Morning Report - FHA lowers the upper limit on mortgages

Vital Statistics:

	Last	Change	Percent
S&P Futures	1807.0	2.0	0.11%
Eurostoxx Index	2981.6	1.6	0.05%
Oil (WTI)	97.71	0.1	0.06%
LIBOR	0.243	0.002	0.73%
US Dollar Index (DXY)	80.22	-0.098	-0.12%
10 Year Govt Bond Yield	2.85%	-0.01%
Current Coupon Ginnie Mae TBA	104.6	0.3
Current Coupon Fannie Mae TBA	103.8	0.4
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.48

World markets are higher this morning after Friday's stronger-than-expected jobs report. Bonds and MBS are up small as well.

The upcoming week is relatively data-light, so the markets will be left to fret about the FOMC meeting next week. The Street seems to be handicapping a December tapering at 50/50. Don't forget, even if the Fed does begin to reduce asset purchases, it doesn't necessarily follow that MBS purchases will drop. In fact, most observers think that the Fed will only reduce Treasury purchases and maintain their current rate of MBS purchases. The only reason why the Fed may want to reduce MBS purchases would be to reflect that the Fed's current purchase rate of $40 billion a month is much higher as a percentage of total MBS issuance than it was a year ago. This is because overall issuance has fallen since the refi boom ended.

Consumer sentiment is on the rebound, but is still below what one would call "normalcy." The chart below is of the University of Michigan Consumer Sentiment Index. You can see that we are close to post-bubble highs, but are still mired in that early 90s malaise. Consumer sentiment is a big driver of real estate activity - in fact the CEO of KB Home said that consumer sentiment matters more than interest rates, at least to the homebuilders. Things are improving, albeit slowly.

It looks like we have some sort of budget deal in Washington, which should at least take the possibility of another government shutdown off the table. It looks like some of the sharper edges of the sequester will be sanded down, and it will be paid for by increased pension contributions from Federal workers and increased airport security fees. It is a "kick the can down the road" agreement that will at least prevent some fireworks beginning next year. 

The FHA reduced the upper limit on FHA mortgages in high cost areas from $729,750 to $625,500. The jumbo market has been back for quite some time, and FHA is happy to let upper income borrowers access private capital. 

Completed foreclosures dropped 30% from a year ago, and 26% from last month, according to CoreLogic. The foreclosure pipeline is 900k homes, which is a big drop, however we are still far from "normalcy," which would be about a quarter of that number. The judicial states still have the highest level of foreclosure inventory, as you can see from this foreclosure heat map.