Phil Grossfield's Blog

A LITTLE EXTRA…

Is Santa Real? Tomorrow is Fed Day

santaIs Santa Real?  The 3rd-grade girl asked. My wife responded, “what do you want to believe?” My daughter responded using Jack Nicholson’s voice, “I want the truth.” So, my wife told her. Damn! Of course, my wife regrets telling her now, but not because the 8-year old knows the truth…that was coming eventually anyway. But the real damage was done to her little brother, the 5-year old.

Despite my wife adamantly instructing the girl not to say anything to her brother, guess what happened. Yep, she told him, in confidence of course. So when the boy started asking questions we knew immediately the source. Being a nice Jewish boy from Minneapolis, I am confused with this scenario. We did some damage control, but I fear the innocent belief my son had, which I fondly adored, might be lost. Hell, even I want to believe in Santa.

My Market Watch:  Bonds Flat – All Eyes on the Fed Meeting Tomorrow.  The 30-year Fannie Mae bond was up this morning but not by much after yesterday’s fall. Interbank’s overreaction of 4 reprices for the worse was fixed in this morning’s rate sheet. Trading will likely be light today as everyone awaits the Fed’s statement tomorrow regarding QE Tapering.

If you want my explanation of Quantitative Easing and Tapering, then read this: My QE and Tapering Explanation and Analysis. If you want my explanation of yesterday’s reprice craziness, then read this: My Update – Bonds Tank After Early Gains.

What’s going to happen tomorrow? One of 3 things:celebrate

  1. The Fed completely backs off of QE Tapering. If this happens, traders would buy bonds in droves and the price of bonds would rocket. As a result, lender rates/prices would improve dramatically. Oh, in addition, the Fed also declares that everyone in the mortgage industry must take mandatory Happy Hour each day.
  2. The Fed affirms QE Tapering but has limitations, both in scope and timing. Their policy is to taper but ever-so cautiously and slowly…stretched out over a long period of time to ensure the fragile economy can withstand the decrease in Fed purchases of MBS. The language used by the Fed is carefully constructed to ensure a clear message that QE is here to stay for the foreseeable future. If this happens, I suspect a minor sell off in bonds by traders. As a result, lender rates/pricing would worsen, but not too bad, and the market would stabilize in a short time frame.
  3. volcanoThe Fed affirms QE Tapering in full force. They announce their intentions to significantly taper QE. Moreover, they issue a tentative aggressive schedule of tapering beginning immediately. Upon hearing the news traders sell off bonds and the price drops intensely. As a result, lenders issue several reprices for the worse and rates increase significantly. Everyone holds their breath until the market settles down.

prayI’m putting my money on #2. Why? Well, #1 is as likely as the Minnesota Vikings winning the Superbowl this year, and if you’re not a football fan, you should know the Vikings are not looking good. Although nobody I know believes #1 will happen, there are many who believe #3 will happen. But I’m going with #2 if for no other reason than I need to think positively. For some reason I think the Fed will soften their language, and I’m hoping this will be enough to stop the volcano from exploding. Let me know your thoughts….

My Disclaimer

My Schedule:  Available before 3p, then unavailable….


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Wholesale: Non-Conforming Matrix & Guidelines
Correspondent: Non-Conforming Matrix & Guidelines


QE Tapering Explained – For my explanation QE and tapering, read my QE analysis from an earlier post.  

LO Comp, Ability To Repay Qualified Mortgages. Here is Fannie’s announcement about ATR – Ability To Repay, QM – Qualified Mortgages, and the new compensation rules:  Fannie Guide Announcement.  And here is a video by the Consumer Financial Protection Bureau – CFPB explaining Qualified Mortgages and Ability To Repay guidelines :

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One response to “Is Santa Real? Tomorrow is Fed Day

  1. Bernie Dillon September 18, 2013 at 6:16 pm

    at this point really not sure about the Fed and having that big of effect…I think the bigger concern looming in front of the market is three fold and will have a much bigger impact. 1) the fiscal cliff and budget negotiations. 2) People cutting back on spending due to their hours being cut to 28.5 hours
    3) whether or not people actually sign up for Obamacare…..those 3 items are going to be very contentious for the marketplace over the next weeks. If a budget is not squared away and the bills are not paid, 2 people stop spending money as they do when gas prices go through the roof 3) if people do not buy Obamacare because it is cheaper to pay 95.00 than buy insurance this will have in my opinion a huge effect on the market and rates….

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