Posted To: MBS Commentary

Solid Afternoon Bounce, But Context Matters There's surely some great analogy to be made about perspective (filed under the "everything's relative" category). Bonds rallied quite nicely today with 10yr yields have their best domestic trading session since before the last Fed announcement. MBS didn't do quite as well, but we wouldn't expect them to given the shape of the yield curve (shorter duration bonds not doing as well as longer-duration bonds). But (wait for it...) everything's relative! 10yr yields at 1.64% are only good news compared to the past 2 days. If you missed those 2 days, then today isn't so much a "nice rally" as a confirmation that rates are at their highest levels since April. Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm...(read more)

10/22/2021 3:45:58 PM

Posted To: Mortgage Rate Watch

Over the past 30 days, interest rates have risen sharply . This is true for both mortgage rates and bond market benchmarks like 10yr Treasury yields. But another version of the 10yr Treasury yield continues to operate near all-time lows . How can rates simultaneously be rising quickly but still near all-time lows? Inflation! As we discussed last week, inflation erodes the value of bonds. As such, bond yields frequently move in response to changes in inflation expectations (higher inflation = higher rates). That correlation is easily seen in the following chart: Obviously, something changed in 2020. But what changed specifically for bonds and inflation? For starters, the Federal Reserve immediately began buying massive amounts of bonds shortly after the pandemic began. This acted to keep yields...(read more)

10/22/2021 3:42:00 PM

Posted To: MND NewsWire

The national delinquency rate has fallen below 4.0 percent for the first time since COVID-19 started messing up the world. Black Knight, in its "first look" at September's mortgage performance data, says the rate in September, 3.91 percent, represents a reduction of more than 41 percent from September of 2020 and is 2.25 percent below the August level. Delinquencies have moved lower in 14 of the last 17 months. There were 2.068 million loans that were 30 or more days past due in September, not including loans in foreclosure. This is down 54,000 from the prior month and 1.474 million fewer past due loans than the prior September. Black Knight says there would have been fewer delinquencies in September if not for Hurricane Ida which hit Louisiana especially hard. There was an increase of 7,800...(read more)

10/22/2021 1:19:51 PM

Posted To: Pipeline Press

Semper Fi! Tomorrow marks the 38th anniversary of the 1983 bombing in Beirut of a U.S. Marine barracks in the largest conventional explosive blast in history killing 241 Americans. San Diego has a huge military presence, and while there I spent a few hours with the folks at PenFed discussing trends in jumbo lending and the overall market for the near future and for 2022. In the very near future, Halloween is only nine days away! Dating back 2,000 years to the Celtic festival of Samhain, Halloween has evolved into a celebration characterized by child-friendly activities like dressing in costumes, trick-or-treating and carving pumpkin. The U.S. Census Bureau estimates 73.1 million children under the age of 18 that are potential trick-or-treaters… and future home financers. Which of these...(read more)

10/22/2021 9:31:30 AM

Posted To: MBS Commentary

To buy the dip or not to buy the dip (in bond prices). That is the question faced by traders today as 10yr yields hit the 1.70% technical level in after hours trading yesterday. This potential technical support coincides with the upper boundary of the ongoing trend channel. The day begins with a decent bounce from that level, but we should probably avoid getting too excited about it just yet. Bonds have bigger things to think about than modest technical bounces at long-term highs. While that sort of bounce can inform decent short-term momentum, the overall trend will continue to be dictated by big-ticket items like covid, inflation, Fed rate hike expectations, and curve trading (all of which are intertwined to a large extent). The case count narrative is well known: Inflation expectations haven't...(read more)

10/22/2021 9:04:28 AM

Posted To: MND NewsWire

Existing home sales resumed an upward trajectory in September after dipping 2.0 percent in August. The National Association of Realtors® (NAR) said sales of pre-owned single-family houses, townhouses, condominiums, and cooperative apartments rose 7.0 percent in September, although this still left them 2.3 percent behind the pace in September 2020. Sales were at a seasonally adjusted annual level of 6 .29 million units, compared to 5.88 million the previous month and 6.44 million a year earlier. Analysts polled by both Econoday and Trading Economics had expected sales to rise but undershot with consensus estimates of 6.03 million and 6.09 million units, respectively. The rate of single-family home sales rose by 400,000 month-over-month, a 7.7 percent increase , to a seasonally adjusted annual...(read more)

10/21/2021 3:27:43 PM

Posted To: MBS Commentary

Fear of The I-Word Today's 5yr TIPS auction met with heavy demand for inflation protection. While that didn't move markets at the time, it nonetheless underscores the heavy inflation concern driving traders to flatten the yield curve and move up estimated Fed rate hike timing. Indeed, Fed Funds Futures are now pricing in the first hike by June 2022. MBS underperformed 10yr yields, but kept better pace with 5yr Treasuries. Data had no impact as the market traded largely on momentum, technicals, and deal-related tradeflows (i.e. corporate bond issuance). Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Jobless Claims .... 290k vs 300k f'cast Philly Fed ............ 23.8 vs 25.0 f'cast Existing Sales 6.29m vs 6.09m f'cast Leading Indicators ...0.2 vs 0.4 f'cast Market...(read more)

10/21/2021 3:21:51 PM

Posted To: Mortgage Rate Watch

Mortgage rates haven't really been able to catch a break recently. This week is shaping up to be one of the worst since March. Since then, only 2 other weeks have been worse and they both occurred in the past month. In and of itself, today's jump in rates wouldn't be too troubling, but when added to the existing momentum, the losses are adding up. A conventional 30yr fixed scenario that had carried rates in the 2.75-2.875 neighborhood a month ago is now closer 3.125-3.25%. Making matters more frustrating is the fact that there really isn't any great, short-term explanation for the incremental damage. Negative momentum is simply embedded, and it has been since the Fed signaled its intent to taper its bond purchases on September 22nd. Around the same time, covid case counts began turning a corner...(read more)

10/21/2021 2:30:00 PM

Posted To: Pipeline Press

Thousands of people in the residential lending biz headed to the San Diego aerodrome and flew home. Plenty were sore from wearing dress shoes everywhere, although I saw plenty of gals in flip flops while in transit. Guys are happy to stop wearing ties. Masks at the airport sure cuts down on recognizing someone you may have met with the day before. What’s the chatter? Efficiency and cost cutting, the subject of this month’s STRATMOR blog . At the MBA event the vendors were out in force. Vying for the coolest name is Digital Silence , a firm focused on information security research and consulting services. There was the digital loan closing specialist Stavvy party. Househappy allows your client to take care of all their home project needs with a simple phone call or click. And a company...(read more)

10/21/2021 9:57:13 AM

Posted To: MBS Commentary

Considering yields have pushed to new long-term highs on 3 out of the past 3 days, it's safe to say that bonds are "trending" as opposed to flat/sideways. Covid cases are down sharply week-over-week. Econ data continues to be decent enough. And there are no signs that the Fed will forego a tapering announcement on November 3rd. This trend is not your friend. All we can do is stay defensive and wait for clear confirmation that bonds are turning a corner. For now, we're lucky that yields haven't attempted to break up and out of the rising rate channel we've been tracking. It's important, and potentially interesting to clarify what "rising rates" means. The main point of distinction is between nominal yields and "real" yields (those that have been...(read more)

10/21/2021 9:51:16 AM

Posted To: MBS Commentary

Sideways to Slightly Weaker After Another Long-Term High 10yr yields hit a 5-month high early in the overnight session and then managed to claw their way back to modestly stronger levels by the start of domestic trading. Amid a dearth of data and actionable headlines, bonds were left to "trade it out." That seemed to go fairly well at first, but yields adjusted back toward the highs of the day after the 20yr bond auction at 1pm ET. Perhaps the more relevant detail is that 10yr yields were never able to make it below 1.62%, even at their best. 1.62% had been a ceiling 3 days ago before becoming a floor yesterday afternoon. Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Market Movement Recap 08:39 AM Weaker to start the overnight session with yields hitting multi-month highs of...(read more)

10/20/2021 3:24:14 PM

Posted To: Mortgage Rate Watch

Mortgage rates began moving off longer term lows in early August and that trend has continued ever since. The September 22nd Fed Announcement (and press conference with Fed Chair Powell) served as a jumping-off point for additional volatility and upward momentum. In contrast, October has generally seen rates rise at a more gradual pace. On several occasions, they've merely held almost perfectly in line with the previous day's levels. Today is just such a day! There were no notable motivations for the underlying bond market today (bonds dictate interest rates). As such, today's sideways momentum makes sense. That said, it's worth mentioning that there are different versions of "sideways" when it comes to the financial market. Today's version was best described as "sideways to slightly weaker...(read more)

10/20/2021 2:44:00 PM

Posted To: MBS Commentary

Today has the dubious distinction of being exactly 2 weeks before the Fed announcement (the one that's likely to contain the official tapering announcement). While tapering seems like a bad thing for rates, the timing is important. The most relevant precedent (2013/2014) suggests that anticipation of tapering is actually what hurts the bond market while tapering itself coincides with rates topping out and beginning to decline. The only question for now is whether the bond market approaches Fed day in a sideways range or in an upwardly-sloped trend channel. There's more of a case to be made for the trend channel recently (in fact, that's really the only takeaway in the chart below). A strong ceiling bounce near current levels could change the outlook, but bonds would need to rally...(read more)

10/20/2021 9:31:04 AM

Posted To: Pipeline Press

Someone here in San Diego asked an audience, “Who out there misses their Blackberry?” and many raised their hands. Technology… an interesting thing. How about the ability to look at this “Star Wars House” in Florida: $11.5 million, not even on the water, but page down a few times in the photos . Many of the technology changes announced or advanced here in San Diego are focused on reducing the friction between application and funding. Part of that is the appraisal process , and acting director of the Federal Housing Finance Agency Sandra Thompson announced a change: allowing banks and mortgage lenders to use desktop appraisals in lieu of in-person home valuations . (The change makes permanent a measure that Fannie and Freddie instituted during the pandemic.) In...(read more)

10/20/2021 9:27:17 AM

Posted To: MND NewsWire

The volume of applications for mortgages to purchase newly constructed homes plunged in September, falling 16.2 percent from the September 2020 level according to the Mortgage Bankers Association's (MBA's) Builder Application Survey (BAS.) Compared to August the volume of applications was down 4.0 percent. These changes are not seasonally adjusted. Based on the volume of applications and on assumptions regarding market coverage and other data, MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 843,000 units in September, a 3.5 percent decline from the August pace of 874,000 units. On an unadjusted basis, an estimated 66,000 newly constructed homes were sold during the month, down 7.0 percent from the estimate of 71,000 sales in August. "New home...(read more)

10/20/2021 9:22:14 AM

Posted To: MND NewsWire

Mortgage application volume fell sharply last week, the second decline of more than 6 percent in the past three weeks. Refinancing was down for the fourth straight week and the volume of purchase applications fell as well. The Mortgage Bankers Association (MBA) said its Market Composite Index, which measures volume, was down 6.3 percent on a seasonally adjusted basis from one week earlier and 6.0 percent before adjustment. Refinancing led the way down. That index retreated by 7 percent from the previous week's level and was 22 percent lower than the same week one year ago. Refinancing still dominated the market, although that share of applications decreased to 63.3 percent of total applications from 63.9 percent the previous week. The Purchase Index was 5 percent lower week-over-week on both...(read more)

10/20/2021 9:20:53 AM

Posted To: MBS Commentary

The Trend is Not Your Friend October has been one of those unpleasant months where bonds have several reasons to weaken, few to rally, and where the market hasn't expressed any interest in departing from the logical baseline. In other words, rates are supposed to be rising right now, but they need to be careful not to rise too quickly for a variety of reasons. We're left with a slow motion train wreck of sorts. We know what's happening, and we just have to sit and watch. Could things change? Certainly. There are several reasons they might (even if not all of them are pleasant), but that's a "what if." The logical baseline is an unfriendly trend. Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Housing Starts 1.555 vs 1.620m f'cast, 1.580 prev Building Permits...(read more)

10/19/2021 3:30:26 PM

Posted To: Mortgage Rate Watch

Mortgage rates hit their highest levels in months yesterday as bonds lost ground at a brisk pace to start the new week. Bonds--specifically mortgage-backed securities (MBS)--are the most important ingredient used by lenders to determine mortgage rates. Bond market weakness (i.e. "losing ground") means that bond PRICES are falling. Bond prices vary inversely with bond yields, and yield is just a fancy term for "rate." In simpler terms, bond sellers had to offer higher rates of return to attract reluctant buyers. But why are bonds struggling? This is actually a general trend for bonds and rates for just over a year as the economy battles back against covid. The middle of 2021 was a bit of an aberration as the delta variant brought new pandemic-related uncertainty to financial markets. But now...(read more)

10/19/2021 2:48:00 PM

Posted To: MND NewsWire

Both Fannie Mae and Freddie Mac (the GSEs) will be expanding their low-income refinance programs to include those making at or below 100 percent of an area's median income (AMI). The threshold on the programs is currently at 80 percent of AMI. Sandra L. Thompson, acting director of the Federal Housing Finance Agency (FHFA) announced the change in her keynote address to the Mortgage Bankers Associations annual conference on Monday. Her agency, in monitoring the effects of the pandemic on different borrowers, found that, while many borrowers have taken advantage of the record low interest rates to refinance their mortgage, some population groups are at risk of being left behind. "We know through our long experience, including the Great Recession, that for those struggling with a mortgage, a meaningful...(read more)

10/19/2021 1:08:00 PM

Posted To: MND NewsWire

Both permits and housing starts fell in September following an unanticipated increase the previous month. Where the August gains were driven primarily by strong multifamily construction activity, a decline in that sector hurt the September metrics. Permitting was especially weak, with the lowest seasonally adjusted annual rate since September 2020's nearly identical number. Permits were issued at a rate of 1.589 million compared to a revised rate of 1.721 million in August, a decline of 7.7 percent. The August permits were originally reported at a rate of 1.728 million. As noted, there was no change from a year earlier. The forecasts for permits from analysts polled by Econoday all exceeded the reported number, ranging from 1.620 million to 1.725 million units. The consensus from both Econoday...(read more)

10/19/2021 9:36:42 AM