Morning Report: Ben Carson travels to Capitol Hill

Vital Statistics:

	Last	Change
S&P Futures	2266.0	2.5
Eurostoxx Index	364.4	1.9
Oil (WTI)	52.7	-0.3
US dollar index	92.0	-0.1
10 Year Govt Bond Yield	2.37%
Current Coupon Fannie Mae TBA	103
Current Coupon Ginnie Mae TBA	104
30 Year Fixed Rate Mortgage	4.1

Markets are higher this morning as bank earnings come in. Bonds and MBS are down.

Inflation at the wholesale level remains under the Fed's target rate, according to the Producer Price Index. The PPI was up 0.4% MOM and 1.2% YOY. Ex-food and energy, it was up 0.3% MOM and 1.4% YOY. 

Retail sales increased 0.6% in December, however if you strip out autos and gasoline, they were flat. The control group rose by 0.2%, which missed expectations. For all the post-election increase in confidence, it didn't translate into spending. 

Business Inventories rose sharply (increasing 0.7%) in November, while sales increased 0.1%. The inventory to sales ratio came in at 1.38x, which is an improvement, but is still elevated. That said, inventory build is not the driver of the business cycle that it was 20 or 30 years ago. 

Consumer sentiment slipped slightly to 98.1 from 98.6. This is the preliminary January reading. 

We are getting bank earnings this morning. Wells missed estimates as mortgage revenue fell 15%. Issues with hedges drove down servicing revenue 73%. JP Morgan beat estimates, while Bank of America missed. 

Ben Carson testified in front of the Senate yesterday. Here are his prepared remarks. He spent the a lot of time discussing the state of government housing and the role of housing to help the poor move up the economic ladder. He addressed regulations in several instances. First, he took aim at local zoning regulations that inhibit multifamily housing. Second, he mentioned that regulations have added 24% to the cost of a new house, and finally he discussed them with respect to credit. 

Here are his comments with respect to origination: "Loans are now bifurcated: the well-off have their pick of loans and lenders while many others without solid credit or stable incomes are locked out – one of the reasons the economic recovery was slower than many would have liked. Homeownership rates have fallen on a year-over-year basis in every quarter for the last 10 years, and a surge in renting has dropped the homeownership rate to a 50-year low. Banks are loath to participate in low-down payment programs through FHA for fear of getting sued if the borrowers default. (emphasis mine) So we need to make sure HUD and FHA are fulfilling their missions to help people build up an asset, like a home, which will help them climb up the rungs of the economic ladder."

On the subject of private capital, he supported more private capital in the mortgage market to displace government capital (which is a completely non-controversial sentiment). He also thinks that a government backstop is not necessary to keep a 30 year fixed rate mortgage, however he supports government involvement to keep it. Note that while the typical American considers a 30 year fixed rate mortgage to be their birthright, they are largely a US phenomenon. Everyone else has some sort of adjustable rate. Of course you could still have a 30 year fixed rate mortgage without the government backstop, however the rate will reflect the added risk. 

Finally, he was asked about the recent decrease in FHA annual MIP and only said he would look at it. So, it looks like we aren't going to see a wholesale change from the Obama administration, although GNMA may become a little more forgiving, at least at the margin. For the mortgage origination business, HUD isn't the big driver - it is Treasury via the GSEs and the CFPB with enforcement. 

NAR has a good wrap-up of the testimony. Here are the objections from the left.

Overall, Trump's nominees have come across as relatively mainstream, so much so that Dick Durban (D-IL) commented on it. Trump's response was that he wanted them to be themselves and to say what they thought, not what he thinks. Interestingly, the biggest difference between Trump's cabinet and Obama's is his lack of lawyers. Obama's cabinet was dominated by them. 

Builders are encouraged that a new administration will ease the shortage of buildable land caused by increased environmental regulations. They may be overoptimistic about what can be done, however. Many of these laws are local, which the Federal Government can't do much about. Changing regulations takes a long time, with comment periods, and environmental groups have lawsuits at the ready if they sense the administration is no longer enforcing existing laws. 

Finally, perspective is everything: