My ears hurt after all the alert alarms we had
to sound throughout the session! Here is a summary of the intraday price action...OPEN: up up up down sideways sideways down
down down sideways sideways down down CLOSE...then down some more in after hours
trading. :-)
Ok here is the real summary....
Fn 4.0->
-0-14 to 99-30 Gn 4.0-> -0-06 at 100-18
Fn 4.5-> -0-11 to 101-06
Gn 4.5-> -0-14 to 101-07
Fn 5.0-> -0-09
to 102-00 Gn
5.0-> -0-10 to 102-07
Fn 5.5-> -0-06 to 102-19
Gn 5.5-> -0-07 to 102-21
Fn 6.0->
-0-07 to 103-05 Gn 6.0->
-0-11 to 102-30
The Fed remained a buyer early in the session,
their efforts combined with light trading flows help carry on the down in
coupon rally we thoroughly enjoyed yesterday. When rate sheets began to pour
into our inboxes this AM we were cheered on by the fact that our sample/preferred
investors had decided to pass along moderate price improvements. We were pleased
because some little birdies had previously shared some interesting information
with us. LENDERS ARE STILL MODERATING PRODUCTION WITH HIGHER RATES!!!
SURPRISE!!!! (Please note sarcasm). Yes, it is no shocker that turn times are
still lengthy and mortgage banks are still bogged down with 15 day old files.
BUT there is hope...word on the street is the big boys are building their
operational infrastructures. So at some point, barring any tape bombs like BK
judges modifying mortgages (more to come on that) the road to rate reductions
is being paved with new processors, underwriters, and closers. Patience. Woooo
saaaaaah woooo saaah. That is what I tell myself after a 15 tick rally and a 5
bps rate sheet adjustment. If that doesn't help get a Zen rock garden.
But then it happened...our sell off siren started
screeching. The assumption we made about
intensified loan locking yesterday turned out to be accurate. You loan officers
must have heard our reprice announcements because originators (mortgage
companies) started selling early in the afternoon. This is a normal function of
the MBS market though, mortgage companies use the TO BE ANNOUNCED MBS market to sell
forward a commitment of MBS...this provides protection from interest rate risk and fosters lower
rates by adding liquidity to the mortgage market. Anyway the originator profit
protecting combined with an ongoing day trading atmosphere did not mingle well with
the light/below normal trading activity. The lack of liquidity rapidly deteriorated
willing buyer's bids...but you should take some solace in the fact that the extent
to which bids worsened was exaggerated by the lack of willing buyers. Does that
help explain the up up down down sideways down down down trading range and
consequential reprice parade? BTW if you didn't notice that MBS price moved
every which way today.... you may have noted that one lender actually repriced 4 times. 4
TIMES IN ONE DAY!!! Working that lock desk must be fun/hectic...anyway we had
several "thank you" emails for the timely reprice alert so it looks like a
portion of our reader base was able to do some profit taking of their own
before lenders punished your prices.
If you're looking for a scapegoat to take out your
MBS frustrations on...look no further than the Federal Open Market Committee (no dont do that we love the Fed right now).
The anticipation of a new FOMC policy statement drained MBS market liquidity
(plus there is that unknown MBS prepay variable and a compressed coupon stack).
That kinda stinks...there wasn't much reason to be nervous about what the Fed
might say. Remember the Federal Reserve is essentially giving away funds (reserves)
so monetary policy wasn't a big concern. The MBS Purchase Program has done its job
(even though lenders couldn't keep up) and we didn't expect the Fed to "step on
their toes" in their effort to push credit down the supply chain to consumers...so
there wasn't reason to worry about that either. The one indefinite was new
verbiage about our government purchasing its own debt. Well 2:15 came and went and all we heard was an an echo from last months statement.
In regards to the MBS Purchase Program the
Fed stated that they continue "to purchase large quantities of agency
debt and mortgage-backed securities to provide support to the mortgage and
housing markets" and the committee "stands ready to expand the quantity of such
purchases and the duration of the purchase program as conditions warrant". Yay
the Fed will do whatever is necessary to support us. High Five Mortgage World!
Then we got a little teeny tiny morsel about the possibility of Fed purchases
of US Treasury Bonds.... the FOMC stated that they are "prepared to
purchase longer-term Treasury securities if evolving circumstances indicate
that such transactions would be particularly effective in improving conditions
in private credit markets". The word PREPARED is the added expression. Well
THAT DOESN'T TELL US MUCH and only makes us think that the US government is
going to be issuing a ton more debt to pay for stimulus packages and "Bad Banks"..so
Treasuries sold off after the statement which also contributed to the MBS
markets fall from yesterdays glory. The main point you should take from today's
FOMC statement: government intervention is a necessity and the Fed knows it...they
wont slow spending until jobs are being created and everyone is worrying about
inflation. Done.
In other news...
The democratically dominated Congress passed President Obama's $819,000,000,000
Stimulus Package/Plan today. Read more
by CLICKING ON ME
I have been resisting the urge to ignite this debate in hopes that the issue
wouldn't make it as far as it has... Yesterday a House Committee approved the "Cram
Down" provision. This measure would allow bankruptcy judges to modify the
mortgages of troubled homeowners...which would include the ability to cut down
principal. Well some believe this would push mortgage rates up as much as 2%, others say that number is malarkey. Hopefully in the time you have spent reading our blog you are aware
of how MBS investor cash flows work...if not I will elaborate further on THAT
subject when I elaborate further on THIS subject. For now read these three
stories for some knowledge base and we will further discuss tomorrow...as a group!
What is Adam talking about....READ ME
Why shouldn't I be worried....READ ME
Why should I be worried.....READ ME