Morning Report - Regulating from the ivory tower

Vital Statistics:

	Last	Change	Percent
S&P Futures	1541.8	2.7	0.18%
Eurostoxx Index	2690.5	10.6	0.40%
Oil (WTI)	90.67	0.2	0.27%
LIBOR	0.281	0.001	0.36%
US Dollar Index (DXY)	82.41	-0.045	-0.05%
10 Year Govt Bond Yield	1.96%	0.03%
RPX Composite Real Estate Index	194.9	-0.3

Markets are slightly higher after initial jobless claims came in lower than expected at 340k. Productivity fell as unit labor costs increased at a faster clip than expected. The ECB kept rates unchanged. Bonds and MBS are lower.

The Fed released the Beige Book yesterday, a sort of 10,000 - foot view of the economy. The words "modest" and "moderate" were used a lot. Residential Construction increased in most districts with the exception of Kansas City. Low inventories were squeezing prices higher in most districts. Banks reported that credit standards are beginning to loosen, and that very few mortgages are being held on their balance sheets.

The CoreLogic Home Price index increased 9.7% in January, the biggest increase since April 2006. Excluding distressed sales, they increased 9.0%. They anticipate a similar gain of 9.7% YOY for Feb, with a .3% month on month drop. This year's seasonal slowdown has barely registered, which portends well for the summer selling season. Only Illinois and Delaware failed to report gains.

Now that the sequestration crisis is out of the way, it looks like the threat of a government shutdown late this month has gone away as well.  The House passed a bill to fund the government through the rest of the year at sequestration levels. The Senate will make its own tweaks to soften some of the spending cuts, but there is a bipartisan optimism that we won't have a shutdown. Separately, the President met with Congressional leaders in an attempt to figure out if there is room for a grand bargain on a package of tax increases and entitlement cuts. Lest the market think the all-clear has passed, we still have the debt ceiling to deal with in late summer.

The Mortgage Bankers Association responded to FHFA Head Ed DeMarco's plan to rationalize and eventually replace the GSEs. "Proposals of this magnitude need a transparent process to engage with stakeholders, articulate objectives and demonstrate that stakeholder concerns have been evaluated and addressed... The Administration, Congress, and regulators need to engage with other stakeholders to move the ball forward.  Until this happens, the uncertainty in the markets will persist and a full recovery of the housing market will remain elusive."  The Obama administration still regulates from the ivory tower and refuses to consult with the private sector.  It happened in Dodd-Frank and it is happening again. I guess the concern over regulatory capture is a valid concern, but remaking the financial sector or the real estate markets without input from the people who actually do this stuff for a living is bound to have major unintended consequences.

One of the bigger issues regarding the new framework involves how to handle Federal guarantees.  The government believes it has been underpricing (in other words, G-fees are too low) and it wants to increase them so they approach the pricing for PMI. One side effect is that the mortgage insurers, once given up for dead, are back.