Monday Morning Cup of Coffee: Fannie, Freddie exit bill finally arrives
Plus, what will Yellen do?
Monday Morning Cup of Coffee takes a look at news coming across HousingWire's weekend desk with more coverage on bigger issues.
The much-awaited legislative text of the bipartisan reform initiative of the government-sponsored enterprises, penned by Senate Banking Committee Chairman Tim Johnson, D-S.D., and Ranking Member Mike Crapo, R-ID, is now available online. The announcement spurred considerable reaction in housing finance last week and the bill's actual text will likely be no less discussed.
The legislative text can be found here, the section-by-section of the legislation can be found here, and a detailed summary can be found here. The primary role of the legislation is to wind down Fannie Mae and Freddie Mac and replace the GSEs with a few unique solutions.
“Our housing finance system is badly in need of reform. And it is clear from the reaction to our announcement last week that many people agree,” said Chairman Johnson.
“This proposal includes an explicit government guarantee in order to add stability to the economy, keep costs reasonable for borrowers and renters, and ensure fair access to the secondary market for all lenders," Johnson added. "We also include important provisions that will preserve the 30-year mortgage as well as fair and affordable housing options for buyers and renters alike."
According to a statement from the banking committee, the status quo in which Fannie Mae and Freddie Mac remain in conservatorship is not a viable option for the nation’s housing finance system. However, the consensus is that there is little possibility of the bill's passage this year.
Might rate hikes come faster than expected? Janet Yellen is chairing a new meeting of the Federal Open Market Committee this week so anything could happen.
But in all likelihood there will be no major monetary policy changes announced from the first female chair of the Federal Reserve.
Which might not be good news, according to this article in Seeking Alpha.
The reason? Well, last week saw mostly positive economic data but a negative market reaction, the article notes.
Goldman Sachs doesn't think Janet Yellen will try anything tricky this week, either.
According to an email to clients, it's true the economic dataflow has weakened since the January FOMC meeting. Much of this weakness, however, appears due to unseasonably adverse weather and Goldman will, therefore, continue to expect 3%+ growth for the remainder of 2014.
Inflation has remained subdued and well below the Fed’s 2% target, while financial conditions have eased to their most accommodative level since April 2011.
"In light of these developments, the FOMC is widely expected to continue tapering the pace of its asset purchases by a further $10bn," said Goldman analyst Sven Jari Stehn.
Wells Fargo analyst Greg Reiter and head of residential mortgage-backed securities research, sent a note to clients encapsulating the nuances of both events: the GSE reform bill and the FOMC statement — with a side of the geopolitical risk hitting the stock market last week.
Here's what Reiter had to say:
"Although we believe that major GSE reform is years away, the Johnson and Crapo announcement provides a more definitive proposal surrounding GSE reform. With this, there may be a more succinct focus and better momentum toward transforming the U.S. housing finance into the landscape of the future so that the industry can operate under a stable regulatory framework.
Geopolitical issues overwhelmed the markets this week as equities lost significant ground and bonds rallied into another risk-off move, with the 10-year Treasury yield dropping about 15 bps. With duration well bid, mortgages largely net underperformed for the week with spreads widening a few basis points. Heading into the FOMC meeting next week, we remain negative/underweight on the basis over the medium term as we anticipate QE tapering to continue on a linear course".
About those geopolitical risks and the stock market hit last week, the Reformed Broker has a must-read list as to why it happened, according to various media outlets. (Warning: Extreme satire can be hilarious.)
The Federal Deposit Insurance Corp. did not takeover the assets of any banks this weekend.