MBS RECAP: Apocalyptic Catalogue of Reprice Alerts

The report below was automatically generated at 4:09pm Eastern time.  I didn't send it out at that time due to THIS POST appearing shortly before the scheduled recap time.  That's where the bulk of the analytical assessment of the day can be found, along with a consumer-friendly version HERE.  The rest of this recap is merely the catalog of reprice alerts and some chat entries from earlier in the day.  But to be blunt, there's no way that this, or any recap can convey what we experienced on the MBS Live dashboard today.  It was an intense day and one that we won't soon forget as the day that potentially confirmed the break back over 2% 10yr yields and 4% mortgage rates (of course these things had already happened, but in a sense, were dependent on today's events for confirmation).  Our first post-Fed reprice alert was out at 2:03pm.  Our next alert was out at 2:08pm and said quite simply: "No text here... Reprices are coming."  If you typically read through the daily alerts, you know this level of verbosity is not common for me.  It was a serious day.

MBS Pricing Snapshot

Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.

Pricing as of 4:09 PM EST

Afternoon Reprice Alerts and Updates

Below is a recap of instant Reprice Alerts and updates issued via email and text alert to MBS Live subscribers this afternoon.

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2:56PM  :  ALERT ISSUED: Bernanke Says Rise In Rates Is a "Good Thing." Full Melt-Down

Good night, sweet MBS market. As feared, the Fed is willing to let mortgage markets run the gauntlet of a higher rate environment and see how it goes. This wire is a hearty tap of a nail in our coffin:

FED'S BERNANKE - RISE IN INTEREST RATES DUE TO OPTIMISM ON THE ECONOMY AND ACCURATE ASSESSMENT OF MONETARY POLICY IS A GOOD THING

Here's the logic: IF Bernanke is saying the assessment is accurate, and IF the assessment has been a frantic move to higher rates, THEN Bernanke is saying "yep, you did that right."

To make matters worse, he just told Binyamin Applebaum from the NY Times that "substantial is in the eye of the beholder" meaning that employment growth could be as good as they Fed wants it to be, without regard for other definitions. We also discussed this extensively recently in MBS Commentary posts.

MBS melting down, Stocks tanking, TSY pushing 2.32.

2:48PM  :  ALERT ISSUED: WHAT'S WITH THE CRAZY SELL-OFF ON LACK OF NEWS?

First of all, negative reprices are guaranteed if you haven't seen them. The alert servers are fully functional, and MBS prices are down to new lows at 102-21. 10yr yields are up to 2.2924. Here is some background on why things are happening the way they are:

As it turns out, tapering is still on the table, and the economic outlook is "as good or better" than it was. Bond buying remains intact, but the consensus outlook continues to be "September" for the first major possibility of tapering (it was an outside possibility today).

September tapering supports the recent range, and pending Bernanke comments, may afford us the opportunity to bounce back later today and beyond (days/weeks even). That's still on the table, but not guaranteed. Damage was done by the following:

-Downside risks for economy and labor market have dimished

- Labor market conditions have shown further improvements (this is EXACTLY what Bernanke said would need to happen back in March in order for tapering to begin).

- number of dissenters up from 1 to 2. that's a sign of a shift away from bond buying support. pretty big deal

- Fed beginning to distinguish between jobless rate and overall labor market conditions. (greases the skids to pay less attention to U/E and lean more appropriately on payrolls)

- Long term inflation expectations stable (i.e. no massive deflationary concern that requires printing money to defend against. Even then, inflation threshold in policy is only linked to Fed Funds Rate).

- "increase or reduce" pace of purchases remains in the statement. No one believes "increase" any more.

- Jobless rate forecast fall to 6.5 in 2014 from 6.7 previously. High end of estimates from 7.0 down to 6.8.

Bernanke presser is starting. Again the bottom line is that the 2pm data had a chance to refute the notion of tapering as possibility. It didn't do that. Bernanke's prepared remarks, instead, seem more focused on explaining why tapering is OK (using analogies to explain that Fed will ease off the throttle and this is merely "less support" as opposed to a withdrawal of support).

As the Q&A continues, Bernanke is doing more and more to confirm the reality of tapering in the near future, barring any major economic shift.

2:08PM  :  ALERT ISSUED: More Firmly Lower Now. Severe Reprice Risk

No text here... Reprices are coming.

2:03PM  :  ALERT ISSUED: First Move Following FOMC is WEAKER

negative reprice risk increasing. More to follow, but volatility has not worked it's way through the market yet. no nails in coffins yet. 10's at 2.23, MBS : no one knows... Bid and ask are so far away. We're probably headed lower at the moment.

12:58PM  :  ALERT ISSUED: Nervous Markets Ratchet Further Into Red. More Reprices

Little to be said about it at this point and even less that can be done about it. If you wanted off the ride before the Fed, you should already be off. If you were planning on floating through the Fed and another small reprices is enough to change your mind, then here you go: we're at risk of further reprices now. 10's broke just slightly over their supportive ceiling and trade at 2.2252. Fannie 3.5's are pushing the 103-00 barrier. More negative reprices expected (2nd round from quick lenders and guaranteed first round from anyone else who hasn't repriced yet).

11:26AM  :  ALERT ISSUED: Incrementally More Risky Than Before, but Not Full Blown

Whereas MBS were down to 103-07+ before, we're now down to 103-05+ now, making negative reprices slightly more risky than they were at the time of the last alert. 10's are up over 2.20 now (2.2035), but it's, as yet, unclear whether or not there will be any sort of mini-snowball momentum heading into FOMC. Right now, we're not there yet, and in fact, trading levels are well-contained by longer term trends--merely looking more serious in the context of 2-day charts.

That's not to say that there isn't a risk of negative reprices present. There is, and it's slightly elevated. But that risk is incidental, and nothing to do with any meaningful trading of today's events--premature or otherwise. Just "nerves" if you will. To be extra clear, that doesn't mean you should float if you need to lock! (just that, if today "drops the big one" on MBS, this ain't it).

11:06AM  :  ALERT ISSUED: Slightly Increased Reprice Risk as MBS Break Lows

It will probably be a bit soon for most lenders and we probably haven't seen sufficient losses, but MBS are edging into a range where negative reprice risk first becomes conceivable. Lenders who priced at the highs would have had 3.5s around 103-12. Given that we're now at 103-07+, the 4.5 ticks is just over the eighth of a point that usually brings about the amber alert. Making things slightly more austere is the fact that 10's have also broken above their overnight highs and are now up to 2.196 after holding under 2.19 previously.

Live Chat Featured Comments

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Matthew Graham  :  ""our assessment is that the MBS market is still a very healthy market in terms of spreads, execution times, and our effect on the market""

Brian Norton  :  "http://www.ustream.tv/federalreserve"

Matthew Graham  :  "MG2, just getting caught up with chat. Status quo vs May 22nd = not a ton of additional selling. I believe we've ALREADY HAD the FOMC reaction in that regard, traded out over the past month or so, and that any further pain is reserved for more pointed/specific mention of tapering prospects, or a marked acceleration in the member forecasts."

MMNJ  :  "or maybe it was that it did not include prepaids, so maybe if you list points as bonfied discount points they do not count in the max"

Bill Laffey  :  "It's Freddie, there's a worksheet for it. I believe its 5%"

MMNJ  :  "yes Jason, but if I remember correctly doesn;t Freddie (or maybe both agencies) have a max closing costs allowed ceiling?"

Jason Sheaffer  :  "on a HARP loan, is the borrower allowed to finance discount points?"

Bryan LaFlamme  :  "REPRICE: 12:42 PM - 360 Mortgage Worse"

Eric Lao  :  "REPRICE: 12:29 PM - Flagstar Worse"

Matthew Graham  :  "lots of room for correction here: http://screencast.com/t/oI311q34kipc . Smack dab on upper line right now."

Alan Craft  :  "chart?"

Matthew Graham  :  "Totally possible with no change to long term uptrend!"

Andy Pada  :  "the other guy said something like the 10 YR hitting the 1.7s."

Walter Hoskins  :  "REPRICE: 12:07 PM - Wells Fargo Worse"

Adam Dahill  :  "REPRICE: 12:07 PM - Fifth Third Mortgage Worse"

Eric Leithliter  :  "REPRICE: 12:03 PM - Quicken Loans Wholesale Worse"

Charles Beasley  :  "REPRICE: 12:01 PM - Chase Worse"

Craig Stanislaw  :  "REPRICE: 12:00 PM - BB&T Worse"

Rob Clark  :  "REPRICE: 11:51 AM - Provident Funding Worse"

Andrew Horowitz  :  "not that it needs to be said, but expect negative reprices to continue flowing from your banks based off the current move in MBS prices "

Andy Pada  :  "so far it seems that Santelli has proven himself to be all bluster"

Christopher Stevens  :  "I feel Hilsenrath is doing a great job and Santelli as always just screams"

Michael Gillani  :  "Santellin is heated!"

JRS  :  "REPRICE: 11:41 AM - Franklin American Worse"

Andy Pada  :  "actually enjoying Hilsenrath"

Matt Hodges  :  "REPRICE: 11:39 AM - Suntrust Worse"

Sung Kim  :  "i am thinking if the fed doesn't specifically address everyone's fear, then we continue the upward march in rates"

Christopher Stevens  :  "Hilsenratn v. Santelli on CNBC in a few minutes...that should be good tv"

Michael Gillani  :  "MG- I know we've all discussed this in circles over the past weeks but as of today, if Ben says the same as he's always said (which I expect) and doesn't say anything exceedingly dovish directed at the tapering fears, do we sell off further even though the sell off we've experienced over the past 45 days is based on tapering starting now or shortly? Or do we stay pretty even?"

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