Morning Report: Negative equity falls

Vital Statistics:

	Last	Change	Percent
S&P Futures	2114.2	-3.9	-0.18%
Eurostoxx Index	2918.0	-71.0	-2.38%
Oil (WTI)	49.83	-0.7	-1.44%
LIBOR	0.658	0.001	0.21%
US Dollar Index (DXY)	94.13	0.180	0.19%
10 Year Govt Bond Yield	1.65%	-0.03%
Current Coupon Ginnie Mae TBA	105.8
Current Coupon Fannie Mae TBA	104.9
BankRate 30 Year Fixed Rate Mortgage	3.67

Stocks are lower this morning on no real news. Bonds and MBS are up as sovereign bonds rally globally. 

The 10 year has broken out of its range and is now trading at 1.65%. The catalyst has been lower rates throughout the world. The German 10 year Bund is now trading at 2 basis points. The Japanese Government Bond yields negative 13 basis points. At some point, gold has to become interesting as an investment. The knock on gold was always that there is no yield, but compared to long term sovereign bonds that have no yield and (probably) no upside, why not? Definitely a better risk / reward. 

Mortgage originator and servicer Walter Investment got slammed yesterday after the CEO resigned. Regulatory difficulties and costs were the catalyst. The stock has lost 82% of its value over the past year. 

In economic news, initial jobless claims fell to 264k from 268k the week before. So in spite of the low job creation numbers, we aren't seeing firms lay off people yet. 

Consumer confidence fell slightly in June to 94.3 from 94.7 according to the University of Michigan Consumer Sentiment Survey

268,000 homes regained positive equity in the first quarter, according to CoreLogic. They estimate that 4 million homes (or about 8% of the homes with a mortgage) have negative equity. 18% of homes have less than 20% equity. Negative equity remains a problem in the Northeast, the Rust Belt and FL, NV, and AZ. 

Ex Fed Head Narayana Kochlerakota argues the Fed should be doing more to get inflation up. Not only should they hold off on raising rates until the core PCE is above 2%, but it should pay nothing on excess reserves. 

Morning Report: Servicers getting slammed this morning

Vital Statistics:

	Last	Change	Percent
S&P Futures	2061.5	-19.9	-0.88%
Eurostoxx Index	3055.8	-69.6	-2.23%
Oil (WTI)	44.22	-0.5	-1.04%
LIBOR	0.638	0.004	0.63%
US Dollar Index (DXY)	93.18	-0.583	-0.62%
10 Year Govt Bond Yield	1.79%	-0.08%
Current Coupon Ginnie Mae TBA	105.4
Current Coupon Fannie Mae TBA	104.7
BankRate 30 Year Fixed Rate Mortgage	3.63

Stocks are lower this morning on global economic weakness. Bonds and MBS are up.

Sell in May and go away? Certainly that is the tone of the market so far.

Not much in the way of economic numbers this morning. The ISM New York Index rose while the IBD/TIPP Economic Optimism index ticked up as well. Vehicle sales will be trickling in all day as well. 

Walter Investment Management is getting pummeled this morning on bad numbers. Tangible book value per share fell from $9.92 to $5.04 on a negative MSR valuation mark. Reverse Mortgages also hurt earnings. Nationstar and Ocwen are down in sympathy. The stock is down 27% to $5.25 a share. This was a $23 stock last summer.  

Atlanta Fed President Dennis Lockhart said the markets are underestimating the possibility of a rate hike at the June meeting. Currently the Fed Funds futures market are handicapping a 10% chance of a rate hike. Kind of surprising given that GDP growth in the first quarter was a measly 0.5% and the latest forecasts for Q2 GDP are coming in around 1%.  The possible exit of the UK from the Eurozone is another risk. Ultimately it will all come down to wage growth (or the lack thereof).

Construction spending rose 0.3% MOM and is up 8% YOY. Residential construction was up 7.6% YOY. Office, commercial, and health care were where the action was, increasing close to 20% overall. 

Home prices increased 6.7% last year, according to Corelogic. They are forecasting a 5.3% increase this year. Restricted supply continues to drive prices higher, although affordability is falling. Lower interest rates are helping with the affordability issue, 

Banks eased standards for residential mortgages in the first quarter, according to the Fed Senior Loan Officer Survey. Conforming loans, non-QM and jumbo loans eased standards.