IMFnews ... Friday, Jun 9, 2017
What We’re Hearing: Keep an Eye on Rates, Really /
The Black Swan Event Will Be… /
GSE Investors Unite ? /
Hoping Mnuchin Will Deal ? /
By Paul Muolo pmuolo@imfpubs.com
When it comes to mortgage originations, interest rates drive the market. Like most products, the consumer almost always opts for the lowest price, though service can count for something, especially if your loan officer screws up the paperwork or the website (or app) you’re entering loan data into suddenly freezes up. At the beginning of the year, it was a “lock” that rates were headed higher. But now it’s June and the yield on the benchmark 10-year Treasury recently hit a low that hasn’t been seen since November. Yes, stock prices are still rising, which raises this simple question: can stock and bond prices keeping increasing at the same time? It can’t last forever. Something has to give…
Investors are nervous, for sure. It seems that for every expert who predicts a stock market bust of historic proportions there’s one who says this rally has long legs. But for lenders – and servicers – there’s much to ponder. With political turmoil reaching new heights in Washington and with grave concerns about the U.K. election and terrorism in Europe, a huge sell-off in stocks could happen. It’s hard to say what the “Black Swan” event will be that ignites the flame, but that’s the nature of Black Swans: you don’t know, until suddenly it’s on your doorstep – like 2008 and the federal takeover of Fannie Mae and Freddie Mac…
Supposedly, there was a gathering of GSE investors in New York recently, including firms that bought junior preferred shares and common earlier in the decade.
Investors who might have attended the meeting did not return media inquiries about the matter. We were told that at least one prominent speaker said he’s staying the course. At the very least these investors (speculators, call them what you will) want a legal settlement with the Treasury Department over their “takings” claims. But will Treasury Secretary Steven Mnuchin deal ?…
One argument is that Mnuchin is one of them: a hedge fund/Wall Street guy who understands their cause. But predicting what Mnuchin or Federal Housing Finance Agency Director Mel Watt might do during the march to “zero capital day” is like betting on a Black Swan…
Back in March, in a letter to investors, Pershing Square noted that in 2016, “Fannie and Freddie’s total shareholder returns were 137.8 percent and 130.9 percent, respectively, as the share prices rose dramatically after the election. In the first two months of 2017, Fannie and Freddie’s share prices have declined nearly 25 percent after a ruling in the appellate court upheld most of the original rulings of the D.C. District Court in September 2014. We think the market has overreacted to the recent ruling, and several other legal cases…” At last check, Pershing Square owns 9.98 percent of Fannie common and 9.77 percent of Freddie…
The concept of GSE “recap and release” has been a sticking point in the debate.
One investor emailed this thought to us:
“Why is it recap and release has become the economic slur of our time ?
If there is going to be an honest debate on the future of the GSEs,
how is it one viable option, arguably the easiest and most predictable,
is not being considered ?”
