|10 year government bond yield||1.6%|
|30 year fixed rate mortgage||3.18%|
Stocks are down this morning on overnight weakness in equity markets. Bonds and MBS are down small.
The number of loans in forbearance fell another 16 basis points last week to 4.5% of servicers’ portfolios. Fannie Mae and Freddie Mac loans fell to 2.44% while FHA fell to 6.16%.
Given the investment limits on non-owner occupied loans, non-QM lenders are stepping in to fill the void. It is important to understand that the GSE’s issue with these loans is philosophical, not risk-related. In other words, these investor loans are profitable – that isn’t the issue. This restriction was put in place by Mark Calabria, the current director of FHFA. This is driven by a belief that the government should be supporting first time homebuyers, and helping people get on the first rung of homeownership. It shouldn’t be in the business of helping professional real estate investors.
That said, the limits on high-risk loans (high LTV / low FICO) are being driven by risk concerns. FWIW, if these limits stay in place, I think the high risk stuff is going to go to FHA, while the investor stuff will go to non-QM.
Western Alliance reported strong first quarter numbers, with EPS up 130% YOY to $1.90 per share. The acquisition of Amerihome closed and the bank intends to portfolio a bunch of Amerihome (and presumably Galton) non-QM loans on its balance sheet. The stock has been on a tear, more than tripling over the past year.
Interesting study results out of Fannie Mae regarding remote work. Respondents reported that remote work improved productivity and reduced operating costs. That said, collaboration did seem to suffer. 79% of lenders prefer a hybrid model, where some employees work remotely and some work on-site.
I think the big takeaway from COVID and remote work is that a big source of friction in the economy – the need for workers to be located near their place of work – is disappearing. This should help drive productivity increases in the economy, which is what drives improving standards of living. If you look at the latest NFIB Small Business Sentiment Survey, finding qualified workers remains the biggest concern for small business. The ability to source workers from all over the country will help alleviate that issue.
Note that productivity has always been notoriously hard to measure, and in these days of “free” internet applications it is 10x worse. How do you put a price on your personal data? It isn’t monetary, but it isn’t worthless either. Since productivity and inflation are intertwined, this will become a more important issue going forward.
Speaking of inflation, consumer products giant Proctor and Gamble announced that it will increase prices in September. It appears that prices of paper products is driving the increases. Kimberly-Clark also announced it will increase prices in June.
More inflation: lumber continues to spike. It is trading now at $1,347. Users of lumber had delayed orders in hopes that prices would fall, and that didn’t happen. Now everyone is competing for supply.