Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on bigger issues.
The housing market is wrapping up a solid summer selling season, and despite some weakness it’s obvious the housing market has picked up. However, the origination element was somewhat tepid, but there’s room to grow. A lot of room.
Notably, there’s been a significant bump in real estate credit hiring that indicates increasing mortgage origination capacity.
Between March and June of 2015 there was a significant acceleration in real estate credit and mortgage brokerage employment figures as reported by the Department of Labor. Real credit employment increased about 4% in absolute terms or about 15% on annual basis.
But after the bump in applications in the spring and early summer months, both purchase and refinance applications softened.
This excess capacity may be one of the reasons the market is now seeing margins contract over the past month. The slowdown in application volume coupled with increased origination capacity has created more pricing competition.
“We expect declining applications and tighter near-term margins to reduce profits for mortgage originators in the back half of the year before seeing a pickup again in first half of 2016,” says Kevin Barker at Compass Point Research & Trading.
Chuck Gabriel hosted Mortgage Bankers Association President and CEO David Stevens on Capital Alpha’s regular Spotlight Call, and in the lengthy conversation Stevens expanded on a blog he wrote last week (covered here) where he seemed more open than at any time in the past to pulling Fannie Mae and Freddie Mac out of conservatorship, while still maintaining their guarantee.
Gabriel: Last Congress pushed for GSE reform but came up short. They defined the long polls in the tent, however. Where are we on housing finance/GSE reform legislation?
Stevens: I’ve received interesting response to a recent blog I wrote, calling again for GSE reform. It really didn’t represent a change in my thinking, or my group’s policy view. It was clearly articulated to say what we’ve thought all along, which is to say that, even in the Johnson-Crapo world, we thought that Fannie Mae and Freddie Mac would stand up what we call the first “McG’s”, or Mortgage Credit Guarantor entities or enterprises. And though it was never explicitly said, the Johnson-Crapo legislation called for maintaining Fannie Mae and Freddie Mac for a decade after the legislation was passed, and then the creation of these McGs. So it always was assumed that the GSEs would be maintained. I wanted to come out and explicitly say that because I worried there was extraordinary confusion in a very technical discussion.
The GSEs, the way they operated pre-conservatorship, created their own failure. And I think that had to be stated, as I did in my Blog. I ran the single-family business at Freddie Mac for almost a decade; I saw the special sweetheart deals being done - both on the guarantee-fee side and credit waivers for institutions that could bring large market share into the GSEs; I saw the activities in the portfolio, where they were buying the AAAs on the subprime market, and buying lots of Alt-A product because it was rich. Competing with Wall Street. And ultimately, that’s what really led to the failure of the housing system, and Freddie and Fannie played a very large role in that.
Not through the traditional flow, 30-year-fixed guarantee business, but from the other activities they did, either to drive shareholder value or compete with Wall Street. So I still believe reform is ultimately needed, but reform to me means, you retain the core functionality that supports the flow of capital to the single family and multi-family mortgage industries - with those products that were not part of this whole collapse, as in the traditional 30-year-fixed-rate product that they so effective in creating a TBA market for, and that still operates so well today.
And you can do that through a few narrowly defined legislative and regulatory steps that we’ve been promoting for a couple of years: Get a single security, and common securitization instrument - not two separate ones. That not only creates better liquidity for the marketplace because it creates less of a competitive delta between Fannie and Freddie, but it also creates an opportunity if there’s going to be new entrants, in essence, other GSEs that are going to enter in a future system, to compete with those two. They would all have access to a common currency. So we’ve advocated that.
The full interview transcript is here and definitely worth the time, as he also covers the MBA’s demand forecast, affordable housing and key pending legislation.
It’s back to neutral on securitized products credit, says Chris Flanagan at Bank of America/Merrill Lynch, in a client note.
Volatility for risk asset prices is likely to remain elevated going into and after the September Federal Reserve meeting. The BofAML house view is that in spite of the market volatility of the past week, the most likely outcome is that the Fed will hike in September, even if there is some path dependency associated with the decision.
“In our view, the most likely near term path for risk asset prices is to the upside. If realized, this outcome should increase the chances of a September hike, which in turn is not likely to be viewed favorably by risk assets,” Flanagan says. “We moved to an underweight last week of CMBS, new issue non-agency MBS, risk transfer, off-the-run ABS, and lower rated CLOs.
“After a swift move wider in credit spreads, retracement came just as quickly. In recognition of the somewhat binary nature of markets these days, where big swings in either direction seem quite possible, this week we move back to neutral to position for such possibilities,” he says.
The annual Federal Reserve retreat in Jackson Hole this weekend had the theme of Inflation Dynamics and Monetary Policy.
Here’s what Fed Vice Chair Stanley Fischer had to say. Honestly, that was several thousand words of explanation that said a whole lot and nothing at the same time. If you can divine the point he was making, email me and you’ll win a prize. (My gratitude.)
For a different take on the meeting and rates, and a .gif that reflected my own expression after reading Fischer’s comments twice, check out Confounded Interest’s fun take.
And here’s how ZeroHedge is reading what New York Federal Reserve Bank President William Dudley had to say.
Ahead this week we will see the Construction Spending report on Tuesday, followed by the Beige Book on Wednesday. The preliminary jobs forecasts and reports come on Thursday, and then Friday is the big employment situation report for August. Taken together, that should give some idea of what the Fed is thinking going into their September Federal Open Market Committee meeting.
No banks closed the week ending Aug. 28, according to the FDIC.