Morning Report: Homebuilder earnings report strong order growth

Vital Statistics:

	Last	Change
S&P Futures	2479.0	5.0
Eurostoxx Index	382.4	1.6
Oil (WTI)	48.4	0.5
US dollar index	86.7	0.0
10 Year Govt Bond Yield	2.32%
Current Coupon Fannie Mae TBA	102.93
Current Coupon Ginnie Mae TBA	103.81
30 Year Fixed Rate Mortgage	3.95

Stocks are higher this morning as oil rallies. Bonds and MBS are flat.

The FOMC decision is due out at 2:00 pm EST. Be careful locking loans around that time. No change in interest rates is expected, however the language in the statement always has the potential to move markets. You are starting to see some movement in the Dec Fed Funds futures, with the market currently handicapping a 48% chance of no change, 47% of 25 bps and a 5% chance of 50 bps between now and then. Sep futures are stuck at 92% chance of no change and an 8% chance of a 25 basis point hike. 

Mortgage applications rose 0.4% last week as purchases fell 2% and refis increased 3%. Mortgage rates in general fell about 5 basis points during the week. ARM share increased to 6.8%. 

Despite all the consternation in DC, consumer confidence continues to rise. The Consumer Confidence index rose to 121, largely on the strength of the jobs market. The number of people who think jobs are "hard to get" fell to 18%, while those that think jobs are "plentiful" rose to 34%. 

New Home Sales ticked up to 610k in June, which is up 9% on a YOY basis. 

Homebuilder Pulte reported earnings yesterday. Orders were up 12%, and backlog was up 19%. They did warn on gross margins, as wildfires in Canada are pushing up framing lumber prices. Pulte has a national footprint, but it is big in the Midwest, which shows that things are picking up in that part of the country. 

D.R. Horton reported earnings as well. Orders increased 13% and backlog increased 5%. Tight labor markets are affecting margins. D.R. Horton is more exposed to the South and Southwest, and therefore will be more sensitive to what is going on in the oil patch. 

Since the election, the XHB (S&P Homebuilder ETF) has been on a tear, increasing 23% since the election.

The House is expected to use the Congressional Review Act to overturn the CFPB's recent rule on mandatory arbitration. It is expected to fall 100% on partisan lines. In the Senate, all Democrats are expected to vote against overturning it, and there are a few Republicans who are undecided. 

Interesting stat on GNMA servicing portfolios since 2014. Down 25% at major banks, up 15% at smaller banks, doubled at non-banks. GNMA servicing rights have been weighed down by the costs of FHA delinquencies as well as higher than expected prepayment speeds due to the VA IRRL program. The government recently changed the rules for quick IRRL refis, but servicing values have yet to rebound.