"Mortgage Mayhem" - Larry Platt Will Discuss the Implications of Coming 2014 Rule Changes

"Mortgage Mayhem" - Larry Platt Will Discuss the Implications of Coming 2014 Rule Changes - Platt


Mortgage Mayhem?

Please join the Hedgeye Financials Team, Josh Steiner and Jonathan Casteleyn for a candid conversation with industry authority Larry Platt on the Implications of Forthcoming Rule Changes in 2014.


Tomorrow, December 17th at 1:00 pm EST we will host our next installment in the Hedgeye Financials Thought Leader Roundtable Series. Our guest will be mortgage industry authority Larry Platt from the law firm of K&L Gates.  




  1. From where will the loans come? By virtually all accounts, limiting lending to QM lending will freeze out a large swath of the next generation of home buyers.  
    • Who wants to invest in an industry where the volume just isn't there?  What is the likelihood that lending will occur outside of the QM/QRM box?
  2. Is secured lending dead? Have the dramatic increases in servicing requirements and the virtual infeasibility of foreclosing on a delinquent borrower converted a secured loan to an unsecured loan and is the typical interest rate on a mortgage loan with an unenforceable mortgage too low to take the risk?  
    • Note that there now is a federal cause of action to stop a foreclosure based on an alleged violation of the ability to repay requirements, loan originator comp restriction and certain of the new servicing regs. Do servicers get paid enough to handle default servicing? What impact has this had on the servicing market?
  3. Is it too dangerous to do business with the federal government?  For anybody who thinks non-QM lending is risky, some believe that making and servicing FHA-insured loans is probably the riskiest thing out there these days.   
    • Imprecise rules with uneven application and political enforcement is a recipe for a financial bloodbath.  Many of the private investors believe that FHA lending and servicing is simply too risky.   
    • Unlike the risk of expropriation from third world countries, one can't buy political risk insurance to protect against the risks.  And to the extent that the GSEs are considered the government, the risk intensifies.
  4. Will the CFPB prevent you from making money? Some might want to applaud the relative even-handedness of the CFPB in both its rulemaking and supervisory efforts.  As we start to move more down the enforcement path, should we be so optimistic?   
    • This is particularly true with respect to the broad remedies available to the CFPB, including (i)  in certain circumstances its statutory rights to go upstream against owners and to assert aiding and abetting claims against third parties and (ii) virtually unfettered broad authority to bring UDAP claims.  Will it be balanced in its approach?
  5. When will the private securitization market return?  Where are we on GSE reform?  Hard to make or purchase loans if there is no ultimate take out investor?  
    • Even the most optimistic originators, who will build to anybody's specifications, can't or won't make loans that they ultimately can't sell.  Who wants to make a loan at par that it only can sell at a discount from par the next day?



Larry Platt is a partner at K&L Gates LLP and concentrates his legal practice in representing purchasers and sellers of mortgage companies and mortgage-related assets, counseling clients on federal and state consumer credit laws, defending clients in government enforcement actions, and representing clients in governmental public policy matters. From 2007 to 2013, Chambers USA, an independent and research-based guide to the legal profession, ranked K&L Gates as having one of the leading financial services practices in the country. Most recently, the group earned a national, "Band 1" ranking for "Financial Services Regulation: Consumer Finance (Compliance & Litigation)." Mr. Platt is consistently ranked by Chambers USA and in 2013, he was listed under Financial Services Regulation: Consumer Finance (Compliance) (Star Individuals) and Financial Services Regulation: Consumer Finance (Litigation) (Band 1).  Mr. Platt was listed in the 2012, 2013 and 2014 Best Lawyers in America guides in the area of banking and finance law.


Representative Work: 

  • Bank of America: Sale of over $400 billion in mortgage servicing rights.
  • MetLife Bank: Sale of approximately $70 billion in mortgage servicing rights.
  • LaSalle Bank: Sale of capital stock of ABN AMRO Mortgage Group, Inc., including $240 billon in mortgage servicing rights.
  • Washington Mutual Bank: Sale of $140 billion in mortgage servicing rights to Wells Fargo Bank, N.A.
  • Barclays Bank PLC: Purchase of mortgage servicing business of HomEq Servicing Corporation, including $40 billion in servicing rights.
  • TD Banknorth, N.A.: Negotiation of "private label," origination outsource arrangement with PHH Mortgage Corporation.
  • KB Home: Sale of substantially all of the assets of mortgage company subsidiary to Countrywide Home Loans, Inc., along with execution of long term joint venture for future origination of mortgage loans.
  • GMAC Mortgage Corporation: Purchase of substantially all of the assets of a wholesale mortgage lender, Pacific Republic Mortgage Corporation.
  • The Principal Financial Group, Inc.: Sale of capital stock of Principal Residential Mortgage, Inc.
  • Merrill Lynch Mortgage Capital: Purchase of capital stock of loan servicer, Wilshire Credit Corporation.
  • Wells Fargo Home Mortgage Corporation: Purchase of servicing platform of GE Capital Mortgage Services, Inc., with a separate subserving platform, and purchase of approximately $35 billion in servicing rights from First Union Mortgage Corporation.


K&L Gates LLP comprises more than 2,000 lawyers who practice in 48 offices located on five continents.  For the third year, K&L Gates was named among top two firms for first-tier rankings in the annual U.S. News-Best Lawyers "Best Law Firms" survey, In 2012, Corporate Board Member magazine, in association with FTI Consulting, Inc., ranked K&L Gates as one of the top 25 law firms in its annual list of "America's Best Corporate Law Firms." The 2013 BTI Consulting Group survey of corporate counsel included the firm in its "BTI Client Service 30," an elite ranking that recognizes the leading law firms in driving superior client relationships according to general counsel.




Please email  to learn more about this call. Attendance on the call is limited. Please note if you are not a current subscriber to our Financials research there will be a fee associated with this call.         

What's That Smell?

Client Talking Points


The problem with Bernanke's Buck Burning (for Japan) is that equals Yen up. And Yen up means Nikkei down. Witness Japanese stocks down 1.6% overnight after snapping its immediate-term TRADE line of @Hedgeye 15,242 support. The Net short (futures/options) position in Yen is -129,614 contracts. Currencies have consequences.


After another rock solid economic data point (German PMI for December rose to 54.2 versus 52.7 in November), they are back buying the DAX after it held @Hedgeye TREND support of 8876 last week. Euro up, DAX up was losing its correlation, so let’s watch this today.


After a modest correction, the Euro continues to power forward again this morning. That makes sense – on the margin Q4 German data is better than the US data (still accelerating versus US #GrowthSlowing). Oh yeah, one other thing... they don’t have Bernanke or Janet Yellen.

Asset Allocation


Top Long Ideas

Company Ticker Sector Duration

Our bullish call on the British Pound was borne out of our Q4 Macro themes call. We believe the health of a nation’s economy is reflected in its currency. We remain bullish on the regime change at the BOE, replacing Governor Mervyn King with Mark Carney. In its October meeting, the Bank of England voted unanimously (9-0) to keep rates on hold and the asset purchase program unchanged.  If we look at the GBP/USD cross, we believe the UK’s hawkish monetary and fiscal policy should appreciate the GBP, as Bernanke/Yellen continue to burn the USD via delaying the call to taper.


WWW is one of the best managed and most consistent companies in retail. We’re rarely fans of acquisitions, but the recent addition of Sperry, Saucony, Keds and Stride Rite (known as PLG) gives WWW a multi-year platform from which to grow. We think that the prevailing bearish view is very backward looking and leaves out a big piece of the WWW story, which is that integration of these brands into the WWW portfolio will allow the former PLG group to achieve what it could not under its former owner (most notably – international growth, and leverage a more diverse selling infrastructure in the US). Furthermore it will grow without needing to add the capital we’d otherwise expect as a stand-alone company – especially given WWW’s consolidation from four divisions into three -- which improves asset turns and financial returns.


Financials sector senior analyst Jonathan Casteleyn continues to carry T. Rowe Price as his highest-conviction long call, based on the long-range reallocation out of bonds with investors continuing to move into stocks.  T Rowe is one of the fastest growing equity asset managers and has consistently had the best performing stock funds over the past ten years.

Three for the Road


WSJ says market "not in a bubble" - got it



"Logic will get you from A to B. Imagination will take you everywhere." - Albert Einstein


Investors are dumping gold-backed exchange-traded products at the fastest pace since the securities were created a decade ago, mirroring the steepest price drop in 32 years. Holdings in the 14 biggest ETPs plunged 31% to 1,813.3 metric tons since the start of January, the first annual decrease since the funds started trading in 2003. (Bloomberg)

December 16, 2013

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TODAY’S S&P 500 SET-UP – December 16, 2013


As we look at today's setup for the S&P 500, the range is 24 points or 0.47% downside to 1767 and 0.88% upside to 1791.                                         










THE HEDGEYE DAILY OUTLOOK - 10                                                                                                                                                                  



  • YIELD CURVE: 2.53 from 2.54
  • VIX  closed at 15.76 1 day percent change of 1.42

MACRO DATA POINTS (Bloomberg Estimates):

  • 8:30am: Empire Manufacturing, Dec., est. 5 (prior -2.21)
  • 8:30am: Nonfarm Productivity, 3Q final, est. 2.80% (pr 1.9%)
  • 8:58am: Markit U.S. PMI Prelim., Dec., est. 54.8, pr 54.3
  • 9am: ECB’s Draghi speaks in Brussels
  • 9am: Total Net TIC Flows, Oct. (prior -$106.8b)
  • 9:15am: Industrial Production, Nov., est. 0.6% (pr -0.1%)
  • 2pm: Bernanke makes commemorative remarks at Fed Centennial


    • Senate in session, House not in session
    • U.S., EU negotiators hold 3rd round of negotiations on Transatlantic Trade and Investment Partnership


  • AIG said to near sale of plane unit to AerCap for cash, stk
  • J&J said to get 3 diagnostics bids of at least $4b each
  • Mitsubishi Heavy, GE settle wind patent infringement cases
  • China manufacturing index unexpectedly falls as output slows
  • Euro-area manufacturing expands more than forecast on Germany
  • Budget deal lauded by lawmakers belies fiscal rigors ahead
  • Credit-card Nov. charge-offs, delinquencies reports today
  • Yahoo CEO apologizes to users for e-mail service problems
  • Japan Tankan shows limits on spending as cos. get cautious
  • China to probe pricing in antitrust drive, regulator says
  • Merkel keeps Schaeuble at Finance; von der Leyen to Defense
  • Draghi ally Asmussen to leave ECB board for German govt
  • Ukraine demonstrations surge; fractures hurt opposition
  • Google buys robotics co. Boston Dynamics, NY Times reports
  • Berry Petroleum, Linn Energy holders vote on acquisition
  • Charter said to ready offer letter for Time Warner Cable
  • Facebook, Wal-Mart using face recognition help write U.S. code
  • Amazon German workers to take protest to Seattle HQ
  • Baidu made to add warnings as regulators focus on China stks
  • London 2014 house price growth to slow as property tax looms


    • ChinaEdu (CEDU) 4:30pm, $0.86
    • FuelCell Energy (FCEL) After-mkt, $(0.03)


  • Gold Funds See Unprecedented 31% Slump With World Losing Faith
  • Brent Crude Rises as Rebels Refuse to Open Libya’s Eastern Ports
  • Speculators Most Bullish Since October Before Drop: Commodities
  • Copper Reaches Six-Week High as Premium Signals Limited Supply
  • Gold Declines as Fed May Start Taper, ETP Holdings Seen Dropping
  • Wheat Extends Slump to 18-Month Low as Frost-Damage Risks Wane
  • Robusta Coffee Declines as Vietnam May Boost Sales Before Tet
  • Indonesia Ore Export Ban Seen Spurring Thousands of Job Cuts
  • Copper Market to Stay Broadly in Balance Next Year for Trafigura
  • Olam Survives Muddy Waters in Bond Comeback: Corporate Finance
  • Libya’s Oil Sales Constrained as Eastern Ports Remain Shut
  • Hedge Funds’ Natural Gas Bets Jump as Thermometer Drops: Energy
  • Utilities May Want Coal for Christmas as Gas Prices Surge 27%
  • Indonesia Ministers to Meet on Ore Export Ban Tomorrow: Hidayat


























The Hedgeye Macro Team














Professional Reading

“I look forward with the greatest pleasure to the use of my books at night at home.”

-William Taft


That’s a quote from Doris Kearns Goodwin’s The Bully Pulpit (pg 108) where she establishes one of the similarities that Presidents Teddy Roosevelt and William Taft shared from the very beginning. They both loved to read.


On the idea of Professional Reading as a leadership and risk management tool, one of my good friends, Rory Green, sent me a note this weekend highlighting the thoughts of retired US Marine Corps General, James Mattis.


The problem with being too busy to read is that you learn by experience, i.e. the hard way. By reading, you learn through others’ experiences, generally a better way to do business; especially in our line of work where the consequences of incompetence are so final for young men.” #Truth


Back to the Global Macro Grind


A small but critical portion of my Professional Reading includes staying on top of consensus. Two of the most important sources of #OldWall Street and #KeynesianEconomics consensus are:

  1.  Barron’s
  2.  The Economist

That’s not to say that every once in a while these publications don’t crush it with a forward looking idea (like Barron’s highlighting our bearish work on McDonald’s (MCD) or MLPs Linn Energy and Kinder Morgan!). It’s just to say these are places where you’ll find consensus.


So what is consensus right now on the two most important drivers of our Global Macro Model – Growth and Inflation?

  1. US GROWTH: cover of Barron’s “Outlook 2014” this weekend = “Bullish On 2014
  2. INFLATION: mid-November cover of The Economist = “The Perils of Falling Inflation

And while we’ve been the US growth bulls (and inflation bears) for the last year, our model rolls into 2014 with the following views:

  1. US #GrowthSlowing from its Q313 highs (GDP to be reported on Friday around +3.6%)
  2. #InflationAccelerating from its Q413 lows (bottoming in OCTOBER at 1.0% y/y CPI)

On US growth, Darius Dale published a full research note to our Institutional subscribers on Thursday titled “#GrowthSlowing, Lots of Charts.” If you’d like a copy of that note and what’s embedded in our model’s expectations just ping . One of the baseline assumptions in our model is that inflation slows real (inflation adjusted) growth.


Q: What’s the leading indicator for inflation?

A: Central planners devaluing the purchasing power of The People via its currency


And, not to be confused with US #GrowthAccelerating (like it is in Germany this morning with a PMI of 54.2 for DEC vs 52.7 NOV = #StrongEuro), what’s been happening in the USA for DEC to-date is #InflationAccelerating:

  1. US Dollar = DOWN (for 5 weeks in a row ahead of the Fed not tapering as it should have)
  2. Commodities = UP (CRB Commodities Index = +0.4% last wk and +1.7% for DEC to-date)
  3. US Stocks = DOWN (SP500 = -1.6% last wk and -1.7% for DEC to-date)

I know, I know. What’s jamming the American people with a little food (coffee prices +8% last week) and gas (natural gas +6% last week) inflation ahead of the holidays if everyone @FederalReserve is taking car service to work and living large at holiday cocktailers?


Well, in our model it matters. It especially matters on the margin when:

  1. GROWTH’s slope is topping and
  2. INFLATION’s slope is bottoming

Perversely, a Fed no-taper for DEC will only perpetuate this. The US Dollar is down another -0.25% this morning as it tries to front-run the Fed’s conflicted and compromised political decision to not taper when it should have been tapering since September.


But, for now, asset inflation (especially commodities) loves that. So don’t worry about inflation slowing growth in 2014, because no one in the Barron’s survey other than Jeff Knight (buy-sider from Columbia Management) thinks it will either.


According to Barron’s, “Wall Street’s top strategists” (which include Morgan Stanley’s Adam Parker who had a 1434 SP500 “target” for 2013 at this time last year; the mean “target” was 1531)… “see a sense of normalcy returning to the financial markets next year.”


So we’ll roll with a call for accelerating volatility in the New Year too.


Our immediate-term Global Macro Risk Ranges are now:


UST 10yr yield 2.78-2.92%


VIX 14.21-16.35

USD 79.65-80.46

Brent 108.61-110.44

NatGas 4.21-4.51


Best of luck out there this week,



Keith R. McCullough
Chief Executive Officer


Professional Reading - Chart of the Day


Professional Reading - Virtual Portfolio

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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.