Morning Report: Mortgage credit remains tight

Vital Statistics:

	Last	Change
S&P Futures	2265.5	5.5
Eurostoxx Index	360.9	1.3
Oil (WTI)	52.6	0.5
US dollar index	93.6	0.4
10 Year Govt Bond Yield	2.57%
Current Coupon Fannie Mae TBA	103
Current Coupon Ginnie Mae TBA	104
30 Year Fixed Rate Mortgage	4.29

Stocks are higher this morning on no real news. Bonds and MBS are down small.

No economic data today. The financial networks are giddy over #Dow20000. 

Housing credit remained tight in the third quarter, according to CoreLogic. New loan risk fell as credit scores improved and the average LTV fell to 85.8 from 86.8 a year ago. Average DTIs fell as well, to 35.4 from 35.7. I guess this index could be taken one of two ways: either credit is getting tighter, or the average borrower is getting into better financial shape as time goes on. I suspect it is a little of both. Regardless, you can see that we are a long way away from the glory days of the housing bubble, and even nowhere near the depths of the post 9/11 economy. 

Ray Dalio of Bridgewater has a good piece on the incoming administration and compares it to Reagan and Thatcher in the late 70s / early 80s. Bottom line is that the reins of government will be handed from academics and activists to businesspeople, which should unleash some of the animal spirits that have been dormant for the past decade. 

Quote from the article: "This particular shift by the Trump administration could have a much bigger impact on the US economy than one would calculate on the basis of changes in tax and spending policies alone because it could ignite animal spirits and attract productive capital. Regarding igniting animal spirits, if this administration can spark a virtuous cycle in which people can make money, the move out of cash (that pays them virtually nothing) to risk-on investments could be huge. Regarding attracting capital, Trump’s policies can also have a big impact because businessmen and investors move very quickly away from inhospitable environments to hospitable environments. Remember how quickly money left and came back to places like Spain and Argentina? A pro-business US with its rule of law, political stability, property rights protections, and (soon to be) favorable corporate taxes offers a uniquely attractive environment for those who make money and/or have money."

What does that mean for the financial sector? First, it probably means a return of the private label securitization market, which will open up capital to borrowers who are currently shut out of the market. Certainly it will encourage homebuilders to begin to address the shortage of housing we currently have, with the concomitant job creation that entails. And finally, it may be the catalyst to get the Millennial first time homebuyer in a position to own a home. Granted, there are a lot of "ifs" in Dalio's statement, but those sentiments are certainly being echoed in the stock and bond markets.