Posted
It's Friday after a Thursday New Years and as one might imagine, the parking spaces on Wall St. today are surprisingly available as they've been for the past few weeks. Monday will put an end to that and to the volatility we've been experiencing recently. Remember when volume is low that the sentiments of the few have an uncommonly dramatic impact on prices. Even then, we are a mere quarter of a point off today on 4.5's and not even an eighth of a point off on 5.0's. These are the kinds of movements we're used to seeing on a daily basis and not at all the kind of thing that should cause mid to longer term deals any panic. So even though MBS are pushing the lows of the day and additional reprices for the worse are possible, there are other considerations.
Here's where we stand today, with Wednesday as a reference:
The lowest price levels acheived of 101-02 on 4.5's don't even come close to the lows we've seen over the past 2 weeks. Plus, even if we hold these week levels, when the roll takes place on the 13th, lenders will once again have funding lines freed up for more activity and the spreads between primary and secondary rates can tighten a bit. Combine that with abyssmally awful selling in treasuries and we are still in good shape despite the red. Oh yeah, there's that whole $500 bln of fed purchasing beginning some time in the next two weeks. When a buyer of size commits to fund a year's worth of bid demand, that tends to help things just a bit, or more appropriately it will help things when the money starts to flow. For these and other reasons, those with a reasonable time horizon will likely still benefit from floating.
Can't take the heat? By all means, get out of the kitchen. The moral of the story is that you'd be making a decision based on very low volume at one of the most unsupportive times of the year AND during a treasury sell-off. Your decision would make more sense if it were tempered with the knowledge of market sentiment that will come on Monday. Furthermore, if you deals are truly short term enough to be concerned, there have been better opportunities to lock earlier last week ahead of bigger losses. Facing a comparitively thin loss ahead of indications of more support doesn't seem to make that much sense, even though seeing red on the screen is never confidence inspiring. Still, something would seem wrong if the 10 year could be down an impressive 49 ticks as it is today and not have MBS down at least a little. So, as I see it, all is still as it should be. The question of better rates is not "if," but "when," and that "when" should be some time over the next few weeks.
As always, evaluate your lock/float decisions based on your position. If you have everything floating, you are too open to risk. Rate movements are never guaranteed so your personal lock/float decisions will always depend on your personal position. This is why we do not answer the "should I lock or float?" questions. It always depends. If, for instance, you only have one viable deal with which to concern yourself over the next few weeks either because you're a consumer or a loan officer with no pipeline, you are 100% at risk if you float and therefore, locking should be considered much more seriously. If, on the other hand, you have a majority of refis (as most do) and you are locking the most sensitive ones by way of hedging part of your pipeline, then you can still take major advantage of the positive rate movements that, by all indications, SHOULD be on their way. In this "hedging" example, you give up some gains in exchange for reducing risk. That's the name of the game. Treat a pipeline like a portfolio. We'd never advocate making the same decision every time on every deal. Use this blog as your baseline information. Mix in your own experience and circumstances, and make your own decisions. Many of you won't be able to stomach a float over the next few weeks. Those that do will probably be rewarded. If that "probably" changes on Monday, we'll be the first to let you know. Until then, today's losses are the cost of admission to the float club. Stay strong.
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