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3/31/2020 Mortgage Market is Freaking People Out

Posted To: Mortgage Rate Watch

There are too many counter-intuitive and frustrating developments in the mortgage market to comprehend all at one time, let alone discuss. That's not a cop-out as much as it is a favor I'm doing for you. If we tried to cover all of the nonsensical ground right here, this would become yet another wall of text in this era where they're all too common. So I'll try to make this pithy and interesting. The bottom line is that mortgage rates are all over the place, depending on the lender and the loan program. Lender rates on the same program are farther apart than they've ever been. Day-to-day and intraday movements are huge and seemingly random. Whereas mortgage rates typically take a vast majority of their guidance from the trading levels in the mortgage bond market (95%+), the correlation is less...(read more)

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3/31/2020 HAVE A QUESTION ABOUT FED MBS BUYING?

Posted To: MBS Commentary

CURRENT FED MBS BUYING SCHEDULE AND PURCHASE LOOKUP TOOL I'm changing up this Q&A to make it shorter, denser, and better. If it's too pithy for you, revisit the previous version of this commentary HERE and take time to internalize the bigger picture). Bullet points that answer the most common questions I receive: WHAT IS THE FED BUYING? Fannie, Freddie, and Ginnie MBS, 2.5-4.5 coupons WHY? Because you're not (buying MBS), and neither is anyone else (relatively). If no one is buying, no one can lend. Fed is facilitating liquidity in credit markets. Juicing MBS prices is a byproduct, not the primary goal. NOT BUYING: 2.0 coupons START DATE: March 16th, 2020 WHEN: Every biz day since then. They publish a buying schedule ahead of time and results are posted immediately (LINKED AT...(read more)

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3/31/2020 Solid Home Price Gains Continued into January Ahead of Coronavirus Pandemic

Posted To: MND NewsWire

Home prices entered 2020 still on the uptick according to the S&P CoreLogic Case-Shiller indices. The U.S. National Home Price Index, which covers all nine U.S. census divisions, reported a 3.9 percent annual gain in January. The year-over-year increase in December was 3.7 percent. There was no monthly change in the non-seasonally adjusted (NSA) index from December to January, but after adjustment the National Index was up 0.5 percent. The 10-City Composite Index posted a 2.6 percent annual gain, up from 2.3 percent in December and the 20-City Composite rose 3.1 percent, a 0.3-point greater increase than the month before. The 10-City measured eked out 0.1 percent monthly growth while the 20-City was flat on a non-adjusted basis. Both indices moved 0.3 percent higher after adjustment. Ten...(read more)

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3/31/2020 MBS Day Ahead: Let's Talk About Porridge

Posted To: MBS Commentary

I don't know much about porridge. I'm not even sure I've ever eaten it. I do know one thing about it though: the temperature has to be "just right" from what I've heard. Markets--especially bond markets--are very much like Goldilocks when they're responding to a major shock and quickly adjusting to a new reality. The initial reaction to a a shock often sees a quick investigation of the hottest bowl of porridge. That is to say, the world is ending and people can't buy bonds fast enough. Yields fall precipitously, and MBS prices rise as much as they can in the context of their convexity-related limitations. Then a new reality sets in that places a premium on liquidity and cash positions. It's exacerbated by a technical correction leading back from the just...(read more)

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3/31/2020 Marketing, Cybersecurity, eClosing Products; Shifts in LTVs, Credit, Pricing, Appraisal Policies

Posted To: Pipeline Press

Remember when all we had to worry about was Amazon taking over mortgage banking? The sun hits different here in March – see joke at bottom. (Thirty days hath September, April, June, and November. All the rest have thirty-one except March which has 8,000.) Unintended consequences: It’s a fascinating case study, among millions of others, that the Federal Reserve stepped in to buy Agency MBS in an attempt to create price stability but induced a huge rally in MBS (not rate sheets!), causing even more margin calls for lenders as their positions used for hedging increase in price and their mark-to-markets deteriorate. Talk is that the Fed is scaling MBS purchases back, helping lenders reduce renegotiations, increase pull through, and hopefully cause less of a price rally thus reducing...(read more)

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3/30/2020 What's Being Done to Prevent Forbearance From Crushing The Mortgage Industry?

Posted To: MND NewsWire

Among responses to the job losses and reduced income already emerging from the COVID-19 pandemic has been a moratorium on foreclosures and a requirement, coming from many quarters, that servicers offer mortgage borrowers an extended period of forbearance from their mortgage payments. This has raised an issue regarding the liquidity of those servicers. Late last week Treasury Secretary Steven T. Mnuchin announced formation of a task force to focus on mortgage liquidity problems and has given them until March 30 to present their recommendation. The Mortgage Bankers Association (MBA) outlined the servicers' potential forbearance problem in a March 20 letter to Mnuchin and Federal Reserve Chairman Jerome H. Powell. Under contracts with investors who purchase mortgage-backed securities (MBS), servicers...(read more)

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3/30/2020 Pending Home Sales Are Robust Prior to Shutdown

Posted To: MND NewsWire

Pending home sales, which jumped 5.2 percent in January, did not retrench as expected last month. The National Association of Realtors® (NAR) said its Pending Home Sales Index (PHSI) grew 2.4 percent to a reading of 111.5 in February. The PHSI is a forward-looking indicator based on signed contracts for purchase of existing single-family homes, townhomes, condos, and cooperative apartments. The February index level is 9.4 percent higher than a year earlier. After its unusually large gain in January, the index was expected to move lower. Analysts polled by Econoday had a very wide range of forecasts, from -2.5 percent to 5.0 percent with a consensus for a 1.6 percent decline. "February's pending sales figures show the housing market had been very healthy prior to the coronavirus-induced...(read more)

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3/30/2020 LO Jobs; Broker Products; California MBA Weighs In; Deep Capital Markets Dive

Posted To: Pipeline Press

After a long time in captivity with the same people, one may become, uh, less than enamored with their pals. “12 th day of self-isolation and it’s like Vegas in my house. We’re losing money by the minute, cocktails are acceptable at any hour, and nobody knows that time it is.” How’d you like to have a huge investment in WeWork? Word has gone out to dedicate your computer’s unused computing capacity to discovering more about the virus . There are still shortages, perceived or real, and I received this note from Rich B. in Salt Lake City: “Our neighbor’s tract home got TP’ed last night and now it’s listed on Zillow for $12.1 million.” One wonders if the U.S. Government, and its related entities, will ever have a shortage of money...(read more)

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3/30/2020 The Fed Is Buying Fewer Mortgage Bonds This Week (Sort Of...)

Posted To: MBS Commentary

Here is this week's MBS buying calendar . It differs from last week's in that there is now only $40bln of purchases per day rather than $50bln. So does that mean MBS prices are doomed? Not even a little bit. In fact, the number is still so high as to defy logic. After all, if we add up all the Fed's accepted MBS bids this week, the grand total is roughly $183,307,000,000 or about $36.66 bln per day. Given that the Fed just drove the price of UMBS 2.5 coupons up to 104-15 by Friday afternoon--a delta of more than 6 points from the lows seen at in the previous week--one might expect them to modulate the throttle a bit more. But to the Fed's way of thinking, they're doing their job by controlling volatility and making sure every last seller has a buyer. The margin call side...(read more)

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3/27/2020 MBS Day Ahead: Lender Pricing Will Continue to Defy MBS Logic in Some (Many?) Cases

Posted To: MBS Commentary

I devoted years of my life championing the cause of educating mortgage originators on the realities of MBS price movement. The most compelling call to action came during the meltdown where MBS told a story that wasn't being told by Treasuries. Everything changed after the Fed stepped in with a giant syringe full of bond volatility's favorite sedative: QE. The final straw was QE3 which specifically targeted MBS buying in September 2012. At the time, and ever since, I declared that to be proof positive that the Fed "gets it" with respect to mortgage performance vs benchmark rates and that it was proof positive that they wouldn't let spreads slide away into oblivion ever again. The end of 2012 was the last time I would need to go into much detail to explain MBS vs Treasuries...(read more)

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3/27/2020 Broker, Credit Products; IRS/Tax Transcript, Jumbo, MISMO, RON Changes

Posted To: Pipeline Press

While in captivity it is important to have good communication . (Early anecdotal chatter indicates that the remote workforce has signs of improved productivity!) In the Northwest, Banner Bank’s mortgage group celebrated working from home with a short YouTube video of everyone’s home office (one is in the garage – bumper to bumper every day!) Thank you to Kris van Beever who sent along these cybersecurity tips for working from home to keep communication safe. Communicating with politicians in this crisis is critical. “Rob, do politicians understand that one year’s worth of forbearance would basically put every lender who services loans out of business?” I dunno. At this point the MBA, state, and industry organizations are working overtime on making sure they...(read more)

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3/27/2020 Refinances Dominated Freddie Mac Volume in February

Posted To: MND NewsWire

Freddie Mac reported this week that its total mortgage portfolio increased at an annualized rate of 5.5 percent in February , up from a 4.3 percent gain in January. The portfolio balance at the end of the period was $2.350 trillion compared to $2.339 trillion at the end of January and $2.190 trillion a year earlier. The growth rate for the year to date is 4.9 percent. Purchases and Issuances totaled $46.054 billion and Sales were ($1.041) billion. The January numbers were $47.606 billion and ($.253) billion respectively. Single-family refinance loan purchase and guarantee volume was $23.800 billion in February compared to $25.800 billion in January and representing a 59 percent share of total single-family mortgage portfolio purchases and issuances compared to 57 percent the previous month...(read more)

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3/26/2020 Who Broke The Mortgage Market And When Will It Be Fixed?

Posted To: MBS Commentary

I will do my best to speak to both consumer and mortgage industry people on this topic. It affects everyone. With that in mind, the following is a list of questions that loan originators have been asking. Consumers might not be familiar with all the terms, but the rest of this article will speak to everyone. Why are so many non-QM lenders raising rates or disallowing new apps? Why can't I do cash-out non-QM or Jumbo right now? Or Non-Owner, high LTV, low FICO? Why are my FHA/VA rates suddenly terrible? Why am I suddenly seeing MASSIVE hits for certain FICO/LTV combinations? Why am I suddenly hearing more than I've heard since 2008 about lenders potentially being in trouble? Why are lenders changing rates MASSIVELY from day to day? Why are different lenders so far apart from one another...(read more)

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3/26/2020 CFPB Empowers Fannie/Freddie to Overcome Lockdown Woes

Posted To: MND NewsWire

Flexibility seems to be the keyword as government agencies try to adjust to a lot of new realities. The Federal Housing Finance agency has already empowered the GSEs (Fannie Mae and Freddie Mac) to be flexible about obtaining appraisals, verifying borrower credit factors, and working with distressed borrowers. Now the Consumer Financial Protection Bureau (CFPB) says it is "providing needed flexibility to enable financial companies to work with customers in need as they respond to the COVID-19 pandemic." "As consumers seek temporary relief from lenders, the pandemic is impacting the operations of financial companies that are eager to help their customers during this unprecedented time," said CFPB Director Kathleen L. Kraninger. "Our actions today are temporary and targeted to support consumers...(read more)

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3/26/2020 Builders Already Feeling Pandemic Pinch

Posted To: MND NewsWire

New home building, which only recently and belatedly caught fire, is already feeling the effect of the COVID-19 virus response. The National Association of Home Builder (NAHB) recently did a quick on-line survey of its members and 81 percent said they had noticed a slowdown in buyer traffic. The survey was conducted between March 18 and March 23. It was a small sample, 308 responses, but more than half came from single-family builders and more than two-thirds were from company owners or CEOs. The survey listed seven possible impacts of the coronavirus and asked if each has so far had a major, minor, or no adverse effect on respondents' businesses. Forty-six percent of builders cited a major downturn in buyer traffic and 35 percent said there was a minor reduction. Other adverse impacts were...(read more)

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3/26/2020 Builders Already Feeling Pandemic Pinch

Posted To: MND NewsWire

New home building, which only recently and belatedly caught fire, is already feeling the effect of the COVID-19 virus response. The National Association of Home Builder (NAHB) recently did a quick on-line survey of its members and 81 percent said they had noticed a slowdown in buyer traffic. The survey was conducted between March 18 and March 23. It was a small sample, 308 responses, but more than half came from single-family builders and more than two-thirds were from company owners or CEOs. The survey listed seven possible impacts of the coronavirus and asked if each has so far had a major, minor, or no adverse effect on respondents' businesses. Forty-six percent of builders cited a major downturn in buyer traffic and 35 percent said there was a minor reduction. Other adverse impacts were...(read more)

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3/26/2020 Digital, Compliance, Servicing; Commercial and State Bond Products Next to be Impacted?

Posted To: Pipeline Press

While in captivity it is important to keep busy . Every day people ask me where I think rates will be next week. Here you go: my forecast ! After you check out that graph, it brought to mind that Kris W. sent, “ For the third time this week I’m buying enough booze for the next two weeks .” Seeing large lenders in the mainstream press can drive one to drink, the latest example being Quicken Loans and a possible cash crunch . ( Any servicer who has to advance payments they don’t receive will be hit. As a reminder, the top servicers include Wells Fargo, JPMorgan Chase, Nationstar, Bank of America, NewRez, QLMS, PennyMac, and Freedom.) “Being hit” brings to mind the secondary markets right now. “Hey, the price you’re showing me isn’t what the...(read more)

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3/25/2020 Mortgage Rates Are Amazing and Terrible

Posted To: Mortgage Rate Watch

Depending on what you're looking at, when you look, and where you look, mortgage rates could either be amazing or terrible. Large, upstanding, secure, solvent, excellent lenders are as much as a full percentage point apart from one another on the same loan quote. That essentially NEVER happens in the mortgage market--not with all of those qualifiers anyway. This is a symptom of the "mess" that coronavirus has made of the financial market. For those that want to pretend there's some unique mortgage-specific issue that makes things more difficult for the mortgage market versus other sectors, look around you. To whatever extent it's been "inconvenient" for the average 401k to lose more than 20% of its value in 3-4 weeks, the mortgage market has faced "inconveniences" on a similar scale. Compared...(read more)

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3/25/2020 Annual Home Price Gains Up 5.2% in January

Posted To: MND NewsWire

The pace of annual price increases ticked slightly higher in January according to Federal Housing Finance Agency (FHFA) House Price Index (HPI). The index, which had marked a 5.1 percent year-over-year gain, in December, rose by 5.2 percent in January. The monthly increase was down significantly, however. While the original December increase of 0.6 percent was revised to 0.7 percent, the December to January appreciation was only 0.3 percent. Compared to December, prices declined in two of the nine census divisions. Prices ticked down 0.2 percent in the Mountain division and 0.1 percent in the West North Central. The highest increase, 0.7 percent, was in the South Atlantic followed by the Pacific division at 0.5 percent. Price appreciation was positive on an annual basis in all regions, led...(read more)

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3/25/2020 MBS Day Ahead: Visualizing The Drama And The Comeback in Mortgages

Posted To: MBS Commentary

It's no secret that volatility has been a big deal in the bond market (and most other markets) recently. But there's no comparing the drama seen in Treasuries to the utter chaos in mortgage bonds. Well actually, there is. We can certainly COMPARE the two, but when we do, it's easy to see just how different they've been. We did this yesterday with a chart of MBS yield spreads vs 10yr yields. That's meaningful for some market watchers, and it tells a story if you understand what you're looking at, but we can make things even more simple with today's chart. It's much simpler. The 10yr yield is plotted normally. The MBS prices are inverted (i.e. the higher prices are at the bottom of the y-axis and vice versa). This allows us to observe the typical correlation in...(read more)

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