Posted To: MBS Commentary

We'll get the results of the $13 billion long bond auction in about 20 minutes. Ahead of issuance... Rate sheet influential MBS coupons are just off their session lows. The October FNCL 4.0 is -0-07 at 104-14. Benchmark Treasury yields are just off their session highs. The 10-year Treasury note is -0-19 at 99-05 yielding 2.721% (+6.7bps). The long bond is -1-04 at 101-17 yielding 3.79% (+6.2bps). S&P futures are a few handles off their high print (1112), now +6.75 at 1106. Although production MBS coupon prices are almost 25bps lower, reprices are not an issue at the moment because loan pricing was notably worse on first run releases. On average, rebate was reduced by 24.7bps on the open. Par note rates experienced the largest reductions. Volume has been light across all markets so far today...(read more)

Posted To: Pipeline Press

"Commercial paper" is used by businesses to finance their own working capital, meet payroll and pay suppliers, etc. From the third quarter of 2007 to that of 2008, GDP grew by 3.4%. Did commercial paper keep up?Heck no! Outstanding commercial paper fell by 25%, that works out to about $600 billion. Even worse...asset-backed commercial paper fell by 40%. If borrowing falls by a large percentage, but GDP remains constant, that is decent proof of a credit crunch. This week the amount of corporate debt being sold is unusually high. In a very basic sense, each dollar of corporate debt sold competes for investment dollars with Agency MBS, Treasuries, municipal bonds, etc. It appears that some companies are using the money they raise to expand, or feel that the financing costs are better than issuing...(read more)

Posted To: MBS Commentary

Initial Jobless Claims and International Trade data has been released, the results were not bond market friendly. Here is a quick recap: 08:30 09Sep10 RTRS-US JOBLESS CLAIMS FELL TO 451,000 SEPT 4 WEEK (CONSENSUS 470,000) FROM 478,000 PRIOR WEEK (PREVIOUS 472,000) 08:30 09Sep10 RTRS-US JOBLESS CLAIMS 4-WK AVG FELL TO 477,750 SEPT 4 WEEK FROM 487,000 PRIOR WEEK (PREVIOUS 485,500) 08:30 09Sep10 RTRS-US CONTINUED CLAIMS FELL TO 4.478 MLN (CON. 4.45 MLN) AUG 28 WEEK FROM 4.480 MLN PRIOR (PREV 4.456 MLN) 08:30 09Sep10 RTRS-US INSURED UNEMPLOYMENT RATE UNCHANGED AT 3.5 PCT IN AUG 28 WEEK (PREV 3.5 PCT) 08:30 09Sep10 RTRS-TABLE-U.S. jobless claims fell in latest week 08:30 09Sep10 RTRS-US JULY TRADE DEFICIT $42.78 BLN (CONSENSUS $47.3 BLN) VS JUNE DEFICIT $49.76 BLN (PREV $49.90 BLN) 08:30 09Sep10...(read more)

Posted To: MBS Commentary

Global markets were generally higher overnight and US equity futures are following on their coattails ahead of weekly employment data, monthly trade gap figures, and the start of the NFL football season. Ninety minutes before the opening bell, S&P 500 futures are +3.50 points to 1,102.75 while Dow futures are 26 points higher at 10,418. So far in September, the S&P has risen 34.3 points and the Dow has gained 236 points. Benchmark interest rates are on the rise as investors reallocate funds into equity markets. The 10-year Treasury note is -0-08 at 99-16 yielding 2.681% (+2.7bps) and the October Delivery FNCL 4.0 is -0-03 at 102-18. “The mood in global equity markets is generally positive,” wrote BMO Capital Markets in a morning note. They mentioned that investor sentiment...(read more)

Posted To: Mortgage Rate Watch

When economic data is thin the stock market tends to have a larger impact on the direction of mortgage rates. The session began with stocks moving lower yesterday. With no data on the economic calendar to reverse the market's direction, the bond market was able to rally all day (higher bond prices = lower bond yields). This allowed most lenders to reprice for the better. Like yesterday, the economic economic was quiet today. Two events influenced the marketplace... The Department of Treasury auctioned $21 billion 10-year notes today. Before the auction, the bond market made room for new debt supply by letting Treasury prices fall (cheapen). This pushed benchmark yields higher and led MBS prices lower. The issue must have gotten cheap enough because auction demand was strong. This led to a modest...(read more)

Posted To: MND NewsWire

In March we learned that USDA Rural Housing funds were expected to run dry by the end of April . A month later, even though the legislation intended to provide the funding had not passed, USDA began issuing commitments for new loans, but there was a caveat: Loan approvals would be "subject to the availability of funds and Congressional authority to charge a 3.5 percent guarantee fee for purchase loans and a 2.25 percent guarantee fee for refinance loans." Finally, on July 29 Congress passed HR 4899 to reestablish the program as one that would no longer be subject to the annual whims of Federal funding but self-sustaining through a 3.5 percent guarantee fee paid by the borrower. Four weeks passed after the Congress did their job and appropriated unlimited funding for the USDA Rural Housing Program...(read more)

Posted To: MND NewsWire

The Federal Reserve has released the Beige Book The Beige Book is a compilation of anecdotal information and data on current economic conditions across the country. The findings are NOT THE VIEWS OF FEDERAL RESERVE OFFICIALS ...instead, each Federal Reserve bank interviews key business contacts, economists, market experts, and other sources in their specific district. This report is published eight times a year. They call it the Beige Book because its Beige . This edition was prepared at the Federal Reserve Bank of San Francisco and is based on information collected on or before August 30, 2010. Below is a summary of the findings and a few excerpts on bank lending and housing. I called attention to some of the more important observations. Real Estate and Construction Activity in residential...(read more)

Posted To: MBS Commentary

Treasury just auctioned $21 billion 10 year notes . Auction demand was healthy thanks to one group of bidders specifically. The bond market has responded favorably in post auction trading. The high yield was 2.67%, which was 1.5 basis points below the 1pm "When Issued" yield, indicating bidding was aggressive, mostly because the market was able build in a big pre-auction concession. The bid to cover ratio was 3.21 bids submitted for every 1 accepted by Treasury. This is the strongest btc ratio since the June auction. Primary dealers took down 38.3% of the competitive bid and 18.1% of what they bid on, both metrics are below average. This implies someone else was standing at the ready to support supply offerings. That someone else was indirect bidders! Indirects took home a whopping 54.7% of...(read more)

Posted To: MND NewsWire

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending September 3, 2010. The MBA's loan application survey covers over 50% of all U.S. residential mortgage loan applications taken by retail mortgage bankers, commercial banks, and thrifts. The data gives economists a snapshot view of consumer demand for mortgage loans. In a low mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out a lower monthly payment. If consumers are able to reduce their monthly mortgage payment and increase disposable income through refinancing, it can be a positive for the economy as a whole (creates more consumer spending or allows debtors to pay down personal liabilities like credit cards). A falling trend...(read more)

Posted To: Voice of Housing

The Federal Housing Finance Agency (FHFA), conservator of Freddie Mac and Fannie Mae (the Enterprises), has established its final housing goals for the Enterprises in 2010-2011 . FHFA is required by the Housing and Economic Recovery Act of 2008 (HERA) to set such goals for targeted segments of the mortgage market. As noted by MND last week : “The new rules establish three goals for single-family, owner-occupied home purchases; one for low-income families, another for very low-income families, and a third for families living in geographical areas with lower-income populations, areas with high concentrations of minority residents, or federal declared disaster areas. The goal for disaster areas contains a sub-goal to ensure that the needs of lower-income and minority areas are addressed...(read more)

Posted To: Pipeline Press

Lenders offering FHA products know that Mortgagee Letter 2010-24 eliminated the unlimited CLTV ratio, and reinstated the requirement that the total of any FHA-insured first mortgage and any subordinate lien may not exceed the applicable FHA loan-to-value and geographical maximum mortgage amount. (Only the FHA-insured first mortgage must be within the FHA maximum mortgage limits.) But lenders may also want to listen in to an FHA "Condo Recertification Industry Call" Q&A session today at 2PM EST . The dial-in number is: 1-877-941-1706 and the confirmation number is: 170410. Yesterday I discussed SRP's, and how it may behoove lenders to contemplate either servicing or subservicing these loans themselves since the market is not "adequately" compensating originators for the value. Obviously...(read more)

Posted To: MBS Commentary

Recap of Yesterday Lost rate sheet rebate was restored yesterday as the bond market benefited from a reversal of demand for risky assets (stocks sold) and an onslaught of swapable corporate debt supply. Loan pricing was aggressive out the gate so not all lenders repriced for the better, but several of the mid-majors did recall and re-issue. While rebate did improve, less than $1.5 billion in new loan supply was offered by originators in the TBA market with the majority of hedges seen in 4.0 30-year paper, indicating the refi market has slowed since last week (or secondary is over hedged). The benchmark 10-year Treasury note went out +1-00 (32/32) at a price of 100-08 yielding 2.598% (-11.5bps) and the October FNCL 4.0 ended the session +0-17 at 102-31 yielding 3.566%. Swap spreads tightened...(read more)

Posted To: Mortgage Rate Watch

The week ahead is very light in terms of economic data, that implies we should expect the stock market to continue to provide mortgage rates with directional guidance. If stocks rally, look for mortgage rates to move higher. If stocks fall, look for mortgage rates to improve. The only economic reports on the schedule in the week ahead that have the potential to move mortgage rates will be released on Wednesday and Thursday. Tomorrow the Federal Reserve releases the Beige Book, named for the color of its cover. The Beige Book is a compilation of anecdotal information and data on current economic conditions across the country. The findings are not the views of Federal Reserve officials, instead, each Federal Reserve bank interviews key business contacts, economists, market experts, and other...(read more)

Posted To: MND NewsWire

Eric Rosengren, president of the Federal Reserve Bank of Boston, told attendees at a Federal Reserve sponsored conference on REO and Vacant Property Strategies for Neighborhood Stabilization last Thursday that there may not be a single solution for the housing market as the effects of financial crisis depend on the characteristics of each individual community. Framing the problem affects the solutions you propose, he said. If we assume we are trying solve a problem of foreclosures and REO rooted in the housing bubble, the solutions will tend to emphasize mitigating foreclosures, accelerating the disposition of REO, or advocating for reconsideration of the legal systems approach to personal bankruptcy and foreclosure. If the problem is viewed as being primarily about housing demand, then the...(read more)

Posted To: MBS Commentary

Good Morning. I hope everyone had a safe and sound Labor Day weekend. I for one feel re-energized following a three day stay in State College, PA (PSU). The weather was perfect, we blew out Youngstown State, and I escaped the bike trails unscathed. Mission accomplished! Welcome back to reality... The bond market ended last week in a panic after a better than expected Employment Situation Report added enthusiasm to a two-day S&P rally. With the econ calendar essentially empty and Treasury (and Corporate) debt supply on the chopping block in the week ahead, the stage was set for stocks to extend optimism and push rates higher . That isn't happening today... Instead, short covering combined with a modest "flight to safety" bid in a thinly traded marketplace has helped the long end of the yield...(read more)

Posted To: Pipeline Press

Much of life is a balancing act. For example, I eat my Captain Crunch with only low-fat milk because I wouldn't want unnecessary calories. Underwriting is also a balancing act, matching the risk of the borrower being able to make payments with the desire for the lender to earn a rate of return on the loan commensurate with the risk. In mortgage lending, there is some feeling that the "pendulum" has swung too far to one side here in the last year or two, leaving some borrowers (self-employed and jumbo, to name a quick two) in the lurch. But there are old, and new programs, out there that go back to the "old days". READ MORE But zero down payments - again? A new program from Fannie Mae called Affordable Advantage is available to first-time home buyers in Idaho, Massachusetts, Minnesota and Wisconsin...(read more)

Posted To: MBS Commentary

September began on a strong note last week as the Dow jumped almost 3%, or 297 points. Whether the strength continues this week could depend on the Federal Reserve’s assessment of the economy (Wednesday) and trade balance figures (Thursday), but there isn't much data on tap so technical factors may motivate the market . So far, it appears investors aren’t so optimistic. Stock futures are falling and interest rates are rallying. One hour before the opening bell, S&P 500 futures are down 7.50 points to 1,096.00 and Dow futures are 60 points lower at 10,376. The 2-year Treasury note is +0-02 at 99-25 yielding 0.49% and the 10-year Treasury note is +0-20 at 99-27 yielding 2.643%. The October delivery FNCL 4.0 is +0-08 at 102-22. Key Events in the Week Ahead: Tuesday: No economic...(read more)

Posted To: Mortgage Rate Watch

It is the first Friday of the month and that brings us the official government report on the labor market: The Employment Situation Report. This release provides four headline measures on the health of the jobs sector. Nonfarm Payrolls: totals the number of jobs that were added to or cut from employer payrolls in the prior month. Consensus Forecast: -100,000 vs. -131,000 in July (Private payrolls increased 71,000 in July and +41,000 expected today) Unemployment Rate: the percentage of working-age, mentally able-Americans who are jobless. Consensus Forecast: 9.6% of the labor force vs. 9.5% last month Average Hourly Earnings: the average amount of earnings per hour of labor performed. Consensus Forecast: +0.1% vs. +0.2% last month. Average Work Week: average amount of hours worked by an employee...(read more)

Posted To: MBS Commentary

NFP has come and gone, let's see where things stand.... The October delivery FNCL 4.0 is -0-09 at 102-15. In the chart below I called attention to a few technical inflection points. The ascending trend channel that helped mortgage rates hit new lows on Wednesday has broken down and FNCL 4.0s have made their way back into the range that moderated price action for the majority of August. The falling knife found support and bounced higher directly in the middle of that range. 10s flagged lower for the entire month of August (all summer really) and are now flagging higher. The 2.625% coupon bearing 10 year TSY note is off its session price lows (98-24) at 99-07 yielding 2.715% (+8.8bps). 10s are the worst spot on the curve followed by 7s (+8.6bps) and the long bond (+7.6bps). Volume was heavy into...(read more)

Posted To: MND NewsWire

The Federal Housing Finance Agency (FHFA), conservator of Freddie Mac and Fannie Mae (the Enterprises) has established its final housing goals for the Enterprises in 2010-2011. FHFA is required by the Housing and Economic Recovery Act of 2008 (HERA) to set such goals for targeted segments of the mortgage market The new rules establish three goals for single-family, owner-occupied home purchases; one for low-income families, another for very low-income families, and a third for families living in geographical areas with lower-income populations, areas with high concentrations of minority residents, or federal declared disaster areas. The goal for disaster areas contains a sub-goal to ensure that the needs of lower-income and minority areas are addressed. A goal has also been established for...(read more)

Posted To: Pipeline Press

If there's one thing that an investor will never let any originator off the buyback hook for, it's fraud . Not only that, but the penalties can go far beyond merely buying back the loan, and saying' "My bad." Just in the last few days, Laura-Jean Arvelo and Ronald O'Malley, a New Jersey mortgage broker and former head of the Bergen County Improvement Authority, was indicted by a federal grand jury on charges of preparing fraudulent mortgage applications. Both are charged with wire fraud, bank fraud and loan application fraud in order to take bogus documents and falsified applications to trick lenders into making mortgage loans and benefited from fees they received. Ryan Miller of Missouri was sentenced to more than 12 years in federal prison and pay $6 million in restitution for mortgage fraud...(read more)

Posted To: MBS Commentary

THE EMPLOYMENT SITUATION – AUGUST 2010 – BETTER THAN EXPECTED From the Release... Nonfarm payroll employment changed little (-54,000) in August, and the unemployment rate was about unchanged at 9.6 percent, the U.S. Bureau of Labor Statistics reported today. Government employment fell, as 114,000 temporary workers hired for the decennial census completed their work. Private-sector payroll employment continued to trend up modestly (+67,000). The number of unemployed persons (14.9 million) and the unemployment rate (9.6 percent) were little changed in August. From May through August, the jobless rate remained in the range of 9.5 to 9.7 percent. The number of long-term unemployed (those jobless for 27 weeks and over) declined by 323,000 over the month to 6.2 million . In August, 42...(read more)

Posted To: MBS Commentary

Markets are roughly flat Friday morning ahead of the widely anticipated employment report for August, which at 8:30 eastern time is set to show that jobs declined for the third straight month. Ninety minutes before the opening bell, the S&P 500 is down 0.75 to 1,089.00. The 10 year Treasury note is -0-07 at 99-25 yielding 2.65% (+2.5bps) and the October deliver FNCL 4.0 is -0-02 at 102-22. The employment report is anticipated to show that 100,000 jobs were lost last month, though the decline relates to disappearing Census jobs rather than another dip. Still, private payrolls should increase a modest 41,000, according to economists polled by Reuters, and manufacturing jobs should be up by 10,000. “Unfortunately, whatever we see privately probably gets fully offset by other public sector...(read more)

Posted To: Mortgage Rate Watch

What a boring day in the markets! Stocks added to yesterday's gains and bonds added to their losses. This pushed mortgage rates marginally higher. The best 30 year fixed mortgage rates are still in the 4.125% to 4.375% range for well-qualified consumers, but less lenders are offering rates below 4.25% today. If your lender is still willing to offer a rate below 4.25%, your closing costs are about 25bps higher today (0.25% of your loan amount). AQ's comments from yesterday still apply... We're not panicking over this sell off. There has been no change in our fundamental economic outlook, we see no new reason to be optimistic about a rapid recovery. What we witnessed today was a technical adjustment, an adjustment that could reverse course on Friday morning if the Employment Situation Report...(read more)

Posted To: MND NewsWire

The National Association of Realtors released the Pending Home Sales Index today. NAR's Pending Home Sales Index measures the number of home purchase contracts that were signed in the monthly reporting period. Once "pending" sales contracts are closed, they are considered an existing home sale. Because the Pending Home Sales index tells us how many contracts were signed, it is consider a forward indicator of existing home sales. A signed contract is not counted as an existing home sale until the transaction actually closes. Excerpts from the Release... Following a sharp drop in the months immediately after expiration of the home buyer tax credit, pending home sales have modestly risen. The Pending Home Sales Index, a forward-looking indicator, rose 5.2 percent to 79.4 based on contracts signed...(read more)