Morning Report - CA city decides to go the eminent domain route

Vital Statistics:

	Last	Change	Percent
S&P Futures	1681.2	-1.2	-0.07%
Eurostoxx Index	2858.5	7.1	0.25%
Oil (WTI)	107.6	0.2	0.18%
LIBOR	0.254	-0.002	-0.59%
US Dollar Index (DXY)	81.76	-0.059	-0.07%
10 Year Govt Bond Yield	2.94%	-0.03%
Current Coupon Ginnie Mae TBA	103.3	1.0
Current Coupon Fannie Mae TBA	102.5	-0.2
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.58

Markets are flattish on no real news. Bonds and MBS are up small, which means that Syria wasn't figuring in anyone's market analysis. 

Credit isn't tight for everyone - Verizon just did a $49 billion bond offering at the 10 year + 225. Low interest rates - get 'em while they last. The issue is looking 2x oversubscrbed.

Negative equity took a dive in Q2, according to CoreLogic, with 2.5 million homes dropping below the 100% LTV mark. 7.1 million homes (or 14.5% of homes with a mortgage) still have negative equity. The average LTV of all homes with a mortgage is 62.5. They caution that the recent home price appreciation may not continue at the rapid pace we have been seeing over the past year.

Mortgage applications fell 13.5% last week, primarily due to the Labor Day holiday. Refis were down 20%, while purchases were down 2.6%. 

Richmond CA has voted to go the eminent domain route. They intend to use the threat of eminent domain as a club to force lenders to sell the underlying loans at a deep discount to the city. SIFMA has already said that any locality that uses eminent domain will find loans originated in that locality to be ineligible for TBA trading, which makes them more or less unsecuritizable. The mayor is a Green Party Wall Street basher, so this could get interesting. For the hedge fund to be able to make money on this trade, they have to be able to buy the mortgages at a discount to appraised value, which will undoubtedly be a non-starter for the banks.