Morning Report: Good numbers out of Lennar

Vital Statistics:

	Last	Change
S&P Futures	2446.3	-1.3
Eurostoxx Index	391.2	-0.8
Oil (WTI)	43.1	-1.1
US dollar index	88.9	0.1
10 Year Govt Bond Yield	2.18%
Current Coupon Fannie Mae TBA	103.31
Current Coupon Ginnie Mae TBA	104.375
30 Year Fixed Rate Mortgage	3.92

Stocks are lower as oil continues to fall. Bonds and MBS are flat.

No economic data today, however we do have some Fed-speak. Overnight Stanley Fischer observed that some countries have real estate bubbles and low interest rates might have played a role. (Gee, ya think?) The planet's central bankers are on a mission to create inflation, however the inflation they want (wages) is not happening - it is going into inflation they don't necessarily want (asset prices). Fischer noted that the US government basically IS the mortgage market in the US and that government support for MBS should be made explicit. 

Lennar reported better than expected earnings this morning, with revenues up 19%. Deliveries increased 15% and backlog was up 20% in dollar terms. While revenues rose, margins are falling, with gross margins down 160 basis points. Lennar CEO Stuart Miller said: "We are now seeing, contrary to recent reports on housing starts and building permits, more of a reversion to normal in the housing market than the slow and steady recovery pace of the last several years." The stock is up a couple of percent pre-open. 

Meanwhile, the lousy housing starts number prompted a number of houses to take down their Q2 GDP estimates. Merrill took their estimate down to 2.2%, while the Atlanta Fed took their estimate down to 2.9%. The NY Fed's estimate is coming in at 1.9%. 

Credit risk for new mortgages edged up according to CoreLogic. The index is at similar levels to 2001-2003, which CoreLogic considers a baseline for credit risk. Part of this is due to the effect higher interest rates have on credit scores. As CoreLogic observes: “Since 2009, for every one-half percentage point increase in mortgage rates, the average credit score on refinance borrowers has dipped by 9 points, and this pattern will likely continue if mortgage rates move higher. That is because when rates rise, applications drop off and loan officers spend more time with the applicants that have less-than-perfect credit scores, require more documentation or have unique property issues.”