MBS RECAP: Mortgages Continue To Underperform; ADP Opportunity

Despite being near their best historical levels compared to Treasuries in the long run, MBS are at their weakest relative levels of performance since before the QE3 announcement.  We discussed this in a bit more detail this morning, and today's session was essentially more of the same.  In fact, it's even a bit worse than that considering Treasuries really didn't make any overly menacing gestures higher in yield (though they were weaker).  It's as if each passing moment spent with Treasuries trading above 2.11-ish sears the flesh right off MBS competitiveness.  As the morning post discusses, the backdrop (the one where the Fed chairman said he'd like to get back to a predominantly Treasury portfolio, where MBS have been widening ever since QE3 lost it's initial wow factor, where the future of the GSEs and securitization is uncertain, and where there's been extreme volatility in the recent past and game-changing market movers in the near future) isn't very supportive either.  This is especially depressing for fans of low mortgage rates.  Any short term salvation looks like it will almost exclusively rely on ADP payrolls tomorrow morning, and then of course, Friday's NFP coming in weaker than expected.  If that doesn't happen, we stay on the pain train until the FOMC Announcement mid-month.

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 4:07 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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3:56PM  :  ALERT ISSUED: Into New Lows; Negative Reprice Risk Increasing

Now we're at levels where negative reprices are incrementally more likely for more than just one or two lenders, unless we were to bounce immediately higher following this alert.

Things still aren't catastrophically awful, but 3.5s and 3.0s are both into new lows of the day. In 3.5s, especially, the drop to 103-00 even, is noticeably weaker than the previous lows of 103-02.

Trading conditions are volatile in MBS despite 10's holding roughly in line with the mid 2.14's from the last update. Stocks looked like they were going to try to break even on the day, but have backed off (and don't seem to have the juice with only 5 minutes left).

3:42PM  :  ALERT ISSUED: MBS Move Back To Lows; Reprice Risk Uncertainty

This is a bit of a precarious situation for negative reprice risk because outright price levels are no worse than they were this morning, but are at the lows and heading in the wrong direction late in the day. That's a situation where we occasionally see a lender or two reprice for the worse, so we'd advocate some caution here, but "knowing thy lender," would trump that caution if you have enough experience with the lender in question.

Beyond that, the important point is that MBS are at lows. Fannie 3s are back to 100-05 and 3.5s are down to 103-03. 10yr yields couldn't make it down through 2.12 and are back up to 2.146 as equities rally late in the day. Bottom line: caution > panic, at the moment. We're not immune from an odd reprice or two here, but still inside today's range. We'll let you know if that changes.

1:14PM  :  CFPB releases exam procedures for new mortgage rules

WASHINGTON, D.C. â€" Today, the Consumer Financial Protection Bureau (CFPB) published the first update to its exam procedures for the new mortgage regulations it issued in January 2013. The exam procedures offer financial institutions and mortgage companies valuable guidance on what the CFPB will be looking for as the rules become effective. The new regulations include those on appraisals, escrow accounts, and compensation and qualifications for loan originators.

Read More...

11:50AM  :  MBS Underperforming Again, But Holding Support For Now

The state of play in MBS is a bit less dire than it had been at the last update. Even though we continue to lag behind Treasuries, and despite an exceptionally bumpy ride from 9:30-present, Fannie 3s and 3.5s have managed to hold on to the morning lows and make incremental improvements from there.

This not only decreases negative reprice risk for the precious few lenders that may have been out before the drop this morning, but due to the conservative rates put out as a result of that drop, the bounce back is beginning to introduce POSITIVE reprice risk into the mix. That would probably take more time or further gains for any other lenders to consider beside the one reprice already out.

Beyond that, we'd caution against further volatility. The gains are good for now, but the positive surprise is equivalent to the kind you get when when your car dies and you manage to get it started and running just long enough to make it to the shop. With 10yr yields at 2.1355, we're right in the middle of the recent range and at a bit of a pivot with yesterday's high yields. If 10's have trouble moving lower from here, MBS won't likely make it back to opening levels.

Fannie 3s are currently down 6 on the day at 100-11 and 3.5s are down 7 at 103-09. Both are roughly a quarter of a point off previous lows, however.

Live Chat Featured Comments

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Ted Rood  :  "Long time ago, a mortgage guru told me "become an expert and let everyone know it." That's EXACTLY what MBS Live does, if you leverage it correctly."

Jude Bridwell  :  "Here too. I had a guy come in the other day, and the first thing I showed him after he sat down"

Justin Harward  :  "absolutely Jude. Whenever I have a client come in my office in person, I show them the dash board"

Jude Bridwell  :  "That's why I love this site. Can send customers articles as well to prove yourself"

Matthew Graham  :  "RTRS- FED'S GEORGE SAYS ADJUSTING PACE OF ASSET PURCHASES WOULD PREPARE MARKETS TO BE LESS DEPENDENT ON CENTRAL BANK ACTIONS "

Patrick McCarroll  :  "Those charts are invaluable when clients want to discuss what they “heard” rates were two weeks ago. "

Curt Sandfort  :  "advanced charts tab is awesome"

Patrick McCarroll  :  "You can look that up in advanced charts"

Chip Harris  :  "Found this in the 4155.1 If the LTV exceeds 75%, a mortgage with non-occupying borrower(s) is limited to a one-unit property. The non-occupying borrower arrangement may not be used to develop a portfolio of rental properties. The financial contribution by the nonoccupying borrower and the number of properties owned may indicate that the family members are acting as “strawbuyers"

michael kirsch  :  "chip, to my understanding the occupying borrower would need to fully qualify dti wise and credit wise anyways so no point in adding non-occ borrowers anymore, why did you add the non occ borrowers?"

Chip Harris  :  "BC, realtor just sent me this. am listing a duplex in Lakewood and was able to get the buyer as well. They had a lender that I could not swing them away from. We are 2 weeks into escrow and their lender just told them that since they are non-occupant co-borrowers involved they need to put 25% down which kills the deal."

Matthew Graham  :  "RTRS- FED'S RASKIN SAYS THERE HAS BEEN PROGRESS IN THE U.S. LABOR MARKET SINCE THE DEPTHS OF THE RECESSION BUT WE HAVE MUCH FURTHER TO GO "

Matthew Graham  :  "more loans will be going out the door securitized into 3.5s, but 3.0s may be just as much of a consideration if not more so, when it comes to reprice risk. "

Matthew Graham  :  "when 3s vs 3.5s are inside 300bps, it's a toss up."

Tom Bartlett  :  "got it. Just wondering which one I should open my MBS live with these days."

Matthew Graham  :  "3.5s by a wide margin, but as I always point out, that's a symptom of the changes you've already seen on rate sheets rather than an indication of anything that's going to happen in the future."

Tom Bartlett  :  "what is the current highest volume FNMA coupon? 3.5? 4.0?"

Tom Schwab  :  "REPRICE: 12:34 PM - Flagstar Better"

Rfellner  :  "with excellent credit. the MI would be roughly $134 per month. its based on 0.67%. You do have the option to pay some upfront if not all of it which can reduce the payment to $80 per month. "

Rfellner  :  "30% coverage"

drew whitford  :  "how much coverage %age do i need. 5% down, 253K loan amt"

drew whitford  :  "so when looking at this rate sheet http://www.radian.biz/sfc/servlet.shepherd/version/download/068C00000013oaUIAQ"

Victor Burek  :  "its a big gamble, but a weak report would result in a pretty substantial rally"

Victor Burek  :  "if purchase loans, and they qualify at current rate, i would 100% lock those...refis, let the client decide"

Craig LaBruno  :  "I guess it's getting close enough to Friday to start asking this question. Is anyone going to take the bold move of floating some loans through the jobs report or is nobody taking this risk? I have decisions to make on only 2 deals but still, 2 deals is 2 deals. All others were locked before the madness began and any loan I've taken since the madness began I've been locking at application. That's all but 2. LOL"

Paul L. Martin  :  "Mark G - I think the Bloomberg Chart may be a bit decieving given that earnings per share may be partly due to stock buybacks. Would be interesting to have a chart which factors this in to re-correlate data (don't know if stock buybacks imact much or not)"

Dan Clifton  :  "REPRICE: 11:26 AM - Provident Funding Better"

Mark Gordon  :  "Bloomberg has a chart out today showing stock prices against corporate earnings which suggest this is a very well supported bull market. Looks like stocks still have lots of room to go just based on this. "

Noah Thompson  :  "Seriously. This is getting ridiculous.."

Dan Clifton  :  "Someone PLEASE buy some MBS"

Steven Stone  :  "yeah single MI is killer"

John Rodgers  :  "I love single MI. I also do loans in FL"

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