Hello.  Good Afternoon mortgage world and everyone else...MBS were slow to get going in the AM but gradually improved throughout the day.

As Treasuries rallied early in the session profit takers were provoked to take some gains and originators hurriedly sold off their supply of committed loan packages. This implies that loan officers and borrowers who were floating the market decided to go ahead and lock their loans. As the day progressed the bid moved "up in coupon" and spreads on fuller coupons tightened. By day's end the entire stack had improved 6-8 ticks....

5pm Marks...

(Day over Day (DoD) Change from 3pm yesterday)


FN 4.5 -------->>>> +0-07 to 101-04 from 100-29                                       

FN 5.0 -------->>>> +0-08 to 102-03 from 101-27                                   

FN 5.5 -------->>>> +0-08 to 102-18 from 102-10    

FN 6.0 -------->>>> +0-08 to 103-09 from 103-01                                        


GN 4.5 -------->>>> +0-08 to 101-20 from 101-12

GN 5.0 -------->>>> +0-08 to 102-20 from 102-12

GN 5.5 -------->>>> +0-06 to 102-30 from 102-24

GN 6.0 -------->>>> +0-06 to  103-15 from 103-09

Mortgage apps slowed last week and average rates rose,  this will allow MBS market participants to move their bid "up in coupon"  as relative value increases. BUT...rates have incrementally improved so far this week and borrowers appear more willing to close their loans...so any adjustments made to prepayment models should consider these possible option callers. Models will need further adjustment in the "not so distant" future anyway...which could be a good thing for 5.0s ...at least for a market that really dislikes paying too much premium(103s/104). 

Plain and Simple: there are still some serious mysteries regarding the behavior of the mortgage refinancer. Consensus between secondary and primary market participants is more borrowers appear OK with floating vs. locking. This allows MBS investors to take a little more risk on the yield of the coupon they can safely purchase. So they buy 5.5 over 5.0 <- that is "up in coupon". There isn't much room to push MBS higher but we still may see a spell of higher mortgage rates if this becomes a broad based bias.

We just don't believe the current primary mortgage rate environment is tempting enough  to draw  borrowers off the fence, at least not until rates really improve and payments get lower AND the media makes a major case of it....again.

There's more...

The Treasury Budget was released at 2pm today. Treasury bought $22.6 billion GSE MBS in January. Federal Reserve bought $69.5bn. That totals $92bn from the Fed and Treasury in January.

Here are some excerpts from the Treasury Budget...TREASURY BUDGET

Not much to talk about in regards to the Congressional Hearing with the CEOs. Well based on what I listened too at least....

Bank of America CEO, Ken Lewis, did mention that he would like to see mortgage rates around 4.5s...he believed it would serve as a tax break. (HEY...Garth pointed that out a few weeks back)

There was a discussion on the "mark-to-market" rule too. When asked how many CEOs would support the suspension of "mark-to market" only one raised his hand (yes the hearing was that elementary). A logical explanation was offered up in the discussion that followed. The assets that NEED the suspension most, subprime mortgage loans and derivatives/SIVS, have no market to be marked too..they have to FIGURE OUT WHAT THOSE ASSETS ARE WORTH ONE WAY OR ANOTHER!!!

Per TIMMMMMAAAAAAYYYY(Geithner)....I think the Administration is working on it though

Tomorrow we get...

830AM:    Jobless Claims. Consensus is 610K. Previous was 598K. Expectations are growing!!!

                January Retail Sales : Consensus is 0.8%. -0.5% ex-autos

1000AM:  December Business Inventories: Consensus is -0.8%.

100PM:    $14bln 30-year bond auction

300PM:    Fed"s MBS buying for the period February 5th through February 11th 

430PM:    Money Supply