Morning Report: A tell in the mortgage REITs

Vital Statistics:

	Last	Change
S&P Futures	2346.0	8.8
Eurostoxx Index	377.5	1.1
Oil (WTI)	52.4	0.0
US dollar index	89.7
10 Year Govt Bond Yield	2.20%
Current Coupon Fannie Mae TBA	103.15
Current Coupon Ginnie Mae TBA	104.3
30 Year Fixed Rate Mortgage	3.97

Stocks are rebounding this morning after yesterday's big sell-off. Bonds and MBS are down small. 

Mortgage applications fell 1.8% during a holiday-shortened week. Purchases were down 3% while refis rose .2%. Note that the 10 year yield fell 15 basis points last week, so we should continue to see follow through in refis. 

The 10 year bond yield slipped below 2.2% yesterday, hitting the lowest point since the immediate post-election rate rise. The Trump reflation trade is unwinding as the market reckons that nothing is going to get done in Washington, which is probably a safe bet at this point. 

While the rest of the world frets about what will happen when the Fed starts shrinking its balance sheet (can we call it quantitative tightening?), there is one sector that is surprisingly sanguine: the mortgage REITs. American Capital Agency and Annaly Capital are both up some 18% since rates peaked in December. Yes, some of that is simply the natural correlation between MREITs and bond prices, however this also comes as the Fed discusses unwinding its balance sheet. If REIT investors were worried that decreased demand for mortgage backed securities would affect the value of their portfolios, you would expect to see it in their stock prices. So far, they are shrugging it off. For originators, this means that mortgage spreads to Treasuries should be safe as well, which is good news. Meanwhile, the homebuilders continue to move higher, despite the disappointing housing starts we have been seeing. Building permits are still depressed as well, so there isn't any indication the tight inventory situation is going to change. 

CFPB Chairman Richard Cordray is supposedly pondering a run for the Governor of Ohio. If so, his days at the CFPB could be numbered. 

The digital mortgage is only going to become more and more common. Here is how lenders should approach it. Punch line: the programmers need to focus on the consumer experience as much as the back end functionality. 

Since housing prices bottomed, condo price appreciation has outstripped single family residence appreciation. Historically that has not been the case, as there is generally more demand for SFR. My guess is that condo prices are more volatile than SFR prices, and that they declined more in the sell-off and are now increasing faster in the rebound. There probably isn't any secular change going on, although many are quick to point out that the Millennials (so far at least) prefer living in urban areas.