Oct 14. Closer to a SNAP?
–Another day closer to default as negotiations sputter. Some minor adjustments in pricing have occurred, for example t-bills maturing at the same time as a potential 6 week spending extension saw a jump in yields as the default scenario would shift to that time frame. In general though, markets have observed gov’t bickering with a yawn. Of course, in June 2007 when Bear Stearns announced problems with two of its funds related to subprime housing and infused capital to prevent collapse there wasn’t much of a reaction either. But that was a pretty clear indicator of things to come. What we now get are headlines like this one in the WSJ: “Shutdown Likely to Prolong Fed’s Stimulus”. Which means liquidity to support stocks, and low rates which allow companies to issue bonds and buy back shares. I.e. business as usual.
–I don’t mean to suggest we’re on the edge of abyss in markets. Far from it, though I don’t really think we are priced for much slower growth. However, on a social level troubling signs continue to appear that could lead to a more dangerous snap. SNAP stands for Supplemental Nutrition Assistance Program, which encountered a computer glitch rendering food stamp debit cards useless in 15 states for one day this weekend. 23 MILLION households on food stamps. Want to see a snap? If the guy that designed the Obamacare computer sign-up system were transferred to the food stamp program you’d see a Detroit style devil’s night in every major metro area in the country. Not like the Veteran’s march in Washington where protestors physically removed barricades from the Lincoln Memorial and put them in front of the White House. That didn’t turn into a riot, but the potential seems to be growing.
–In terms of interest rate markets Friday, there was a new monthly low made in red/green pack spread just under 84 bps. Last night and this morning the trend continues, as very near contracts are pressured by default concerns and slightly further back greens and blues are supported by a weaker growth scenario.
–Interesting snippet from Mortgage News Daily: “Higher Down-Payment Requirements Coming in November”
On November 16, Fannie Mae will implement scheduled changes to its automated underwriting system (DU or “Desktop Underwriter”). DU is used by lenders to approve loans, and several of the changes will make it harder for some borrowers to qualify. These include tougher debt calculations for Adjustable rate loans; a complete removal of interest-only options; a maximum loan term of 30yrs (instead of 40), and stricter requirements for down payments, increasing the minimum amount from 3% to 5% of the loan balance.
