Big changes this week, surprising and confusing — mostly good news here, trouble overseas, and an astounding political turn for the better for mortgage credit.
On Wednesday the 10-year T-note broke out the bottom of a well-defined four-month trading range 2.60%-2.80% to 2.50%. That’s the lowest since last November, and at the threshold of a deeper drop. Mortgages moved toward the 4.25% area.
Europe’s awful numbers were as much cause as any: in the first quarter an overall GDP gain of 0.2%, but Finland entered recession, Italy shrank 0.1%, Portugal by 0.7%, and Holland by 1.4%. Visit Pimco.com and its “secular outlook” for a grim rundown on the emerging world, and a new forecast that a 0% Fed is now open-ended normal.
In the U.S. better. April retail sales were flat, but held after an exceptional surge in March. The National Federation of Independent Business (NFIB) small-biz survey nosed up. April housing starts jumped 13%, some pundits complaining they are heavy with attached dwellings, but land is scarce in most metro areas, and dense redevelopment is our future.
Headwinds still blow. Core year-over-year Consumer Price Index has risen to 1.8%, close to the Fed’s target, but wages are still dead. Thus real earnings have fallen 0.1% year-over-year. A rise in prices now for any reason is a contractionary event, not sustainable
Politics and mortgagesā¦ Melvin Luther Watt early this year replaced Ed DeMarco as director of the Federal Housing Finance Agency (FHFA), boss of Fannie and Freddie. Mel Watt had been a North Carolina congressman since 1993. Upon his appointment everyone in our trade was pleased to see DeMarco go; for five years he had executed his own private charter to shut down the mortgage government sponsored enterprises and force a privatization of mortgage credit, no matter what the cost to consumers and the economy — all without interference from the White House.
None of us knew what to make of Watt. Another Obama low-horsepower, no-gas figurehead? This week we found out. Mel! You da man!!
Watt’s first policy speech is a model. Ever since 2008, mortgage credit has suffered the back-blast from the bubble, scorched and paralyzed by political anger and over-regulation. Watt could easily have chosen a passive path. Instead: “FHFA is focused on how we manage the present.” Peter Drucker would be thrilled: act in the now, not the past or future; do what you can, and leave aside what you cannot.
The FHFA will reduce buy-back demands by independent dispute resolution and sensible re-underwriting of loans which do not perform well. FHFA will revisit the over-tightening of credit standards, and will not cut conforming loan limits. It will explore means of privatizing money services businesses risk, and will wind down retained portfolios, but will “no longer involve specific steps to contract the Enterprises’ market presence.” Huzzah!
It will take time for Watt’s initiatives to be felt on Main Street. The FHFA’s destructive lead has been overtaken by the misbegotten Consumer Financial Credit Bureau. The CFPB’s first actions were thousand-page hammers on an already flattened credit supply, but we may get relief even there.
A wave of public anger must run its course until large constituencies understand the damage done by blind retribution. Anger can break like a fever, people and politicians coming awake, blinking and head-shaking at babies and bath water scattered all over the horizon. The truly stupid Johnson-Crapo “reform” of Fannie and Freddie made it out of Senate committee, but the bill will die. All the more remarkable in Watt’s speech: when asked his opinion of the reform bill, “No comment.” The White House had okayed it, but its FHFA appointee knows better and did not even pretend to go along.
Ever since 2008 this administration has gotten everything wrong on housing. Its primary focus was to keep people in houses they demonstrably could not afford, and then to waste time and priority pursuing reductions in loan principal. It failed completely to bring under control bank-owned loan servicers, still abusing the public. It failed to secure an adequate supply of mortgage credit despite strong protests from the Fed, and only last year hamstrung the FHA.
In spite of all of that, thank you for Mel Watt. A mensch, this guy.
Ā ————————————————-
Ā 10-year T-note, last 12 months. Fall below 2.47%, and no support on the chart. Click to enlarge charts below.
10-year T-note this week. Abrupt and decisive on Wednesday, good follow-through on Thursday.
The NFIB move above trend is small, and even the NFIB is suspicious of it, but a turn in the fortunes of small business is second in importance only to housing.
The New York Fed produces this quarterly study on consumer debt. Cheerleaders misunderstand. The growth in mortgage balances is not confirmed by the Fed’s own Z-1, and other growth in credit is entirely corrosive loans to students and subprime auto.
0 Comments