The Daily Tearsheet

Stocks are lower this morning as fighting continues in the Persian Gulf. Bonds and MBS are down.

Energy prices are spiking higher as the fighting spreads in the Gulf and Iran threatens to set any ships on fire that pass through the Strait of Hormuz. The Strait of Hormuz sits between Iran and Oman and is about 21 miles wide at its narrowest point. The strait acts as a choke point for global oil supply, and much of the US Navy’s mission over the past 50 years has been to periodically shepherd oil tankers through the Strait whenever Iran gets a bug up its butt. About 20% of the global oil supply passes through the Strait of Hormuz, so any disruption there will send reverberations through markets.

Iran has attacked a gas facility in Qatar and an oil refinery in Saudi Arabia. Oil prices are up another 7% or so this morning, while natural gas futures are up 5% and gasoline futures are up a similar amount. The US gets almost all of its energy internally (the US is the Saudi Arabia of natural gas), so the threat of any sort of shortage isn’t there. The US oil market (WTI) is entirely separate from the oil that comes from the Gulf. That said, futures correlate so the US is seeing higher energy prices even though the action in the gulf shouldn’t affect anything here, at least in theory.

The US is demanding that Iran give up its nuclear ambitions, stop funding Hamas and Hezbollah, and stop trying to develop ballistic missiles. In return, the US would consider relaxing or ending sanctions. With Iran becoming increasingly isolated in the Gulf perhaps a new government will find that more palatable than the previous one did. Decades of sanctions has meant that Iran has been limited in its ability expand exploration and production and the country does represent a potential source of new global supply. So if the new interim government says “uncle” and Iran goes from chaotic evil to chaotic neutral this would be bearish for energy prices in general.

The ISM Manufacturing Index declined slightly in February as new orders and production expanded more slowly than January. In February, U.S. manufacturing activity remained in expansion territory, although growing at a slower pace than the month before. Of the five subindexes that make up the PMI^®, two (New Orders and Production) indicated slower growth compared to the previous month, and the Employment and Inventories indexes remained in contraction.

Most of the comments discussed the problems associated with tariffs, but this one had an interesting point on the employment market: “Business is improving by the week. Backlog is growing, and new opportunities are everywhere. Monthly shipments are still lower than planned, but improving. Over the past five years, we spent thousands trying to attract new employees and had almost zero responses. In the last six months, however, we’ve been able to hire experienced engineers, computer numerical control (CNC) operators, and young people wanting to become CNC machinists.” [Fabricated Metal Products]

The point about being able to hire skilled workers and young people entering the trades means that the prior lack of workers was a market issue, not a structural one. It sounds like more young workers are seeing college for what it is: a negative NPV investment for a lot of majors, and are reacting accordingly.

The S&P Manufacturing PMI shows a similar situation – manufacturing is still expanding, although the pace of expansion has slowed. Weather did have a negative impact on activity, although uncertainty in general from tariffs, to politics (and now geopolitical tensions) have dampened confidence and enthusiasm. “Meanwhile, although cost inflation remained elevated, often linked to tariffs, it is running lower than the peaks seen last year, and stiff competition has limited the pass through to selling prices, which rose in February at the slowest rate for over a year. While this is good news for inflation, it hints at downward pressure on profits.”

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Stocks are lower after the US decapitated Iran over the weekend. Bonds and MBS are down. Oil is up about 7%.

Welp. Did not have this on my 2026 Bingo card. Over the weekend the US and Israel attacked Iran and killed the Ayatollah Ali Khamenei and much of the Iranian leadership. The impact of this on global politics is hard to predict, let alone what it means for markets. Tehran has launched strikes on some of its neighbors, which poses the threat for a bigger confrontation. These strikes also isolate Iran in the Gulf, which looks to be a mistake. “Many people in the Gulf woke up Saturday pissed off at the United States and Israel, and went to sleep pissed off at Iran,” said William Wechsler, director of Middle East programs at the Atlantic Council in Washington and a former U.S. deputy assistant secretary of defense.

The most immediate impact will be the spike in the price of oil. Oil (both Brent and WTI) is up on the open. The big question is whether this is going to be sustainable. Note after the US captured Venezuelan President Maduro oil spiked momentarily and went back down. Since most of the US uses WTI oil and not Middle Eastern oil the US should be relatively insulated from any supply shocks, however WTI and Brent still correlate price-wise so we could be looking at higher oil (and gasoline) prices going forward. Needless to say this doesn’t help things on the inflation front and that will be another reason for the Fed to maintain the status quo.

The Chinese get a lot of their oil from two places: Iran and Venezuela. No doubt they are acutely aware of the message this all sends. Might China start dumping Treasuries in response? Something to watch.

The week ahead will be dominated by the jobs report on Friday. We will also get ISM data, retail sales and a slew of Fed speakers.

Construction spending rose 0.3% MOM but fell 0.4% YOY in December. Residential construction rose 1.5% on a monthly basis but declined 1.2% annually. Single family construction was up about 1.5%, but multifamily was roughly flat.

The Chicago PMI climbed to a 4 year high, driven by increases in new orders, production, employment and supplier deliveries. The employment subindex spiked, rising to the highest level since 2021.

Stocks are lower this morning as software stocks continue to get beat up. Bonds and MBS are up.

There is no obvious reason for the recent rally in bonds. It might just be a by-product of the stock market sell-off, but with credit problems in the PE space it could be a signal of something more significant. In mortgage land, any issues here will be felt first in non-QM lending.

Inflation at the wholesale level increased 0.5% MOM in January, which was above the Street 0.3% estimate. For the year 2025, final demand prices rose 2.9%. The PPI index which excludes food, energy and trade services rose 0.3% MOM and 3.4% YOY.

About 20% of the increase in services inflation was due to a 14% jump in the prices for professional and commercial equipment wholesaling. Goods inflation declined, which was mainly attributable to a drop in gasoline prices.

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Non-agency production continues its recent growth trajectory and the market is positioning for expansion. At the origination level, lenders with over $25 million of monthly non-QM production are exploring the transition from a best-efforts flow-business model, to mandatory single-loan or bulk-sales. Concurrently, larger aggregators and securitization conduits are actively seeking loans. Vendors, for their part, are supporting the sector and actively implementing services and pricing models to facilitate this evolution. The topic was extensively discussed at the recent MCT Exchange conference in San Diego. The featured session on non-QM lending included Wayne Liu of AmWest Funding, who detailed his 2025 experience and the success of the AmWest non-QM program. Wayne explained how AmWest utilized CME Group’s Eris SOFR swap futures rather than TBAs or US Treasury futures, as hedges for their loan inventory preceding securitization. He cited SOFR futures as a key element in AmWest’s hedging strategy which was fundamental in supporting the success of the firm’s securitization program. The underlying principle is straightforward: loans are a reflection of the cost of the warehouse lines required to fund the lending. Given that this cost of funding is SOFR-based, and that a non-QM eligible TBA is not available, loan inventory and pipeline interest rate risk may be easily and effectively hedged with Eris SOFR Swap futures.

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Chicago Fed President Austan Goolsbee said that rates can come down later this year: “I have ​some ​confidence rates can ‌come down several more times this year in 2026,” Goolsbee said in an interview on Fox News. “I ‌just don’t want ​to front ​load it ​too much before ‌we actually have ​the evidence ​that the inflation is headed” back down to ​the ‌Fed’s 2% goal.

“Several” is good. Three or more rate cuts. The Fed Funds futures have a roughly 50/50 chance for a rate cut in June, and the December futures see 2 cuts as most likely this year, with 3 cuts as the next most likely.

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Mortgage performance is holding up, according to the ICE First Look. “Mortgage performance held steady to start the year, with fewer early-stage delinquencies helping bring the national delinquency rate down,” said Andy Walden, Head of Mortgage and Housing Market Research at ICE. “At the same time, late-stage delinquencies and foreclosure volumes are both trending higher than they were a year ago. The data points to a market that remains resilient overall with most borrowers performing well while a subset faces increased payment pressure.” FHA is a known problem here.

That said, 90+ delinquencies and foreclosures are increasing. There are now 850k borrowers in the 90+ / active foreclosure category compared to 0nly 104k last year at this time. Fitch Rating’s DV01 data shows that DQs are picking up in non-QM lending.

Stocks are flattish after Nvidia reported earnings yesterday. Bonds and MBS are up.

Donald Trump’s State of the Union speech was short on details regarding housing affordability. He did mention the restriction on institutional investors owning property, which is mainly symbolic and won’t really affect housing prices.

Trump has directed the FHFA to allow the GSEs to buy mortgage backed securities in order to move down mortgage rates. He has also said he doesn’t want to see housing prices fall. No sane person should want to see housing prices fall, because that is a recipe for nasty recession – see Texas in the 1980s, 2008 in the US.

CPI shelter is more or less back to pre-pandemic levels, and that means the rate of change for housing is back to normal, but the absolute level is still elevated.

Since the absolute level is what people care about, and the rate of change is the lever the government has the most control over, there is a disconnect. It is a fact of life that housing prices shot up in the COVID era of easy money and QE, and there isn’t much the government can (or even should) do about that.

Ultimately there isn’t much the government can do. I have suggested a special LLPA for first time homebuyers, while others have suggested tinkering with capital gains taxes to alleviate the rate lock-in effect. Homebuilding is always a possibility, although the builders are sitting on the highest level of unsold homes since the 2008 crisis.

Finally, affordability is also hampered by taxes, insurance, HOA fees and rising maintenance costs.

It will take a period of house price stagnation, combined with rising wages to square the circle. It is an unsatisfying answer, but there really isn’t any policy lever that can do much more than small, symbolic measures.

Housing affordability decreased in January, according to the MBA. The national median mortgage payment (assuming they are referring solely to P&I) rose to $2,070 from $2,025 in December. “Housing affordability declined in January, with the national PAPI increasing for the first time in seven months and applicants’ median monthly payment up $45 compared to December,” said Edward Seiler, MBA’s Associate Vice President of Housing Economics and Executive Director of the Research Institute for Housing America. “While the median purchase application amount rose from $320,000 to $332,000, mortgage rates declined over the month. With mortgage rates mostly trending downward, and home-price growth flat or down in many markets, affordability conditions should improve in the months ahead as housing inventory increases.”

You can see the slow slog of improving affordabilty, which is being driven by lower mortgage rates and modestly increasing home prices.

St. Louis Fed President Alberto Musalem is generally optimistic about the economy overall and sees inflation returning to its 2% target in the second half of the year. “Half of that excess inflation comes from tariffs, as best we can measure it,” Musalem said. “I expect the part that is attributable to tariffs to fade as the year progresses and inflation to then resume a trajectory towards our 2 percent target.”

Stocks are higher this morning on no real news. Bonds and MBS are down. Market bellwether Nvidia reports after the close.

Home price appreciation decelerated in December, according to the Case-Shiller Home Price Index. For the year 2025, home prices rose 1.3%, the slowest growth since 2011. Inflation (including wages) outstripped home price growth, meaning that real home prices are falling. This is generally good news for affordability. The hip-to-be-square trade continues with New York and Chicago showing the best gains while Tampa, Phoenix, Dallas, and Miami posted losses.

“Two structural forces have reshaped the market over recent years: mortgage rates and inflation,” Godec continued. “The 30-year mortgage rate closed 2025 at 6.2%, well above the 4.8% 10-year average and a sharp contrast to the 3.9% average that prevailed from 2016 through 2020. Meanwhile, annual inflation for 2025 came in at 2.7% — modestly below the 3.1% 10-year average — but still outpaced home price appreciation by 1.4 percentage points, effectively eroding real home values for most owners. This marks a notable reversal: Over the prior decade, national home prices outpaced inflation by 3.7 percentage points annually, a dynamic that has quietly reversed, with real home price returns turning negative in June 2025.”

You can see the hip-to-be-square trade in the chart below (from the FHFA House Price Index) which shows YOY growth for different sections of the country:

First note the deceleration in growth from 2024 to 2025. The negative areas – the West Coast, Mountain states and Southeast were the high-flyers post COVID, while the Middle Atlantic (think NYC) and Midwest generally lagged the rest of the country post-2012.

Consumer confidence improved in February according to the Conference Board. Confidence is still somewhat soggy having been hit by labor market worries and general affordability problems. “Consumers’ write-in responses on factors affecting the economy continued to skew towards pessimism. Comments about prices, inflation, and the cost of goods remained at the top of consumer’s minds. Mentions of trade and politics also increased in February. Labor market mentions eased a bit in February, while observations about immigration increased somewhat.”

Mortgage application rose slightly last week as purchases fell 5% and refis rose 4%. The spring selling season is upon us. “Mortgage rates followed Treasury yields lower last week, with the 30-year fixed rate declining to 6.09%–its lowest level since September 2022. The decrease in rates was enough to drive a 5% increase in conventional refinance applications and a 26 percent increase in VA refinances,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications were down over the week but were 12 percent higher than a year ago, as the combination of lower rates and improving affordability conditions continue to support stronger demand than last year. The ARM share stayed above 8% , as ARM rates remained more than 80 basis points below conforming fixed rates. This is giving payment-sensitive borrowers or those seeking larger loans, an incentive to choose this product offering.”

The drop in purchase applications is interesting given what time of year it is. Part of the problem is that home sales are falling through. According to Realtor.com, nearly 1 in 7 purchase contracts have been canceled. San Antonio has the highest percentage – 21% – while other MSAs such as Atlanta, Cleveland, Riverside and Orlando are experiencing issues.

“More buyers are backing out,” said Alin Glogovicean, a Redfin Premier agent in Los Angeles, where 16.7% of home purchase agreements were cancelled in January, up from 15% a year earlier. “They’re second-guessing the wisdom of making a huge purchase when there’s a fear in the back of their mind about the state of the economy and the uncertainty of their finances. That’s particularly true when they’re first-time buyers who don’t have equity from a previous home sale, and they’re using most or all of their savings on a down payment.”

Appraisals are under increased scrutiny these days and I wonder if that is also causing issues. Big cities like Baltimore and Philly are getting hit hard as investors pull in their horns on non-QM products.

Stocks are flattish this morning after yesterday’s tech sell-off. Bonds and MBS are up.

The private equity stocks have been getting battered. Blue Owl is down 31% over the past month, Blackstone is down 24%, TPG is down 33%, Ares is down 27%. This is something to watch, as credit problems have a tendency to spread. The most likely impact will be in non-QM lending and it will show up in buyers DK-ing loan purchases or pushing buybacks.

In the meantime, I suspect we are seeing a slight flight-to-safety with lower Treasury yields and MBS spreads. This is good news for the Spring Selling Season.

Economic growth improved in January according to the Chicago Fed National Activity Index. Production and income indicators drove the increase. The CFNAI is a meta-index of some 85 different indicators so it is a good top-down snapshot of the economy.

Note that the baseline in this index is trend growth, not zero growth. So big downdrafts don’t necessarily mean we are seeing recession-level growth, just that growth is below trend.

Chicago Fed President Austan Goolsbee said that further rate cuts are not appropriate as inflation is still too high. “I feel that front-loading too many rate cuts is not prudent in that circumstance,” he said in remarks before the National Association for Business Economics at its annual gathering in Washington, D.C. “People express that prices are one of their most pressing concerns. Let’s pay attention. Before we cut rates more to stimulate the economy, let’s be sure inflation is heading back to 2%.”

Goolsbee had previously been leaning towards further cuts this year. These comments come after the Supreme Court decision blocking tariffs, so it is clear he isn’t putting much stock in a tariff-driven decrease in inflation.

Fed Governor Chris Waller intends to look through the tariff decision and wait until we get the next jobs report to discuss further rate cuts. “Traditional central bank wisdom suggests that we should ‘look through’ tariffs. I did this when they went up and will do so if they come down,” Waller said.

Late last year, the Fed was worried that the labor market was deteriorating, but a strong-ish January jobs report gave them some comfort that perhaps things were stabilizing. The February report will hopefully give confirmation on that.

Regardless of what Goolsbee and Waller say, financial stress will take precedence if the private equity problems spill over into the general economy.

Stocks are lower this morning after the Supreme Court blocked most of Trump’s tariffs. Bonds and MBS are up small.

The week ahead is relatively data-light, with the Producer Price Index as the main indicator. We will also get home prices and consumer confidence along with a bunch of Fed speakers.

The Supreme Court blocked most of Trump’s tariffs, saying that the executive branch had overstepped its authority by imposing tariffs without Congressional support. After the decision, the Administration imposed a 15% tariff on across the board, which will lower the global tariff burden generally from 16% to 13.7%. The new tariffs have a 150 day term and will expire without Congressional ratification. If that doesn’t happen then the US effective tariff rate will fall to something like 9%.

Ultimately, the Supreme Court decision should translate into lower bond yields, since tariffs were a key component in driving inflation. The muted reaction Friday indicates that either the decision was already baked in the cake, or it means that the decision won’t matter enough to make the Fed re-think its policy. Given that the tariffs have been in place for nearly a year, many businesses have already adjusted their buying practices to minimize the impact, so the change might not make much difference. The Yale numbers indicate that the impact will be minor.

New home sales fell 1.7% on a MOM basis to a seasonally adjusted annual pace of 745,000 units. This was up 3.8% on a YOY basis. For 2025, Census estimates that there were 679,000 new homes sold. At the end of the year, there were 472,000 homes for sale, representing a 7.6 month supply. We currently have a glut of new homes looking for buyers. The median new home price came in at $414,000 as builders focus on lower-priced homes.

Consumer sentiment was relatively flat in February, according to the University of Michigan Consumer Sentiment Survey. “Consumer sentiment stagnated this month with very little change, just 0.2 index points higher than January. All index components posted insignificant movements this month; overall, consumers do not perceive any material differences in the economy from last month. About 46% of consumers spontaneously mentioned high prices eroding their personal finances; readings have exceeded 40% for seven months in a row. Sentiment is about 13% below a year ago and 21% below January 2025. That said, views vary considerably across the population. A sizable month-to-month increase in sentiment for the largest stockholders was fully offset by a decline among consumers without stock holdings. Similar divergences were seen across income and education, where higher-income or college educated consumers exhibited increases in sentiment while lower-income or less-educated counterparts did not. With their much stronger income prospects and investment porfolios, wealthier and higher-income consumers feel better insulated from any possible risks to the economy.”

Inflation expectations moderated, with year-ahead expectations falling from 4.0% to 3.4% the lowest level since January 2025. Longer run expectations were flat at 3.3%.

Stocks are lower this morning amidst issues in the private credit space. Bonds and MBS are up small.

Personal Incomes rose 0.3% MOM in December and spending rose 0.4%. The headline PCE Price Index rose 0.4% MOM and 2.9% YOY. Excluding food and energy, the index rose 0.4% MOM and 3.0% YOY. These numbers were a touch above expectations, but the data is quite old, so the bond market is taking it in stride. Durable goods inflation rose 0.5% and food rose 0.4%, which were offset by declines in energy.

Fourth quarter GDP rose 1.4%, according to the BEA. This number was way below expectations. The Street was looking for 2.8%, and the Atlanta Fed GDPNow model was at 3%. Government spending was a drag on growth, driven by the shutdown.

On an annualized basis, consumption was up 2.4%, investment rose 3.8%, government spending fell 5.1%, and the trade balance was more or less flat. I suspect we will see a rebound in government spending in the first quarter which will boost the numbers.

The Trump Administration reportedly sent a memo to Congressional representatives, laying out more info on his plan to limit institutional investment in single family homes. His plan would prevent institutions that own more than 100 homes from buying more. The 100 home limit was much lower than forecast – the thought was that he would limit it to 1,000. This would presumably affect single family housing REITs like American Homes 4 Rent and Invitation Homes along with funds by companies like Blackrock.

The plan would include an exemption for companies that build or rehab homes for rent. The House passed a bill that didn’t include the investor ban, however the Senate is still working on one. The White House hopes to insert the ban into the Senate bill. “The President has made it clear that he is committed to signing legislation that truly makes purchasing a home affordable again, and a key ingredient is his popular proposal to ban large institutional investors from purchasing single-family homes,” White House spokesman Davis Ingle said.

Since the bill wouldn’t force institutional investors to sell their holdings my guess is that it probably won’t increase the supply of existing homes on the market much. It will probably encourage more homebuilding in general since that will be the only way for these companies to grow.

The Index of Leading Economic Indicators declined by 0.2% in December according to the Conference Board. “The US LEI registered its fifth consecutive monthly decline in December, indicating continued softness in the economy in early 2026,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “Alongside a rise in building permits, positive contributions to the LEI in December were led by the index’s financial components, with the yield spread notably turning positive in both November and December.

“However, persistently weak consumer expectations indicators and the ISM® New Orders Index made the largest negative contributions to the LEI in December. Labor market data also weighed on the Index, with an increase in unemployment claims and a decline in average weekly hours in manufacturing. Overall, the LEI signals weaker economic activity at the start of this year. The Conference Board projects a slowdown in growth in Q4 2025 and early 2026, with GDP set to expand by 2.1% YOY in 2026, from a forecasted 2.2% in 2025.”

Stocks are flattish this morning as tensions rise with Iran. Bonds and MBS are down.

The minutes of the January FOMC meeting were released yesterday, and they showed the Committee was generally comfortable with the current status of monetary policy. They noted the general push-pull in inflation between goods and services and view the recent softening of the labor market as over. They believe that inflation will continue to work its way towards the 2% objective and the labor market will gradually improve.

On inflation:

Regarding the outlook for inflation, participants anticipated that inflation would move down toward the Committee’s 2 percent objective, though the pace and timing of this decline remained uncertain. Participants generally expected that the effects of tariffs on core goods prices would likely start to diminish this year. Several participants remarked that the ongoing moderation in inflation for housing services was likely to continue to exert downward pressure on overall inflation. Several participants also expected higher productivity growth associated with technological or regulatory developments to put downward pressure on inflation.

On the labor market:

With regard to the labor market, participants observed that the unemployment rate had held steady, on net, in recent months, while job gains had remained low. Most participants noted that recent data readings such as those for the unemployment rate, layoffs, and job openings suggested that labor market conditions may be stabilizing after a period of gradual cooling. Almost all participants observed that while the level of layoffs remained low, hiring remained low as well. Consistent with that observation, several participants noted that their business contacts continued to express caution in hiring decisions, reflecting uncertainty about the economic outlook and the effect of AI and other automation technologies on the labor market.

It is important to note that perceptions and reality of inflation differ. Take for example housing services inflation. Housing services inflation indicators like owners equivalent rent are huge components of the inflation indices, but consumers (and voters) notice the level of prices, not the rate of change of prices. So while average asking rents have been declining for years, telling consumers that doesn’t erase the fact that they are expensive and that is what consumers feel.

The Fed is correct that tariff-driven inflation is probably over. We are coming up on the anniversary of Liberation Day and once that happens, all of the year-over-year comparisons of pre and post tariffs disappear. Not only that we have had enough time for corporations to make adjustments to lower-priced internal sources. That will again help the inflation numbers, but it probably won’t do much for consumer sentiment.

The FOMC considers the current Fed Funds rate to be in the upper range of neutral policy, which means they think they are close to r-star. That is probably correct, however r-star is thought to be in the 3% to 3.5% area. Bottom line is the Fed Funds futures are probably about right, and we see two more cuts this year.

The military buildup in the Middle East is starting to affect the data as well. Oil prices are spiking in anticipation of military action with Iran. That said, it sounds like Trump is looking for a deal, not a war, with Katherine Leavitt saying “Iran would be very wise to make a deal.” By now, the world should be used to Trump’s initial negotiating bluster followed by concessions to get a deal.

Industrial production rose 0.7% MOM in January according to the Federal Reserve. This was well above the 0.4% estimate. Manufacturing production rose 0.6%, again above the 0.2% estimate. Capacity utilization declined to 76.2%.

Initial jobless claims declined to 206k last week.

Stocks are higher this morning as tech stocks rebound. Bonds and MBS are flat.

Building Permits rose 4.3% MOM in December according to the Census Bureau. This is down 2.2% on a YOY basis. Housing starts rose 6.2% on a MOM basis but fell 7.3% on a YOY to a seasonally adjusted annual rate of 1.4 million units. Housing completions were flat on a YOY basis at 1.5 million.

Homebuilder sentiment decreased in February according to the NAHB Housing Market Index. “Builders reduced their expectations for future sales as buyers report affordability challenges, which is contributing to declining consumer confidence for the overall economy,” said NAHB Chairman Buddy Hughes, a home builder and developer from Lexington, N.C. “While the majority of builders continue to deploy buyer incentives, including price cuts, many prospective buyers remain on the sidelines. Although demand for new construction has weakened, remodeling demand has remained solid given a lack of household mobility.”

“Housing affordability remains an ongoing challenge at the start of 2026,” said NAHB Chief Economist Robert Dietz. “The solution for the housing market is the enactment of policies that will bend the construction cost curve and enable additional supply of attainable housing. On the positive side, easing inflation should continue to allow lower interest rates for mortgages and builder loans.”

It sounds like supply isn’t the problem these days, with the builders cutting prices and the supply of unsold new homes at the highest levels since 2008. Approximately 36% of builders cut prices and the average cut was 6%.

The Federal Reserve wants to encourage banks to originate more mortgages. Michelle Bowman spoke at the American Bankers Association conference and discussed the Fed’s concern that mortgage origination and servicing is being handled mainly by nonbanks. In 2008, about 60% of mortgage origination was coming from the banking system, and today it is around 35%.

The Fed believes that banks have an inherent advantage in mortgage servicing and recognizes that the regulators may have overshot in the risk weightings and capital requirements for servicing rights. Essentially the amount of capital that banks were required to hold for servicing rights made servicing a non-economic business for banks. If you were in the mortgage business in 2012 and 2013, you could buy servicing for a song as banks unloaded them.

The other measure that the Fed is considering is changing the way banks set aside capital for mortgages. Under the current situation a mortgage is a mortgage is a mortgage. The regulatory and capital requirements don’t distinguish between a 95% LTV loan and a 60% LTV loan. The Fed looks like they will introduce for comment some sort of formula to ease capital requirements.

Of course regulatory timelines are long and there are comment periods etc. The big question for the banks is whether holding mortgages originated in-house meets the opportunity cost test. Ultimately this should be good for borrowers, although we might see a tightening of margins as more competition enters the space.

Fed Governor Michael Barr said the Fed is on hold for the moment and doesn’t feel a need to keep cutting rates. “Based on current conditions and the data in hand, it will likely be appropriate to hold rates steady for some time as we assess incoming data, the evolving outlook, and the balance of risks,” Barr said in a speech given before a gathering of the New York Association for Business Economics in New York.

Mortgage applications rose 2.8% from a week ago according to the MBA. Refis rose 7% and purchases increased 3%. The Spring Selling season is upon us and we stand the cusp of a mini refi boom as mortgage rates work their way below 6%.

“Mortgage applications rose last week as the lowest rates in four weeks helped to revive some refinance activity. Treasury yields ended the week lower as weaker data on retail sales and home sales outweighed better-than-expected readings on the job market for January,” said Joel Kan, MBA’s vice president and deputy chief economist. “Mortgage rates moved lower with the 30-year fixed rate decreasing to 6.17%, and all other loan types in the survey also declined. Refinance applications increased across all loan types, marking the strongest week for refinancing since mid-January. There was a drop in purchase applications overall, although VA purchase applications bucked the trend and increased 4%.”

Tools for Mortgage Originators

Are you a mortgage originator with a bookkeeper, but no financial analyst? Are you doing without an annual budget because you don’t have the time / resources to develop one? Are you considering an acquisition, and want an in-depth analysis of the potential synergies and impact on the bottom line? Perhaps you have some projects that need to be done, but you can’t justify a full-time hire.

I am a consultant who has extensive experience in capital markets, secondary marketing, FP&A, budgeting, and servicing. If you think you might have a need, let’s set up a discovery call.