Posted To: MBS Commentary

Big Bond Rally Just Got Bigger U.S. traders fired up the screens this morning to see a substantial bond rally and stock sell-off that happened almost exclusively during European hours. Rather than push back against the move, the domestic session took things a step farther. The motivations can be viewed as a complex mix of a pain trade for "risk-on" trading positions, technical levels, summertime seasonals, and the simple notion that it's too soon for the Fed to decide on tapering, but at the core is the fact that covid case counts are rising at their fastest pace since January. The pace of the stock sell-off added an additional source of motivation for bonds. Econ Data / Events Fed MBS Buying 10am, 1130am, 1pm Market Movement Recap 08:32 AM Sharply stronger overnight with most...(read more)

7/19/2021 2:37:42 PM

Posted To: MND NewsWire

Strong buyer demand appears to be offsetting concerns about labor shortages and rising prices , keeping builder confidence near historic highs the National Association of Home Builders (NAHB) said on Monday. The NAHB/Wells Fargo Housing Market Index (HMI), a measure of that confidence in the new home market, was at 80 in July, down 1 point from its June level. NAHB Chief Economist Paul Emrath said "Among the supply-side challenges, the price of OSB (oriented strand board) has been a particular problem lately. As of July 8, the price of OSB has skyrocketed to more than 500 percent above its January 2020 level. Such cost increases are putting upward pressure on home prices and sidelining many prospective home buyers. The situation has become so extreme that the White House recently heeded NAHB...(read more)

7/19/2021 10:30:03 AM

Posted To: Pipeline Press

“My password is weak? Well, so is my memory, so cut me some slack and let me keep it!” What isn’t weak is the bond market, and rates continue to fall. Lenders, weak or strong, have a lot on their plates. Mortgage rates continue to drop, and lenders are grappling with renegotiations, improving efficiency, and nationwide appraisal delays and expenses. And how’s your move back to the office, or not, going? “Our profession cannot long endure a remote work model!” That’s what the Morgan Stanley Chief Legal Officer is telling law firms. "I strongly believe that firms that return to the office will have a significant performance advantage over those that do not," CLO Eric Grossman wrote in a letter to Morgan Stanley's outside law firms. (Today’s audio...(read more)

7/19/2021 10:25:42 AM

Posted To: MBS Commentary

The week is off to a very strong start as heavy selling in stocks coincided with a flight to safety in bonds during the overnight session. Treasuries gained momentum after breaking the recent lows from July 8th, ultimately hitting 1.225% at the start of the CME session (8:20am ET). Overnight lows of 1.215 coincide with the gap we discussed on July 8th (1.213 - 1.25 from back in February). The next major inflection point is 0.99%, which feels like a bridge too far in the current environment (but so did 1.21% just a few short weeks ago). There are no big ticket events on the econ calendar for Monday, and the rest of the week is mostly focused on housing. Broader markets will be more interested in central bank updates. The European Central Bank (ECB) releases its policy announcement on Thursday...(read more)

7/19/2021 8:13:12 AM

Posted To: Mortgage Rate Watch

It was big, bad news when it came out last summer. Almost a year later, the 50 basis point "adverse market fee," which affected a majority of refinance mortgages has been eliminated! Backstory In early August 2020, Fannie and Freddie (who collectively buy or guarantee a vast majority of all mortgages) announced that virtually all conventional refinance loans would be subject to a new fee of 0.50 points (e.g. an extra $1500 upfront on a $300k loan, or a 0.125-0.25% increase in rate). After much protest, the implementation of the fee was delayed at the end of August. Lenders ultimately began adding it back into rate sheets en masse by mid September. All of the above can be seen in the following chart which shows the effects on average daily rates. Fast forward to the summer of 2021 and some recent...(read more)

7/16/2021 4:11:00 PM

Posted To: MBS Commentary

Quiet Bond Market Leaves Focus on Demise of Adverse Market Fee Seemingly out of the blue, the much-maligned adverse market fee for conventional refis was removed today. Lenders acted quickly to adjust pricing for new locks with most going so far as to adjust existing locks depending on their nearness to the closing table. This made for good drama and discussion on MBS Live, and it was an ideal day for such things considering a complete absence of volume and volatility in the bond market. 10yr yields ended with 1bp of unchanged and MBS underperformed slightly to end 2-3 ticks weaker (-0.06-0.09). The underperformance could be as simple as investors making token adjustments for the impact on prepayment speeds from the removal of the adverse market fee (it's not a huge consideration, but it...(read more)

7/16/2021 4:09:37 PM

Posted To: MND NewsWire

It is nice to end the week with good news, so here it is: The Federal Housing Finance Agency (FHFA) just announced it is eliminating the Adverse Market Refinance Fee that the GSEs Fannie Mae and Freddie Mac have been charging. The change becomes effective for loan deliveries on and after August 1, 2021. The 50-basis point fee was designed to cover losses projected as a result of the COVID-19 pandemic. However, the agency says the success of policies it and the GSEs put into effect in response to the crisis were effective enough to warrant an early conclusion of the Fee. FHFA's expectation is that those lenders who were charging borrowers the fee will pass cost savings back to them. "The COVID-19 pandemic financially exacerbated America's affordable housing crisis. Eliminating the Adverse Market...(read more)

7/16/2021 1:19:47 PM

Posted To: MND NewsWire

The rapid run up in house prices may be starting to exhaust potential homebuyers according to the quarterly forecast from Freddie Mac's Economic and Housing Research (EHR) Group. The economists say recent indications are of softening demand in home purchase mortgage applications, and the pace of sales, while still elevated from before the pandemic, have cooled since the first of the year and have been slowing for the last four months. Accordingly, the EHR Group is forecasting home sales will decline to 6.9 million from seasonally adjusted rates of 7.6 million in the fourth quarter of 2020 and 7.2 million in Q1 of 2021. They also expect home prices to moderate from the 17 percent year-over-year gains reported in the May release of Freddie Mac's House Pire Index (FMHPI), the highest growth in...(read more)

7/16/2021 11:48:58 AM

Posted To: MND NewsWire

A set of special questions on a Q1 National Housing Survey asked consumers, who were also recent homebuyers, about their experiences obtaining a mortgage during the pandemic. Fannie Mae was a little surprised by some of the results. Tim McCallum and Jenney Shen, vice president's for customer management solutions in the company's Single-Family Division, wrote about those results in Fannie Mae's Perspectives blog. They said that the questions specifically asked about mortgage satisfaction and whether the pandemic had encouraged homebuyers to use on-line mortgage resources. "We wanted to better understand how the pandemic may have changed the digital behavior of consumers seeking a mortgage, as it did in many other industries," they said. They found that consumers were generally satisfied by their...(read more)

7/16/2021 11:45:59 AM

Posted To: MND NewsWire

There was a significant loss of credit access in June. The Mortgage Bankers Association (MBA) says its Mortgage Credit Availability Index (MCAI) fell by 8.5 percent month-over-month to 118.8, its lowest level in nine months. A decline in the MCAI indicates that lending standards are tightening, while increases in the index are indicative of loosening credit. All of the MCAI components moved lower. The Conventional MCAI decreased 17.1 percent, while the Government MCAI ticked down 1.4 percent. Of the component indices of the Conventional MCAI, the Jumbo MCAI declined 11.5 percent, and the Conforming MCAI fell by 23.5 percent. "Mortgage credit availability in June fell to its lowest level since September 2020, ending more than half a year of increasing credit supply. The overall credit availability...(read more)

7/16/2021 11:43:04 AM

Posted To: Pipeline Press

I am sure that there are people who read this commentary who firmly believe that the earth’s climate is not changing, and believe that historical graphs of temperatures in places like Minneapolis are falsified. And there are those that believe that any change is purely natural and has nothing to do with humans. Others believe mankind is causing climate change, violent storms, flooding, etc. That said, does anyone disagree that poorer areas in the United States are hotter than affluent areas because they have more asphalt and fewer trees? Researchers of this phenomenon have made their data publicly available and created an interactive map . Poorer neighborhoods, usually of color, tend to have more asphalt, buildings, and highways, all of which absorb the incoming solar energy and then...(read more)

7/16/2021 10:22:30 AM

Posted To: MBS Commentary

As bonds have recovered from the high yields seen in March, the tendency has been for rally weeks to end with a bit of defensiveness on Fridays. This is most common on the week or two following a break below prevailing technical resistance. In other words, yields had been struggling to break through a certain floor, and if they subsequently broke that floor and rallied further, the week of the breakout would see a pull-back. The body of evidence is limited to only 3 obvious examples, but the pull-back has happened in roughly the same way every time. If early trading is any indication, today is off to a similar start, but there really aren't any implications beyond the intraday time frame. It would actually be a bullish turn of events to see yields simply hold under 1.36%. In fact, considering...(read more)

7/16/2021 8:49:06 AM

Posted To: MBS Commentary

Bonds Keep Running The Table Without Much Motivation The absence of overt, discrete motivation is one of the most interesting facets of the bond rally over the past few weeks. If anything, the overt/discrete stuff has made stronger cases for bond market weakness (i.e. high inflation reports and weak auctions). This speaks to a bigger picture shift in market psychology and has given way to more technically-motivated trading. Today also saw a good amount of influence from the corporate bond issuance process (and a surprising absence of influence from Fed Chair Powell's 2nd day of testimony). Net/net, yields closed down 5bps, right in line with the next technical level on our list (1.30%). We're not eager to bet against a bond market that's been so willing to rally, but nonetheless...(read more)

7/15/2021 2:06:43 PM

Posted To: Mortgage Rate Watch

Mortgage rates fell again today as the bond market continues to enjoy surprisingly strong levels over the past 2 weeks. That strength was not always a given as rates were actually moving higher from Friday through Tuesday. Since then, however, they've been falling back toward the recent lows seen on Thursday, July 8th. "Toward" is the operative word there as the average lender is definitely not yet any lower than that. In other words, mortgage rates may be lower today, but they're better described as "flat to slightly higher" in week-over-week terms. This is in contrast to Freddie Mac's weekly rate survey released this morning, showing a 0.02% decline on the week, but as always, Freddie's survey methodology means we're not really looking at Thursday vs Thursday. Instead, Freddie's rate tends...(read more)

7/15/2021 1:45:00 PM

Posted To: Pipeline Press

Ask any manager. It was much more fun to announce, “We’re hiring!” than it is to mutter, “We’re laying off.” Currently there are plenty of rumors about lenders, both publicly and privately held, down-sizing. (I guess the PC term is “right-sizing” but I’ve never heard an expanding company use that term.) Here is a quick reminder that anyone can post their resume for free at LenderNews where companies can view them. Although there is no correlation, residential lenders’ employee numbers are following the price of wood which has dropped dramatically to the “pricey, yet reasonable” tier of commodity valuation after rising to stratospheric heights earlier this year. Since the 1990s, lumber’s mostly traded for $200-$400...(read more)

7/15/2021 10:20:47 AM

Posted To: MBS Commentary

After Wednesday's respectable rally, we may as well give up the search for too much discrete causality in the bond market. While we can definitely observe connections in the short term to individual events, technicals and tradeflows have been just as relevant and they tend to play out less predictably in terms of timing and ground-covered. 10yr yields successfully defended against a break above a ceiling at 1.424 and moved fairly quickly back to the next technical zone underfoot. This could be seen as anything from 1.34 to 1.38, but we've been using 1.36 in our "key levels" list. As of this morning, bonds were also able to make a case for new breakouts--both of the short-term uptrend (yellow lines) and of 1.36. In so doing, they've moved to test the pivot point at 1.30...(read more)

7/15/2021 9:34:52 AM

Posted To: MBS Commentary

Bonds Recover as Friendly Powell Trumps Inflation Data (sort of...) Producer prices surged in this morning's report at the same time that Powell's prepared remarks were released for this afternoon's congressional testimony. The subsequent improvement in bonds makes it tempting to credit Powell's speech for the victory. Powell certainly did no harm as he maintained the same stance seen in all recent communications but it's important to note that more than half the gains were intact by 8:30am. In retrospect, yesterday is looking more and more like "supply indigestion" for bonds, and today could thus be seen as a return to the prevailing baseline (apart from yesterday afternoon, 10yr yields have traded a very narrow range between 1.33 and 1.37 for 4 straight days...(read more)

7/14/2021 3:24:09 PM

Posted To: Mortgage Rate Watch

Mortgage rates moved higher yesterday after a poorly-received 30yr bond auction ( read more... ). The bond market began to heal in the overnight trading session. By the time US traders clocked in this morning, more than half of the weakness had been erased. As the day progressed, things have only improved. All this despite another hotter-than-expected inflation report (something that traditionally puts upward pressure on rates) to kick off the day. While inflation is indeed bad for rates, all other things being equal, there are several caveats at the moment. The first is that the current inflation spike is well understood as being driven in large part by covid-related supply chain disruptions, even if the boundaries are not easy to predict in the short term. Everyone hopes or expects the inflationary...(read more)

7/14/2021 2:02:00 PM

Posted To: Pipeline Press

Don’t think technology controls you? How about this news that Apple’s weather app will never show a temperature of 69 degrees ? Good mortgage loan originators use the technology available to them to best help their customers. Brokers use Mortgage Elements to look for wholesalers offering products. Meanwhile, many consumers are doing the same. Have you heard of BestLendersFor.com ? It has launched into the United States, “providing free real time rankings for consumers, and mortgage rates to consumers nationwide… Through its own diligent research, extensive conversations with each lender, a review of each lenders consumer reviews and plugging into each lenders daily offered rates in real time, it will give consumers a one stop place to save time, money, and headaches...(read more)

7/14/2021 10:37:21 AM

Posted To: MBS Commentary

The bond market doesn't tend to care about wholesale inflation (PPI) relative to the mainstream indices (CPI, PCE), but a number as high as 5.6% might give us some pause. Or at least we might have have imagined it would before this morning. Bonds didn't think twice about taking it in stride. Combine that with yesterday morning's tame reaction to the highest CPI in 30 years and a Powell speech (later today at Congress) that reiterates the commitment to ongoing accommodation, and bonds are off to a solid start. Stocks are off to a solid start as well, and for largely the same reasons. Simply put, when economic data or Fed speakers do something to inform the outlook for Fed accommodation, stocks and bonds tend to react predictably. More accommodation = stocks up and yields down. Less...(read more)

7/14/2021 9:03:53 AM