Morning Report: The Fed’s challenge

Vital Statistics:

Last Change
S&P futures 3495 8.6
Oil (WTI) 43.04 -0.17
10 year government bond yield 0.72%
30 year fixed rate mortgage 2.91%

 

Stocks are higher this morning as personal incomes and spending came in better than expected. Bonds and MBS are down.

 

Personal incomes rose 0.4% in July, which was well ahead of the expectations of a 0.2% drop. Personal spending was up 1.9% versus expectations of a 1.5% increase. June’s numbers were all revised upward as well. Inflation remains well below the Fed’s target, rising 1% on a YOY basis.

 

Pending Home sales rose 5.9% in July. “We are witnessing a true V-shaped sales recovery as homebuyers continue their strong return to the housing market,” said Lawrence Yun, NAR’s chief economist. “Home sellers are seeing their homes go under contract in record time, with nine new contracts for every 10 new listings.”

 

Luxury home builder Toll Brothers reported record contract signings in June and July this year.

 

Jerome Powell discussed the Fed’s new policy yesterday, and there is some skepticism in the markets that the Fed can get inflation up above its 2% target. For what its worth, there is ample evidence that this can take longer than people think. Japan has been trying to create inflation for 30 years, and it has been unsuccessful. In fact, the younger generation which grew up post 2000 has the deflationary mindset, which is to save, and to wait for products to get cheaper. Inflation and deflation are monetary phenomenons of course, but they are also psychological. The Fed will discuss inflationary and deflationary expectations, and that word is deliberate. The Fed doesn’t want to see Americans get into the trap of saving too much (I know that seems counter-intuitive), so it is jawboning the markets saying essentially “we are going to create inflation, so spend now, before prices go up!” But if people feel like the economy is going to get worse, they will save what they can, pay off debt, and hunker down. This becomes a self-fulfilling prophecy. And anecdotally, that is exactly what is happening now. I was listening to an earnings call from PRA Group (a debt collector) and they said that collections have been better than normal. In a pandemic. People are saving more (paying down debt is considered saving). The Fed sees this and wants to get people spending, which is what gets the economy going.

 

Morning Report: A view of things from the perspective of an investor

Vital Statistics:

 

Last Change
S&P futures 2427 22.4
Oil (WTI) 28.81 0.09
10 year government bond yield 0.8%
30 year fixed rate mortgage 3.48%

 

Stocks are up slightly after yesterday’s bloodbath. Bonds and MBS are down.

 

The actions taken by the Fed over the weekend seemed to help things in the mortgage market. According to Optimal Blue, the average 30 year fixed rate mortgage fell 23 basis points yesterday. Some of this was due to interest rate movements, but the biggest reason was a narrowing of MBS spreads.

 

Let me throw a little inside baseball stuff to explain what is going on. Mortgage backed securities are the basic input into rate sheets. They have an imputed yield and as of Friday, the difference between the imputed yield on the mortgage backed security and the corresponding Treasury was pushing 150 basis points. A month ago, it was around 100 basis points. The widening of MBS spreads (which translate into higher mortgage rates) was driven by a number of things, including prepayment fears, high refinance volumes, mortgage backed investors (think mortgage REITs) deleveraging, and a fear that repo rates will rise. The Fed’s actions over the weekend did two big things. The Fed’s commitment to provide liquidity to the markets soothed a lot of fears over repo lines getting pulled. The restarting of quantitative easing meant that one of the biggest players in the MBS market was back and went from being a net seller to a net buyer. That was just what the MBS market needed.

 

Annaly Capital (one of the biggest investors in mortgages) held a conference call yesterday to explain what is going on in the MBS market. Mortgage bankers should understand how the people on the “other side of the trade” – i.e. MBS buyers think. Here are my notes from the call yesterday

  • Fed much more accomodating with liquidity than it was in 2008.
  • MBS are the most attractive since before the financial crisis
  • Not seeing banks pull repo lines
  • Private label securitization markets will take a hiatus for a while
  • Repo haircuts remain unchanged.

The punch line is that the Fed is 110% committed to preventing a replay of 2008, where liquidity dried up and affected business. They do not want to see warehouse lines being pulled, repo lines being pulled, etc. Note the Fed committed to adding $500 billion in overnight repo financing as well.

 

Annaly investors were concerned that the upcoming year will be the biggest refinancing wave since 2003. For those that weren’t in the business then, 2003 origination volume was around $3.7 trillion. That is 75% higher than last year. The industry is about to be inundated with files, once the Coronavirus issue passes.

 

If the private label securitization markets go on hiatus, don’t be surprised to see the non-QM business slow down, and maybe mediocre pricing in the jumbo market. Simply put, the banks are being encouraged to keep businesses afloat and not just fill their balance sheet with portfolio products. Stock buybacks are also going to be suspended until this is over.

 

No, you can’t get that 0% mortgage rate you heard about on TV.

 

 

 

 

Morning Report: 90% chance of ZIRP by the end of the month

Vital Statistics:

 

Last Change
S&P futures 2819 -145.25
Oil (WTI) 31.96 -9.49
10 year government bond yield 0.46%
30 year fixed rate mortgage 3.26%

 

Don your crash helmets, it is ugly out there. Stock index futures are limit down. Bonds and MBS are up.

 

The 10 year is trading at 0.46% after hitting a low of 0.33% in the overnight session. Granted, the Asian overnight session can be illiquid and whippy, but that is shocking. Oil is down 22% due to a tiff between Saudi Arabia and Russia. The German Bund hit a new record low yield, trading at -88 basis points.

 

The 30 year Treasury is up 10 points. 10. points. The yield is 0.88%. Astounding. The chart of the iShares 20 year government bond ETF looks like an internet stock circa 1999.

 

TBAs are participating in the bond market rally, but not like the 10 year. The 10-year bond is up 3.375 points this morning. 2.5% TBAs are up 1/2 of a point, and 3% and higher notes are up a quarter. So  rates will be better this morning, but not by as much as you think they should. Also, many correspondents have full pipelines, so they will be adding margin to their rate sheets. We may see little to no improvement over Friday. Just be prepared to explain that to your borrowers.

 

The March Fed Funds futures are predicting a 90%+ chance that the Fed will cut to zero at the March 18 meeting. The site cautions that the March 3 cut has made the probabilities somewhat inaccurate, but the bet is that we are back at ZIRP by the end of the month. Don’t discount the possibility of another intra-meeting cut. Check out the Feb 7 predictions… roughly a 90% chance of a 2% Fed Funds rate. Now it is a 90% chance of a 0% Fed funds rate.

 

fed funds futures

 

The week after the jobs report is usually data-light and this week is no exception. The only numbers of note are inflation, and those aren’t going to make any difference.

 

There are now 110,000 confirmed cases of Coronavirus. There are just under 30,000 cases outside China. 554 are in the US and it has resulted in 21 deaths. Italy is taking drastic measures to quarantine people, so if you had planned a trip to Milan or Venice this spring, you might want to re-think it.

Morning Report: Futures predicting another cut in two weeks

Vital Statistics:

 

Last Change
S&P futures 3039 -70.25
Oil (WTI) 46.46 -0.29
10 year government bond yield 0.94%
30 year fixed rate mortgage 3.28%

 

Stocks are down again on coronavirus fears. Bonds and MBS are up with the 10 year trading below 1% again.

 

The Fed’s rate cut doesn’t seem to be having the desired effect. Volatility in the markets continues, and to be honest, I don’t see how cutting interest rates is going to make any difference. The markets don’t have a credit availability issue, and lower rates aren’t going to entice people to take a cruise all of a sudden. The Fed is also running out of ammo if we do experience a recession.

 

Speaking of rate cuts, the Fed Funds futures are handicapping a 50% chance of a 25 basis point cut and a 50% chance of a 50 basis point cut at the March meeting in two weeks. The December futures are assigning a 27% chance we go back to zero.

 

fed funds futures

 

The Coronavirus has certainly been a double-edged sword for mortgage originators. The MBA Mortgage applications index increased by 15% last week as purchases fell 3%, but refis rose 26%.

 

“The 30-year fixed rate mortgage dropped to its lowest level in more than seven years last week, amidst increasing concerns regarding the economic impact from the spread of the coronavirus, as well as the tremendous financial market volatility,” said Mike Fratantoni, MBA Senior Vice President and Chief Economist. “Refinance demand jumped as a result, with conventional refinance applications increasing more than 30 percent. Given the further drop in Treasury rates this week, we expect refinance activity will increase even more until fears subside and rates stabilize.”

“We are now at the start of the spring homebuying season,” Fratantoni added. “While purchase applications were down a bit for the week, they are still up about 10 percent from a year ago. The next few weeks are key in whether these low mortgage rates bring in more buyers, or if economic uncertainty causes some home shoppers to temporarily delay their search.”

 

 

If the March Fed Fund futures are correct, we could be looking at mortgage rates with a 30 year fixed rate mortgages with a 2 in front of them. While this could generally be a good thing for mortgage bankers, people that hold mortgage servicing rights are about to get a 2×4 to the side of the head as prepay speeds accelerate. And their broker dealers are asking for more margin as rates rally. The best of times, the worst of times…

 

Optimal Blue, the loan pricing engine many bankers use has experience record volume and has been experiencing latency issues as a result. Unfortunately Optimal Blue was making some tech migrations when all of this hit.

 

The CFPB may get its wings clipped at the Supreme Court. At issue is whether the President can replace the Director of the CFPB without cause. The Trump Administration is siding with the Plaintiff in this case and is refusing to defend the Agency’s structure. The House has sent its general counsel to defend the agency. While SCOTUS probably won’t go so far as to rule that the agency be disbanded, it is likely to rule that the President is free to appoint a director that shares his ideology.

 

 

Morning Report: Some predictions for 2020

Vital Statistics:

 

Last Change
S&P futures 3242 -1.25
Oil (WTI) 62.87 -0.74
10 year government bond yield 1.80%
30 year fixed rate mortgage 3.88%

 

Stocks are flattish this morning as Iranian tensions ease. Bonds and MBS are flat as well.

 

The trade deficit fell to a 3 year low as imports fell and exports rose. The Trump Administration has said that a Phase 1 deal with China will be signed at the White House on January 15. Separately, the Senate is expected to vote on the new USMCA (the replacement for NAFTA) this month.

 

The Bernank is suggesting that the Fed not rule out the use of negative interest rates. “The Fed should also consider maintaining constructive ambiguity about the future use of negative short-term rates, both because situations could arise in which negative short-term rates would provide useful policy space; and because entirely ruling out negative short rates, by creating an effective floor for long-term rates as well, could limit the Fed’s future ability to reduce longer-term rates by QE or other means.” He also supported the Fed’s current “makeup” policy where the Fed will allow inflation to run above its intended target for an extended period to “make up” for the past decade where it had run below its target.

 

Interesting new model for home ownership. Fleq is a Los Angeles based startup that buys homes on behalf of a buyer and rents it back them while offering them the chance to buy it from Fleq bit by bit. It is different than the “rent-to-own” model. The buyer (really a tenant) will pay market rent, which is then reduced as the tenant buys more of the property. If the tenant has 5% equity, they 5% of all taxes and maintenance costs. They also get to treat the property as if they own it, meaning they can paint it how they want, etc. I guess it makes sense for someone who falls in love with a house but can’t get a mortgage at the moment. It allows them to move into the home without having to get a mortgage and lets them repair their credit / income / whatever and then go the traditional mortgage route. Don’t know how much interest there will be in this, but it is a novel concept.

 

Some predictions for the 2020 housing market. “In 2020, more home-building activity and consequent growth in supply should tame down home price gains,” said Lawrence Yun, the NAR’s chief economist. “That’s a healthy development for potential home buyers. Southern cities should once again do better than most other markets.”. Another: “Real estate fundamentals remain entangled in a lattice of continuing demand, tight supply and disciplined financial underwriting,” said George Ratiu, senior economist at Realtor.com. “Accordingly, 2020 will prove to be the most challenging year for buyers, not because of what they can afford but rather what they can find.” Punch line: rates will stay around 3.8%, and existing home sales will fall as fewer properties will be available for sale. Of course, that assumes builders will remain cautious. The NAHB expects single family starts to grow 4% to 920,000, which is still below the number we need to keep up with population and obsolescence. The chart below shows population-adjusted starts by decade:

 

starts by population

 

 

Morning Report: Retail sales strong

Vital Statistics:

 

Last Change
S&P futures 3105 8.25
Oil (WTI) 56.59 -0.14
10 year government bond yield 1.84%
30 year fixed rate mortgage 4.00%

 

Stocks are up this morning on optimism for a trade deal. Bonds and MBS are flat.

 

Retail Sales increased 0.3% MOM and 3.1% YOY. in October. The control group, which strips out the volatile auto, gas, and building materials sectors) increased 0.3%. Apparel and big-ticket items like furniture and appliances were weak, however. Regardless, it is looking like this year’s holiday shopping season will be strong.

 

Dallas Fed President Robert Kaplan doesn’t see a recession in 2020 as strong consumer spending and a robust labor market provide a strong foundation to keep the economy going. Numerous Fed speakers – Powell, Williams, Kaplan, Clarida – have all expressed comfort with the current level of interest rates. As a general rule, the central bank is loath to do anything during an election year for fear of appearing political and wanting to help one candidate or another. This is especially true when one of the candidates is trying to influence Fed policy publicly. This means we probably won’t see any further action out of the FOMC until 2021. Long-term rates (and mortgage rates) will therefore be more influenced by overseas rates and any sort of inflation surprises in the US. FWIW, I think the Fed is exactly where they want to be, with a positively sloped yield curve, decent growth and tame inflation.

 

Mortgage delinquencies fell to a 25 year low, according to the MBA. The rate for 1 – 4 unit DQs fell to 3.97% in the third quarter, which was down 59 bps from the second quarter and 50 bps from a year ago. “Mortgage delinquencies decreased in the third quarter across all loan types – conventional, VA, and in particular, FHA,” said Marina Walsh, MBA’s Vice President of Industry Analysis. “The FHA delinquency rate dropped 100 basis points, as weather-related disruptions from the spring waned. The labor market remains healthy and economic growth has been stronger than anticipated. These two factors have contributed to the lowest level of overall delinquencies in almost 25 years.”

 

 

 

 

Morning Report: Oil market jitters and the Fed.

Vital Statistics:

 

Last Change
S&P futures 3000.5 -9.25
Oil (WTI) 60.57 5.44
10 year government bond yield 1.85%
30 year fixed rate mortgage 3.98%

 

Stocks are lower this morning after an attack on a Saudi Aramco oil facility sent oil prices up nearly 20%. Bonds and MBS are up.

 

A Saudi Aramco facility that represents about 5% of global oil output was attacked, which caused the biggest spike in oil prices since the 1991 Gulf War. Saudi Aramco estimates that it will take months to bring that capacity back on line. A Yemeni movement aligned with Iran is claiming responsibility for the attack. President Trump has announced that the US Strategic Petroleum Reserve could be used to mitigate the effect on oil prices, and the US stands “locked and loaded” to prevent future attacks. While Iran has denied responsibility, cruise missiles may have been involved in the attack, which means Iranian technology. Iran and Saudi Arabia have been enemies for years and have been fighting a war by proxy.

 

A spike in oil prices has the potential to be inflationary, however it would more likely depress growth since it would act as a tax. This will probably push the Fed to cut rates as opposed to raise them to fight potential inflation. US consumers will be somewhat insulated, since most of the country gets its supply from US West Texas Intermediate which is a US-only market. Consumers on the East Coast will feel an effect since they get their oil from the North Sea Brent market, and many in the Northeast rely on heating oil. Front month heating oil contracts are up 8% pre-open.

 

Aside from the issues in the energy space, the big even this week is the FOMC meeting on Tuesday and Wednesday. The Sep fed funds futures have made quite the reversal over the past month, going from a 100% chance of a rate cut (the only uncertainty was over whether it would be 25 or 50 basis points) to a roughly 25% chance they do nothing and a 75% chance they cut by 25 basis points.

 

fed funds futures

 

The action in the Fed announcement Wednesday will undoubtedly be in the dot plot (which is the Fed Funds forecast) and the GDP forecast. A potential war in the Middle East has got to affect the numbers, and it will be interesting to see whether they bump up the inflation numbers and / or take down the GDP estimates. Regardless, political uncertainty tends to be negative for business, so I would expect to see more dovishness in the Fed Funds futures.

 

Last week was brutal for mortgage rates, as the average rate on the 30 year fixed rate mortgage rose 20 basis points last week. It probably represents a technical reaction to the massive rally we have seen in rates this year already. “These sorts of bad performances are most often seen in the wake of stellar performances,” said Matthew Graham, chief operating officer of Mortgage News Daily. “August was the best month for mortgage rates, and 2019 has been the best year since 2011. And that’s precisely why this terrible week is possible: It’s largely a technical correction to the feverish strength in August.” In other words, markets don’t go straight up and they don’t go straight down. Volatility begets volatility and you will see massive rallies in the context of a bear market and vice versa. Remember that volatility in rates is bad for MBS investors in general and that will flow through to rates.

Morning Report: High frequency traders and mortgage rates

Vital Statistics:

 

Last Change
S&P futures 2907 -16.5
Oil (WTI) 53.33 -1.74
10 year government bond yield 1.50%
30 year fixed rate mortgage 3.78%

 

Stocks are lower this morning on trade issues. Bonds and MBS are flat.

 

The holiday-shortened week ahead looks to be relatively quiet, with the exception of a spate of Fed-speak on Wednesday and the jobs report on Friday. The September Fed Funds futures are pricing in a 100% chance of another 25 basis point cut, and the Fed seems to be in market-following mode, so the data should take a backseat.

 

Manufacturing activity slipped in August, according to the ISM Manufacturing Survey, which came in at 49.1, well below expectations. This was the first contraction in the manufacturing sector since mid-2016. The level for the ISM typically corresponds with 1.8% GDP growth.

 

Separately, construction spending rose 0.1%, which was lower as well, however the previous month’s drop was revised upward from -1.3% to -.7%.

 

Home prices rose .5% MOM / 3.6% YOY in July, according to CoreLogic. Home price appreciation slowed in 2018 as rates rose. That effect will reverse over the next year, and Corelogic expects annual home price appreciation rates to settle in around 5%. Tight supply, especially amongst starter homes will support prices, as well as a robust labor market and a move out of urban areas to the suburbs. About 37% of the US housing stock in the top 100 MSAs is overvalued. This metric is based on wage growth and housing supply.

 

Hurricane Dorian is expected to miss direct landfall, however it is slow-moving and dumping a lot of rain. Coastal areas will be at risk of flooding as the storm parallels the Eastern Seaboard this week.

 

The WSJ has an interesting article this morning about thinning liquidity in the markets. Late summer is often characterized by thinning liquidity, which means fewer active investors are trading, which causes exaggerated market movements when a big buyer or seller wants to execute an order. They mention what has been going on in the Treasury market:

Some analysts point to high-frequency traders. They have dominated the government-bond market, making up a big chunk of trading activity compared with slower counterparts, according to JPMorgan analysts. These traders withdrew last month, the firm said, suggesting that they amplified turbulence. Investors said liquidity worries are even more pronounced in riskier corporate bonds.

“As you go further down the credit spectrum, it starts to get a bit more volatile,” said Gautam Khanna, a fixed-income portfolio manager at Insight Investment. “Liquidity is definitely thinner in this market than it has been.”

This might help explain why mortgage rates have lagged the move in Treasuries. In essence, high frequency traders help establish a liquid market, where it is easier for large investors such as banks, sovereign wealth funds, pension funds, etc to trade large positions. When these high frequency traders withdraw, bid / ask spreads widen, and volatility increases. Here is the issue: MBS investors hate volatility because it makes their portfolios hard to hedge, and adds uncertainty about prepayment speeds. This causes them to be more conservative with respect to the prices they are willing to pay for mortgage backed securities, which flows through to mortgage rates falling less than the move in Treasuries would predict. Below is a chart of 10 year Treasury futures volatility. You can see the spike in the index beginning in August, which corresponds with the dramatic drop in rates, and the exit of high frequency traders from the market.

 

treasury futures volatility

 

 

Morning Report: Why mortgage rates are underperforming Treasuries

Vital Statistics:

 

Last Change
S&P futures 2922 23.5
Oil (WTI) 56.73 0.64
10 year government bond yield 1.59%
30 year fixed rate mortgage 3.83%

 

Stocks are higher this morning on no real news. Bonds and MBS are down.

 

We will get the minutes from the July FOMC meeting at 2:00 pm EST. Given the dramatic change in the Fed’s posture over the past several months, there is a possibility that it could be market-moving.

 

The Trump Administration floated the idea of a payroll tax cut and a capital gains tax cut in order to stimulate the economy. Note that a payroll tax cut would require Congressional approval, which means there is a less than 0% chance of this happening ahead of the 2020 election.

 

Mortgage applications fell 0.9% last week as purchases fell 4% and refis rose 0.4%. The MBA mentioned how much mortgage rates have underperformed the Treasury market: “In a week where worries over global economic growth drove U.S. Treasury yields 13 basis points lower, the 30-year fixed mortgage rate decreased just three basis points. As a result, the refinance index saw only a slight increase but remained at its highest level since July 2016,” said Joel Kan, MBA Associate Vice President of Economic and Industry Forecasting. “The small moves in rates and refinancing are potentially signs that lenders may be approaching capacity constraints as they continue to deal with the largest wave of refinance activity in three years. The refinance share of applications, at almost 63 percent, was also at its highest level since September 2016.” Turn times are certainly getting longer from correspondent lenders as this refi wave caught the entire industry off guard.

 

What is driving the underperformance of MBS versus Treasuries? Capacity constraints are one big possibility – as firms use up their operational excess capacity, they will increase margins. The other issue is that the inverted yield curve is wreaking havoc on MBS investors, who borrow short and lend long. The big agency mortgage REITs  (Annaly Capital and American Capital Agency) cut their dividends recently. Two Harbors also cut their dividend. This is a warning sign that the mortgage REIT sector is losing money as rising prepayment speeds kill the value of their portfolios. Since mortgage REITs are probably deleveraging in response, that means they are either selling MBS or at least cutting back their purchases. That lack of demand means that mortgage rates will be higher than you would expect. So, if you are running scenarios and wondering why you can’t get par pricing at X%, that is a big reason why.

 

McMansion builder Toll Brothers reported better than expected earnings last night. That said, most numbers were down on a YOY basis – earnings, revenues, contracts, margins. Despite the mediocre numbers, the stock is up pre-market. Douglas C. Yearley, Jr., Toll Brothers’ chairman and chief executive officer, stated: “In our third quarter, we had strong revenues, gross margin, and earnings. While our third quarter contracts were down modestly, we are off to a good start in our fourth quarter. Low mortgage rates, a limited supply of new and existing homes, and a strong employment picture are providing tailwinds. We are focused on measured growth through geographic, product and price point diversification, and capital-efficient land acquisitions. We continue to expand the buyer segments that we serve with homes now ranging in price from $275,000 to over $3 million. Our balance sheet remains strong and our book value continues to grow. With ample liquidity, moderate leverage, and limited near-term debt maturities, we have the flexibility to execute on our balanced capital allocation strategy.”

Morning Report: 30 year treasury yield near a record low

Vital Statistics:

 

Last Change
S&P futures 2871 -14.5
Oil (WTI) 54.49 -0.44
10 year government bond yield 1.69%
30 year fixed rate mortgage 3.85%

 

Stocks are lower this morning after the Argentinian markets blew up overnight and the Hong Kong airport remains occupied by protesters. Bonds and MBS reversed their rally and are down after the Trump Administration announced they would delay the tariff increases on Chinese goods until mid-December. They were scheduled to take effect September 1.

 

The German Bund yield has hit a record low at negative 61 basis points. While the 10 year bond yield is still some 30 basis points from a record, the 30 year bond is getting close at a yield of 2.13%. Note that with the 10 year yield of 1.63% is lower than the dividend yield of the S&P 500.

 

30 year bond yield

 

Some economic data this morning: the consumer price index rose 0.2% MOM / 1.8% YOY, which was a touch higher than the Street forecast. Ex-food and energy, it rose 0.3% / 2.2%. The CPI remains pretty much where the Fed wants it, and is not going to be the driver of Fed policy, at least in the near term. Like it or not, the Fed is watching the markets and following them even if the signal-to-noise ratio is heavily distorted.

 

Small Business Optimism continued to increase as the index improved in July. Despite all of the handwringing in the business press over growth small business continues to grow and invest. Biggest headwind? Labor. The top concern of business was finding quality labor at 26%, which is a record. 57% reported capital expenditures, which means they have enough confidence to invest in infrastructure to grow their businesses. Only 3% of businesses reported not having their credit needs met, which is close to historical lows and kind of begs the question of what the Fed hopes to accomplish with lowering rates.

 

Mortgage delinquency rates continued to fall, hitting 20 year lows for most of the country. 30 day DQs fell to 3.6% and the foreclosure rate fell to 0.4%. The only areas with elevated DQ rates are in the Midwest and Southeast and are the result of flooding.

 

delinquencies

 

Fitch is out saying that GSE reform will probably not result in near-term downgrades.