Posted To: MBS Commentary

Here's a quick recap of the past year or so. Bond yields were near long-term highs in the first part of 2018 following the passage of the tax bill and generally strong economic data. Rates surged to even higher long term highs in October and November (ongoing improvement in US econ data, hawkish Fed, rotation into stocks). At that point, a combination of European/Chinese weakness, a potentially overly-hawkish Fed, and high rates sent the stock market into a tailspin. Bonds benefited in a big way. After dropping 70bps in less than 2 months , 10yr yields took a breather in the 2.55-2.80 range for the next two months. We turned our attention to the March 20th Fed announcement to cause the next big move. It did. In not so many words, the Fed was surprisingly helpful to bonds. They also mentioned...(read more)

4/25/2019 8:35:41 AM

Posted To: Pipeline Press

In low down payment and HFA news, HUD, dba the FHA, has agreed to a 90-day stay in implementation of Mortgagee Letter 19-06 (regarding down payment assistance) to have a 90 day comment period. The flurry reminded the industry that there are lots of options out there for low down payment loans. For example, Wells Fargo’s retail arm offers its 3% down “ yourFirst Mortgage® .” Over in conventional land, there is something interesting as well. Anyone interested in lending to borrowers in that industry should read, “ Fannie’s HomeReady Program Allows for Cannabis Industry Financing .” Lots more conventional conforming news below. Lender Products and Services From industry-leading technology to professional expertise and convenient education opportunities,...(read more)

4/25/2019 7:22:45 AM

Posted To: MND NewsWire

The declining interest rates earlier in the year along with increased refinancing made themselves felt in March as prepayment activity surged. Black Knight, in its "first look" at the month's mortgage data, notes the rate rose 28 percent compared to February. It was the largest single-month increase in 2.5 years although the rate prepayment rate , 0.84 percent, is down more than 4 percent year-over-year. The national delinquency rate fell by 5.3% for the month , the smallest improvement for any March in six years in what is typically the strongest-performing month of the year. The month however ended on a Sunday which often leads to an increase in 30-day delinquencies. It also followed an atypical increase in delinquencies in February. Mortgages that were 30 days or more past due but not in...(read more)

4/25/2019 6:14:00 AM

Posted To: MBS Commentary

Here come those "global growth concerns" again! It's nothing too huge or scandalous, but today's scorecard offered several anecdotes that fueled a downbeat global growth narrative. These ranged from things as obscure as Australian inflation data and a modest miss in German business sentiment to more logically bearish things like a massive downward revision for GDP from Canada's central bank. Granted, several of these tidbits are off the typical beaten path of market movers for the US bond market, but taken together, they sent a unified message. Global growth concerns are highly en vogue as a risk to rising stocks and higher bond yields. Today was a bit of a freak coincidence that required a certain balance of trading positions waiting to be exploited by otherwise small...(read more)

4/24/2019 3:15:37 PM

Posted To: Mortgage Rate Watch

Mortgage rates moved lower at their best pace in several weeks today, with the average lender making it back to levels not seen since April 12th. The gains were bigger than normal for two reasons. First, bond markets had improved slightly yesterday afternoon, but not enough for lenders to adjust their rate sheet offerings for the better. Thus, they had to play a bit of catch-up with this morning's rate sheets. The bigger factor was the additional bond market strength seen throughout the overnight trading session and well into the domestic trading hours. In general, bond market "strength" means that bond prices are moving higher and bond yields (or "rates") are moving lower . Whereas trading values in the bond market change frequently throughout the day, the average mortgage lender tries to...(read more)

4/24/2019 2:39:00 PM

Posted To: MND NewsWire

Conventional wisdom, according to the Urban Institute (UI), holds that small mortgages are riskier than large ones. That may be one reason that only one out of four homes sold for $70,000 or less in 2015 was financed with a mortgage compared to 80 percent of those sold for $70,000 to $150,000. Sarah Strochak and Alanna McCargo, writing in UI's Urban Wire blog say there are more than 600,000 homes for sale nationwide priced under $70,000, but it is hard for buyers to arrange financing because of the perception that the buyers of these homes have worse credit profiles and their loans don't perform as well. The two analysts have completed research which they say debunk this myth. Looking first at credit profiles, they found that those buyers who have been able to obtain small dollar mortgages...(read more)

4/24/2019 8:45:23 AM

Posted To: MBS Commentary

We can go years at a time without so much as a mention of Australia--at least not as it relates to the global economy. But now for the 2nd time in as many weeks, we've seen a noticeable market impact from the goings on in the merry old land of Oz (market slang for Australia because the 3 letter country code, AUS--not to be confused with automated underwriting systems in mortgage circles--sounds like "Oz"). In the overnight session, a fairly lopsided Australian inflation report came out showing prices growing at only 1.3%--much farther 'down under' than the 1.5% forecast, let alone the central bank's 2% target. It's easy to line up that inflation data with global bond markets' first rally momentum of the day in the chart below. It's similarly easy to see...(read more)

4/24/2019 7:19:37 AM

Posted To: Pipeline Press

How often do you buy candles at retailer Pier 1? Me neither. Due to poor earnings Pier 1 Imports announced it will close another 45 stores (up to 150 if certain targets are not met). Sometimes reporters are prone to sensationalizing things (watch the folks in the background) but one thing that doesn’t need to be sensationalized are recent statements by Federal Reserve officials suggesting they are looking to determine the appropriate conditions for introducing an interest-rate cut, though one is not believed to be imminent. Federal Reserve Bank of Chicago President Charles Evans stated last week that a prolonged period of inflation below 2% would imply that "our setting of monetary policy is actually restrictive, and we need to make an adjustment down in the funds rate." Lender Products...(read more)

4/24/2019 7:08:34 AM

Posted To: MND NewsWire

Rising interest rates continued to take a toll on mortgage applications during the week ended April 19. Even purchase mortgage volume fell victim to the increasing rates after rising for six consecutive weeks. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, declined by 7.3 percent on a seasonally adjusted basis from the previous week. On an unadjusted basis, the Index was down 6 percent. The Refinance Index had surged 39 percent at the end of March co-incident with the largest one week drop in mortgage rates in 10 years but has now erased most of those gains. It declined another 11 percent last week and the refinancing share of total applications dropped to 39.4 percent from 41.5 percent during the week ended April 12. The...(read more)

4/24/2019 6:11:46 AM

Posted To: MBS Commentary

With each passing day this week, we're reminded that the most important events are yet to come. In fact, we may well be looking at only one significant event in the form of Friday's Q1 GDP reading. There are a few other contenders before that but none with nearly as much street cred as the 1st GDP report for the quarter. Incidentally, next week's events make Friday's GDP look like child's play, so we can't even be sure those GDP is the right event to look forward to! In the meantime, it's been a tedious and boring sideways grind to start the week. Yesterday was the "moderately bad" version of tedious while today was its foil. The net effect is trading levels that are still slightly weaker than last week's closing levels, but well off the weakest levels...(read more)

4/23/2019 2:13:48 PM

Posted To: Mortgage Rate Watch

When bonds make "gains," it means that bond prices are moving up. The price of a bond is like the amount that a lender is willing to pay for the right to collect a certain amount of interest. The more the lender is willing to pay, the lower that lender's "yield" will be. Looked at another way, the lower your interest rate would be in the case of a lender making you a mortgage loan. For that reason, we expect to see mortgage rates fall when bonds are making gains (mortgages are based primarily on bond prices/yields). But in today's case, rates went a bit higher even though bonds improved. As is often the case, the discrepancy results from the timing of bond market movement over the past few days. Bonds weakened yesterday and rates logically moved higher. The catch is that bonds continued to...(read more)

4/23/2019 1:42:00 PM

Posted To: MND NewsWire

New home sales continued on a winning streak in March , increasing for the third straight month. The U.S. Census Bureau and the Department of Housing and Urban Development said sales of newly constructed homes were at a seasonally adjusted annual rate of 692,000 units during the month. This is a 4.5 percent increase over the revised (from 667,000) rate of 662,000 in February and 3.0 percent higher than the March 2018 estimate of 672,000 new homes. Analysts polled by Econoday expected a pullback in March after the strong numbers earlier in the year. They had forecast sales in the range of 630,000 to 660,000. Their consensus was 645,000 units. On a non-adjusted basis there were 68,000 new homes sold in March compared to 56,000 in February and 66,000 a year earlier. For the year-to-date, sales...(read more)

4/23/2019 9:37:55 AM

Posted To: MND NewsWire

The pace of home price appreciation slowed notably in February , at least as reflected in the Federal Housing Finance Agency's (FHFA's) House Price Index (HPI). The index, which is calculated using home sales information from mortgages sold to or guaranteed by the GSEs Fannie Mae and Freddie Mac, rose 0.3 percent from January to February and was up 4.9 percent on an annual basis. FHFA's index stood out in January when it jumped 0.6 percent from its December level and had a 5.6 percent increase compared to January 2018. Price indices for the month released by other entities had showed considerable slowing; most had monthly appreciation of 0.1-0.2 percent and annual changes in the 4 percent range. Analysts had anticipated a retreat from the January pace. Those polled by Econoday had forecast...(read more)

4/23/2019 9:02:07 AM

Posted To: MBS Commentary

Oil is one of the most fundamental economic inputs when it comes to determining costs and thus inflation. Inflation is one of the most fundamental inputs when it comes to determining the price of bonds. It certainly stands to reason that big moves in oil could translate to at least some movement in the bond market. While that is indeed true in many cases, there is often a lag time for the correlation to play out. Beyond that, both oil and bonds frequently have other things to worry about. Sometimes those things have similar effects on the two markets, but other times, only one of the two is majorly affected. The red highlighted areas show notable instances of oil and bonds moving on completely different agendas. When we bring in indicators like the value of the dollar and China/US stock indices...(read more)

4/23/2019 7:41:33 AM

Posted To: Pipeline Press

Should small, non-depository mortgage bankers be concerned about big banks renewing their interest in FHA loans? Probably. Bank of America is promoting its $0 origination fee FHA & VA programs. Speaking of low down payments, we have last week’s Mortgagee Letter 19-06 . Bloomberg ran a story about “ cracking down on no money down home loans ,” and lenders reacted. For example, California’s Land Home Financial let clients know, “LHFS will be temporarily suspending all FHA GSFA, FHA CalHFA and FHA Within Reach Down Payment Assistance programs. This will include any state Housing Finance Agency, or city or state program where the borrower is receiving a grant or second mortgage. We are awaiting clarification from the various down payment assistance providers…...(read more)

4/23/2019 6:57:53 AM

Posted To: MND NewsWire

As profit margins have continued to shrink, mortgage lenders have been seeking to utilize technology to reduce their production expenses which involve in part transmitting large volumes of data among several interconnected parties such as consumers, investors, service provider, and others. In an article in the Fannie Mae Perspectives blog the company's Vice President for Digital Products, Prabhakar Bhogaraju, writes that "Businesses are increasingly leveraging digital technologies to reduce errors and costs, transact faster, and drive a richer and better customer experience. Over the past few years, technological advancements such as artificial intelligence, APIs, and document digitization have gained traction, enabling digital transformation." Fannie Mae's Q1 2019 Mortgage Lender Sentiment...(read more)

4/23/2019 6:23:29 AM

Posted To: MBS Commentary

There's age old market wisdom that loosely suggests any given move should be taken more seriously if there's a lot of volume behind it. Deductively, we might conclude that moves backed by exceptionally light volume could be taken less seriously. To whatever extent it makes sense to do such things (and it rarely makes sense to brush off market weakness), today would be one of the best candidates. Much of the rest of the world was closed for business in the overnight session, with the only heavy lifting being done by Tokyo (i.e. Japanese traders were primarily responsible for making trades that moved bond markets during those hours). That made for almost non-existent volume in the overnight session, and only a modest amount of weakness. The domestic hours saw additional weakness , however...(read more)

4/22/2019 3:43:25 PM

Posted To: Mortgage Rate Watch

Mortgage rates were higher again on Monday, but just barely. The average lender was still in worse shape on Tuesday or Wednesday of last week when rates were the highest they'd been in about a month. Rates reflect demand in the bond market. Bonds can be bought or sold for a variety of reasons, but one of the key reasons is the general levels of fear and optimism surrounding the economy. When investors are less certain about positive economic outcomes, they tend to buy more bonds. This results in rates moving lower. That sort of uncertainty reached a bit of a boiling point at the end of March when the Fed called out economic uncertainty in Europe and China as one of the biggest risks to the global economic outlook. Since then, however, some of the data suggests the sky may not be falling just...(read more)

4/22/2019 2:54:00 PM

Posted To: MND NewsWire

The question this morning was whether March's existing home sales could build on the strong numbers posted in February, an 11.8 percent increase from the prior month with a seasonally adjusted pace of 5.51 million. It was the largest gain in more than three years. The consensus was that they would not. The forecasters were spot on. The National Association of Realtors® (NAR) reports that sales of existing single-family homes, townhomes, condos, and cooperative apartments retreated from their February gains, with each of the four major U.S. regions falling back. The Midwest saw the largest decline although the West wasn't far behind. Total existing-home sales fell 4.9 percent from February to a seasonally adjusted annual rate of 5.21 million. Sales as a whole are down 5.4 percent from a...(read more)

4/22/2019 9:53:05 AM

Posted To: MBS Commentary

Are we or are we not headed toward a global economic contraction in mid-to-late 2019? Or are such things on hold for another year or two? Inquiring traders want to know. They'd been trading as if a contraction was a more imminent threat from November 2018 through late March 2019, but have been having second thoughts since then. Beyond the domestic economy, we have to keep an eye on Europe and China at the moment. Apart from simply being a good policy in general (it's a global economy, after all), paying attention to EU/China makes sense considering the Fed has explicitly said it's doing the same. Point being that any noticeable bounce in economic data in those two regions could lead the Fed to err on the side of less friendly monetary policy. We'll have to wait until next Wednesday...(read more)

4/22/2019 7:48:55 AM