Pimco Warns FHFA’s Fannie-Freddie Plan Threatens Housing Finance (You Ain’t Seen Nothing Yet!)

This may be one of the most ridiculous letters I have ever seen.

Pimco warns FHFA’s Fannie-Freddie plan threatens housing finance. Bond investors want Congress to pass legislation providing explicit U.S. guarantee of the companies’ mortgage securities.

(Bloomberg) — Pacific Investment Management Co., one of the world’s biggest bond investors, is warning that a regulator’s push to end federal control of Fannie Mae and Freddie Mac could threaten the U.S. housing finance system by forcing the sale of mortgage bonds and boosting loan interest rates.

Pimco executives, in a letter to the Federal Housing Finance Agency, expressed concern that Fannie and Freddie will be freed without congressional legislation, which they said investors would interpret as an abandonment of the government’s guarantee of the companies’ mortgage-backed securities. That would limit some investors’ ability to hold the bonds and force others to drop the securities altogether, the executives wrote in the letter dated Monday.

“Mortgage rates will increase, homeownership will likely suffer and the national mortgage rate will no longer exist,” the executives wrote.

Pimco’s warning came in a comment letter responding to an FHFA proposal that would require Fannie and Freddie to hold hundreds of billions of dollars in capital. The plan, released by the regulator in May, is considered crucial to ending the companies’ conservatorship because FHFA Director Mark Calabria has said it would allow them to absorb losses outside the government’s grip. Calabria has said he plans to release the companies from U.S. control and that they could try to raise money from investors as soon as next year.

Fannie and Freddie don’t make mortgages, but buy them from lenders, wrap them into securities and guarantee to bond investors the repayment of principal and interest. Together, they back nearly half of the $10 trillion mortgage market.

First of all, the implicit guarantee from Treasury kicked in when Fannie Mae and Freddie Mac were placed into conservatorship by FHFA. So demanding an EXPLICIT guarantee is nonsense when the Federal government is inclined to bail out systemically important financial institutions (SIFIs).

Second, The Fed has the housing market’s back. Look at Case-Shiller HPIs for Los Angeles and San Francisco since The Fed’s entrance in late 2008.

Third, would mortgage rates really rise if Fannie and Freddie are privatized? Probably, but The Fed can control that spread.

Fourth, the biggest problem is what Biden/Harris will do. I have already seen bizarre proposals on housing from Biden’s team,

President, Joe Biden will invest $640 billion over 10 years so every American has access to housing that is affordable, stable, safe and healthy, accessible, energy efficient and resilient, and located near good schools and with a reasonable commute to their jobs. Biden will do this by:

  • Ending redlining and other discriminatory and unfair practices in the housing market. (You mean redlining still exists with the FDIC, The Fed and Warren’s Consumer Financial Protection Bureau watching the banks??)
  • Providing financial assistance to help hard-working Americans buy or rent safe, quality housing, including down payment assistance through a refundable and advanceable tax credit and fully funding federal rental assistance. (Yes, but The Fed keeps causing home price increases through their policies)
  • Increasing the supply, lowering the cost, and improving the quality of housing, including through investments in resilience, energy efficiency, and accessibility of homes. (Increasing the supply of housing is a good thing, but easier said than done).
  • Pursuing a comprehensive approach to ending homelessness. (Noble idea, but this was a key goal of Obama’s HUD under Shaun Donovan … and we still have a terrible homelessness problem).

The Fed hasn’t been able to do anything about the declining existing home sales inventory, but they have helped home prices soaring!

My biggest fear is that closure of Fannie and Freddie and creating a Super-HUD. So, you ain’t seen nothing yet!

MBA Mortgage Purchase Applications UP 24% Since Same Week Last Year, Saul Center’s Funds From Operations (FFO) Continue To Tank

Mortgage applications increased 1.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 23, 2020.

The Refinance Index increased 3 percent from the previous week and was 80 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 0.2 percent from one week earlier. The unadjusted Purchase Index decreased 0.3 percent compared with the previous week and was 24 percent higher than the same week one year ago.

Well, the red line shows the increase in MBA Purchase Applications under President Trump.

On the home price front, Zillow expects the Case-Shiller HPI to increase from 5.7% to 6.6%.

On the down side, REITs such as Washington DC’s own Saul Centers is showing the decline in Funds From Operations (FFO) and share price since the Covid lockdowns began. Saul Centers (previously BF Saul) tanked by over 50%.

Real Capital Analytics Office value index shows the Covid decline.

Speaking of Saul Centers, here is its share price against Milano, Italy HQ’d COIMA RES S.p.A that acquires and manages real estate properties. Its the same all over the world.

Escape From New York (And Chicago)! Case-Shiller Home Prices Rise 5.7% YoY As Phoenix AZ Leads In YoY Price Growth (Chicago And New York In Last Place)

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.7% annual gain in August, up from 4.8% in the previous month. The 10-City Composite annual increase came in at 4.7%, up from 3.5% in the previous month. The 20-City Composite posted a 5.2% year-over-year gain, up from 4.1% in the previous month.

Phoenix, Seattle and San Diego reported the highest year-over-year gains among the 19 cities (excluding Detroit) in August. Phoenix led the way with a 9.9% year-over-year price increase, followed by Seattle with an 8.5% increase and San Diego with a 7.6% increase. All 19 cities reported higher price increases in the year ending August 2020 versus the year ending July 2020.

The National Index posted a 1.1% month-over-month increase, while the 10-City and 20-City Composites both posted increases of 1.1% before seasonal adjustment in August. After seasonal adjustment, the National Index posted a month-over-month increase of 1.0%, while the 10-City and 20- City Composites both posted increases of 0.5%. In August, all 19 cities (excluding Detroit) reported increases before seasonal adjustment, while 17 of the 19 cities reported increases after seasonal adjustment.

Once again, home price growth is exceeding average hourly earnings (5.71% versus 4.60%).

Phoenix AZ leads the Case-Shiller 20 in year-over-year home price growth at 9.85% followed by Seattle at 8.49% YoY. On a 3-month basis (annualized), San Diego leads at 15.30% with Portland at 14.52%. In last place on a YoY basis is, no surprise, Chicago at 1.22% followed by (no surprise either) New York City at 2.82%.

Of course, the primary driver of home prices is … The Federal Reserve.

Terminal (Money) Velocity? The Missing Existing Home Sales Inventory And Collapsing Money Velocity

Have you ever wondered why the inventory of existing home sales have crashed since the housing bubble of the early/mid 2000s?

If I overlay the median price of existing home sales with low inventory and low money velocity, we get surging prices.

Poor Kristy Swanson.

Seasonality Strikes! Mortgage Purchase Applications Fall By -1.96% WoW, Refi Apps Rise By 0.23% (Purchase Apps Up By 26% Versus Same Week Last Year)

Covid through the mortgage market for a loop. Normally mortgage purchase applications peak in late April or early May, but in 2020 unadjusted purchases applications peaked in mid-June thanks to Covid-19.

Here is a chart showing the seasonality of mortgage purchase applications. And how mortgage purchase application are 26 percent higher than the same week one year ago.

Refi applications? Essentially flat with an increase of only

V-Shaped Recovery In Housing Starts/Permits To Build (1-unit Starts Up 8.52% In September)

The housing starts numbers for September were released this morning and point to a V-shaped recovery for housing markets. 1 unit starts were up 8.52% and permits to build were up 7.8%.

This is a V-shaped recovery for single family housing.

Unfortunately, there is no V-shaped recovery in 5+ unit multifamily housing.

But the overall economy is showing a distinct v-shaped recovery, according to The Atlanta Fed GDPNow forecast model.

US Core Inflation Clocks In At … 1.7% YoY And Real Avg Weekly Earnings At 4.1% YoY, Rent Inflation Falls To 2.5% YoY (Taylor Rule Suggests Fed Funds Target Rate Of -0.51%)

Well, the Consumer Price Index less food and energy remain near the same level, 1.7133% YoY and is leading the Core PCE growth of 1.5934% YoY.

US Real Average Weekly Earnings YoY checked it at 4.1% YoY.

US CPI Urban Consumers Owners Equivalent Rent of Residences YoY fell to 2.5% YoY despite massive Fed intervention.

The Rudebusch variation of the Taylor Rule suggests that the Fed Funds Target rate should be at -0.51%.

On a side note, the US Dollar rose and gold got clubbed downwards.

Hispanic Homeownership In USA Highest EVER As Hispanic Wage Growth Soars (Also Highest Ever)

There is a lot to celebrate in the housing market, particularly for Hispanic households.

Hispanic (Latino) homeowership has soared to its highest level in history, surpassing even the peak of the housing bubble in 2005-2007. The primary driver of the record Hispanic homeownership rates is soaring Hispanic wage growth YoY.

Black homeownership rates have also soared in 2020.

It is indeed a better world when minorities can share in the American Dream of homeownership and rising earnings.

Mortgage 30 Day Delinquencies Tick Up Again As Key States Remain On Covid Lockdown (GDP Forecast Is Now 34.602%)

Just when we thought the US mortgage market had recovered from the financial crisis, then along came Covid and The Federal Reserve helping to push mortgage rates to near all-time lows.

According to Black Knight, the share of borrowers with only one missed payment was already below pre-pandemic levels in July and in August that number fell again. The number of loans in the 30- to 60-days past due bucket dropped by other 9.0 percent. At the same time, serious delinquencies, loans 90 or more days past due, increased by 5 percent and have risen in each of the past five months.

The transition from 30 days delinquent to 60 days late was falling as expected but showed a disturbing uptick in August.

Compared to natural disasters such as hurricanes, this time it is different PRIMARILY BECAUSE OF GOVERNMENT ECONOMIC SHUTDOWNS.

Most mortgages in forbearance remain in active forebearence and had the term extended DUE TO GOVERNMENT LOCKDOWNS OF SEVERAL KEY ECONOMIES.

But with US GDP growth expected to recover at a rate of 34.602%, look for forbearances and 30 day delinquencies to fade.

Unless Speaker Nancy Pelosi’s nephew California Governor Gavin Newsome insists on keeping California on eternal lockdown in order to prevent the spread of Covid.

Why does Gavin Newsome remind me of Beloche performing the ceremony opening the ark of the covenants in Raiders of the Lost Ark?