Morning Report: The Fed is probably going to increase MBS purchases

Vital Statistics:

S&P futures356420.6
Oil (WTI)42.330.91
10 year government bond yield 0.97%
30 year fixed rate mortgage 2.9%

Stocks are higher this morning as the risk-on trade continues. The bond market is closed for Veteran’s Day.

Mortgage Applications fell 0.5% last week as purchases fell by 3% and refis rose by 1%. “Mortgage application activity was mixed last week, despite the 30-year fixed rate decreasing to 2.98 percent – an all-time MBA survey low,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “The refinance index climbed to its highest level since August, led by a 1.5 percent increase in conventional refinances. The purchase market continued its recent slump, with the index decreasing for the sixth time in seven weeks to its lowest level since May.”

Despite the news of a potential vaccine, the Fed is thinking about supporting the economy even more, and is having “robust discussions” about increasing them.

“We have asset purchases well in place and we are discussing what more we could do if more is needed and what should we do in terms of communicating a plan for asset purchases going forward,” [San Francisco Fed President Mary] Daly told CNBC’s Steve Liesman on “Squawk on the Street.”

“Those discussions are always ongoing, but we really had a robust debate” at least week’s Federal Open Market Committee meeting. “I would say discussion more than debate even,” she added. “We’re all dedicated to the same thing — continue the mission to serve the American people with our top policy tools. I would say our tools are powerful.”

Given that it is looking like we will have divided government in DC, any sort of major stimulus package should be off the table. The potential vaccine is giving investors more of an appetite for risk, which is why the 10 year is selling off. That said, mortgage rates are determined by the mortgage backed securities market, and that is much easier for the Fed to manipulate.

Rocket Mortgage reported third quarter numbers last night, with volumes increasing to122% YOY to $89 billion. The company reported net income of about $3 billion per share which works out to be a 3.4% profit margin. That is pretty fat as far as mortgage banking margins go. Gain on sale margins were wide at 4.5%

80.4% of renters paid their rent payment by November 6, according to the National Multifamily Housing Council. This is up from the 79.4% of renters who paid by October 6, but down from the 81.5% who paid by November 6 2019.

NAR weighs in on what a Biden Administration means for Fan and Fred. Punch line: probably nothing, as a full release will require legislation and that won’t happen under divided government. There is a lawsuit pending in the Supreme Court regarding the structure of the FHFA. However, the Biden Administration will probably be happy to keep the GSEs as wards of the state in order to prod them to increase affordable housing mandates etc.


Author: Brent Nyitray

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

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