Trading volume was light and selling from mortgage bankers was muted yet again. This was expected as the MBS market is off its recent highs and traders have been twiddling their thumbs while waiting for the yield curve to digest this week's $71bn supply offering from the Treasury Department. In the meantime, after the brief butt whipping we took from the Treasury market last week, mortgages have once again resumed their slow and steady grind tighter (to their benchmark big brother Treasuries).

Since 5 pm "Going Out" Marks...

FN30________________________________

FN 4.0 -------->>>> +0-04  to 100-05  from 100-01

FN 4.5 -------->>>> +0-04  to 101-28  from 101-24

FN 5.0 -------->>>> +0-03  to 102-27  from 102-24

FN 5.5 -------->>>> +0-01  to 103-18  from 103-17

FN 6.0 -------->>>> +0-01  to 104-18  from 104-17

GN30________________________________ 

GN 4.0 -------->>>> +0-05  to 100-08  from 100-03

GN 4.5 -------->>>> +0-04  to 102-03  from 101-31

GN 5.0 -------->>>> +0-04  to 103-15  from 103-11

GN 5.5 -------->>>> +0-02  to 103-27  from 103-25

GN 6.0 -------->>>> +0-01   to 104-12  from 104-11

Reminder: the MBS market's confidence in the Federal Reserve's block buying trading strategies has resulted in MBSs disconnection/insulation from the gyrations of the yield curve. Since the Fed's buying program commenced in early January the MBS coupon stack has weathered several yield curve steepening events(record supply issuances from the Treasury). Normally higher benchmark Treasury yields would pressure MBS prices lower and mortgage rates higher....however the mortgage market has settled into the artificially supported super liquid trading environment. YIELD SPREADS HAVE GRINDED TIGHTER AND TIGHTER ALL YEAR. MBS HAS OUTPERFORMED TREASURIES!!!  The risk of selling as spreads have moved tighter isn't an issue either!!! Wow MBS demand remains super high!!!!

I know we keep forcing this point upon you but we do so for good reason....the Fed is keeping MBS prices stable regardless of the short term convictions of Treasury traders. This is good for your rate sheets because it allows lenders to lock their loans without the worry of a "reprice for the worse" (MBS selloff).

Check out the stability of the FN 4.0 today. For the most part, ignoring a full outliers..it traded in a 4 tick range all day. An enchilada induced ZZZZZZzzzzzzzzz...NAP

This stability occurred while the 10 yr note yield vacillated around a 7 bps range....HAPPY CINCO DE MAYO!!!!!

The 10 year Treasury Note yield moved higher following yet another "better than expected" economic indicator (non-Manufacturing ISM). Between 10AM and 12:30 the UST10YR moved in tandem  with the Dow (yields higher as stocks rally) while the market absorbed Chairman Bernanke's prepared testimony and Q&A  session before the Joint Economic Committee.  In the afternoon hours the 10 yr disconnected from the stock lever as market participants began repositioning themselves for the remainder of the Treasury's refunding this week ($22bn in 10 yr notes at 1pm tomorrow).  By day's end the yield on the 10 yr note had settled a few bps higher than yesterday's 5pm "Going Out" marks. (3.157% vs 3.168%) while the Dow took a small step backwards closing down 16 points to 8410.

Ben Bernanke's outing on Capitol Hill gave markets a mixed message of cautious optimism. Here is a quick recap using excerpts from his prepared statement....

The recent data also suggest that the pace of contraction may be slowing. We continue to expect economic activity to bottom out, then to turn up later this year. Key elements of this forecast are our assessments that the housing market is beginning to stabilize and that the sharp inventory liquidation that has been in progress will slow over the next few quarters. An important caveat is that our forecast assumes continuing gradual repair of the financial system; a relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall. Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while, implying that the current slack in resource utilization will increase further.

Mortgage markets have responded to the Federal Reserve's purchases of agency debt and agency mortgage-backed securities, with mortgage rates having fallen sharply since last fall, as I noted earlier. The decline in mortgage rates has spurred a pickup in refinancing as well as providing some support for housing demand. However, the supply of mortgage credit is still relatively tight, and mortgage activity remains heavily dependent on the support of government programs or the government-sponsored enterprises.

As you know, the federal bank regulatory agencies began conducting the Supervisory Capital Assessment Program in late February. The purpose of the exercise is to ensure that banks will have a sufficient capital buffer to remain strongly capitalized and able to lend to creditworthy borrowers even if economic conditions are worse than expected.

Some Industry Specific News

Chase Correspondent is making a very significant change to their DU Refi Plus offering and is delaying the implementation of the maximum LTV to 105%. In DU 7.1 May Update Release Notes, Fannie Mae announced the availability of the DU Refi Plus program up to a 105% LTV through DU effective the weekend of May 2, 2009. After careful re-evaluation of the opportunities and risks associated with the DU Refi Plus program, Chase Correspondent Lending will make the following revisions to their DU Refi Plus offering: At this time, Chase will not expand DU Refi Plus to a 105% LTV. Additionally, Chase will now require that the original loan must be Chase Serviced in order to be eligible for delivery to Chase as a DU Refi Plus.

Fannie Mae Released Updates to Credit Score Requirements and Nontraditional Credit. Here's an outline of the topics discussed in the Announcement:

  • Determining the representative credit score and applicable pricing when one borrower has traditional credit and a credit score and one or more borrowers have nontraditional credit
  • Other clarifications for determining the representative credit score
  • Required delivery of credit scores
  • Eligible exceptions to minimum credit score requirements for MyCommunityMortgage® loans
  • Updates to nontraditional credit requirements

Wells Fargo is OUT of the market for small commercial loans...you have until May 15 to get your applications submitted to Wells for small balance commercial loans

700 MBA Weekly Application Index

815 ADP Employment Report

930 Senate Banking Committee Hearing. "Regulating and Resolving Institutions Considered Too Big to Fail". Sheila Bair will be there along with Minneapolis Fed president Stern.

1300 The Treasury will auction $22bn 10 yr notes

Tomorrow afternoon...APRIL PREPAY REPORTS

Enjoy the Cinco de Mayo festivities....