Senate Nuclear Option Has Wall Street Intrigued (MBI) (NLY) (AGNC)

July 16, 2013 10:32 AM EDT
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Traders on the Street are talking politics Tuesday, which is not usually a good thing. Specifically they are talking about the so-called 'Nuclear Option' in the Senate, a controversial measure that will make it easier to confirm President Obama's executive branch nominees.

As it stands now, filibuster rules require a 60-vote threshold out of 100 total votes. Given that Republicans control 46 of the 100 seats (leaving Democrats with 54), they have enough votes to block almost any vote. The nuclear option being proposed by Senate Majority Leader Harry would change the rule and only require a simple majority vote - or 51 votes. This would be for executive branch nominations and not on judicial nominations or legislation.

Nominations scheduled for a vote today are the director of the CFPB, secretary of Labor, EPA administrator, and National Labor Relations Board. Also, if the Democrats are successful in their use of the nuclear option, they should have the votes to confirm Congressman Mel Watt to head the FHFA, according to FBR Capital's Edward Mill. If not, he will likely not be confirmed.

Successful use of the nuclear option would result in the confirmations at the CFPB and FHFA, Mill said but would "cause a chilling effect toward the ability to reach any agreement on controversial issues."

Mill also notes confirmation of Mel Watt could create additional emphasis for Congressional Republicans to pass GSE reform. For the CFPB, it is largely headline risk he said. "For all intents and purposes, the CFPB is already fully operational, and despite formidable attempts to change the bureau, the CFPB is here to stay. Confirmation of Cordray would allow him to finalize rules, which could provide regulator clarity."

He would expect a Mel Watt–led FHFA to approve principal reduction and expand HARP, which he believes would be seen as positives for mortgage insurers and originators and create headwinds for agency mortgage REITs.

Mortgage insurer Stocks:
Radian Group Inc. (NYSE: RDN), MGIC Investment Corp. (NYSE: MTG), MBIA Inc. (NYSE: MBI)

Mortgage REIT stocks:
American Capital Agency (Nasdaq: AGNC), Annaly Capital Management, Inc. (NYSE: NLY), Chimera Investment Corporation (NYSE: CIM), ARMOUR Residential REIT, Inc. (NYSE: ARR), MFA Financial, Inc. (Nasdaq: MFA), Two Harbors Investment Corp. (NYSE: TWO)


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