Morning Report: Jobless Claims Fall

Vital Statistics:

S&P futures3562-17.6
Oil (WTI)40.64-0.87
10 year government bond yield 0.65%
30 year fixed rate mortgage 2.90%

Stocks are lower this morning on no real news. Bonds and MBS are up.

Rocket Mortgage (aka Quicken) reported second quarter numbers after the close yesterday. Origination volume rose 126% YOY to $72 billion. Margins were 519 basis points. For the third quarter, Quicken is projecting volume of $82 – $85 billion with a drop in gain on sale margins to 405 – 430 basis points. About 4.7% of the company’s servicing portfolio was in forbearance. Despite the strong numbers, the stock is down 10% pre-open.

Initial Jobless Claims fell to 881,000, which was below the 958k the street was looking for. Separately, companies announced 116k job cuts in August, according to outplacement firm Challenger, Gray and Christmas. “The leading sector for job cuts last month was Transportation, as airlines begin to make staffing decisions in the wake of decreased travel and uncertain federal intervention. An increasing number of companies that initially had temporary job cuts or furloughs are now making them permanent,” said Andrew Challenger, Senior Vice President of Challenger, Gray & Christmas, Inc.

Nonfarm productivity increased 10% in the second quarter, according to BLS. Unit labor costs increased 9%. Given the chaos in the labor market during Q2, I suspect there is a lot of noise in these numbers.

The Center for Disease Control has declared evictions a national health hazard. You would be forgiven for wondering what a bunch of MDs have to do with real estate, but here we are. Needless to say, the industry is dead set against it:

“If tenants are unable to pay their rent, then millions of our nation’s housing providers – many of whom are individual landlords and small business owners – will be unable to meet their mortgage obligations, make payroll to their own employees, maintain a safe and healthy living environment for their tenants and pay their state and local government property taxes,” said Bob Broeksmit, CEO of the Mortgage Bankers Association. “The result would be a cascading reaction that would only exacerbate the current economic crisis, leading to more job loss, financial pain, and long-lasting economic effects.”

and the left doesn’t think it is enough:

“The CDC order is really quite extraordinary, but if it’s not coupled with rental assistance, it’s just pushing the issue down the line and it will snowball into a crisis that landlords and tenants will be recovering from for decades,” said Emily Benfer, a law professor at Wake Forest University and co-creator of the COVID-19 Housing Policy Scorecard with the Eviction Lab at Princeton University.

“We need $100 billion to cover this deficit and that investment is far less expensive than the cost of eviction, the cost of homelessness — all of the downward effects that this causes,” Benfer said.

PIMCO is warning that releasing the GSEs without an explicit government guarantee will raise mortgage rates. The company is one of the biggest buyers of Fannie and Freddie mortgage backed securities, and the amount it is willing to pay to invest in MBS directly influences what borrowers pay. PIMCO is not interested in returning to the vague “government sponsored entity” status of Fan and Fred that existed pre-2008. It would view them as “wholly-owned private companies with no accompanying government guarantee.”


Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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