Morning Report - Big surprise on Q1 GDP

Vital Statistics:

	Last	Change	Percent
S&P Futures	1870.8	-1.0	-0.05%
Eurostoxx Index	3196.3	-12.4	-0.39%
Oil (WTI)	100.3	-1.0	-1.01%
LIBOR	0.223	-0.002	-0.89%
US Dollar Index (DXY)	79.59	-0.221	-0.28%
10 Year Govt Bond Yield	2.69%	0.00%
Current Coupon Ginnie Mae TBA	105.6	0.1
Current Coupon Fannie Mae TBA	104.5	0.0
BankRate 30 Year Fixed Rate Mortgage	4.3

Markets are slightly lower this morning after GDP came in much, much lower than expected. Bonds and MBS are up small. The market almost does not believe the number.

The advance estimate for first quarter GDP came in at +.1%. The Street was looking for +1.2%, so this is a big surprise. Remember, this is the advance estimate for first quarter GDP and will be subject to two revisions. Given the fact that the SPUS aren't down 20 handles and the 10 year isn't yielding 2.6%, the Street clearly thinks this will be revised substantially upward the next time around. Going from 2.6% growth in Q4 to nearly flat GDP growth simply doesn't comport with all the other numbers we have been getting.

Mortgage Applications fell 5.9% last week. The index is challenging the lows we set in the last week of 2013. The refi index has already broken through that low and is now around the lows set in mid 2008. Purchases fell 4.4%, even though rates were flat. Average loan sizes fell to 239.7k and the refis account for just over half of all applications right now. 

The ADP Employment report is forecasting 220k private payrolls for Friday's jobs report. Last month, the ADP number pretty much nailed it. The Street is forecasting 215k this Friday. 

We had some other minor data this morning, with the ISM Milwaukee missing estimates and the Chicago Purchasing Manger's index beating.

We will hear from the FOMC later today. Given there will be no press conference, I think we should expect nothing major, just another $10 billion in tapering and a commitment to lower rates until the labor market improves. I will be interested to see if the statement references the slowdown in Q1. 

The Senate Banking Committee has enough votes to get Johnson Crapo out of Committee, but not enough to bring it to the floor. Six Democrats and six Republicans out of 22 support the measure. The liberals want more effort spent on forcing banks to lend to "underserved" areas, and increases in housing subsidies in general, especially affordable housing. 

Morning Report - Case-Shiller up, 13 out of 20 MSAs down

Vital Statistics:

	Last	Change	Percent
S&P Futures	1870.3	4.3	0.23%
Eurostoxx Index	3197.9	32.1	1.01%
Oil (WTI)	101.2	0.4	0.40%
LIBOR	0.225	0.001	0.22%
US Dollar Index (DXY)	79.79	0.103	0.13%
10 Year Govt Bond Yield	2.72%	0.02%
Current Coupon Ginnie Mae TBA	105.4	-0.2
Current Coupon Fannie Mae TBA	104.3	-0.1
BankRate 30 Year Fixed Rate Mortgage	4.26

Markets are up small this morning on no real news. Bonds and MBS are down small.

Home prices rose.76% month-over-month and 12.9% year over year, according to the Case-Shiller real estate index. The strength in home prices is largely due to reduced inventory and does not necessarily represent a robust housing market. In fact, 13 out of the 20 cities in the index declined in February on a month-over-month basis. The strength was in the West Coast, Dallas, and DC. Everyone else was down.

Why does a company with $123 billion in net cash on the balance sheet need to tap the bond market? In a move guaranteed to infuriate many, Apple is looking to do a $17 billion bond issue to repurchase stock. Why not use the their cash to do it? Because it is overseas and subject to repatriation taxes. 

The markup of the Crapo-Johnson bill begins mark-up in the Senate. The two big expected changes are 1) Guarantors of MBS cannot also be originators, and 2) The bill will not supersede the bailout agreement, which means all of Fan and Fred's profits have to go straight to the government. My personal opinion is that not much is going to be done on housing reform this year. With Republican control of the Senate a distinct possibility, they are going to want to wait and see if they can drive a better deal when control changes. 

There was nothing earth-shattering in American Capital Agency's first quarter earnings release. AGNC is the second-biggest mortgage REIT in the US and is a big buyer of mortgage backed securities. They continue to shrink their balance sheet and buy back stock. They have shortened the maturity of their portfolio and now half of it is in 15 year fixed rate MBS. The dwarfs are interesting - you do get a meaningful drop in rate on the conforming side, but not on the government side. In fact, there is no rate advantage in going from 30 to 15 in govvies at all. Why? Govvie dwarfs are highly illiquid. 

Morning Report - Big week ahead

Vital Statistics:

	Last	Change	Percent
S&P Futures	1863.2	3.1	0.17%
Eurostoxx Index	3161.8	14.4	0.46%
Oil (WTI)	101.1	0.5	0.47%
LIBOR	0.225	-0.002	-0.77%
US Dollar Index (DXY)	79.58	-0.174	-0.22%
10 Year Govt Bond Yield	2.67%	0.01%
Current Coupon Ginnie Mae TBA	105.6	0.0
Current Coupon Fannie Mae TBA	104.6	0.0
BankRate 30 Year Fixed Rate Mortgage	4.25

Markets are up small this morning after Pfizer released a $100 billion bear hug for AstraZeneca Plc. Bonds and MBS are flat.

Big week coming up. The action begins Wednesday, with the FOMC decision and the advance estimate of Q1 GDP. On Thursday, we have a couple of big reports with the ISM Manufacturing report as well as personal income / consumption. Finally, on Friday we get the jobs report. So, there is a lot of stuff this week that could move bonds around. Float at your own risk. 

The Street estimate for Q1 GDP is +1.2%, a significant slow down from the +2.6% pace for the fourth quarter. Clearly the Street is baking in some caution given the lousy weather in January and February. Housing continues to punch below its weight, so that is another issue. 

The FOMC meeting will not have a press conference or any revisions to the economic forecast, so it should be a non-event. Expect to see another $10 billion reduction in asset purchases. 

Pending Home Sales rose 3.2% month over month but fell 7.4% on a year-over-year basis. The jump was mainly a catch-up after a rough start to the year. The NAR is expecting existing home sales to hit 4.9 million in 2014, less than the 5.1 million pace in 2013. Given the inventory shortage, they expect median prices to increase 6% - 7% this year. 

Morning Report - Mixed signals on the economy

Vital Statistics:

	Last	Change	Percent
S&P Futures	1867.6	-5.5	-0.29%
Eurostoxx Index	3164.6	-25.2	-0.79%
Oil (WTI)	101.1	-0.8	-0.83%
LIBOR	0.227	-0.001	-0.55%
US Dollar Index (DXY)	79.68	-0.120	-0.15%
10 Year Govt Bond Yield	2.68%	-0.01%
Current Coupon Ginnie Mae TBA	105.6	0.1
Current Coupon Fannie Mae TBA	104.5	0.0
BankRate 30 Year Fixed Rate Mortgage	4.24

Stocks are lower this morning on no real news. Emerging markets continue to sell off. Bonds and MBS are up small.

University of Michigan Consumer Confidence picked up in April, from 82.6 to 84.1. 

The Markit Purchasing Managers Index fell slightly to 54.9 from 55.7. The Markit Services PMI fell as well. These readings are still well above neutrality, but it looks like things cooled a bit in April. The employment numbers were not great - the expansion in service sector payroll was the weakest in almost 2 years. Input prices (primarily food and energy) increased. 

Rep. Elijah Cummings (D-MD) wants to exhume the robo-signing scandal and hold hearings on it. There was an ongoing investigation of servicing misdeeds during the foreclosure process that was eventually shut down when the government realized the only people making any money on it were the consultants, not aggrieved homeowners. Apparently the consultants walked away with $1.9 billion and homeowners got nothing. Seems to me to be a lot of money to pay consultants to review foreclosure files. But that probably explains why 6 of the 10 richest counties in the US surround DC.

Speaking of regulators going after the banks, the government is looking for more that $13 billion from Bank of America over RMBS deals. If B of A wasn't asked to buy Countrywide from the government, that deal will go down in history as one of the worst mergers ever. If the government asked B of A to buy Countrywide, then the government is exhibiting absolutely reprehensible behavior. 

The Wall Street Journal has a good article on how demand for home loans has fallen off as buyers experience sticker shock. Last year at this time, mortgage rates were 75 basis points lower, and home prices were 13% lower. This has caused affordability to take a hit, although real estate is still highly affordable compared to historical numbers. As a result, housing continues to punch below its weight in terms of contributing to economic growth. That said, the thing that jumped out in reviewing the homebuilder earnings is that the growth is pretty much coming from increases in average selling prices. For example, Pulte had flat year-over-year revenues which consisted of a 10% increase in ASPs and a 10% drop in deliveries. The builders have probably increased prices as far as they can, and will now have to push out volume to keep increasing the top line. In my opinion, that is what is going to break the logjam in the economy. The builders are coming up against some tough comparisons, and are not going to want to report revenue declines. Which means more building, which puts more people to work, which gets the virtuous cycle going again. At some point, the job market will improve enough to bring the first time homebuyer back, which is the key to a meaningful recovery in housing and is the difference between housing starts of 900k and 1.5 million.

Morning Report - Homebuilder earnings day

Vital Statistics:

	Last	Change	Percent
S&P Futures	1879.7	6.8	0.36%
Eurostoxx Index	3197.1	21.1	0.66%
Oil (WTI)	101.9	0.4	0.40%
LIBOR	0.228	-0.001	-0.39%
US Dollar Index (DXY)	79.97	0.111	0.14%
10 Year Govt Bond Yield	2.72%	0.02%
Current Coupon Ginnie Mae TBA	105.2	-0.1
Current Coupon Fannie Mae TBA	104.2	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.28

Markets are up this morning after earnings reports and a good durable goods number. Bonds and MBS are down.

Durable goods came in at 2.6% in March, better than the 2% Street estimate. Initial Jobless Claims increased to 329k.

Pulte announced better than expected earnings, but orders are down 6% from a year ago. Net new orders are down 2%. Average selling prices increased 10% to 317,000 and gross margins increased to 23.8%. They reported that the spring selling season is off to a good start, and demand accelerated throughout the quarter. Michigan apparently did well, and demand is strong in Texas, Florida, and the Carolina. Demand is weak in Washington DC and New England. We saw confirmation of DC weakness from NVR. Perhaps prices simply rose too far too fast there. Pulte is more of an entry-level homebuilder, so that is encouraging. The first-time homebuyer has been the missing piece of the puzzle.

D.R. Horton announced even better numbers than Pulte, with new orders up 9% in units and 20% in dollar value. Gross Margins increased 210 basis points to 22.5%. Average selling prices increased 10% to 278,900. They reported that market conditions remain favorable, but the strength and improvement varies significantly over local markets. D.R. Horton in based in Texas, but operates over a big geographic area.

Finally, Ryland reported orders increased 6%, ASPs increased 18%, and gross margins increased to 21.1%. Ryland is based in Southern California and operates in 17 states. 

So, for all the fears that homebuilder earnings would be terrible, so far, so good. We have heard from Lennar, KB, Pulte, DR Horton, NVR, and Ryland. Only NVR missed. That said, the weak order growth does seem to indicate that the big increases in ASPs and gross margins may be in the past. Very hard to reconcile these good earnings reports with that awful new home sales number yesterday. 

Apple delighted the crowd with a better than expected earnings and a 7 for 1 stock split. I remember the ads for stock split beepers back in the late 90s in Barron's. A company would announce a stock split, a page with the ticker is sent to your beeper, and you quickly go to your E*Trade account and buy the stock. No analysis required. Heck, you don't even have to know what they do. Typical bubble thinking. Similarly, I remember the guy who sold me my Volvo station wagon in 2006 was speculating in condo rights. Hopefully he found a seat when the music stopped. 

FWIW, it seems like the half a trillion market cap seems to be where companies stall out (both XOM and MSFT flirted with that level before petering out) and Apple is trading at $491B pre-open. 

Morning Report - the Rent vs Buy decision revisited

Vital Statistics:

	Last	Change	Percent
S&P Futures	1872.0	-1.9	-0.10%
Eurostoxx Index	3191.5	-8.2	-0.26%
Oil (WTI)	101.6	-0.2	-0.19%
LIBOR	0.229	0.000	0.07%
US Dollar Index (DXY)	79.76	-0.150	-0.19%
10 Year Govt Bond Yield	2.70%	-0.01%
Current Coupon Ginnie Mae TBA	105.2	0.1
Current Coupon Fannie Mae TBA	104.2	0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.28

Markets are lower this morning as earnings reports continue to pile in. So far, it is looking like most companies are meeting or beating estimates. Bonds and MBS are up.

The Markit US Manufacturing PMI slipped in April. It seems like big revisions have been the order of the day lately, so I wouldn't fall out of my chair with shock if that preliminary number was revised upward. Like I said before, this could be the year that "recovery summer" stops being a running joke. 

That said, new home sales came in at 384k, well below the last month's 450k pace. Abysmal, abysmal number. The XHB (homebuilder ETF) is getting slammed right now. You can't blame this one on the weather. Maybe the builders, who have been increasing home size and prices, have finally hit the point where the consumer is saying "uncle." Shortages of buildable lots and skilled labor continue to be an issue. 

Mortgage applications fell 3.3% last week (unsurprising as it was a short week). Both purchases and refis fell. Refi percent fell to 51.3%, and we are seeing ARMs increase - up to 8.5% of all loans. 

Hatteras (a mortgage REIT that specializes in ARMs) reported that its leverage ratio increased. ARMs have always been on the illiquid side to begin with, but it looks like they increased their dollar roll position, which put even more pressure on front month TBAs. TBAs (To-Be-Announced) are generic mortgage backed securities, and their price in the market is the starting point of a rate sheet. So if TBAs are in demand, mortgage rates are falling, and if they are out of favor, mortgage rates are rising. In this case, Hatteras has been selling the front-month TBAs and buying the out-month TBAs. So this puts pressure on the front month TBA, which means ARM rates are slightly higher than they otherwise would be. Of course this trade has to be reversed at some point, so ARM pricing could get a bit better in the future. I realize this is kind of "inside baseball", but it is always good to keep in mind how the buyers of mortgage backed securities (the ultimate lenders here) are positioned. 

In the "what passes for analysis" category these days category, the Washington Post (yes that bastion of commercial logic) opines that owning a house is a lousy investment. The author talks about how stocks are so much better over the long term (conveniently, the S&P 500 is at all-time highs, and real estate has gotten pounded over the past six years), and concludes that owning your own home is a stupid investment and you are better off renting. This is a classic case of "in the sciences, knowledge is cumulative, and in the financial markets it is cyclical." The author (who may be too young to remember) must imagine that inflation is forever vanquished, never to return again. If inflation ever comes back, stocks will get clobbered (as they did from 1965-1982 - the last secular bear market) as will bonds. But your house will go up in value with inflation, and the value of your liability (a 4% 30 year fixed mortgage) will fall. Inflation is a debtor's best friend, and the Fed is pulling out all the stops trying to create it. At some point, it will succeed. And if you rent, you get to enjoy annual rent increases. If you bought, you have locked in your monthly payment for 30 years. 

Morning Report - Existing Home Sales still on the weak side

Vital Statistics:

	Last	Change	Percent
S&P Futures	1867.5	3.1	0.17%
Eurostoxx Index	3192.4	36.6	1.16%
Oil (WTI)	102.9	-1.5	-1.45%
LIBOR	0.229	0.003	1.22%
US Dollar Index (DXY)	79.83	-0.113	-0.14%
10 Year Govt Bond Yield	2.74%	0.02%
Current Coupon Ginnie Mae TBA	105.2	0.0
Current Coupon Fannie Mae TBA	104	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.27

Markets are higher this morning on a blizzard of earnings reports and a couple major M&A transactions in the pharma space. Bonds and MBS are down.

The FHFA Home Price Index rose .6% month over month in February and is up just shy of 7% for the year. The FHFA Index only looks at homes with a conforming mortgage, so it is more of a central tendency index than, say Case Shiller.

Existing Home Sales were basically flat in March, coming in at 4.6 million. The median home price was up 7.4% year over year. Days on Market fell to 55 days from 62. First time homebuyers increased to 30% of transactions and all cash deals increased to 33%. For LOs that are discouraged by the death of the refi business, there is a bright side to these numbers. Investors are becoming less of a force in the market and the first time homebuyer is becoming more of one. Historically, existing home sales have been in the 5.2 million range. If we get back to historical run rates and all cash buyers go back to their historical levels of 20%, that means the gettable purchase business will increase 35%. (5.2 million * 80% with a mortgage) = 4.16 million gettable loans. Current situation: 4.6 million * 67% = 3.08 million. 

Chart:  Existing Home Sales:

Morning Report - NVR disappoints

Vital Statistics:

	Last	Change	Percent
S&P Futures	1862.5	4.6	0.25%
Eurostoxx Index	3155.8	16.6	0.53%
Oil (WTI)	104.4	0.0	0.05%
LIBOR	0.226	-0.002	-0.88%
US Dollar Index (DXY)	79.89	0.042	0.05%
10 Year Govt Bond Yield	2.70%	-0.02%
Current Coupon Ginnie Mae TBA	105	-0.6
Current Coupon Fannie Mae TBA	104.1	0.2
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.36

Markets are higher this morning on no real news. Bonds and MBS are up.

The Chicago Fed National Activity Index came in at .2, in line with expectations. The Index of Leading Economic Indicators rebounded to .8. Perhaps this year will be the end of the "recovery summer" running joke.

Thursday's big increase in rates were a bit of a head-scratcher, given that there were no big economic reports on Thursday. Chalk it up to low liquidity in the markets as senior traders took the day off and instructed their junior traders to stay out of the way.

Lots of earnings this week, with some of the market heavyweights reporting. On Thursday, we will hear from homebuilders D.R. Horton and PulteGroup. Hopefully they will give some insight on how the spring selling season is shaping up. 

Washington-DC based homebuilder NVR reported lower than expected earnings, partially based on a reversal of some previously recognized tax deductions.  Orders fell 5%, while backlog was down 3% on a unit basis but up 4% on a dollar basis. Gross margins increased to 18% as average selling prices rose 5%. NVR doesn't do conference calls, so we'll have to wait until Thursday to get some more color on the market environment. The stock is down 6.5%. 

Ocwen is putting all future mortgage servicing deals on hold, after attracting the scrutiny of the New York Attorney General's office. Everything is on hold until people figure out what Schneiderman wants.

Morning Report - Recovery Summer on the horizon?

Vital Statistics:

	Last	Change	Percent
S&P Futures	1856.0	3.2	0.17%
Eurostoxx Index	3149.1	9.9	0.31%
Oil (WTI)	103.9	0.2	0.16%
LIBOR	0.226	-0.002	-0.88%
US Dollar Index (DXY)	79.7	-0.104	-0.13%
10 Year Govt Bond Yield	2.66%	0.03%
Current Coupon Ginnie Mae TBA	105.7	-0.2
Current Coupon Fannie Mae TBA	104.3	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.41

Markets are higher this morning as earnings continue to come in and for the most part the look good. GE and Goldman reported better than expected earnings this morning, although Google disappointed last night. So far (and it is very early) it looks like the market's fears of a bad earnings season look unfounded. I think the biggest worry was going to be the banks, and so far, so good.

Markets will be closed tomorrow, and bonds close early today. 

Initial Jobless Claims came in at 304k, which is a strong number historically. What is "normalcy" in initial jobless claims? Going back to 1970, it is about 375k. Here is a chart of initial jobless claims going back to 1970, so you can get some historical perspective:

The Fed released the Beige Book yesterday. Overall, it shows activity increasing since last month, which isn't surprising - the big question is whether it is a rebound from weather-related weakness or something sustainable. Certainly some of the manufacturing data we saw recently (industrial production, capacity utilization) seems to imply the latter. I think people don't appreciate the industrial production reports that came out yesterday - the headline numbers for March were great on their own, but the upward revisions to February numbers were huge. 

On the labor front, wage pressures remained contained, except for the Dallas district. Most districts are reporting labor shortages in skilled labor. On the negative side, food prices are rising, and rising food prices plus stagnant wages can be an economic damper. The main takeaway is that the economy seems to be accelerating and it is looking like it is more than just a rebound from weather-related weakness. That said, the weakness in housing starts continues to be a head-scratcher. We are still at levels that represent the bottoms of previous recessions. Any excesses of the bubble were corrected long ago.

I suspect that a sudden increase in household formation is going to catch the builders absolutely flat-footed. Once the job market improves for young college grads, there is going to be a stampede for starter homes. 

Yet one more data point that things are improving: banks are increasing their business lending. The big banks reported an 8.3% increase in commercial loans outstanding compared to a year ago. This is part of the reason why the bank earnings are not as bad as feared - business lending is replacing lost mortgage banking income. This portends an expansion in capacity, and almost by definition, hiring. 

Recovery summer may finally come this year. Kind of messes with the whole "sell in May and go away" theory, doesn't it?

Morning Report - Disappointing Housing starts

Vital Statistics:

	Last	Change	Percent
S&P Futures	1847.7	8.1	0.44%
Eurostoxx Index	3126.3	34.8	1.13%
Oil (WTI)	104.6	0.8	0.82%
LIBOR	0.228	0.002	0.66%
US Dollar Index (DXY)	79.7	-0.104	-0.13%
10 Year Govt Bond Yield	2.64%	0.01%
Current Coupon Ginnie Mae TBA	105.7	-0.1
Current Coupon Fannie Mae TBA	104.4	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.26

Markets are higher this morning as earnings are coming in better than expected. Bonds and MBS are down small.

Mortgage Applications rose 4.3% last week, the first increase in a month. Both purchases and refis rose.

Industrial Production rose .7% in March, and capacity utilization rose to 79.2%, the highest since mid-2008.

Housing starts came in at a 946k pace in March, lower than the 970k street estimate. Building Permits were 990k, again south of expectations. Single family starts were up half a percent, while the volatile multi-fam segment fell 6.4%. Activity rebounded in the Northeast, but the South and West were down. 

Speaking of the builders, according to the NAHB, homebuilder sentiment improved slightly in April from a downward-revised March reading. So far, it is looking like the Spring selling season is going to be nothing special, as ongoing tight credit conditions and capacity constraints keep a lid on optimism. 

Believe it or not, some places in the country are finding they have to raise wages in order to attract talent. Mark Zandi, chief economist at Moody's says there are spot labor shortages that will probably broaden out over the next year as the job market steadily improves. 

Morning Report - a tale of two housing markets

Vital Statistics:

	Last	Change	Percent
S&P Futures	1827.8	3.3	0.18%
Eurostoxx Index	3128.9	-2.7	-0.09%
Oil (WTI)	103.3	-0.8	-0.72%
LIBOR	0.226	-0.002	-1.01%
US Dollar Index (DXY)	79.84	0.113	0.14%
10 Year Govt Bond Yield	2.65%	0.00%
Current Coupon Ginnie Mae TBA	105.6	-0.1
Current Coupon Fannie Mae TBA	104.4	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.3

Markets are up small on no real news. Bonds and MBS are flat

Inflation at the consumer level remains well-behaved, increasing at .2% month-over-month in March. On an annual basis, they rose 1.5%. 

The latest CoreLogic Market Pulse is out, and it has some good stuff in it. One of the things we have noted before is that there really is a tale of two markets - the high end, which is doing great, and the low end which is not. If you listen to the builders, you will see that average selling prices for new homes have been increasing at a mid-teens rate. This is not apples-to-apples appreciation, it is that the growth is in the larger segments. Apparently the average square footage of a new home has increased 200 square feet since 2008. 

The first time homebuyer has had a most difficult time, graduating college with a mountain of student loan debt and dismal job prospects. That may be changing, however as Barclay's has pointed out. College graduates are beginning to have a little more success on the jobs front, and this should usher in the return of the first time homebuyer, who really has been dormant since the bubble burst six years ago. 

Mortgage lending is hitting a 17 year low, as rates increase. According to the MBA, here are the dynamics at work: Mortgage rates jumped in mid-2013 as the Fed signalled tapering was at an end. This pushed up cash purchases to 40%, which helped fuel price increases, but also squeezed more Americans out of the market. This is the foundation for lower lending for the rest of the year. 

Morning Report - Short week

Vital Statistics:

	Last	Change	Percent
S&P Futures	1822.0	10.3	0.57%
Eurostoxx Index	3128.3	11.8	0.38%
Oil (WTI)	103.7	0.0	-0.01%
LIBOR	0.229	0.002	0.97%
US Dollar Index (DXY)	79.82	0.365	0.46%
10 Year Govt Bond Yield	2.65%	0.02%
Current Coupon Ginnie Mae TBA	105.8	-0.1
Current Coupon Fannie Mae TBA	104.5	-0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.24

SPUS are higher this morning after Thursday and Friday's bloodbath. Bonds and MBS are down small. 

Retail Sales came in better than expected, and the previous month was revised upward by a pretty large amount. March sales came in at +1.1% (vs .9 expected) and February was revised upward from .3% to .7%. 

We have a short week coming up with markets closed on Friday. In terms of economic data, the big day will be Wednesday, when we get housing starts and building permits as well as industrial production and capacity utilization. After that, expect a lot of position-squaring ahead of the 3 day weekend. 

Earnings season really begins this week, with a lot of heavyweights reporting. This morning we got Citi, and later this week we will hear from Bank of America, Google, General Electric, and Goldman. 

Ever since Mel Watt took of FHFA, he has been pretty silent about what he is looking for, and how he wants to treat the GSEs going forward. At the end of the day, Watt is an affordable housing CRA guy to the bone and won't do anything that jeopardizes that.

Morning Report - dismal mortgage banking stats

Vital Statistics:

	Last	Change	Percent
S&P Futures	1818.9	-8.2	-0.45%
Eurostoxx Index	3106.2	-46.7	-1.48%
Oil (WTI)	103.4	0.0	0.03%
LIBOR	0.226	-0.001	-0.26%
US Dollar Index (DXY)	79.52	0.140	0.18%
10 Year Govt Bond Yield	2.61%	-0.04%
Current Coupon Ginnie Mae TBA	106	0.1
Current Coupon Fannie Mae TBA	104.7	0.2
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.26

Markets are lower again this morning after the market sold off heavily yesterday. Bonds and MBS are up. 

The producer price index came in at .5%, showing inflation remains tame.

LOs, if you have anyone on the fence about locking or who wanted to do a loan but was balking at the rate, give them a call. A 2.61% 10 year yield isn't going to last long.

JP Morgan missed earnings estimates last night, and the only way to describe the mortgage arm is dismal. Mortgage Origination volumes were down 68% from the prior year and 27% from the prior quarter. The business lost $58 million on a pre-tax basis. J.P. Morgan is forecasting a pretax loss of about $100MM - $150MM in the second quarter, and a pre-tax loss for the entire year. The stock is down a couple of bucks (about 3.5%) pre-open

Well Fargo, on the other hand beat earnings estimates, however the stock is flat pre-open. Wells originated $36 billion in Q1, down from $50 billion in Q4 and $140 billion a year ago. Gain on sale margins fell to 1.61% from 1.77% last quarter and 2.56% a year ago. 

Morning Report - FOMC minutes calm the markets

Vital Statistics:

	Last	Change	Percent
S&P Futures	1863.6	-1.2	-0.06%
Eurostoxx Index	3168.4	-14.4	-0.45%
Oil (WTI)	103.3	-0.3	-0.33%
LIBOR	0.227	-0.001	-0.22%
US Dollar Index (DXY)	79.52	0.036	0.05%
10 Year Govt Bond Yield	2.67%	-0.02%
Current Coupon Ginnie Mae TBA	105.8	0.1
Current Coupon Fannie Mae TBA	104.4	0.1
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.44

Markets are flattish after initial jobless claims came in lower than expected and import prices rose. Bonds and MBS are up small.

Stocks and bonds took off on the release of the FOMC minutes yesterday. The Fed considered a more explicit commitment to keep rates low until inflation reaches their target. This additional hurdle for raising rates cheered the markets and stocks went out on their highs. "A few" members (probably Plosser) thought the Fed Funds rate should increase soon, but the rest of the Committee disagreed, saying that the evidence the hawks cited was inappropriate to focus on at the zero bound. The takeaway is that the forecast of a June 2015 rate hike is looking more and more like an outlier and if inflation stays below the target rate of 2%, the Fed may consider holding rates at zero until inflation its 2%. Which, if China indeed hits the wall and its real estate bubble bursts, could be a long time. Start thinking about where the next bubble is going to be. 

Remember Greece? The fiscal ne'er-do-well of Europe that got cut off from the bond market? Well, guess what? They just raised 4 billion euros of 5 year paper, with a bid to cover ratio of 5:1. The rate they paid? 4.75%. People have such short memories..... Or it is just the fact that since rates are so low, people have to reach for yield. Either way, once rates start going up, it is going to be a bumpy ride, IMO. 

One other point about Greece - they did clean up its public spending issues a bit and trimmed its debt (the dreaded austerity that liberal economists love to hate). That is the difference between not being able to finance your government at all and being able to borrow at under 5%. Note to Paul Krugman. The bond market always gets the last word. Always.

Unintended consequence of Dodd-Frank? Turning non-judicial states into judicial ones anyway. Lenders are choosing to go through the court process, even if it takes more time, in order to reduce the potential liability under the new foreclosure laws (especially in states like California).

The CFPB is holding a forum on the mortgage closing process on April 23. It will be livestreamed on their site. Find out what sins we are apparently committing in the closing process.

Morning Report - more credit availability in the jumbo space

Vital Statistics:

	Last	Change	Percent
S&P Futures	1850.2	5.2	0.28%
Eurostoxx Index	3191.8	14.1	0.44%
Oil (WTI)	102.6	0.0	0.00%
LIBOR	0.228	0.000	0.11%
US Dollar Index (DXY)	79.79	0.038	0.05%
10 Year Govt Bond Yield	2.71%	0.03%
Current Coupon Ginnie Mae TBA	105.4	-0.2
Current Coupon Fannie Mae TBA	104.1	-0.5
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.48

Stocks are up on no real news. Bonds and MBS are down. Alcoa kicked off earnings season last night with better than expected EPS.

Mortgage applications fell 1.6% last week. Purchases rose 2.7% but refis fell 4.9%. Refis are now roughly half of all mortgages after being over 60% not too long ago. The 30 year fixed rate mortgage was unch'd during the week. 

Later on today, we will get the minutes from the March FOMC meeting. There could be some volatility in the bond market around this release, so be careful. The street will be looking for the color on the "as soon as six months" statement - is it just one lone hawk who thinks we could start tightening in just over a year, or do other voting members share that sentiment?

Mortgage credit availability expanded in March, according to the MBA. Availability is expanding in the jumbo space. While credit availability is better than a year ago, we are still far away from any sense of normalcy, let along the go-go days of 2005-2007. The fact that the availability in credit is really only expanding in the jumbo space must be giving the CRA junkies in Washington conniptions. 

Good backgrounder on the non-bank servicers. The pace of growth of the non-bank servicing sector is "scaring regulators, who see it as a threat to their four-year effort to improve how banks handle loans in default." Hence NYS AG Eric Schneiderman has blocked a MSR deal between Wells and Ocwen. Not sure why the New York State Attorney General thinks banking regulation is his bailiwick, but I guess he is following the model Spitzer used - bash the financial sector all the way to the Governor's Mansion. 

Speaking of banks, it looks like they are going to need to raise $68 billion in capital to meet stricter standards, although most banks will likely meet the new standards by retaining earnings or restructuring some assets. We will hear from Wells and JP Morgan later this week.

Morning Report - the left is balking at housing finance reform

Vital Statistics:

	Last	Change	Percent
S&P Futures	1838.7	0.6	0.03%
Eurostoxx Index	3162.4	-23.6	-0.74%
Oil (WTI)	101.3	0.9	0.89%
LIBOR	0.227	-0.002	-0.89%
US Dollar Index (DXY)	79.86	-0.377	-0.47%
10 Year Govt Bond Yield	2.71%	0.01%
Current Coupon Ginnie Mae TBA	105.4	0.0
Current Coupon Fannie Mae TBA	104.4	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.32

Stocks are flat after a rough couple of days for stocks. Bonds and MBS are flat

Small Business turned slightly more optimistic in March, according to the NFIB. Expected increases in sales and inventories drove the increase. That said, plans to increase hiring fell. That said, small business did add more workers in March (an average of .18) than they did in February (an average of .11). Half of the respondents hired or tried to hire in the past three months, and 41% reported few or no qualified applications for open positions. Skilled trades are in short supply, and pretty much all of the homebuilders have noted the same thing on their conference calls. We are starting to see salary increases for the most in-demand workers. For the rest of us, any increased compensation is being eaten up by increased benefits expense. 

The National Association of Homebuilders reported that the recovery continues to spread. Nationwide, we are operating at 88% of normal economic and housing activity. Unsurprisingly, the most activity is in the energy patch, with Baton Rouge, Oklahoma City, and Houston topping the list. Encouragingly, stronger employment numbers seem to be driving the increase. 

The latest HUD Housing Scorecard is out, if anyone cares about the Administration or HARP / HAMP.

The left is revolting over the effort to overhaul the GSEs. They want more low-income lending mandates. Of course, if the bill becomes larded with social engineering mandates, Republicans will vote against it. The problem is that the left simply does not believe that affordable lending mandates had anything to do with the housing bubble. Of course if one looks at the severities in CRA areas, it is obvious that it did. How many abandoned houses worth ten grand have $100,000 mortgages on them in places like Detroit, Harrisburg, San Bernardino, etc. That is CRA ground zero. This may be one area where the two viewpoints of what happened from 2000 - 2008 are irreconcilably different. Wall Street Sharpies caused the bubble! Social Engineering caused the bubble! Both viewpoints go to the core of what the different parties believe and no one is going to convince the other of anything. Meanwhile, the taxpayer backstops 90% of all new origination.... Ask who is happiest with the status quo and you'll be able to see who drives the hardest bargain.

Morning Report - Light data week ahead

Vital Statistics:

	Last	Change	Percent
S&P Futures	1854.4	-5.7	-0.31%
Eurostoxx Index	3199.4	-31.0	-0.96%
Oil (WTI)	100.4	-0.7	-0.73%
LIBOR	0.229	0.000	-0.11%
US Dollar Index (DXY)	80.32	-0.101	-0.13%
10 Year Govt Bond Yield	2.72%	0.00%
Current Coupon Ginnie Mae TBA	105.2	0.0
Current Coupon Fannie Mae TBA	104.2	0.0
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.35

Markets are lower this morning worldwide and US futures are following. Bonds and MBS are up small.

This week is a light one data-wise, with only the FOMC minutes (which will be released on Wed) as a potential catalyst. The market will be parsing the minutes looking for more color around the "as soon as six months" comment. 

This week starts off earnings season, and we will hear from JP Morgan and Wells late in the week. We will probably see poor mortgage banking numbers out of both (although Wells is very aggressive these days bidding paper). 

According to Black Knight Financial Services, monthly origination volume is the lowest on record. The government's share of originations has fallen due to a sharp drop in HARP loans. There is very little origination activity happening in the lowest credit score buckets.

Morning Report - Jobs Day

Vital Statistics:

	Last	Change	Percent
S&P Futures	1890.4	7.4	0.39%
Eurostoxx Index	3220.6	13.9	0.43%
Oil (WTI)	101.3	1.0	0.98%
LIBOR	0.23	-0.001	-0.33%
US Dollar Index (DXY)	80.34	-0.131	-0.16%
10 Year Govt Bond Yield	2.76%	-0.04%
Current Coupon Ginnie Mae TBA	105.2	0.4
Current Coupon Fannie Mae TBA	104.1	0.4
RPX Composite Real Estate Index	200.7	-0.2
BankRate 30 Year Fixed Rate Mortgage	4.44

Stocks are higher after an okay jobs report. Bonds and MBS are rallying

Nonfarm payrolls rose 192k in March, slightly behind the 200k estimate. February was revised upward to 197k from 175k. The ADP Jobs report was spot on, for once with their estimate of 191k. The unemployment rate was unchd at 6.7% and the labor force participation rate rose to 63.2%. Average hourly earnings were flat, while average weekly hours increased to 34.5. So overall, it is an okay jobs report, nothing great, but nothing terrible either. Par for the course these days. 

Separately, outplacement firm Challenger, Gray, and Christmas reported that announced job cuts fell 30% in March, making the first quarter the lowest in announced job cuts in 20 years. Announced job cuts are dropping, and the ISM reports show employment plans are increasing. 

Smallish homebuilder Beazer Homes gave an update yesterday. Orders are down 9%, while backlog is down 2%. Orders on the West Coast dropped 16%. It appears prices simply moved to far too fast out there. 

James Lockhart, former regulator for Fan and Fred says the stocks are worthless. At this point, they are litigation lottery tickets.