MBS Live : MBS RECAP Open MBS Live Dashboard FNMA 3.5 103-24 : -0-10 FNMA 4.0 105-17 : -0-09 FNMA 4.5 106-26 : -0-04 FNMA 5.0 108-01 : -0-02 GNMA 3.5 105-02 : -0-11 GNMA 4.0 107-24 : -0-07 GNMA 4.5 109-03 : -0-05 GNMA 5.0 110-27 : -0-03 FHLMC 3.5 103-16 : -0-09 FHLMC 4.0 105-06 : -0-08 FHLMC 4.5 106-09 : -0-04 FHLMC 5.0 107-20 : -0-01 Pricing as of 4:02 PM EST Afternoon Market Updates A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBS Live Dashboard . 1:54PM : NY Files Lawsuit Against Big Banks for Deceptive and Fraudulent Use of MERS Attorney General Eric T. Schneiderman today filed a lawsuit against several of the nation’s largest banks charging that the creation and use of a private national mortgage electronic registry system known as MERS has resulted in...(read more)
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Three major banks and Virginia-based MERSCORP, Inc. and its subsidiary Mortgage Electronic Registrations Systems ( MERS ) were sued Friday by the state of New York. The suit, filed by the state's Attorney General Eric T. Schneiderman , charges that the creation and use of a privately national electronic registration system, MERS, "has resulted in a wide range of deceptive and fraudulent foreclosure filings in New York state and federal courts, harming homeowners and undermining the integrity of the judicial foreclosure process." Further, the lawsuit charges that the employees and agents of the three banks, Bank of America, J.P. Morgan Chase, and Wells Fargo , acting as "MERS certifying officers," have repeatedly submitted court documents containing false and misleading information that made...(read more)
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The monthly Employment Situation Report was released at 8:30am this morning, with much better-than-expected results. Stocks rallied sharply and most every interest rate in fixed-income markets moved higher. The economic optimism created by this sort of data tends to increase demand for riskier investments like stocks and lower demand for things like fixed-income notes and bonds. MBS (the "mortgage backed securities" that most directly govern mortgage rates) fall into this fixed-income sector, and definitely weakened following the jobs data. As a result, Mortgages Rates moved higher at their fastest pace in some time, traversing most of this week's territory, but leaving Best-Execution rates mostly at 3.875%. (learn more about how we calculate Best-Execution in THIS POST ). We'd said yesterday...(read more)
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Treasury Secretary Timothy Geithner told the Financial Stability Oversight Council that the financial system is getting stronger and safer and that much of the excess risk-taking and careless financial practices that caused so much damage has been forced out. However, he said, "These gains will erode over time if we are not able to put our full reforms into place." He outlined the basic framework has been laid, with new global agreements to limit leverage, rules for managing the failure of a large firm and the new Consumer Financial Protection Bureau (CFPB) up and running, and the majority of the new safeguards for derivatives markets proposed. Geithner ticked off the major accomplishments of reform. First, banks now face much tougher limits on risk which are critical to reducing the risk of...(read more)
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HOPE NOW, the voluntary private sector alliance of mortgage industry stakeholders, recently concluded a two day conference in Washington which focused on assistance to military homeowners and foreclosure mediation. One group of servicers, investors, and housing counselors met with regulators, investors, and members of the military to discuss ways of reaching military families facing foreclosure because of their unique situation which includes Permanent Change of Station and other issues. A second group of HOPE NOW stakeholders met with judges, attorneys, and several state housing agencies to discuss best standards related to foreclosure mediation. John Dalton, President of the Housing Policy Council, former Secretary of the Navy, and a panelist at the conference said "The current housing crisis...(read more)
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There is plenty of play-by-play on the post-NFP sell-off in the MBS Recap . If you haven't seen those updates already, that's a good place to start, and in terms of where MBS are and what they're doing, there's not much more to say. So we'll focus instead on the longer term implications, look at charts, and consider the week ahead. First off, here's some pictorial accompaniment for today's movement. MBS turn out to have been relatively drama-free since the initial sell-off, returning to bounce fairly convincingly for a second time at 103-18. Even if MBS were now to break below that pivot, volume has basically dried up for the week, leaving the big bounces seen in the earlier heavy volume as the more significant from a technical perspective. To quantify the relative change in volume on the day...(read more)
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MBS Live : MBS MID-DAY Open MBS Live Dashboard FNMA 3.5 103-23 : -0-11 FNMA 4.0 105-20 : -0-06 FNMA 4.5 106-26 : -0-04 FNMA 5.0 108-01 : -0-01 GNMA 3.5 105-03 : -0-10 GNMA 4.0 107-25 : -0-06 GNMA 4.5 109-05 : -0-03 GNMA 5.0 110-29 : -0-01 FHLMC 3.5 103-16 : -0-09 FHLMC 4.0 105-09 : -0-06 FHLMC 4.5 106-10 : -0-03 FHLMC 5.0 107-20 : -0-01 Pricing as of 11:02 AM EST Morning Market Updates A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBS Live Dashboard . 10:20AM : ALERT: MBS Struggle to Hold Lows Following 2nd Round of Econ Data Admittedly, ISM Non-Manufacturing and Factory Orders are not the most critical market-moving economic reports. Case in point, see the 58k 10yr contracts traded in the 10 minutes following these two, versus the 268k contracts in the 10...(read more)
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The e-mail wires here in Miami have been burning up with...e-mails. PHH clients received a note from Norm Fitzgerald , explaining the recent restructuring. "I am writing to let you know we recently decided to reallocate resources from our Correspondent Lending channel to our Private Label Solutions and Real Estate Field Sales distribution channels. Although this action will reduce our Correspondent Lending volume, I want to be clear that we are committed to Correspondent Lending and will continue to participate in the business with a renewed focus on our high quality and long term customers. We made this decision in response to ongoing challenges posed by the volatility in the global economy, the capital markets and the housing markets. We believe these market uncertainties require an increased...(read more)
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The recent drop in rates has created some
interesting situations in the market, especially for lenders. First of
all, I'm not aware of any consensus on how to calculate a "current
coupon" rate in this environment. The current coupon is calculated by
interpolating between coupons that are above and below par, adjusting
for the delay days associated with the securities in question.
Let's take an example from the old days when
coupons traded below par. Let's assume the following, assuming (for
simplicity's sake) that we're calculating the current coupon for
February settlement, with FN 3.0s at 99.00 and FN 3.5 at 101.25. First,
you have to adjust for the delay days. Fannie Mae pools pay on the
25th of the month following the record date, which results in a 24-day
delay. (The delay results from all the accounting and financing
complications involved with managing the vast numbers of loans in the
MBS universe.) The prices can be adjusted for the delay by adding 24
days of coupon payments. For a 3% pool, the price is adjusted higher by
0.20 (i.e., 3.0 x 24/360), resulting in a 99.20 adjusted price; the
3.5% pool has an adjusted price of 101.2333. You would then interpolate
between the two prices to get the rate that equates to par. In this
case, it is 3.1967%. The last adjustment is to convert it from monthly
yield (since MBS pay monthly to a semi-annual bond equivalent yield,
which result in a current coupon rate of 3.218%.
However, we are in a world where the lowest
tradable coupon (30-year 3.0s) is both highly illiquid and well above
par. In past periods of low rates, the practice would be to extrapolate
(rather than interpolate) to par. This looks like what some people are
doing; however, it gives you some very bizarre numbers if you try to
track this number (or look at the current coupon spread over Treasuries
or swaps). A major provider shows the current coupon rate rising on
Thursday from 2.52% to 2.70%, even though MBS prices were higher on the
day. This in turn means that the spread of the current coupon over the
10-year Treasury yield, a closely-watched benchmark, has fluctuated this
week between +65 bps and +88 bps with minimal change in MBS relative
value. As they say...go figure.
The huge run-up in MBS prices has impacted the
market in other ways. Matt Graham wrote about the liquidity (or lack of
liquidity) in 30-year 3.0s. As
he noted, some lenders are originating loans that would be securitized
as 30-year 3.0s (as well as 15-year loans that would go into Dwarf
2.5s), although it's unclear what's being done with the loans. (They
could be sold to the GSEs' cash window.) With rates pushing down, a
3.75% loan can still be pooled into a 3.5% security (with a proviso-see
below); however, the poor execution on 3.0s, and lenders' unwillingness
to short the coupon, has been an impediment to rates moving even lower.
For example, the spread between the Freddie Mac survey rate and the
10-year Treasury yield is at +204 basis points, versus an average (over
the last two years) of +162.
The "stickiness" of rates at current levels is, in
my mind, largely a function of having limited outlets for loans with
note rates of 3.625% and lower. The biggest problem is that there is no
natural buyer for 30-year MBS with 3% coupons. I've recently written
that the Fed should buy all outstanding 3% pools, which would do more
good than just "buying the market." In any case, markets for these very
low coupons need to develop for rates to move decisively lower.
Another complicating factor is the impact of the
recent tax on mortgages, paid as a 10 basis point addition to a loan's
guaranty fee. Consider the above example on pooling 3.75% loans into
3.5% pools. It's almost certain that the new g-fee can be bought down
entirely (although there has not yet been a definitive statement to that
effect from Freddie or Fannie), leaving 25 basis points of servicing to
be held by someone. A question that the GSEs are grappling with,
however, is the cap on agency buy-ups. Most contracts are written such
that the total amount that can acquired by the GSEs on any loan
(including both the g-fee and servicing) is capped at 37.5 basis
points. This means that the 10 basis point tax limits the amount of
servicing that the GSEs can buy as part of the pooling transaction.
While buy-ups have not been a big factor in the past (since most big
lenders just held excess servicing, rather than sell it to the GSEs at
puny multiples) this could be a factor in the future, especially in
light of the shrinking number of players willing to take down
servicing. Supposedly, the GSEs are looking at increasing the caps,
but it's unclear whether the contracts will (or can) be revised.
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First Friday of the month and time, once again, for The Employment Situation Report, or more specifically, the Non-Farm Payrolls headline. Both Manufacturing and Private payrolls are expected to have fallen somewhat from last month's report with the 200k headline falling to 150k. With both stocks and bonds near their best levels in about half a year, there aren't the usual foregone conclusions about a positive report hurting interest rates or a negative report hurting stocks. Without being overly optimistic about the team for which we cheer, it seems like Treasuries and MBS would have an easier time keeping a bid in the face of threatening data. To clean up that hypothesis a bit, let's say NFP comes in between 150-200k, beating the 150k consensus. Historically, such a result would tend to lead...(read more)
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CoreLogic and Lender Processing Services (LPS) have each released their most recent Home Price Indices . CoreLogic's HPI covers December; LPS's covers the month of November. Here is a quick review of each. LPS found that the average home price for transactions during November was $199.000, down 0.6 percent from the October average. This is the fifth consecutive month that this index has declined. Preliminary information on December sales indicates that the HPI might have lost another 0.8 percent during that month. When the market peaked in June 2006 the total value of the U.S. housing inventory covered by LPS was $10.8 trillion. The value has declined 30.6 percent to $7.5 trillion since that time. Price changes were consistent across the country, increasing in 13 percent of the ZIP Codes in...(read more)
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MBS Live : MBS RECAP Open MBS Live Dashboard FNMA 3.5 104-03 : +0-05 FNMA 4.0 105-25 : +0-02 FNMA 4.5 106-29 : +0-00 FNMA 5.0 108-01 : +0-00 GNMA 3.5 105-14 : +0-05 GNMA 4.0 107-31 : +0-03 GNMA 4.5 109-07 : +0-01 GNMA 5.0 110-30 : +0-02 FHLMC 3.5 103-27 : +0-03 FHLMC 4.0 105-14 : +0-01 FHLMC 4.5 106-12 : -0-01 FHLMC 5.0 107-19 : +0-00 Pricing as of 4:04 PM EST Afternoon Market Updates A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBS Live Dashboard . 1:55PM : Google Mortgage Rate Search Discontinued Google: "Google Advisor mortgages has been discontinued We’ve been prioritizing our product efforts across Google, which means taking a hard look at products that haven’t been as successful as we would have hoped. To that end, we’ve closed down the mortgage...(read more)
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Homeowners who refinanced their homes during the fourth quarter of 2011 either refinanced for about the same amount or actually brought cash to the table according Freddie Mac. Fewer than 15 percent of those who refinanced during the quarter increased their loan amount by 5 percent or more. This is the lowest percentage of "cash-out" borrowers in the 26 years that Freddie has been tracking the statistics. During those 26 years covering 1985 to 2010 the average percentage of cash-out borrowers was 46 percent. Thirty-seven percent of refinancing homeowners took out new loans of approximately the same size as the old loan but nearly half (49 percent) actually brought cash to the table, reducing the amount of the new loan to a median ratio of .74 of the old loan. The percentage of "cash-in" borrowers...(read more)
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For the second day in a row, Mortgages Rates are just slightly better than unchanged. Best-Execution remains at 3.875% for conventional 30yr fixed loans, and the slight improvements seen today have benefited the borrowing costs required to obtain those rates. (learn more about how we calculate Best-Execution in THIS POST ). Also in the same vein as yesterday, the stratification between lender offerings continues to lessen, and the improvement in our measurement of rates today reflects that consolidation more than a broad-based movement down in rate. That said, 3.75% got a bit closer to vying for the Best-Execution crown. The similarities to yesterday keep on coming... MBS (the "mortgage-backed securities" that most directly affect mortgage rates) pressed further into all-time highs today, almost...(read more)
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We've posed this question almost a month ago ( read more... ) and the answer is fairly similar this time around. That said, MBS prices are higher and more time has passed with the broader rates market trading in a reasonably stable range. These factors (especially the "time passing" part), if they continue, mean that we should indeed expect 3.0 production to continue ramping up. Fannie 3.5's have been by far and away, the dominant production coupon for conventional loans for several months. This is important because it means that lenders would be going out on too risky a limb by offering any rates lower than those that "fit" into 3.5 coupon buckets. During this time, LLPAs, N/O/O's and the like kept plenty of a market around for 4.0 coupons, not to mention the fact that huge numbers of 4.0...(read more)
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