Morning Report: Credit risk at post-crisis lows

Vital Statistics:

	Last	Change
S&P Futures	2373.8	3.5
Eurostoxx Index	378.3	0.6
Oil (WTI)	48.4	0.2
US dollar index	90.2
10 Year Govt Bond Yield	2.49%
Current Coupon Fannie Mae TBA	101.703
Current Coupon Ginnie Mae TBA	102.98
30 Year Fixed Rate Mortgage	4.22

Stocks are up small this morning while bonds and MBS are flat.

We have no economic data this morning, but will have a lot of Fed-speak during the day. 

CoreLogic took a look at credit risk of mortgages going back to 2001 and came up with an index to describe the credit risk of a typical mortgage, using things like credit scores, LTVs, and DTI ratios. Credit risk is now re-approaching the lows of 2011-2012. This is somewhat interesting as you would expect lenders to loosen standards as rates rise - basically using a larger credit box to offset some of the volume lost from refis. So far (this data is through December) we don't have evidence of lenders doing that. Even the Ellie Mae data had a de minimus change in FICOs. 

Speaking of increasing the credit box, we are seeing signs of life from the private label securitization market, which has largely been dormant since 2006. Angel Oak did a $148MM deal securitized by non-QM mortgages that got a AAA rating from Fitch. The new deals are much different than the past deals in that they documented, have large downpayments, and are much more overcollateralized than they were in the past. Part of the problem in bringing them back has simply been interest rates. Banks have been unable to structure anything that provides a high enough rate of return to interest the traditional MBS investor. As rates rise, that problem should go away. We are a long way from the no-no loans of 2005 - the typical loan is either a high quality jumbos or non-QM loans for the self-employed.