Morning Report - Banks starting to relax tax transcript requirements

Vital Statistics:

	Last	Change	Percent
S&P Futures	1680.6	-2.5	-0.15%
Eurostoxx Index	2911.4	-6.9	-0.24%
Oil (WTI)	103.8	-0.3	-0.26%
LIBOR	0.243	-0.002	-0.61%
US Dollar Index (DXY)	79.89	-0.012	-0.02%
10 Year Govt Bond Yield	2.62%	0.01%
Current Coupon Ginnie Mae TBA	105.4	0.1
Current Coupon Fannie Mae TBA	104.9	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.27

Day 3 of the government shutdown. Markets are sanguine. Stocks are down small and bonds / MBS are flat.

Initial Jobless Claims came in at 308k, better than expected. Challenger Job Cuts increased 19% as the financial sector continues to lay off people.

Rob Chrisman is out saying some of the big banks are relaxing their requirements for 4506Ts during the government shutdown. Wells retail will require a signed 4506 but will let the loan close without the transcript. Wells correspondent, however is not doing this. U.S. Bank is temporarily waiving the requirement for transcripts, but will still need the executed form 4506T. Stearns is not requiring an executed 4506T for W2 borrowers. So it seems like the mortgage market will not in fact grind to a halt if the shutdown drags on for a while. There are missives from the other lenders in there as well. At the end of the day, business is down and the 4506T is an investor overlay, not a requirement. 

The shutdown debate is now starting to mix with the debt ceiling debate. Remember, the even if we don't raise the debt ceiling, that doesn't automatically mean we default. Interest on the debt is about 7% of the US budget. The debt ceiling allows maturing debt to be replaced with new debt. As long as the net balance of debt remains under the limit, we can issue debt just fine. So all that really comes into play is interest, which is only 7% of the budget.

Here is the breakdown of government spending:

Of course the problem is that both sides see each other as villains in a movie and cannot fathom they believe what they do for any reason other than evilness, power hungriness, need for control, greed, stupidity, or naivete. Neither side sees any value whatsoever in the opposing party's position. As long as the markets behave there probably isn't going to be a lot of pressure being put on Washington to come to an agreement. Think of the Snicker's Ad: Not going anywhere?

Assuming we get a deal soon, don't get lulled by interest rates at these levels. If we get a solution over the weekend, the shutdown will probably be short enough to not have any effect on the economy. Which means we go back to wringing our hands about the Fed and tapering. The trend is up for rates and we are in a counter-trend move. Don't lose sight of the big picture.