Morning Report - QM Day

Vital Statistics:

	Last	Change	Percent
S&P Futures	1464.7	8.9	0.61%
Eurostoxx Index	2712.4	6.0	0.22%
Oil (WTI)	94.4	1.3	1.40%
LIBOR	0.305	0.000	0.00%
US Dollar Index (DXY)	80.35	-0.206	-0.26%
10 Year Govt Bond Yield	1.90%	0.04%
RPX Composite Real Estate Index	191.7	-0.3

Markets are higher this morning after positive news out of Ford and Nokia.  Initial Jobless Claims increased 4k to 371k, higher than the 365k estimate.  The ECB left rates steady and predicted a gradual recovery for the Eurozone this year.  Bonds and MBS are down.

WaPo has a write-up of the new QM rules expected to be released today by Richard Cordray in Baltimore.  You can watch the speech here. Expected changes:  Upfront fees will be capped at 3%, though exceptions will be made for loans under 100k, and IO mortgages will be banned.  Ability to repay will be based not on the teaser rate, but on the expected rate later on.   DTI ratios must be below 43%.  The rules will be phased in over the next 7 years. The CFPB estimates that 75% of the mortgages issued in 2011 would have met the standards. If the banks follow these rules, they will be protected from many homeowner lawsuits, but not necessarily buy-back risk. Jumbos will probably the area most affected by the new rules. MND has the gory details here.

What does the appointment of Jack Lew as Treasury Secretary mean?  That the Administration will be focusing its energy on budget battles going forward. He is not considered (at least by the Left) to be the sort of guy that will be addressing unemployment, or pushing for Keynsian stimulus. As such, he probably isn't going to be tremendously dollar-negative, although in an era of competitive devaluations, it is hard to be a dollar bear anyway. The tight relationship between the Fed and Treasury will end. He is probably going to be a tough negotiator for the WH's budget priorities - higher taxes on the rich no no non-defense spending cuts. He also has an unusual signature, (OoooooO) which will be gracing your dollar bills soon enough.

Acccording to NAR, 2012 will go down as a record year for housing affordability. The index came in at 198.2, which means the median borrower had 198% of the minimum income required to purchase the median price existing family home, assuming 20% down and 25% of income going to P&I payments. Tight credit standards remain the sticking point.

Thinking outside the box:  Instead of paying the unemployed, pay their employers to keep them on. Through the work-sharing plan, employees get a shortened work week, with unemployment benefits partially compensating them for lost wages.

The hits keep coming:  Morgan Stanley is laying off 1,600 workers.

Battle Royale:  Ackman vs Loeb in Herbalife.