When equities markets made a big "risk-off" move on Monday afternoon after Kerry's Syria speech, it was plain to see that bond markets weren't much interested in following (i.e. they didn't rally much). When Treasuries and MBS rallied yesterday, it was plain to see that 10yr yields struggled with the 2.74-ish inflection point and then again with the longer term resistance in the mid 2.71's. This morning we noted that bond markets were "grudgingly acquiescing to the flight-to-safety rally--potentially using it as a
"hide-behind" for a move they probably would have made anyway after
hitting multi-year high yields last week."
This afternoon, after the print of weaker-than-expected economic data and an end to the equities free-fall, we may have confirmation of that "hide-behind" tactic. Bond markets including MBS have been weaker all day without much rhyme or reason apart from the ebbs and flows in longer term charts. With or without Syria, last week's high yields had a better-than-average potential to act as short term support and yesterday's lows had a better-than-average potential to stand as resistance. That "stuff" happened and there's not much else to conclude. It doesn't necessarily mean that data and Syria aren't important to markets, just that the combination of lighter-than-average volume/liquidity and range trade ahead of next week's NFP matter more.
Given that today's weakness leaves rates in broadly similar territory to Monday, the tactical implications are similar as well. That's a fancy way of saying we feel the same way this afternoon as we did on Monday afternoon. We're still near the best levels of the past two weeks with yesterday being the only major exception. That still favors being slightly more defensive vs aggressive as the bounce at 2.71 looks important all other things being equal (as does the bounce at 103-16 in Fannie 4.0s). For those feeling more optimistic, there are some support levels that could help mitigate weakness if that happens to be what tomorrow morning brings.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing
is available via MBS Live.
Pricing as of 4:04 PM EST
Afternoon Reprice Alerts and Updates
Below is a recap of instant Reprice Alerts
and updates issued via email and text alert to MBS Live subscribers
Reprice Risk Increases After Rotten 5yr Auction
The 5yr auction just now had the weakest demand in several years and the yield came in higher than expected by a fairly wide margin. This wouldn't be quite as negative if yields weren't already on the rise ahead of the auction, building in a concession.
10yr Treasuries weren't very likely to react to today's 5yr auction in the first place, but they've edged a bit higher in response. MBS are several ticks weaker and reprice risk is moderately higher than it was at the last alert, though not full-blown yet. In other words, several lenders will reprice if we hold here, but some may not.
Treasuries Break Support, MBS Hinting at Following; Reprice Risk Increases Modestly
This isn't the sort of alert that hearkens throngs of lenders hitting rate sheets with big negative revisions, but reprice risk is marginally higher now that Treasuries are edging past their resistance ceiling. MBS look like they may already be taking note. We have yet to see more than a tick of negative response in MBS, but we now have the first warning sign that a few more ticks could be on the way.
Support Still Holding, but Weakness a Bigger Threat
Technically speaking, Treasury yields haven't yet broken above their supportive ceiling for the day just over 2.77 in 10yr's. MBS are mirroring and matching the supportive overtones with their own ground-holding at 103-05 to 103-06 at the moment. That said, it makes more sense to be on guard against further weakness than it does to hope for more ground-holding.
The 5yr Auction is coming up at 1pm and there's always a chance we'll see additional hesitation heading into that, which can manifest itself as slight additional weakness across the curve--even leaking into MBS. Stay on guard for a break to the other side of either technical level mentioned above (below 103-05 in Fannie 4.0s or above 2.772 in 10yr yields) as an early indicator of swelling reprice risk.
Live Chat Featured Comments
Rob Clark : "REPRICE: 2:54 PM - Stearns Lending Worse"
Matthew Carver : "REPRICE: 2:40 PM - Flagstar Worse"
Nate Miller : "REPRICE: 2:19 PM - Caliber Funding Worse"
Steve Chizmadia : "REPRICE: 2:14 PM - Sun West Mortgage Worse"
Nate Miller : "yep 6mo...but you may be able to get it done sooner proving brwr is 100% owner of the LLC..."
Jeff Statz : "does this help, hodgy? https://www.fanniemae.com/content/guide/sel040913.pdf#page=218"
Matt Hodges : "anyone remember the fannie rule on refi-ing a NOO that is currently in LLC name, using borrower alone? 6 months from transfer back?"
Chip Harris : "I agree with you guys and that is what I keep telling the UW, and she keeps pointing me to that in the selling guide and asking me where its says I can use that."
Andy Braun : "ya you mihgt not be able to add the schedule E rental income...but you should 100% be able to add back to the s-corp if they are not letting use it on shed e"
Dustin McAlister : "REPRICE: 2:00 PM - Wells Fargo Worse"
Mark DeWitt : "If you have 2 yrs returns and the biz address is the home and it is on sch c and also flows back to corp returns you can use it"
Jason Anker : "unfair to deduct from biz income and not add back, shouldnt get it both ways"
Julian Levin : "that's the clause I was thinking of"
Chip Harris : "Generally, rental income from the borrower’s principal residence (a one-unit principal residence
or the unit the borrower occupies in a two- to four-unit property) or a second home cannot be
used to qualify the borrower. However, Fannie Mae does allow an exception to this policy for
boarder income. See B3-3.1-09, Other Sources of Income, for boarder income requirements."
Chip Harris : "I have history, but Uselling guide:W keeps referrign me to this in the "
Mark DeWitt : "if you have history of you can use"
Mark DeWitt : "it is basically biz use of home"
Andy Braun : "The money has to be credited somewhere, you either give schedule E or add back to schedule c income"
Julian Levin : "I didn't think you can use rent that is collected on a primary residence in general"
Chip Harris : "Anyone know if Freddie is any different?"
Jason Zimmer : "we just heard the same thing. We didn't challenge it as we had other issues, but we were told that as well."
Chip Harris : "I have a borrower that has a home based business that pays him rent. It's an expense on the 1120s and income on schedule E of his personal return. I know I have use this in the past, but UW is saying that FNMA doesn't allow it. Seems strange to me."
Amitab Mukerjee : "MG: Great link, love the info"
Tom Bartlett : "wondering if the weakest in years auction was already expected by big players as that would explain this action? we were already having -11 on the 4.0 before bad auction and now back to that number.smells fishy to me in a daytrader /conspiracy theory kind of way?"
Matthew Graham : ""tail" refers to the amount by which the actual yield of the auction was higher than the market's running estimate of the yield, indicated by "when-issued" trading."
Matthew Graham : "For those curious about what SR just asked: http://www.mortgagenewsdaily.com/mortgage_rates/blog/242898.aspx"
Matthew Graham : ".4 bps SR"
Scott Rieke : "what was the tail?"
Matthew Graham : ""D" and weak enough to hurt"
Matthew Graham : "RTRS- US TREASURY - PRIMARY DEALERS TAKE $16.41 BLN OF 5-YEAR NOTES SALE, INDIRECT $14.10 BLN "
Matthew Graham : "RTRS- U.S. 5-YEAR NOTES BID-TO-COVER RATIO 2.38, NON-COMP BIDS $45.74 MLN "
Matthew Graham : "RTRS- U.S. SELLS $35 BLN 5-YEAR NOTES AT HIGH YIELD 1.624 PCT, AWARDS 91.92 PCT OF BIDS AT HIGH "
Jason Northcutt NMLS#994555 : "R-Jeffrey - Nope still the same. Because the 2nd was not recorded at the time the purchase money 1st it would considered a cash out. As far as I know...no way around it."
R-Jeffrey : "ok- so conventional hasn't changed"
Matt Hodges : "if it's FHA, i think there is a provision for R/T"
R-Jeffrey : "FHA would be different though, right? "
John Paul Mulchay : "Not purchase money = cash out."
Hugh W. Page : "I knew an LO who worked with USHUD for awhile. Lots of leads - almost all of them garbage - and I don't think he closed any. Wasted a lot of time and effort for nada. Gave it up."
Christopher Max : "Watch out because USHUD.com is trying to sell Quazzo.com as well. "
Jason Anker : "2nd needed to be purchase money"
Jason Anker : "have not heard good things"
Ted Rood : "Have a philosophical issue with companies masquerading as government entities."
joon choi : "yes, lead seller, comments anyone?"
Jeff Statz : "Joon, they are a lead seller, yes? I got an email recently that said "I am looking for a Loan Officer to pre-qualify first and second time home buyers looking to purchase in your area. We work exclusively with one Loan Officer per territory, and we are seeing a significant amount of traffic in your area. If you feel like this is something that you can benefit from, feel free to give me a call.""
joon choi : "does anyone work with USHUD.com?"
Julian Levin : "JA - As an FYI the Title Company added a clause stating that the lender's title insurance would not be affected by the exceptions and we're now able to close"
David Doerr : "United Gaurantee"
Jason Anker : "Radian"
Jeff Anderson : "Anyone have an MI company on a 95% LTV Conventional with a low owner occupancy? This will be borrowers Primary. Thanks."
Jason York : "doesn't mean that things won't continue to get better the days following that bad day, you you kind of have to expect it to be mixed somewhere in there"