Morning Report: Congress cracks down on serial VA refinancing 1/12/17

Vital Statistics:

Last Change
S&P Futures 2769.0 -0.5
Eurostoxx Index 397.5 0.2
Oil (WTI) 63.2 -0.6
US dollar index 85.3 -0.2
10 Year Govt Bond Yield 2.58%
Current Coupon Fannie Mae TBA 101.75
Current Coupon Ginnie Mae TBA 102.875
30 Year Fixed Rate Mortgage 4.01


Inflation on the consumer level continues to be under control, according to the Consumer Price Index. The headline number was up 0.1% MOM and 2.1% YOY. The core rate, which excludes food and energy) was up 0.3% MOM and 1.8% YOY. Housing and medical costs drove the increase in the rate.

Retail Sales were up 0.4% in December, which was a touch below expectations. The control group was up 0.3%, which was in line with expectations. The MOM numbers may seem low, however November was exceptionally strong.

Robert Kaplan said the Fed has upped their 2018 economic forecast to 2.5% – 2.75%. The current estimate is at 2.5%. After having been too high in their GDP estimates for 9 years, the Fed finds itself in the position of consistently being too low.

The two year bond yield topped 2% for the first time since the financial crisis. The 2 year is much more sensitive to the Fed Funds rate than the 10 year is, and is part of the reason why we are talking about a yield curve flattening and what it means. A common narrative these days is that the yield curve is flattening (that is, the difference between long-term rates and short-term rates is falling) and that signals a recession. That could be the case if the Fed tightens more aggressively than they are now, however they are going at such a slow pace that it probably won’t knock the economy into a recession. Plus there is so much pent-up demand from the last 10 years that a lot of the necessary pieces for a recession simply aren’t in place.

Where do we stand with the market’s prediction of rates? The Fed Funds futures are now pricing in a 73% chance of a 25 basis point hike in March. This is up from 59% a month ago.

Wells Fargo reported higher earnings, however part of that was due to a one-time benefit due to the tax bill. On the mortgage side, originations came in at $53 billion for the fourth quarter, down 10% QOQ (largely explained by seasonality) and down 26% from a year ago. Margins were up a basis point from the third quarter and were down 43 basis points from a year ago.

The Administration and the Senate continue to work on hammering out a deal on funding the government. The current continuing resolution expires in a week, and Democrats are holding out for an immigration deal in order to sign off on a new CR. It is still too early to predict a shutdown, but remember that a shutdown will affect the IRS and getting tax transcripts. Plan accordingly.

Washington is looking to do something about serial VA refinances.  Many veterans were refinancing their mortgages (and adding to their principal by folding in the funding fee) for a de minimus drop in monthly payment. The Protecting Veterans from Predatory Lending Act of 2018 will make the following changes to VA lending.

  • A lender may only submit a refinance loan for VA insurance if it certifies that all fees associated with the refinance would be recouped through lower monthly payments within three years;
  • A lender may only receive VA insurance for a refinance loan if the refinance loan has a fixed rate 50 basis points lower than the earlier fixed-rate loan (or 200 basis points lower if the new refinanced loan is an adjustable rate mortgage).
  • A lender may only receive VA insurance or get a Ginnie Mae guarantee for a refinance loan if the refinance comes more than six months after the initial loan.

At the margin, this legislation is bullish for Ginnie Mae TBAs and Ginnie Mae servicing, which should translate into better FHA and VA rates going forward.

43 Responses

  1. Based on social media, I’m starting to wonder if Trump’s goal with the shit hole comment wasn’t to make every progressive commentator observe how the US is a shit hole compared to Europe.

    Liked by 1 person

  2. he never disappoints:

    Liked by 1 person


    This is news. Fascinating.

    The priorities of the left are kind of f***ed up. IMO.


  4. What are the odds Chelsea Manning wins in Maryland? The left worships transgenders so much that I bet he/she/it wins..


    • Brent:

      What are the odds Chelsea Manning wins in Maryland?

      I doubt he/she can win in a general election, which will be mostly non-progressive voters, but it would be fun to watch the D’s explain why they are supporting someone who has been convicted of giving away military secrets.

      Liked by 1 person

    • This is funny:


      Liked by 1 person

      • Manning’s opponent in the Democratic Party primary is one of the most standard, banal, typical, privileged and mediocre politicians in the U.S. Congress: Benjamin Cardin, a 74-year-old white, straight man who is seeking his third six-year Senate term. Cardin’s decades-long career as a politician from the start has been steeped in unearned privilege

        Has there ever been a better encapsulation of liberal thinking?

        Liked by 1 person

        • “Der! White men are bad! Because they are white and have a penis!” Is more succinct.

          F*ck their “unearned” privilege commentary, made from their vantage point of deep unearned privilege.

          I have no problem with the idea term limiting senators, either formally or making the argument on Election Day. But Manning is in this because he claims to be a transwoman, and thus based on that alone becomes qualified. How is that earned, exactly?


        • Yeah it’s funny, but Greenwald does have a point about Cardin inheriting the seat from his uncle.

          I also like it that he clearly calls out the hypocrisy vis-a-vis identity politics of convenience:

          “They’ve decided to do this presumably because they find Cardin’s centrist ideology and politics more appealing than Manning’s more radical politics, and believe that this trumps what could be the historic value of Manning’s candidacy. They’ve apparently decided to prioritize their own centrist ideology over the important gender, sexual orientation and trans equality progress that Manning’s victory would ensure.

          One can certainly make an argument that the license they’ve granted themselves here – to prioritize ideology and politics over identity – is a reasonable one. But one wonders whether they intend to maintain a monopoly on this license or extend it to others.”

          Mostly it’s just fun to watch progressives get trolled in this way. “More Woke Than Thou” will be the end of them.

          Edit: Read his note that was added on later about how this is the mirror image of all the Sanders supporters being attacked for not being woke enough to support HRC. The 2016 Democratic primary fight is the gift that keeps on giving. None of them will ever get over it.


        • It’s got my vote!


        • @jnc4p: Mostly it’s just fun to watch progressives get trolled in this way. “More Woke Than Thou” will be the end of them.

          It will lead to their constant marginalization. Every election, just about, becomes the Republican’s to lose.

          The stuff the progressives come out and say. In public. Trump’s “shithole country” comment was in a private meeting and not meant for public consumption (not that the media will ever tell you that) but the stuff they say on CNN and DemocracyNow and MSNBC . . . their argument is the world belongs to black and brown people and other favored classes, and white men (and coming soon: white women! Don’t kid yourself) have to know their place as inherently evil because of their original sin, yada yada. Everything is about race and gender, everything they don’t like is racist or sexist or both, and then when those things come into conflict, then you become a racist for prioritizing sexism, or a sexist for prioritizing racism, or a racist for not being down enough with the Muslim struggle, or sexist for not treating transwomen as real women . . .

          Not that the right isn’t trying to eat itself in its own way, but the left has mad skillz in that area the right will never be able to compete with.


  5. what a NFC game…


  6. My observation is that liberals are angry and conservatives are sick and tired of hearing about it.

    Liked by 1 person

    • Bill Kristol is in touch with the little people.


      • Bill Kriston and Jen Rubin just need to come out as Progressives and be done with it. I think the only thing that makes them remotely conservative is the slightly more hawkish bent of Republicans on Israel.


        • They are globalist conservatives. Their beef with the left is that they don’t like progressive globalism. They prefer a more kleptocratic, imperial globalism. And maybe more tax cuts?


        • They are neocons returning to their roots.


          Basically liberals in favor of foreign interventions.

          Liked by 2 people


          I think the problem is also that they are more 50s-style progressives than 2018-style progressives. Modern millennial progressives won’t have them. But they can maintain the fiction they are conservatives, while getting paid good money to bash Trump and the GOP on TV or in print. Not a bad gig for them.


  7. Interesting read:

    Glenn Greenwald

    January 12 2018, 9:24 a.m.”

    Liked by 1 person

  8. and the Pirates just traded McCutchen to the Giants, rounding out a fantastic sports weekend.


  9. And under the labor theory of value, they should cost 500,000x more…

    Liked by 1 person

    • Why do you hate whale oil suppliers?



      Typical racist white-privileged elite. You KNOW white people have benefitted from that more than any other race! And MEN more than WOMEN! Give me some time and I’m sure I can come up with dozens of absurd, counter-factual examples that prove my ridiculous point!

      And clearly you think technology and private industry can improve things! Well it can’t! They didn’t build that! The government built the roads and printed the money and shit! So the government invented light bulbs. Point, set, match!

      And as my fellow traveler, mutherfuker, points out below, thousands upon thousands of hardworking whale-oil and candle-making professionals were put out of business by this so-called “improvement” in light delivery.

      The reality is, all that cheap lighting has done has made it possible for white racists to be racist for more hours of the day!

      Every improvement in life is bad!


    • BTW, I would add the cost of computing power is pretty much following this exact trajectory. We just want more computing power in everything, where as we can eventually be sated in light. I would not be surprised if computing power has fallen by more than a factor of 500,000 per calculation since the 1950s.


    • They think because Trump makes shit up and is a vulgar character, they can just make up whatever they want and it will work for them like Trump’s
      Hyperbole and absurdities work for him.

      I suspect they are wrong.


    • McWing:

      For Scott,

      Love it. I think the courts should not give any deference at all to the bureaucrats. If there is any ambiguity in the law at all, it should be resolved in favor of individual liberty, not government control.




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