Monday Morning Cup of Coffee: CFPB under the gun again

Plus disparate impact, what the Fed is doing, #FannieGate and more

Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on bigger issues.

Quick heads up to start – by shortly after 9 a.m. we should know whether the Supreme Court will have a ruling on whether housing policy is subject to the onerous burdens of “disparate impact.”

How big are the stakes? Pretty darn big.

It’s hard to read the tea leaves on what the Federal Reserve will be doing with interest rates. Goldman Sachshas this to say.

“We are pushing back our forecast for the first Fed rate hike from September to December 2015. In large part this reflects the fact that seven FOMC participants are now projecting zero or one rate hike this year, a group that we believe includes Fed Chair Janet Yellen. We had viewed a clear signal for a September hike at the June meeting as close to a necessary condition for the FOMC to actually hike in September, but the committee did not lay that groundwork.”

But Wells Fargo analysts think otherwise.

“The FOMC’s fed funds expectations indicate that the Fed is set for two rate hikes in 2015 probably at the September and December meetings, which have press conferences. The Fed seems similarly inclined to hike rates four times in 2016.

“The market’s Fed funds expectations in the near and intermediate term seem to be significantly at odds with the FOMC. In the long run, the difference is within reasonable proximity, we think.”

Bank of America/Merrill Lynch lead analyst Chris Flanagan has this to say on rates, and the outlook for mortgage-backed securities.

“…(T)he financial stability system that has been constructed in the post-crisis era, including Dodd-Frank, Volker, Basel III, etc, will make it very difficult for the Fed to actually move away from ZIRP and QE. That theme was on full display the past few weeks as credit spreads moved sharply wider in anticipation (fear) of a hawkish outcome from the FOMC meeting. Investors rightly understand that the new regulatory regime means liquidity is not what it used to be; if monetary accommodation is going to be reduced significantly (big if), it makes sense to try be the first one out the door and wait for the dust to settle on spread widening…The economic weakness could change in 2H 2015, but the Fed’s lowering of the 2015 GDP forecast and the Fed Funds ‘dot plot’ for 2016 and 2017 acknowledged that less tightening, not more, is probably needed; the direction of their shift, lower, was key, as it shows them moving back to a more dovish position.

“All of this ends up as another bad news is good news story for securitized products, at least for the near term. The cloud of unjustified (by the economic data) monetary policy tightening has been lifted, and risk assets are now far better positioned to perform. The fact that much of the securitized products market, particularly credit, which tracked or exceeded spread trends in the corporate bond market, widened into the Fed meeting created good short term opportunity for investors,” Flanagan says in a client note.

Time will tell.

On Thursday the Consumer Financial Protection Bureau will be under the gun at a hearing in front of the House Financial Services Committee for its troubled history of discrimination and retaliation.

With any luck, the scope will go beyond that, possibly even addressing last week’s boondoggle of having to delay TRID owing to the embarrassing failure to deliver a simple, two-page report to Congress.

The CFPB has come under fire in recent months for instituting a program to acquire and monitor the purchase of more than 500 million credit cards of American consumers. A new U.S. Consumer Coalition–Zogby Analytics poll finds a majority of Americans oppose the Consumer Financial Protection Bureau’s monitoring of Americans’ spending and also showed that an overwhelming majority of Americans want to see the CFPB subject to congressional oversight through the appropriations process.

Other findings include:

  • A majority (55%) of respondents believe the CFPB’s data collection program is similar or worse than the controversial NSA monitoring program.
  • Only 20% of those polled believed that the CFPB should be able to collect and review Americans’ credit card statements without their knowledge.
  • 78% of respondents believe the CFPB should have to seek Congressional approval for its budget like other agencies.
  • Nearly 70% of those polled believe that the government should not be able to tell consumers how to spend their money or make financial decisions for their families.
  • 71% agreed that it is the consumer’s responsibility to determine whether or not to take out loans and mortgages with unfavorable terms as long as they are presented clearly.

GSE shareholders aren’t happy with Treasury Secretary Jack Lew, which isn’t surprising.

During a House Financial Services Committee hearing last week on the Financial Stability Oversight Council, U.S. Rep Ed Royce, in an exchange with Treasury Secretary Jack Lew, showed what FannieGate supporters say is a distinct anti-shareholder bias and also demonstrated, let’s be honest, lack of understanding of basic math.

“One of my colleagues asked if the GSEs have repaid the money that they have borrowed from the American taxpayer. The simple answer that my colleague tried to illicit, I think, is that the payments they have made to the government now exceed the rescued funds that they received. But, Mr. Secretary, I think you agree here, this is not the real answer nor the real question. The real question is have they repaid their debt to the American taxpayer, and for that answer I think we can go to the Federal Reserve Bank of New York… The New York Fed said that taxpayers are entitled to substantial risk premium…The false narrative that is perpetuated is that the taxpayers have been repaid, it’s time to end conservatorship, and return the GSEs to the control of shareholders. From your comment earlier, I assume you disagree with this narrative…”

The shareholders suing Treasury certainly agree that taxpayers entitled to significant compensation for the risk borne in the $187 billion bailout of Fannie and Freddie, just as they are entitled to recompense for the $426 billion dollars in bailouts of the big banks and auto industry authorized under the TARP program. But what Royce fails to mention, however, is that the GSEs are already far and away America’s most profitable bailout,having returned over $40 billion to date in profit on top of what the Treasury invested.

What shareholders – and anyone honestly invested in some kind of justice here should be asking – is why does the government continue to let taxpayers bear all of risk at the point of first-loss under the guise of repayment?

A new Loan Delivery application will be released on Dec. 1, 2015, by Fannie Mae, providing enhanced functionality, as well as improved transparency and edit management capabilities, to make delivering to the GSE easier and more efficient. To give an early opportunity to experience the enhancements, a new Loan Delivery Test Environment will be released on Sept. 1, along with a self-paced eLearning tutorial. Click here for more info on the announcement for additional details about the upcoming changes in Fannie’s Loan Delivery.

On Monday, the National Association of Realtors existing home sales numbers will be released. Existing home sales have been lagging new home sales but a big bounce is expected for May, to a 5.25 million annual rate vs April’s 5.04 million rate. Strength in this report would underscore the fundamental strength of the consumer and could put the housing sector in a leadership position of the economy.

Mark Fleming, chief economist at First American, notes that the housing market continues to underperform given current market fundamentals.

“The market’s capacity for existing-home sales increased very modestly in May compared to the gains made in recent months. Our Existing-Home Sales Capacity model is showing the cooling effect that rising interest rates and a modest increase in unemployment have on demand, which are countering the equity-enhancing benefit of continued price appreciation,” he said. “In all, the housing market in May experienced supply tailwinds and demand headwinds as increased home values prompt sales, thus increasing supply, but affordability and economic uncertainty reduced demand. The conflict in the housing market is apparent in the interaction of supply and demand in the market today.”

On Tuesday, the FHFA house price index is coming out. It has been lagging other readings on home prices but has still been moving in the right direction. The expected gain of 0.4% isn’t spectacular but is respectable.

We also get new home sales Tuesday. New home sales may be one of the brightest spots for economy. They jumped sharply in April and permit data for May were very strong.

No banks were closed the week ending June 19, according to the FDIC.

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