Lenders Continue to Ease Mortgage Credit Standards
Facing constrained mortgage demand and a negative profit margin outlook, more lenders say they have eased rather than tightened home mortgage credit standards, according to Fannie Mae’s third quarter 2017 Mortgage Lender Sentiment Survey®. Across all loan types – GSE Eligible, Non-GSE Eligible, and Government – the net share of lenders who reported easing credit standards over the prior three months reached a new high since the survey’s inception in March 2014, after climbing each quarter since Q4 2016.
On net, lenders’ profit margin outlook has remained negative for four consecutive quarters. “Competition from other lenders” was again cited as the primary reason, reaching a new survey high for the third consecutive quarter. In addition, the net share of lenders reporting growth in purchase mortgage demand over the prior three months has fallen for all loan types year over year, reaching the lowest third-quarter reading in the past two years. However, the net share of lenders expecting an increase in mortgage demand over the next three months remains relatively stable for the same quarter year over year. (…)
INFLATION AND CENTRAL BANKS
The Fed’s rift on rates and inflation is on full display. New York President William Dudley signaled the likelihood of one more hike this year, calling factors holding down prices temporary. Chicago’s Charles Evans demurred, saying tightening before seeing “clear signs” of wage and price pressure would be a mistake. Janet Yellen may give her take when she speaks Tuesday in Cleveland.
Chicago’s Evans said he’s “a little nervous” that some inflation weakness may be structural, given changes to technology and “the nature of competition.”
Mario Draghi emphasized that the euro area will get as much stimulus as needed, even as the ECB adjusts its 2.3 trillion-euro ($2.7 trillion) bond purchase program this year. Cautioning against “hasty moves,” the central bank chief cited uncertainties over inflation as continuing to require “a very substantial degree of monetary accommodation.” (BloombergBriefs)
Globalization is the most likely explanation for surprisingly low rates of inflation, suggesting that central banks should be patient in seeking to meet their targets and avoid providing too much stimulus, a senior official at the Bank for International Settlements said Friday. (…)
The BIS has advanced this view with increased confidence over recent years, citing a mounting body of evidence from its own research and that of other economists. Some leading central bankers are now giving it greater credence. In a speech Monday, Bank of England Gov. Mark Carney said globalization has weakened the link between spare capacity in national economies and their inflation rates.
Mr. Borio said the influence of globalization on inflation has implications for central-bank policy.
“To the extent that disinflationary pressures result from forces such as globalization or technology, they should be generally benign: They would reflect favorable supply side developments as opposed to damaging demand weakness,” he said. “At a minimum, this suggests lengthening the horizon over which it would be desirable to bring inflation back toward target.”
In the current context, that would mean providing less stimulus to the economy than many central banks are now offering. (…)
And this from the San Fran Fed:
(…) Population aging is a natural possible explanation for the declining trend in real interest rates because of its effects on household saving and consumption over peoples’ life cycles. (…)
Our model projections regarding the substantial effects of population aging suggest that future economic policy will have to adjust to operating in a low r-star world. In such an economic environment, interest rates would hover not too far above their lower bound. This implies that central banks could be more limited in their ability to further lower the policy rate to respond to recessionary shocks and stimulate the economy.
Nestlé Gives Loeb What He Wants: New Margin Targets, Faster Buybacks Nestlé set a new profit-margin target and said it would accelerate share buybacks amid pressure from activist investor Dan Loeb.
The announcement Tuesday, ahead of a much-awaited investor day in London, comes after Mr. Loeb’s Third Point LLC built a 1.3% stake in the Swiss consumer-goods giant and has pushed for a formal profit-margin target and other shareholder-friendly moves.
The Vevey-based company said it would strive for a trading operating profit-margin target of 17.5% to 18.5% by 2020 on an underlying basis, or stripping out restructuring, impairment and other one-time charges. In July, Nestlé reported an underlying trading operating-profit margin of 15.8% for the half year, flat from a year earlier on a reported basis and up 10 basis points at constant currency. (…)
GOP’s New Effort to Repeal Health Bill on Verge of Collapse The Republicans’ latest effort to repeal large parts of the Affordable Care Act this year suffered a likely death blow when Sen. Susan Collins’s declared opposition left it without enough votes to pass.
Republican’s Latest Tax Plan Has Little Room to Maneuver Republicans face a daunting challenge as their tax plan comes into sharper focus: They are trying to fit more than $5 trillion of cuts inside a $1.5 trillion box.
(…) The 2016 House GOP blueprint called for a 20% corporate tax rate, a 25% tax rate on pass-throughs and a 33% top individual rate. In April the White House proposed a 35% top rate for individuals. President Donald Trump has said he might not cut taxes for the wealthiest Americans, and recently Republicans have talked a lot less about the importance of reducing the 39.6% top tax rate on ordinary income. In the end that rate might not come down much and some deductions could go away.
With GOP senators agreeing to, at most, $1.5 trillion in tax cuts over the next decade, there is a limited amount to go around. Republicans are focused on cutting business taxes and offering a larger standard deduction for middle-income households. (…)
Keeping the top tax rate on wages near 39.6% would be a way for Mr. Trump to defend his argument that he isn’t prioritizing tax cuts for the rich, even if other pieces of the tax plan favor wealthy business owners, investors or heirs of large estates. (…)
The proposed lower pass-through rate wouldn’t help the large share of business owners who don’t generate significant high income, because their top rates are below the 25% proposed rate in the House plan. The biggest winners are high earners who can classify their earnings as business income. (…)
FYI from The Daily Shot:
Apple (and to some extent the US stock market) remains dependent on the iPhone revenues. Will the public pay nearly $1,000 for the latest product?
