Fannie Mae Profit Points to Growing Housing Market
Remember Fannie Mae? They and Freddie Mac were both placed into receivership because they were loosing so much money but had to remain open because if they shut down there would be no mechanism to make and securitize mortgages to the vast majority of Americans.
Well, Fannie Mae is baaaaaack, posting it largest profit ever. Yes that’s right, they posted a bigger profit than even at the height of the housing boom.
Mortgage giant Fannie Mae has now been turning a profit for more than a year. In fact, it has turned record a profit: $8.1 billion in its latest quarter.
With Fannie Mae and its smaller cohort, Freddie Mac, turning so much profit, the push to dismantle them becomes far more complicated. Unlike several years ago, they are now making the government money at the same time that the feds considered winding them down.
The chief beneficiary of Fannie’s newly discovered riches is none other than the federal government—the same entity that bailed it out at the height of the financial panic nearly five years ago. Fannie Mae will pay the Treasury $59 billion by the end of this quarter, bringing its total tally of dividend payments to $95 billion—close to the $117 billion it originally drew.
Now that Fannie and Freddie are on solid footing again, they can begin to loosen up underwriting standards. But this time it will be small and responsible adjustments. Still, relaxing the guidelines even just a little could open the door for many potential new homebuyers that have been kept of out of the market.
What Happened to Rates Last Week:
Mortgage backed securities (MBS) lost -89 basis points from last Friday to the prior Friday which caused 30 year fixed mortgage rates to move upward for the second straight week. We had our highest mortgage rateson Friday and our lowest rates on Thursday morning.
We traded in a very thin range for the majority of the week as MBS were trapped in a narrow trading channel that saw very small daily movements (+1 to -7BPS) from Monday through Thursday. There were very few economic releases. The biggest report to hit the wires was Thursday’s weekly Initial Jobless Claims which were lighter than expected. This was good news for the economy and pressured bonds slightly. We had a 10 year Treasury auction which saw a pull back in demand but it really didn’t impact MBS pricing by the end of the day.
MBS really sold off on Friday, in the absence of any economic data. When MBS sell off, mortgage rates rise.
Why did they sell off? There were several reasons but lets focus on the two largest factors: First, the Treasury Secretary stated that we would not hit our debt ceiling again until later than the market had projected. Remember, MBS are trading higher than normal (better rates for you) due to fear and uncertainty about our debt. The fact that our deficit is doing better than expected is a negative for our bonds because it means that Congress will put off solving our larger issues longer.
Secondly, the Yen has absolutely tanked and that has made investment in other foreign markets more attractive than in the U.S.
|Date||ET||Economic Release||Actual||Market Expects||Prior|
|13-May||8:30 AM||Retail Sales||–||-0.30%||-0.40%|
|13-May||8:30 AM||Retail Sales ex-auto||–||-0.20%||-0.40%|
|13-May||10:00 AM||Business Inventories||–||0.30%||0.10%|
|14-May||8:30 AM||Export Prices ex-ag.||–||NA||-0.20%|
|14-May||8:30 AM||Import Prices ex-oil||–||NA||-0.20%|
|15-May||7:00 AM||MBA Mortgage Index||–||NA||7.00%|
|15-May||8:30 AM||Core PPI||–||0.10%||0.20%|
|15-May||8:30 AM||Empire Manufacturing||–||3.5||3.1|
|15-May||9:00 AM||Net Long-Term TIC Flows||–||NA||-$17.8B|
|15-May||9:15 AM||Industrial Production||–||-0.20%||0.40%|
|15-May||9:15 AM||Capacity Utilization||–||78.30%||78.50%|
|15-May||10:00 AM||NAHB Housing Market Index||–||44||42|
|15-May||10:30 AM||Crude Inventories||–||NA||0.230M|
|16-May||8:30 AM||Initial Claims||–||330K||323K|
|16-May||8:30 AM||Continuing Claims||–||3005K||3005K|
|16-May||8:30 AM||Core CPI||–||0.20%||0.10%|
|16-May||8:30 AM||Housing Starts||–||970K||1036K|
|16-May||8:30 AM||Building Permits||–||950K||902K|
|16-May||10:00 AM||Philadelphia Fed||–||2.5||1.3|
|16-May||10:30 AM||Natural Gas Inventories||–||NA||88 bcf|
|17-May||9:55 AM||Mich Sentiment||–||78.5||76.4|
|17-May||10:00 AM||Leading Indicators||–||0.30%||-0.10%|
I will be watching these reports closely for you and let you know if there are any big surprises:
It is virtually impossible for you to keep track of what is going on with the economy and other events that can impact the housing and mortgage markets. Just leave it to me, I monitor the live trading of Mortgage Backed Securities which are the only thing government and conventional mortgage rates are based upon.
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