMarco was a "protect the taxpayer" guy. Watt is a CRA guy. 

Interesting story about hedge funds in the rental business. Here are the cash buyers in this market. What happens when a big distant hedge fund with no ties to the community becomes the biggest property owner? 

Interesting editorial about income inequality - The numbers in the studies Obama looks at exclude transfer payments, employee benefits, and our highly progressive tax code. When you include those numbers, the Gini coefficient actually fell in the 90s and the 00s. The punch line: economic booms tend to benefit the poor and the middle class, and recessions tend to hurt them. This can be an issue when the guy leading the country cares more about inequality than growth.

Morning Report - 3Q GDP revised upward to 4.1%

Vital Statistics:

	Last	Change	Percent
S&P Futures	1805.8	3.7	0.21%
Eurostoxx Index	3037.7	6.7	0.22%
Oil (WTI)	98.84	-0.2	-0.20%
LIBOR	0.248	0.003	1.02%
US Dollar Index (DXY)	80.73	0.103	0.13%
10 Year Govt Bond Yield	2.95%	0.02%
Current Coupon Ginnie Mae TBA	104	0.0
Current Coupon Fannie Mae TBA	102.8	-0.2
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.52

Markets are higher this morning on the better-than expected 3Q GDP report. Bonds and MBS are down

The final revision to third quarter GDP came in at 4.1%. Inventory build accounted for a third of the gain, but services spending was revised up the most. Given that the first half of the year was relatively weak, a print like this represents a "catch up" more than a robust economy. Still, it seems like consumer spending is back, and that is a good sign. Consumers can only put off purchases for so long - eventually the car needs to be replaced, the clothes wear out, and you have to buy new ones. That is generally how recessions end. 

The test vote for Janet Yellen is today, which should be a nonevent. The full vote could come this weekend. Yellen is expected to be confirmed easily.

Freddie Mac has a cool interactive map where you can play with rates and downpayment to determine affordability in different areas. Suffice it to say Coastal CA, DC, Boston, and Miami are not affordable.

I appeared on Louis Amaya's Mortgage Markets Today show and discussed the Fed and the economy. Check it out here.

Morning Report - FOMC data dump

Vital Statistics:

	Last	Change	Percent
S&P Futures	1796.3	-8.4	-0.47%
Eurostoxx Index	3015.9	40.8	1.37%
Oil (WTI)	97.6	-0.2	-0.20%
LIBOR	0.246	0.001	0.31%
US Dollar Index (DXY)	80.65	0.542	0.68%
10 Year Govt Bond Yield	2.94%	0.05%
Current Coupon Ginnie Mae TBA	104	0.0
Current Coupon Fannie Mae TBA	102.7	-0.4
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.46

Stocks and bonds are lower this morning as the market digests the latest from the FOMC. MBS are off as well. Initial Jobless Claims rose to 379k. Later on this morning we will get existing home sales.

The Federal Reserve ended their Federal Open Market Committee meeting, and decided to taper. They will reduce purchases of Treasuries by $5 billion a month and purchases of mortgage-backed securities by $5 billion a month, which will mean the Fed will continue to build its balance sheet by $75 billion a month instead of by $85 billion a month. Tapering will begin in January. This was Ben Bernanke's final FOMC meeting as Chairman before the torch is passed to the "dream team" of Janet Yellen and Stanley Fischer. Bernanke's final press conference was no victory lap, but the press was respectful.

Bonds initially sold off on the news, with the 10 year trading above 2.92. Then bonds rallied, and the yield dropped to 2.82%, and then finally bonds sold off with the yield ending the day at 2.89%. Stocks loved the report, with the S&P 500 rallying 33 handles to close the day at a record high. Mortgage Backed Securities were off by almost half a point.

Steve Liesman of CNBC asked if this is now something we can expect every meeting, and it seems to be the case that they will reduce asset purchases by something like $10 billion every meeting from now. Bernanke mentioned all of the caveats about being data dependent, but it looks like this will be a constant until the Fed is no longer purchasing assets. The Fed will continue to reinvest maturing proceeds back into asset purchases. Ben Bernanke stressed that the Fed's balance sheet is still growing, however it just isn't growing as fast as it was. Bernanke was asked if that meant the Fed would likely still be conducting asset purchases in mid 2014 (as was previous guidance) and he said QE would probably end in late 2014.

The Fed changed the language regarding how long rates would remain close to zero. Previously, the Fed had guided an unemployment target of 6.5% as the level they would start raising interest rates. That language was changed to "The Committee now anticipates, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal." That language was what the stock market focused on, and probably accounts for the rally.

Finally, the Fed took down their projections for 2014 inflation and unemployment, and kept GDP the same.

Laugher of the converence - Ben Bernanke claiming that except for 2009, fiscal policy has been "extremely tight." Reality check: Since obama took over, government spending has averaged around 24% of GDP, the highest since Truman. The biggest post WWII deficits as a percentage of GDP are (in order) 2009, 2010, 2011, 1946, 2012, 1983, 2013. Fiscal policy is about as tight as monetary policy right now. Calling the current fiscal environment "tight" makes about as much sense as calling a Triple Whopper Value Meal with satisfries and a diet coke "healthy."

After Lennar's good numbers, KB Home missed their quarter. Earnings and Revenues came in well below expectations. Cancellation rates were 36% and average selling prices increased 11%. The stock is down half a buck pre-open.

Ellie Mae's Origination Insight Report is out for November. Refi percentage increased for the first time in a year, but that could be a seasonal phenomenon. FHA was 20% of all loans, while conventional was 69%. Days to close dropped to 42. Average FICO dropped to 729, average LTV was 81 and average DTI was 25/38.

I will be on Louis Amaya’s Capital Markets Today show at 10:00 am PST to discuss the FOMC meeting.

Morning Report - Fed Day!

Vital Statistics:

	Last	Change	Percent
S&P Futures	1776.3	3.3	0.19%
Eurostoxx Index	2973.2	31.4	1.07%
Oil (WTI)	97.34	0.1	0.12%
LIBOR	0.245	0.001	0.31%
US Dollar Index (DXY)	80.14	0.082	0.10%
10 Year Govt Bond Yield	2.87%	0.03%
Current Coupon Ginnie Mae TBA	104.3	-0.3
Current Coupon Fannie Mae TBA	103.4	-0.2
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.45

Markets are up small on a good housing starts number. Bonds and MBS are down. 

Today is the last FOMC announcement under The Bernank. Starting next year we will have the "dream team" of Yellen and Fischer. The consensus seems to be no tapering, but only by a nose. I am more interested to see the forecast for 2014 GDP growth and whether it went up or down. The Fed has been revising down its estimates all year, but I am wondering if the stronger data we have been seeing lately will change the trend.

The bad news: Mortgage Applications hit the lowest level since 2001 last week as the MBA index dropped 5.5% to 374.60, the lowest level since 2001.

Here is the purchase index going back to 1991: We remain mired in this situation where cash buyers are almost half of all sales on purchase transactions and refis remain depressed. Will it turn around? Of course, once the first time homebuyer gets back on his or her feet.

The good news:  In the "been down so long everything looks up" category, housing starts leaped to the highest level since early 2008, with a print of almost 1.1 million units. While it is historically a very depressed number, (we averaged about 1.5 million units a year prior to the bubble years), it looks great compared to our average of 727k over the past 5 years. Housing construction has been the Achilles Heel of this recovery - it is a huge economic engine and employs a lot of people. The builders have been reporting massive gross margins, and I think will want to start ringing the register.

Lennar reported 4Q earnings this morning which beat analyst expectations. Homebuilding revenue was up 50%, and gross margins were an eye-popping 26.8% as average selling prices increased 18% year over year. Orders and backlog are up as well. The builders are undoubtedly going to take advantage of these numbers by boosting production, which will be good for the economy in general.

The WSJ has a write-up on the new LLPA hitting conforming buyers next year. FHFA has been hiking fees for years now, and the guarantee fee has been used as a cookie jar to pay for other spending. Jumbos lately have been offered at lower rates than conforming loans. This won't help to get the MBA applications index up.

Morning Report - Hey, my rate went up and bonds went nowhere, what gives?

Vital Statistics:

	Last	Change	Percent
S&P Futures	1782.3	2.0	0.11%
Eurostoxx Index	2961.3	-17.4	-0.59%
Oil (WTI)	97.44	0.0	-0.04%
LIBOR	0.244	0.002	0.62%
US Dollar Index (DXY)	80.13	0.059	0.07%
10 Year Govt Bond Yield	2.87%	-0.01%
Current Coupon Ginnie Mae TBA	104.7	0.0
Current Coupon Fannie Mae TBA	103.4	0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.48

Markets are little changed this morning ahead of the start of the FOMC meeting. Consumer Prices were unch'd. 

The GSEs are planning on reducing the upper limits sometime next fall.  They are thinking of dropping the high cost ceiling from 625k to 600k and the overall ceiling from 417k to 400k. They are inviting public comment. Setting new purchase limits "furthers the goal of contracting the market presence of Fannie Mae and Freddie Mac gradually over time, one of the key objectives of FHFA's strategic plan."

Fannnie Mae and Freddie Mac also released their new pricing adjustments today, (Fannie is here, Freddie is here) which increases costs for borrowers in 2014. The first part is a g-fee increase of 10bp. The second is a series of LLPAs to better reflect credit risk. Note the Adverse Charge goes away for all states except CT, FL, NY, and NJ. However, when you include the new LLPAs, conforming loan rates are going up. Mortgage News Daily put out this handy chart showing the new adjustments. Note that these are not the actual adjustments - they are the change in adjustments. Note that higher LTV loans with FICOs over 680 are getting socked.

Toss in the potential effects of QE tapering and conforming loans just got a lot more expensive. LOs get ready for this new pricing regime. 

A total of 791,000 homes returned to positive equity in the third quarter, according to CoreLogic. This leaves a total of 6.4 million homes (or about 13% of all mortgaged homes) with negative equity. This compares to 7.2 million homes (or 14.7%) a year ago. You can see the distribution of negative equity MSAs in the chart below:

The budget deal is looking more and more likely to pass the Senate. That doesn't necessarily mean smooth sailing ahead - Republican lawmakers who are angry about the budget deal are spoiling for a fight over the debt ceiling. CNBC also has a lay of the land. The big strategic question for the GOP remains obamacare - if it continues to flail and have issues, do Republicans go along with a debt ceiling increase for fear of changing the subject, or would they view this as an opportunity to slay the unpopular ACA dragon once and for all?

When people think of Detroit, they often think of the hapless Lions, but also the Packard Plant, which went dormant in 1956 and is ruins remain a testament to urban decay and is a symbol of Rust Belt misery. It just got bought for $405,000. He plans to revitalize Detroit's East Side. Good luck with that...

Morning Report all about the Fed

Vital Statistics:

	Last	Change	Percent
S&P Futures	1778.2	9.7	0.55%
Eurostoxx Index	2973.3	51.4	1.76%
Oil (WTI)	97.04	0.4	0.46%
LIBOR	0.243	-0.001	-0.41%
US Dollar Index (DXY)	80.05	-0.162	-0.20%
10 Year Govt Bond Yield	2.85%	-0.01%
Current Coupon Ginnie Mae TBA	104.6	0.0
Current Coupon Fannie Mae TBA	103.4	0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.49

Markets are up this morning on no real news. Bonds and MBS are up small. We had a few minor economic reports this morning which were generally mixed.

This week is all about the FOMC meeting starting this Tuesday. It feels like we are at a 50 / 50 bet on tapering at this meeting. We will also get the Fed's economic forecasts. The Fed has been consistently high in its forecast for economic growth, but it will be interesting to see the direction the forecasts point. Once we get the FOMC data, bond traders might as well go home for the rest of the year, with Christmas and New Years eve both middle-of-the-week events, the end of December promises to be slow.

We will also get our first housing starts number since the government shutdown. It should include September, October, and November data. We will also get existing home sales later on. 

Bloomberg has a good story on what went wrong with HAMP. If Bank of America wasn't forced to buy Countrywide, then the purchase goes down as one of the worst business decisions ever, up there with New Coke and Time Warner's aol purchase.

Morning Report 2013 worse than 1994

Vital Statistics

	Last	Change	Percent
S&P Futures	1772.1	3.5	0.20%
Eurostoxx Index	2932.1	4.0	0.13%
Oil (WTI)	96.4	-1.1	-1.13%
LIBOR	0.244	0.001	0.41%
US Dollar Index (DXY)	80.17	-0.039	-0.05%
10 Year Govt Bond Yield	2.86%	-0.02%
Current Coupon Ginnie Mae TBA	104.7	0.1
Current Coupon Fannie Mae TBA	103.4	0.2
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.48

Markets are higher this morning after wholesale inflation came in lower than expected. Bonds and MBS are up.

Slow news day. Bonds are going to mark time until the FOMC meeting next week. Then that will probably be it for activity until the new year. The stronger economic data certainly gives the Fed enough reason to trim purchases slightly. 

It is looking like 2013 will be a worse year for bond funds than 1994, when Askin Capital Management and Orange County blew up as mortgages tanked. 

It looks like extended unemployment benefits are scheduled to lapse at the end of the year. Another provision that matters to us is the tax relief on short sales. When a person discharges their mortgage for less than the amount they owe, the IRS treats that as income. Starting Jan 1, people who have a short sale will also get a bill from the IRS. So far no word on whether that will continue. 

Morning Report - Meet Stanley Fischer

Vital Statistics:

	Last	Change	Percent
S&P Futures	1781.7	0.9	0.05%
Eurostoxx Index	2925.8	-21.6	-0.73%
Oil (WTI)	97.77	0.3	0.34%
LIBOR	0.243	-0.001	-0.41%
US Dollar Index (DXY)	79.98	0.089	0.11%
10 Year Govt Bond Yield	2.87%	0.01%
Current Coupon Ginnie Mae TBA	104.4	-0.1
Current Coupon Fannie Mae TBA	103.3	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.45

Markets are higher this morning after a good retail sales report. Initial Jobless Claims rose to 368k from 320k the week before. Import prices fell. Bonds and MBS are lower.

Stanley Fischer is mooted to be the next Vice Chairman of the Fed. He ran the Bank of Israel through the 2008 financial crisis, and his international experience is supposedly one of the reasons why Obama is interested in him. He has a experience teaching at free-market leaning University of Chicago, and left-leaning MIT. Supposedly he is skeptical of the new Fed communications strategy, which could put him in conflict with Janet Yellen. He has called QE "dangerous, but necessary." 

In the "now they tell us" category, QE has made the traditional method of tightening ineffective. When the Fed wants to tighten monetary policy, it would meter out the amount of money flowing into and out of the banking system on a daily basis. The Federal Funds rate was essentially the gauge they would use. Since the Fed has injected multiple trillions of liquidity into the system, the old methodology won't work, unless they significantly drain the system, which would be disruptive to say the least. Instead it plans to repo its vast security portfolio in order to pull liquidity out of the system. Of course this won't matter for a couple of years, but it just goes to show how much QE has changed the landscape. You can see just how much the Fed's balance sheet has ballooned below:

A Reuters poll of 60 economists shows they expect growth to accelerate in 2014, with GDP hitting 2.5% in Q1 and reaching 3% by year end. Continued recovery in housing, along with a pick up in capital expenditures are the keys. The consumer de-leveraging continues. You can see that household debt has fallen to 77% of GDP and is back at 2003 levels.

Morning Report - Mel's now guarding the henhouse

Vital Statistics:

	Last	Change	Percent
S&P Futures	1803.5	0.4	0.02%
Eurostoxx Index	2973.6	12.7	0.43%
Oil (WTI)	98.27	-0.2	-0.24%
LIBOR	0.244	0.002	0.83%
US Dollar Index (DXY)	79.98	0.014	0.02%
10 Year Govt Bond Yield	2.82%	0.02%
Current Coupon Ginnie Mae TBA	104.8	-0.2
Current Coupon Fannie Mae TBA	103.7	-0.2
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.42

Markets are flattish on no real news. Bonds and MBS are down small. In spite of rising rates, mortgage applications rose 1% last week as refis rose 2% and purchases rose 1%

Mel Watt was confirmed by the Senate yesterday to lead FHFA. Ed DeMarco slipped in one last G-fee increase before he left - it will be interesting to see if Watt maintains it. Exhibiting his droll sense of humor, President Obama said that Mel Watt is "just the type of regulator to make sure the kind of crisis we just went through never happens again." Regardless of anyone's free-market inclinations, a Mel Watt FHFA is probably better for originators than Ed DeMarco was. He wants credit loosened, he wants more mortgage activity. Watt is a CRA guy to the bone. 

The other possible effect (and I'm not thoroughly convinced it will happen) is that higher coupon MBS get hit as the market factors in new prepayment assumptions. Of course that isn't relevant for new issues, but there is a relative value trade between TBAs and existing MBS. If existing MBS get hit, TBAs probably will as well. To a LO, what this means is that your borrower won't be able to gain as much benefit going higher up in rate as before. Again, may not happen, but is something to watch over the next few months.

The new Volcker rule is out, and it is not as harsh as the banks had feared. Principal trading in a market-making context is still allowed, although the devil is in the details and it will depend on how the regulators enforce it. The main point is that liquidity in the MBS markets should remain the way it is and not contract, which would have had the effect of raising interest rates.

It is looking like a budget confrontation isn't happening in the new year. Paul Ryan and Patty Murray came up with a deal that weakens the sequester, and cuts the deficit by raising fees in other places. Extended unemployment benefits were not part of the deal, which means that unemployment checks will stop for millions of Americans at the beginning of the year. Also, I don't know if the debt ceiling was addressed. So we have a couple big issues still aren't resolved.

Morning Report - Toll reports luxury end of the market doing well

Vital Statistics:

	Last	Change	Percent
S&P Futures	1803.5	-5.5	-0.30%
Eurostoxx Index	2964.6	-24.1	-0.81%
Oil (WTI)	98.47	1.1	1.16%
LIBOR	0.242	-0.001	-0.31%
US Dollar Index (DXY)	79.98	-0.154	-0.19%
10 Year Govt Bond Yield	2.80%	-0.04%
Current Coupon Ginnie Mae TBA	104.9	0.3
Current Coupon Fannie Mae TBA	103.9	0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.44

Markets are lower this morning on no real news. Bonds and MBS are higher

Toll Brothers announced better-than expected earnings of 54 cents a share. The luxury end of the market continues to do well. Average Selling Prices increased to $703,000. Contracts were flat in the first 5 weeks of this quarter, as higher prices and interest rates tamp down demand. That said, they believe "this leveling of demand will prove temporary based on still-significant pent-up demand, the gradual strengthening of the economy and the improving prospects of our affluent customers."

The National Federation of Independent Business Optimism Index rose to 92.5 from 91.6. This is still a relatively depressed level historically, and speaks to the great divide in American business. The S&P 500 is at record highs, while small business is still stuck in the post-bubble morass. The difference: QE is driving money into stocks, and the big US companies that make up the index have a lot of international exposure. That is why the economy feels "meh" even though the stock market is at record highs.

The Obama Administration's latest housing scorecard is out. As of October, 1.2 million homeowners have had their principal cut through HAMP. Housing remains affordable as the NAR Housing Affordability index stands at 164.3, (lower than its peak of 213.6 in January, but well above its historical average of 135). 

G-fees are going up. Again.

Morning Report - FHA lowers the upper limit on mortgages

Vital Statistics:

	Last	Change	Percent
S&P Futures	1807.0	2.0	0.11%
Eurostoxx Index	2981.6	1.6	0.05%
Oil (WTI)	97.71	0.1	0.06%
LIBOR	0.243	0.002	0.73%
US Dollar Index (DXY)	80.22	-0.098	-0.12%
10 Year Govt Bond Yield	2.85%	-0.01%
Current Coupon Ginnie Mae TBA	104.6	0.3
Current Coupon Fannie Mae TBA	103.8	0.4
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.48

World markets are higher this morning after Friday's stronger-than-expected jobs report. Bonds and MBS are up small as well.

The upcoming week is relatively data-light, so the markets will be left to fret about the FOMC meeting next week. The Street seems to be handicapping a December tapering at 50/50. Don't forget, even if the Fed does begin to reduce asset purchases, it doesn't necessarily follow that MBS purchases will drop. In fact, most observers think that the Fed will only reduce Treasury purchases and maintain their current rate of MBS purchases. The only reason why the Fed may want to reduce MBS purchases would be to reflect that the Fed's current purchase rate of $40 billion a month is much higher as a percentage of total MBS issuance than it was a year ago. This is because overall issuance has fallen since the refi boom ended.

Consumer sentiment is on the rebound, but is still below what one would call "normalcy." The chart below is of the University of Michigan Consumer Sentiment Index. You can see that we are close to post-bubble highs, but are still mired in that early 90s malaise. Consumer sentiment is a big driver of real estate activity - in fact the CEO of KB Home said that consumer sentiment matters more than interest rates, at least to the homebuilders. Things are improving, albeit slowly.

It looks like we have some sort of budget deal in Washington, which should at least take the possibility of another government shutdown off the table. It looks like some of the sharper edges of the sequester will be sanded down, and it will be paid for by increased pension contributions from Federal workers and increased airport security fees. It is a "kick the can down the road" agreement that will at least prevent some fireworks beginning next year. 

The FHA reduced the upper limit on FHA mortgages in high cost areas from $729,750 to $625,500. The jumbo market has been back for quite some time, and FHA is happy to let upper income borrowers access private capital. 

Completed foreclosures dropped 30% from a year ago, and 26% from last month, according to CoreLogic. The foreclosure pipeline is 900k homes, which is a big drop, however we are still far from "normalcy," which would be about a quarter of that number. The judicial states still have the highest level of foreclosure inventory, as you can see from this foreclosure heat map.