Vital Statistics:
| Last | Change | |
| S&P futures | 3,963 | -10.25 |
| Oil (WTI) | 77.35 | -3.02 |
| 10 year government bond yield | 3.77% | |
| 30 year fixed rate mortgage | 6.61% |
Stocks are lower this morning on no real news. Bonds and MBS are flat.
We should have a quiet week with the Thanksgiving holiday and limited economic data. In terms of data, Wednesday will be the big day with durable goods, new home sales and consumer sentiment. We also get the FOMC minutes on Wednesday as well. Markets will be closed on Thursday and the bond market will close early on Friday.
Most mortgage banks reported a net loss during the third quarter, according to data from the Mortgage Bankers Association. The average loss was about $624 and was due to both declining revenues and rising costs. “The average pre-tax net production income per loan reached its lowest level since the inception of MBA’s report in 2008, which is sobering news given that the third quarter is historically the strongest quarter of the year,” said Marina Walsh, CMB, MBA Vice President of Industry Analysis. “The industry continues to struggle with a perfect storm of lower production volume and revenues and escalating production costs, which for the first time exceed $11,000 per loan.”
Servicing net income fell to $102. Servicing valuations have probably peaked, and there are more sellers than buyers as mortgage bankers try to sell servicing portfolios to increase liquidity. One of the facts of life about illiquid markets (and servicing is one of those) is that everyone is usually on the same side of the boat. The prepay effect is already played out and delinquencies are only going to rise as we head into a recession.
The Chicago Fed National Activity Index slipped in October as three of the four big categories – production, employment and sales – negatively contributed to the index. Only consumption was positive. The CFNAI is sort of a meta-index of a bunch of disparate economic reports, and it is saying that the economy is growing slightly below trend.
Interestingly, the Atlanta Fed GDP Now index (which is probably just a model based on a meta index similar to CFNAI) sees the economy growing at over 4% in the fourth quarter which would be well above trend.
The Wall Street Journal has a good piece that puts the current tightening cycle into perspective. The steady diet of 75 basis point increases is the most dramatic since the early 1980s and the full impact of those hikes have yet to be felt.
The increase in mortgage rates is also the biggest since the early 80s. For the housing sector, rates started inching up before the Fed actually started tightening.
The Daily Tearsheet 