Morning Report - Subprime is back

Vital Statistics:

	Last	Change	Percent
S&P Futures	1849.0	2.7	0.15%
Eurostoxx Index	3142.2	-15.3	-0.48%
Oil (WTI)	102.4	0.6	0.55%
LIBOR	0.233	0.000	-0.13%
US Dollar Index (DXY)	80.29	0.150	0.19%
10 Year Govt Bond Yield	2.71%	0.01%
Current Coupon Ginnie Mae TBA	105.8	0.0
Current Coupon Fannie Mae TBA	104.5	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.3

Markets are higher this morning on no real news. Mortgage Applications fell 8.5% last week. Both purchase and refi apps fell. We will get new home sales at 10:00am

Toll Brothers didn't have anything earth shattering to say on its earnings conference call, but here are some bullet points: Remember, Toll is in the McMansion business so they will outperform in places with strong economies (DC / Texas) or quality of life (California).

• Consumer Confidence still "a bit fragile"
• Company is "a bit stumped by low demand"
• Texas and California sales are "fabulous"
• Minnesota is slow, Virginia is stronger than Maryland
• Toll will be more careful about raising prices this year
• Construction costs rose $1,700 per home in quarter
• Incentives fell
• Toll will slow land buying over the next 12-18 months 

Fun fact: the average size of a new home has increased 300 square feet from 2009 to 2013. This is part of the reason we have been seeing such growth in average selling prices from the builders and why you shouldn't automatically assume existing homes will see similar appreciation. Funny, I thought the end of the real estate boom was supposed to close the curtain on gaudy oversized McMansions. Guess not.

Cool slideshow on the housing boom and bust.

Annaly Capital reported earnings yesterday, which came in better than expected. The company continues to de-leverage, and has been swapping out of RMBS into CMBS. Leverage dropped to 5:1 from 5.4:1 in Q3 and 6.5:1 a year ago. The company is primarily invested in agency fixed rate MBS. Annaly's activity affects TBA pricing which in turn affects mortgage rates, so it pays to keep tabs on what the big agency REITs are doing. As the Fed reduces their footprint in the MBS market, the REITs will dominate again.

Hey interested in a no-money down mortgage with no credit score check and a rate under 4%? Bank of America has funded a non-profit lender who wants rekindle the subprime market for "underserved" communities. (I guess no-no loans under 4% would probably be money-losers, so the "non-profit" label is a bit superfluous). Will the CFPB come after them given that roughly 15% of the loans would not meet QM standards? Looks like we have the first lender to stick their neck out of the QM box... Not sure why BOA would fund such a thing, (they get no upside and all the downside) unless they get CRA points for it. FWIW, the guy behind this (Bruce Marks) is a CRA bomb-thrower going way back, so maybe figured out a way to extort BOA into giving him money to do this by threatening protests in front of their branches if they didn't.