Morning Report: Movement on housing reform

Vital Statistics:

	Last	Change
S&P Futures	2647.0	7.8
Eurostoxx Index	389.5	3.1
Oil (WTI)	57.6	0.9
US dollar index	87.3	0.0
10 Year Govt Bond Yield	2.38%
Current Coupon Fannie Mae TBA	102.625
Current Coupon Ginnie Mae TBA	103.625
30 Year Fixed Rate Mortgage	3.92

Stocks are higher after a strong jobs report. Bonds and MBS are down small. 

Jobs report data dump:

• Payrolls up 228,000
• Two month revision up 38,000
• Unemployment rate 4.1%
• Labor Force participation rate 62.7%
• Average hourly earnings up 2.5% YOY

Overall a strong report, and probably good for the markets. The modest wage inflation will keep the Fed cautious, while slack continues to be taken up. That said, a rate hike is more or less a certainty next week. We probably won't see any big pickup in wage inflation until the labor force participation rate gets back up to the 65% - 66% level. 

In other labor news, job cuts increased slightly according to outplacement firm Challenger, Gray and Christmas, while initial jobless claims fell to 236,000. 

Consumer sentiment edged up slightly in November, according to the University of Michigan survey. 

Congress came up with a deal to keep the lights on for two weeks. The debt ceiling will have to be raised at some point, although the government can use cash on hand and other extraordinary measures to get through until Spring. Expect to see some conservative Republicans to balk at additional spending, which makes bringing aboard some Democrats a necessity. A deal with Democrats will involve an equal hike in defense and non-defense spending as well as some sort of immigration deal. A shutdown doesn't seem to be in the cards, at least not yet. 

With all the commotion going in Washington right now, it is easy to forget about housing reform, but Bob Corker and Mark Warner are beginning to come to a consensus over what the future of housing finance should look like. Fannie and Fred will remain, but the government will make it easier for new competitors to enter the market. Jeb Hensarling of Texas has moderated his stance on government guarantees of mortgages, which helped move things along. The goal is to keep the mortgage market more or less as-is for borrowers, while increasing competition in the secondary market and bolstering taxpayer protection. In one wrinkle, the Fannie Mae preferred shareholder might get some sort of recovery. The prefs were up 24% on the news, while the common fell slightly. 

The FHA will no longer insure mortgages for properties that include Property Assessed Clean Energy (PACE) assessments."FHA can no longer tolerate putting taxpayers at risk by allowing obligations like these to be placed ahead of the mortgage itself in the event of a default," said U.S. Department of Housing & Urban Development (HUD) Secretary Dr. Ben Carson. "Assessments such as these are potentially dangerous for our Mutual Mortgage Insurance Fund and may have serious consequences on a consumer's ability to repay, or when they attempt to refinance their mortgage or sell their home." Dave Stevens of the MBA also welcomed the decision.

Ginnie Mae is tightening requirements on securitizations in order to combat the high prepayment speeds that the securities have been experiencing. They targeted VA IRRRLs last year by making IRRRLs that refinanced a loan less than 6 months old ineligible for standard securitizations. Ginnie is now including cash-out refis and FHA streamlines as well. Some MBS strategists have predicted that this will weaken demand for the higher coupon Ginnie Mae securities, which would mean that borrowers get less and less of a pickup in points for going higher in rate.