Stocks are flattish this morning on no real news. Bonds and MBS are down.
The Fed begins its meeting today. The announcement will be tomorrow, with no changes in monetary policy expected.
The current appropriations bill runs out on Saturday, and Democrats are demanding changes to the Department of Homeland Security in the wake of violence in Minneapolis. The Department of Homeland Security would theoretically be closed if the government shuts down which would supposedly restrict immigration enforcement agencies like ICE. The bill includes funding for the Pentagon and DHS, along with HHS and the Department of Labor, so there are priorities for both parties.
The AP noticed that FHFA Director Bill Pulte increased the caps on Fannie and Fred’s allowable holdings of MBS in response to Trump’s suggestion that the GSEs buy more MBS to lower rate. Trump wanted the GSEs to buy $200MM, however the caps have been raised to $225 billion each so this seems to contemplate further purchases.
Pulte said: “FHFA simply gave each entity legal flexibility to go beyond their previous caps,” Pulte wrote Friday, adding that despite the lenders’ new bond purchasing authority, they would not “exceed $200 billion.”
After the story was published, the agency put out additional statement saying that “Fannie and Freddie will not be allowed to go beyond the president’s buy.”
Prior to entering conservatorship, the GSEs were allowed to hold $450 billion worth of MBS, which means we are going back to pre-GFC levels. Of course the difference this time is that Fan and Fred are not purchasing subprime loans – they are limited to conforming paper which is much less risky.
Will purchasing $200 billion of MBS move the needle for mortgage rates? Maybe in the short term. It would make more sense if MBS spreads were wide, but you can’t make that argument either – MBS spreads are around historical averages.
Durable goods orders rose 5.3% in November, according to the Census Bureau. If you strip out transportation, they rose 0.5%. This offset drops in October. Excluding defense, orders rose 6.6%.
Western Alliance reported better than expected earnings. Earnings per share increased 13.6% and revenues rose 4.6%. NPLs fell to 0.85% of the portfolio. The stock is up a couple of percent pre-open.
Prepayment activity is picking up according to ICE’s First Look. “December’s numbers show that lower interest rates drove refinance activity and prepayments to near multi-year highs,” said Andy Walden, Head of Mortgage and Housing Market Research at ICE. “At the same time, there was a divergence in delinquency trends, with early-stage delinquencies improving and late-stage delinquencies continuing to rise. Foreclosure activity also increased, driven mainly by FHA and VA loans.”
Foreclosure activity is increasing, primarily in government loans. Early-stage delinquencies are declining.
