Morning Report: The cut in FHA insurance was short-lived.

Vital Statistics:

	Last	Change
S&P Futures	2261.8	-4.0
Eurostoxx Index	361.2	-1.4
Oil (WTI)	52.3	1.0
US dollar index	91.1	-0.5
10 Year Govt Bond Yield	2.44%
Current Coupon Fannie Mae TBA	102.1
Current Coupon Ginnie Mae TBA	103.6
30 Year Fixed Rate Mortgage	4.19

Stocks are lower this morning on no real news. Bonds and MBS are up.

We are entering the quiet period for the Fed ahead of next week's FOMC meeting, so bonds should be less volatile as there is no Fed-speak. We also don't have much for market-moving data this week until Friday when we get the first look at Q4 GDP and durable goods.  We will get some housing data with existing home sales, new home sales, and the FHFA House Price Index. 

HUD has suspended the planned decrease in annual MIP for the moment. It was scheduled to go into effect this week, however the new Administration wants to take a look at the health of the FHFA insurance fund before making any changes. The timing of the MIP cut was suspect to begin with - if it was such a great idea, why wait until the last minute to make a change? Note that this change will positively affect FHA and VA pricing for the higher note rates. 

Separately, Donald Trump put a moratorium on all new regulations for the moment. This is something every President does as agencies often try and slip some onerous stuff in at the last moment especially when the incoming Administration has large philosophical differences with the outgoing one. 

Hedge funds are pressing their short speculative bets in the Treasury market. At the same time, institutional investors are aggressively buying Treasuries after the increase in yields. This is a classic "fast money versus real money" trade and usually the real money wins by dint of sheer firepower. Much will depend on what the new Trump administration does with respect to fiscal stimulus. The first priority seems to be repealing and replacing Obamacare, not infrastructure or tax reform. Every president has a limited amount of political capital, and this one seems to be spending it on healthcare, which means a tougher road forward for infrastructure spending and tax reform. The less stimulus out of Washington, the more the Fed can take their time raising rates, and the more that rates will stay low. This also sets the stage for short squeezes in the bond market, or brief periods where rates fall dramatically. Borrowers who are on the cusp with a refi could sneak in a good rate. 

One thing to keep in mind with respect to interest rates is the US dollar. For the past two decades, a strong dollar has been the mantra of both Republican and Democratic administrations. Trump has made comments that the US dollar is too strong, especially with respect to the yuan. The markets seem to be taking this as "Trump being Trump" but it bears watching. A lower dollar is good for manufacturers in the US, but generally bad for consumers. It also is bad for bonds (inflationary), which means pushing up interest rates at the margin. 

The Fed may begin to shrink its balance sheet this year, as the Fed Funds rate tops 1%, Philadelphia Fed President Patrick Harker said on Friday. The Fed increased its balance sheet to $4.5 trillion from about $800 billion in assets via quantitative easing, and has been re-investing maturing proceeds back into the market. At the margin, this means somewhat higher mortgage rates unless other entities like mortgage REITs and sovereign wealth funds pick up the slack. 

The appraiser shortage is clogging up the system. There were 2000 fewer appraisers in 2016 versus 2015, and the average age is 53. Many are looking to retire, and the pipeline of new appraisers is shrinking. Regulatory challenges have largely caused the problem, and the industry is looking for ways to attract new blood into the industry, via waiving the degree requirement and shortening the number of apprentice hours required. The ones that remain however have so much work that they don't have the time to train anyone. 

Interesting article from John Maudlin about the state of things in DC. The takeaways: The consensus is that Dodd-Frank, Obamacare, and the tax code will be restructured, but that is about the end of the consensus. How it will be done is anyone's guess. As time goes on, it looks like the changes in Obamacare will be marginal, not dramatic. Second, Trump's management style is much more in the private sector style, which will mean more turnover than is typical. This will inevitably be described as "disarray" by the press, which isn't used to seeing this sort of style. 

Black Knight Financial Services has their first look at December mortgage data. The inventory of loans in some phase of foreclosure dropped by 200,000 in 2016, the best improvement of any year on record. Loan delinquencies were 4.42%, down .91% MOM and 7.5% YOY. Prepay speeds fell 5.5%. 

Finally, I will be on the panel for HousingWire's Housing Outlook 2017: Trump's Mortgage Nation on Jan 26 at 2:00 pm EST. I will be discussing rates and the economy, and we will also delve into the regulatory environment and mortgage insurance. Registration is free and it promises to be an informative event.