The Institutional Risk Analyst

PFSI trades on a trailing P/E of 14x vs ~ 8x for RITM. PFSI trades around 1.6x book vs 0.9x for RITM. Case closed? We have long believed that RITM should spin off its manager to create a comp for PFSI and then externally manage the RITM REIT. Like PFSI, in this scenario the new RITM manager would need to retain the Ginnie Mae MSRs.

We have published the latest edition of The IRA Bank Book for Q4 2025. Entitled "Defaults Fall, Market Risk Grows," the report details how indicators of consumer credit risk are falling even as risk to financial markets from institutional and commercial credit, crypto tokens and market exposures grow. Bank income has reached record levels in Q3 2025, but what happens in Q4 2025 and 2026?

Hedge fund mogul Bill Ackman changed his tune and told investors this week that the government should not hurry to release Fannie Mae and Freddie Mac from government conservatorship. This announcement is essentially window dressing on the part of Ackman after FHFA Director Bill Pulte announced that the GSEs would not be released from conservatorship, dashing the hope of long-suffering shareholders.

As we've noted in the past, owning the share of crypto facilitators such as SOFI or Robinhood Markets (HOOD) is a better trade than owning BTC. We have seen a lot of market participants taking profits and moving to the sidelines, one reason why the markets have not seen an explosion in downside volatility -- yet.

We expect the shares of the GSEs to lose ground this week given last week’s bizarre announcement by Federal Housing Finance Agency Director Bill Pulte that the GSEs will not be released from conservatorship after all. After pumping the two stocks for months with the prospect of release from conservatorship, Pulte said Friday that the GSEs would stay under federal control for now, reinforcing their conservatorship status while exploring a limited public offering option.

As Chairman Powell said in the latest FOMC presser, the SOMA reinvestment plan is intended to get their duration down to that of the Treasury debt outstanding by allowing long duration MBS to be replaced by short-duration T-bills. Could the Fed have continued to shrink the SOMA further as Bowman and others have urged? 

Below we set up Goldman, Morgan Stanley and the other asset gatherers as we go into Q3 2025 earning this week.  As you might expect, GS is ahead of where it was a year ago in terms of non-interest income, earnings overall and equity market value.

So why would a firm like CrossCountry or UWMC be a buyer of higher coupon MSRs?  The short answer is that they believe their ability to retain the borrower by recapturing a prepayment will offset the obvious negative of high prepayments that comes with a lower interest rate environment.  These firms, it seems, would rather try to recapture prepayments on higher rate MSRs than own lower coupons and benefit from the stable cash flow from the servicing.

Mayor Eric Adams just dropped out of the New York City mayoral race and a silver spoon sucking Indian socialist from Uganda looks set to become the next Mayor of New York. You could never makes this up. But while a lot of political energy is focused on Zohran Kwame Mamdani's plans for rent stabilized properties, it is commercial real estate that pays the bills in New York City.

If the Powell FOMC crashes the short-term markets, again, because the Board staff mismanages the required level of liquidity, Powell will need to resign same day but the real loser will be the Trump Administration.  Neither the public nor members of Congress will understand who caused the latest market upset, but they will be happy to blame Donald Trump and members of his team.

The $30 billion target for cash raised in a GSE IPO is pathetic and only confirms our view that the Treasury should repurchase the GSE voting common and issue new preferred to raise hundreds of billions in proceeds. If we keep the US Treasury as the majority common shareholder and finance the capital structure with new senior preferred, the Trump Administration could raise $500 billion easily.

The number of very late people running into Bitcoin and other tokens over the past year only makes us realize that there is nothing new in the world of finance. Had Jim Fisk and Jay Gould traded crypto tokens like Bitcoin over the past decade, they'd have gotten out in 2013.

Why is Secretary Bessent talking publicly about Powell or the Fed at all? How does this squawking enhance the credibility of the Trump Administration or the U.S. Treasury?

Paying interest on reserves has nothing to do with whether banks lend and everything to do with enabling the Fed to manage the Treasury market. If you don’t want the Treasury market to remain open, then take away the Fed’s power to pay interest on reserves.  

The leading candidate to be the next Fed Chairman believes the balance sheet could safely shrink to around $5.8 trillion, with bank reserves potentially decreasing to $2.7 trillion. Waller argues that a shift towards more short-term Treasury bills would make the balance sheet safer and more flexible, and he is absolutely right.

Imagine if the Fed had to tell the public that federal deficits were bad for bank safety and soundness? We haven't had a Fed chairman since Arthur Burns who would speak publicly about the inflationary aspect of federal deficits.

The Treasury market/bank industry PR lobbyist angle on the Fed's eSLR proposal is a little fake-out for the financial media. This not about buying more Treasury debt but instead buying back more bank stocks. Sabe?

We have little conviction behind our long positions in AXP and the SPX, thus the defensive recommendation in terms of sell orders.

Researchers at Apple just released a paper that throws cold water on the "reasoning" capabilities of the latest, most powerful large language AI models. In the paper, a team of machine learning experts makes the case that the AI industry is grossly overstating the ability of its top AI models, including OpenAI's o3, Anthropic's Claude 3.7, and Google's Gemini.

Even a small decrease in prepayments due to higher LT interest rates could significantly impact the fair value of the Bank of America mortgage portfolio, forcing unrealized losses higher. If LT rates continue to rise, one veteran banker told The IRA yesterday, then BAC and several other large banks are going to start to literally shake apart from unrealized losses on COVID era assets.