Morning Report: Government zeroing in on VA IRRRL churning

Vital Statistics:

	Last	Change
S&P Futures	2489.0	-6.0
Eurostoxx Index	381.9	0.6
Oil (WTI)	49.8	0.5
US dollar index	85.5	0.0
10 Year Govt Bond Yield	2.20%
Current Coupon Fannie Mae TBA	103.33
Current Coupon Ginnie Mae TBA	104.21
30 Year Fixed Rate Mortgage	3.81

Stocks are down this morning after the Bank of England made no changes to monetary policy. Bonds and MBS are flat.

Inflation at the consumer level was a little hotter than expected, but still came in below the Fed's target rate. The Consumer Price Index rose 0.4% MOM and 1.9% YOY. Ex-food and energy it rose 0.2% / 1.7%. Damage from Hurricanes Harvey and Irma are creating temporary shortages which is pushing up the price of gasoline as well as some foodstuffs. This should be out of the system by the holiday shopping period and won't affect the Fed's thinking. 

Initial Jobless Claims fell to 284k last week, as Hurricane Harvey is still keeping jobless claims elevated. We will see a similar effect with Irma as well, though it should be less pronounced. Meanwhile, Target anticipates hiring 100,000 employees for the holiday season. 

The government is taking a look at lenders who push veterans to do VA IRRRLs that offer a de minimus benefit to the veteran. They have already addressed part of the issue in the secondary market by creating a separate Ginnie Mae security for VA IRRRLs that replaced a loan less than 6 months old. The IRRRL is subject to abuse since the fee can be financed. It ends up adding thousands to the principal of the loan in exchange for a slightly lowered payment. In a response to Elizabeth Warren GNMA President Michael Bright said they have identified some companies which seem to "churn" VA loans and they have identified some patterns of behavior that they will try to curtail. GNMA didn't identify which companies they were, but being accused of taking advantage of veterans will be a PR nightmare for some. Serial refinances were a problem with GNMA MBS as well, which depressed the prices of these securities. This drop in price directly translates into higher mortgage rates for unrelated loans, like FHA and non-IRRRL VA loans. 

Home prices rose 7.7% in August according to RedFin. The national median sales price was $293k, flat with July. Inventory continues to decline, falling 12.4% YOY, which was the biggest decrease in inventory over the past 2 years. Inventory stands at 2.8 months' worth, which is well below the 6 months that represent a balanced market with respect to supply and demand. Median days on market fell by 5 days YOY to 39.

In the wake of their hacking attack, Equifax is waiving fees for people who want to put a lock on their credit report. Basically, this allows you to prevent potential lenders from pulling your credit, unless you specifically authorize it. This will help prevent identity theft, however it won't be completely effective unless you do the same thing at the other two credit reporting agencies: Transunion and Experian. The stock is down 31% since announcing the hack.