Rate sheet influential MBS coupons have moved back into that sideways range we outlined on Tuesday...eventhough mortgage rates and MBS are worse off today, we are above Monday's opening marks...so progress has still been made, nonetheless we remain Range Bound Range Bound Range Bound....
At the moment we are in the bottom half of the range...if history holds, any prices below 100-02 will draw in buyers and push bids back into the middle of the range. Anything above 100-06 and the forces of inertia will pull bids lower....especially if the 10 yr note stays near 3.25%. Dear UST10YR, please please please dont completely unravel and apprach the 3.30 level....if that happens...see Monday's price levels for guidance.
Since 5pm "Going Out" Marks....
FN30________________________________
FN 4.0 -------->>>> -0-07 to 100-02 from 100-09
FN 4.5 -------->>>> -0-02 to 101-31 from 102-01
FN 5.0 -------->>>> -0-03 to 102-27 from 102-30
FN 5.5 -------->>>> -0-00 to 103-19 from 103-19
FN 6.0 -------->>>> +0-02 to 104-23 from 104-21
GN30________________________________
GN 4.0 -------->>>> -0-03 to 100-09 from 100-12
GN 4.5 -------->>>> -0-02 to 102-05 from 102-07
GN 5.0 -------->>>> -0-01 to 103-17 from 103-18
GN 5.5 -------->>>> +0-02 to 103-31 from 103-29
GN 6.0 -------->>>> +0-02 to 104-18 from 104-16
UST10YR: 3.2485%
2s/10s: 225.76 bps
Yesterday mortgage bankers took advantage of rich MBS coupon prices (not visited since late April) and decided to lock in some of their loans. This is an originator's version of "profit taking" and also serves as a hedging vehicle...aka protecting their pipelines from interest rate risk. Around $4bn in new commitments were offered up by mortgage bankers after MBS rallied on the respectable turnout at the 1pm UST10YR auction. Of course the Fed was there to provide buy side support for these originators. That said...put a big red X on your calendar with a note to see yesterdays MBS prices. Why? Because lenders locked in their loans yesterday...this implies upcoming rate sheets will be generated based on yesterday's MBS price levels. Of course once those prices trickle down through the supply chain they may look like February MBS prices (98/99 handle).
The release of April Prepayment reports are in (thank you eMBS).....borrower refinancing behavior /payoffs was mostly "as expected". Prepayment speeds on 4.50 and 5.00 coupons, which are backed by loans with rates between 5.00% and 5.875%, increased 20-40%. No big deal there...however it appears mortgage bankers got a little bad news. Prepay speeds on the coupons that "profit takers" target, 6.0s and 6.5s, were SLOWER by about 4%. For day traders/short duration buyers these slower than expected prepayment speeds will reaffirm that their "up in coupon" strategies are well-ordered....which means market participants, other the Federal Reserve, will continue to meddle in 6.0s and 6.5s. Not really a big deal though...we have been operating in this environment since January.
On the other hand, the slower than expected speeds on "credit impaired coupons" (MBS that are likely backed by borrowers with lots of LLPAs because of bad credit profile) does imply one BIG NEGATIVE. Borrowers are having trouble qualifying...regardless of the record low mortgage rates. Ugh....the concern we now must address is...IS THE POOL OF "REFINANCEABLE" BORROWERS TAPPED OUT? Not sure yet, but it's troubling that record low rates and DURP like programs are not doing much to speed up the rate of refinances...you would know best.
What percentage of your applications are getting declined?
So far this morning buying activity in the MBS market has picked up, unfortunately the activity is mostly in the "specified pools" marketplace...your rate sheets are predicated on the To Be Announced (TBA) MBS market. This attention to specifieds is a function of post prepay report portfolio adjusting.
President Obama's name is flashing across my news feed at the moment...and guess what...THE DOW SOLD OFF!!! HAHA...par for the course whenever he is on the boob tube. The 10 yr note is hovering around 3.25%. BUT....the FN 4.0 is outperforming the 10yr TSY note!!!! (not selling off as much as benchmark is always good).
Rate sheets worse...blah
The House is currently "marking up" HR 1728:The Mortgage Reform and Anti-Predatory Lending Act of 2009. To watch live go HERE
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