Coming Housing Boom Could Mean It’s Time to Add Raw Materials

In its November report, mortgage security firm Freddie Mac called 2017 the ‘best year in a decade’ for the housing market by a variety of measures. These include low inflation, strong job growth and historically-low mortgage rates. This assessment is very encouraging, not just for homebuyers and builders and the U. S. economy in general, but also for commodities, resources and raw materials as we head into 2018.
Although past performance is no guarantee of future results, it’s still instructive to look back at how materials performed the last time the U. S. was ramping up housing starts and mortgages. The last housing boom, which peaked in 2006, was accompanied by elevated commodity prices. We could see a return to these valuations over the next couple of years on higher demand, a stronger macroeconomic backdrop and cyclical fundamentals, as shown in the following chart courtesy of DoubleLine Capital:
Speaking on CNBC’s ‘Halftime Report’ last week, DoubleLine founder Jeffrey Gundlach said he thought “investors should add commodities to their portfolios’ for 2018, pointing out that they are just as cheap relative to stocks as they were at historical turning points.
‘We’re at that level where in the past you would have wanted commodities’ in your portfolio, Gundlach said. ‘The repetition of this is almost eerie. And so if you look at that chart, the value in commodities is, historically, exactly where you want it to be a buy.’

This post was published at GoldSeek on Thursday, 21 December 2017.

Technical Scoop – Weekend Update Dec 3

Weekly Update
‘You can lead a horse to water, but you can’t make it drink’
– old saying
We may warn investors about the risks in the markets, but we can’t make them take action to do something about it. We recall back in late 1999/early 2000 receiving calls from people wanting to open up a brokerage account so that they could buy some tech or stock. We politely told them that to open an account would require we meet with the prospect, learn their investment goals, fill out papers, and await approval from the compliance department. The process could take more than a few days. By that time, the stock they were targeting could be up a further 10%, 20%, or even more.
Things were moving that fast. From lows in October 1998, the tech-heavy NASDAQ index soared almost 260% to its high in March 2000. The price earnings ratio (P/E) of the NASDAQ soared to an unheard-of (and never heard of again) 175 while some individual companies had P/Es over 400. The fact that the companies did not make any money was not an issue as the focus was on their long-term potential and growth. Warnings that the market was in an unsustainable bubble and that a potential crash could follow were largely ignored. Those communicating the warnings were dismissed as doomsayers, charlatans, or worse. Some received death threats. Two years, later by October 2002, the NASDAQ had fallen 78%. The bubble had burst.
Fast forward five years later. The Dow Jones Industrials (DJI) had soared to new all-time highs gaining 98% from October 2002 to October 2007. The NASDAQ had gained 158% in the same period but was still down 45% from the March 2000 high. But the real focus was on the hot housing market where prices had more than doubled since 2000 and where some regions saw even more spectacular growth. The growth had been spurred by the loosening of credit encouraged by government action, particularly through what was known as the Community Reinvestment Act and government agencies such as Fannie Mae and Freddie Mac.

This post was published at GoldSeek on 3 December 2017.

Lenders Loosen Mortgage Standards, as Demand Falls

Same phenomenon leading up to the last housing bust?
The toxic combination of ‘competition from other lenders’ and slowing mortgage demand is cited by senior executives of mortgage lenders as the source of all kinds of headaches for the mortgage lending industry.
Primarily due to this competition amid declining of demand for mortgages, the profit margin outlook has deteriorated for the fourth quarter in a row, according to Fannie Mae’s Q3 Mortgage Lender Sentiment Survey. And the share of lenders that blamed this competition as the key reason for deteriorating profits ‘rose to a new survey high.’
And demand is down for all three types or mortgages:
Mortgages eligible for guarantees by Government Sponsored Enterprises, such as Fannie Mae and Freddie Mac (‘GSE Eligible’), indirectly backed by taxpayers. Mortgages not eligible for GSE guarantees (‘Non-GSE Eligible’), not backed by taxpayers Mortgages guaranteed by Government agencies, such as Ginnie Mae, directly backed by taxpayers.

This post was published at Wolf Street on Sep 25, 2017.

Experian, Equifax & TransUnion want to sell you new mortgage credit scores

This is a syndicated repost courtesy of theinstitutionalriskanalyst. To view original, click here. Reposted with permission.
Some of the housing industry’s largest trade groups reportedly want housing finance agencies Fannie Mae and Freddie Mac to look at using new types of credit scores for assessing default risk on residential mortgages. These groups argue that existing scores are ‘unfair’ to low income borrowers.
Housing Wire reported last month that the groups sent a letter to Federal Housing Finance Agency Director Mel Watt, the Mortgage Bankers Association, National Association of Realtors, the National Association of Home Builders, and other groups pressing Watt on the issue.
Watt, a former congressman from North Carolina and long-time member of the House Financial Services Committee, threw cold water on the idea that Fannie and Freddie would begin using alternative credit scoring models at any point in the next two years.
‘Watt said that making any changes to the government-sponsored enterprises’ credit scoring models before 2019 would be a ‘serious mistake,’ reports HW. Ditto.

This post was published at Wall Street Examiner on September 18, 2017.

What will Harvey do to ‘Carmageddon?’

How will it impact nationwide auto sales? The full extent of the devastation, mayhem, pain, and loss of life that Hurricane Harvey is leaving in its path is still unknown, and people are still trying to get to safety. It sent the oil-and-gas industry reeling. Housing in affected areas took a serious hit; perhaps $40-billion in damage, according to an early guess by CoreLogic.
Fannie Mae and Freddie Mac expect losses on about 400,000 mortgages that they guarantee. This could increase as flood waters rise. They won’t know the extent of the damage until after the wind and rain in Texas and Louisiana subside. Other homes did not have mortgages, or had mortgages that were not guaranteed. So perhaps a total of 500,000 homes.
If each affected home had 1.6 vehicles parked there on average, it would mean that about 800,000 vehicles sustained flood damage. Many people evacuated with their cars, so this is just a guess. How big is this number? Over the past 12 months in the Greater Houston Area, dealers sold 285,000 new vehicles.

This post was published at Wolf Street on Aug 29, 2017.

Housing Bubble 2.0: Home Equity Loans Soar To Highest Level Since 2008

It seems as though the practice of using one’s home as a personal ATM machine is making a ‘yuge’ comeback of late thanks, at least in part, to the same aggressive lending terms and attractive teaser rates that nearly sank the world economy just under a decade ago. According the Wall Street Journal and Equifax, home equity originations soared to $46 billion in 2Q 2017, the highest level since the market collapsed in 2008.
‘If customers feel like their home values are stable or increasing, and if they feel like their job prospects are good – that they will have the ability to pay back a loan they take – then they will start to take out more home-equity lines,’ said Mike Kinane, head of U. S. consumer-lending products at TD Bank. ‘That is what we are starting to see.’
Home-equity line originations rose 8% to nearly $46 billion in the second quarter, their highest level since 2008, according to credit-reporting firm Equifax . Borrowing via cash-out mortgage refinances hit $15 billion, up 6% from a year earlier, according to recent data from Freddie Mac.
The main engine driving demand: rising home prices. The median sale price of an existing home rose to $263,800 in June, the highest on record, up 40% from $187,900 at the start of 2014, according to the National Association of Realtors.

This post was published at Zero Hedge on Aug 28, 2017.

Fannie Mae, Freddie Mac May Require $100 Billion In A New Crisis

This is a syndicated repost courtesy of Snake Hole Lounge. To view original, click here. Reposted with permission.
According to the results from the annual stress test of Fannie Mae and Freddie Mac released today by their regulator, the Federal Housing Finance Agency, the ‘GSEs’ which were nationalized a decade ago in the early days of the crisis, would need as much as $100 billion in bailout funding in the form of a potential incremental Treasury draw, in the event of a new economic crisis.
Bear in mind that the 30-year fixed-rate mortgages must reside somewhere. If not Fannie Mae and Freddie Mac’s balance sheet, then on the balance sheets of lenders (like Wells Fargo and Bank of America), or some other financial entity. Or FHA insurance fund.

This post was published at Wall Street Examiner on August 8, 2017.

Fannie and Freddie Blowing Up Another Bubble

The usual suspects are in the process of inflating an eerily familiar bubble.
It’s another housing bubble, but this time centered on rental property.
This is just one of many bubbles floating out there across the economic landscape. We have reported extensively on the stock market bubble, the student loan bubble, the debt bubble, and the auto bubble. We even told you about a shoe bubble. The air in these balloons all blows in from the same place – government and central bank policy. Artificially low interest rates, stimulus spending, and government policy combine to inflate asset bubbles. At their core, they are nothing but unnatural economic distortions.
And of course, at some point, they pop.
The rental bubble is particularly disturbing because it bears so much similarity to the housing crisis that crashed the economy in 2008. It even features some of the same lead characters – Fannie Mae and Freddie Mac.
According to data compiled by Wolf Street, the apartment building boom in the US will set a record in 2017. Analysts estimate 346,000 new rental apartments in buildings with 50+ will hit the market this year. This follows record-setting year in 2016. And a record-setting year in 2015.

This post was published at Schiffgold on AUGUST 7, 2017.

RBS Pays $5.5 BIllion To Settle US Mortgage-Backed Securities Probe

Another day, another British bank fined billions of dollars for its past-life transgressions.
Moments ago Royal Bank of Scotland announced it has agreed to pay $5.5 billion to the U. S. Federal Housing Finance Agency to settle a probe into its sale of toxic mortgage-backed securities ahead of the financial crisis, part of what it says was a ‘heavy price’ paid for over-expansion before the financial crisis. The settlement targets $32 billion in debt issued by housing agencies Fannie Mae and Freddie Mac.
“This settlement is a stark reminder of what happened to this bank before the financial crisis, and the heavy price paid for its pursuit of global ambitions” said RBS CEO Ross McEwan, adding that it was an ‘important step forward in resolving one of the most significant legacy matters facing RBS’. There was some good news: RBS is eligible for a $754 million reimbursement under indemnification agreements with third parties.

This post was published at Zero Hedge on Jul 12, 2017.

One & Done: Fed Rate Hikes End in June

This is a syndicated repost courtesy of theinstitutionalriskanalyst. To view original, click here. Reposted with permission.
‘Stock prices have reached what looks like a permanently high plateau.’
Irving Fisher
October 1929
This Thursday The IRA’s Christopher Whalen will be in Washington to participate in an event at Cato Institute, ‘Financial Crisis and Reform,’ We’ll talk with Cato’s Ike Brannon about whether enough has been done to ‘fix’ the problem, real or imagined, with Fannie Mae and Freddie Mac. The question posed by the title of the Cato Institute panel suggests that Washington has the slightest idea about the ‘problem’ in the mortgage business much less a solution.

This post was published at Wall Street Examiner by.

Time To Add Housing To The Bubble List?

Housing is hot again, but lately it’s been overshadowed by flashier bubbles in government debt, tech stocks and possibly cryptocurrencies.
Still, the warning signs are spreading. Today’s Wall Street Journal, for instance, reports that homeowners are back to using their houses as ATMs:
Homeowners Are Again Pocketing Cash as They Refinance Properties
Americans refinancing their mortgages are taking cash out in the process at levels not seen since the financial crisis.
Nearly half of borrowers who refinanced their homes in the first quarter chose the cash-out option, according to data released this week by Freddie Mac. That is the highest level since the fourth quarter of 2008.
The cash-out level is still well below the almost 90% peak hit in the run-up to the housing meltdown. But it is up sharply from the post-crisis nadir of 12% in the second quarter of 2012.

This post was published at DollarCollapse on MAY 29, 2017.

Fannie and Freddie, Back in the Black

Fannie Mae and Freddie Mac were among the biggest disasters of the financial crisis. In September 2008, nine days before Lehman Brothers failed, the federal government took over the mortgage companies; it eventually spent more than $187 billion bailing them out. For decades, the companies had provided an implicit government backstop to the U.S. mortgage market, buying loans from private lenders and guaranteeing payments to investors. That helped spur a steady rise in home ownership – until the subprime crisis hit and Fannie and Freddie were on the hook for billions in losses.
Lawmakers vowed to overhaul the companies and some planned to wind them down completely. But more than eight years later, Fannie and Freddie still operate under government control – and they’re now a bigger part of the system, guaranteeing payment on just under half of all U.S. mortgages, up from 38 percent before the crisis.
There is one key difference: Any profits the companies generate go to the government instead of investors. The latest payment, a combined $9.9 billion to the U.S. Treasury at the end of March, pushed the total amount of cash Fannie and Freddie have paid to taxpayers to $266 billion, making their bailout one of the most profitable in history.
There’s now a pitched battle over who should get those profits. The companies’ pre-crisis common and preferred stocks still trade over-the-counter, and investors who snapped up the shares, such as hedge fund managers Bill Ackman and John Paulson, say Treasury is breaking the law by taking the money. The fight goes back to a change the Barack Obama administration made to the bailout terms in 2012.

This post was published at bloomberg

Freddie Mac Serious Delinquencies Fall To Lowest Since June 2008 As Home Prices Grow At 5.87% YoY Clip

Freddie Mac reported that the Single-Family serious delinquency rate in February was at 0.98%, down from 0.99% in January. Freddie’s rate is down from 1.26% in February 2016. That is the lowest reading since June 2008.
Notice how tame serious delinquencies were during the housing/credit bubble.

This post was published at Wall Street Examiner on March 28, 2017.

Mortgage rates jump as economy revs up

Rates for home loans jumped in the most recent week as economic data firmed enough to seal a Federal Reserve rate hike, mortgage finance provider Freddie Mac said Thursday.
The 30-year fixed-rate mortgage averaged 4.30%, up nine basis points during the week. The 15-year fixed-rate mortgage averaged 3.50%, up from 3.42% last week.
The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.28%, up five basis points during the week.
Freddie’s survey data was collected before the Fed’s decision was announced Wednesday. That statement was accompanied by commentary that was more dovish than most investors had expected, including a signal that policy makers would likely hike only two more times in 2017, rather than three, helped nudge the 10-year note even lower.

This post was published at Market Watch

10Y Treasury Yields and 30Y Mortgage Rates Remain in Tight Range (Mortgage Purchase Applications Rise In Spite of Rate Increases)

So much for the meme that rising rates would crush the housing market.
(Bloomberg) The benchmark 10-year Treasury yield remains within its 34-basis-point trading range since the start of December after the Federal Reserve raised rates Wednesday, while leaving unchanged its projected path of hikes this year and next. The relative calm is a change for a market prone to shocks in the past few years, including an unusual bout of volatility in October 2014 and a plunge in yields last year in the wake of the U. K. vote to leave the European Union. After Donald Trump won the U. S. election, the 10-year yield swung 37 basis points in one session.
Freddie Mac’s 30 year mortgage committent rate has also remained in a tight range, although Freddie’s 30 year rate is in a tighter range of 24 basis points since December 1, 2016.

This post was published at Wall Street Examiner on March 16, 2017.

Mr. President, This Is What You Should Know About Public-Private Partnerships

In President Trump’s speech last evening to a joint session of Congress, he described his plan to rebuild America’s crumbling infrastructure as follows:
‘To launch our national rebuilding, I will be asking the Congress to approve legislation that produces a $1 trillion investment in the infrastructure of the United States – financed through both public and private capital – creating millions of new jobs.’
Financed through ‘both public and private capital’ sounds a lot like a public-private partnership. Here’s how those hybrid creatures have worked out so far for the American people.
Fannie Mae and Freddie Mac were, effectively, public-private partnerships. (The government preferred to call them ‘Government Sponsored Enterprises’ or GSEs.) Each company traded on the New York Stock Exchange and each company had private shareholders. Because Fannie and Freddie had a line of credit from the U. S. Treasury and the market’s perception that the U. S. government would never allow them to default, their bonds carried a triple-A rating. Wall Street played that public-private partnership for all it was worth. The big Wall Street banks sold Fannie and Freddie hundreds of billions of dollars of junk residential mortgages, which they knew from internal reviews were likely to default, while representing to Fannie and Freddie that these were good mortgages. Then Wall Street, with inside knowledge of the house of cards it had built, sold the debt issued by Fannie and Freddie to public pensions and university endowments as triple-A investments.

This post was published at Wall Street On Parade on March 1, 2017.

Fannie, Freddie Plunge After Court Rules Hedge Funds Can’t Sue

Moments ago, the stocks of the nationalized GSEs – Fannies and Freddie – tumbled by over 30%, after a federal appeals court upheld a ruling that barred hedge funds from suing to overturn the U. S. government’s 2012 decision to capture billions of dollars in the profits generated by the mortgage guarantors Fannie Mae and Freddie Mac after their bailout.
According to Bloomberg, which first reported the ruling, some Fannie Mae and Freddie Mac investors still have a shot at money damages, based on when they acquired their shares and whether they did so before or after the Federal Housing Finance Agency was created and then imposed its control over Fannie Mae and Freddie Mac. They can pursue breach of contract claims, the appeals panel said in a split 2-1 decision Tuesday.
‘It’s a little too early for me to announce what our response will be other than to say what these breach of contract claims were always the central claims in this case,’ said Hamish Hume, a Washington-based attorney with Boies Schiller Flexner LLP, who represented some of the prevailing shareholders.

This post was published at Zero Hedge on Feb 21, 2017.

Home Affordability Drops To 8-Year Lows As Mortgage Rates Surge

One week after Freddie Mac chief economist Sean Becketti warned that “if rates continue their upward trend, expect mortgage activity to be significantly subdued in 2017“, mortgage rates continued their upward trend. According to the latest update from the mortgage giant, the 30-year fixed reached 31-month highs, touching level not seen since April 2014 in the week after the Fed hiked its interest rate for the second time in the past decade.
The average rate for a 30-year fixed mortgage was 4.3%, up from 4.16% last week, Freddie Mac said in a statement Thursday. The average 15-year rate climbed to 3.52%, the highest since January 2014, from 3.37%.
Mortgage rates have surged since October, when the 30 Year fixed was offered at 3.40%, tracking a jump in Treasury yields on expectations of rising inflation.
Freddie Mac’s chief economist Becketti was more sanguine after last week’s unexpected warning, saying that ‘a week after the only rate hike of 2016, the mortgage industry digested the Fed’s decision. Following Yellen’s speech last Wednesday, the 10-year Treasury yield rose approximately 10 basis points. The 30-year mortgage rate rose 14 basis points to 4.30 percent, reaching highs we have not seen since April 2014.”

This post was published at Zero Hedge on Dec 22, 2016.