Morning Report - Housing Starts and bank earnings

Vital Statistics:

	Last	Change	Percent
S&P Futures	1471.6	6.0	0.41%
Eurostoxx Index	2710.7	8.2	0.30%
Oil (WTI)	94.8	0.6	0.59%
LIBOR	0.302	-0.001	-0.33%
US Dollar Index (DXY)	79.61	-0.198	-0.25%
10 Year Govt Bond Yield	1.87%	0.05%
RPX Composite Real Estate Index	191.7	0.3

Markets are higher after a good housing starts number and lower than expected unemployment claims. Bank of America and Citi both reported lower than expected 4Q earnings. Bonds and MBS are down.

Housing starts took a big jump upward in December, to an annualized pace of 954k, an annualized increase of over 100k. This is the highest level since June 2008. Multi-family starts accounted for about a third of the increase.  Building Permits increased at a 1.8% MOM and 29% YOY.  Remember, we have historically started 1.5 million units per year, and our 954k annual number basically represents the low points of all recessions since 1957 up to the post-bubble recession.

Chart:  Housing Starts

The CFPB is releasing new rules for servicers today.  It essentially eliminates the practice of "dual tracking" where a servicer works to mod a loan and simultaneously initiates foreclosure proceedings in case the mod doesn't work out or the borrower fails to pay.  That might have the unintended consequence of less mods and more foreclosures.  Foreclosures cannot be initiated until the account is more than 120 days delinquent. This rule pre-empts state law, so timelines will get extended in non-judicial states. Servicers with less than 5,000 loans will be exempt.

Speaking of unintended consequences, the Fed is now worried about bubbles in farmland and junk bonds, the direct result of QE. Unwinding QE (it needs a name - Fed Exit - Fexit?) will be a touchy deal.  The buzzword for Fexit will be "convexity risk" Think Orange County in 1994 on steroids.  Not only will MBS bids fade because of interest rate volatility, they will also have to contend with the Fed dumping paper in an effort to shrink its balance sheet.  A 2014 recession is a distinct possibility.

What it took to get a mortgage in 2012, according to Ellie Mae:  748 FICO, 23/34 DTI, 21% down.  Average interest rate 3.9%, average time to close, 48 days, 62% were refis.