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9/19/2019 MBS RECAP: Indecisive, Sideways Trading After Fed Day

Posted To: MBS Commentary

Relative to the expectation for yesterday's Fed events to cause volatility, the movement we've seen in the bond market has been fairly pitiful in response. Seriously folks... I can't think of a bigger gap between they hype and the outcome with respect to Fed days. Today was merely "The Anticlimax: Part 2." In the overnight session, yields respected the exact some highs as the previous overnight session. During domestic hours, bonds rallied just enough to get close to yesterday's best levels before retreating to something almost perfectly between the two. This is a classic, albeit miniature, consolidation pattern. It could signal a measure of equilibrium between buyers and sellers at current levels, but more likely, it's simply a sign of indecision and apathy after...(read more)

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9/19/2019 Think The Fed Cut Mortgage Rates? Think Again

Posted To: Mortgage Rate Watch

Here is exactly what yesterday's Fed rate cut did to mortgage rates: ABSOLUTELY NOTHING! No Fed rate cut (or hike) will EVER do ANYTHING directly to mortgage rates because the Fed doesn't set mortgage rates. Don't let the caps-lock fool you into thinking I'm some angry guy with a keyboard who's simply ranting for some self-serving purpose. Of all the people you'll talk to today and of all the articles you'll read on this topic, you should trust me the most. I don't say that lightly or very comfortably, for that matter. It sounds terribly cocky, but in this case, it's also terribly honest. For more than a decade, if markets are open and mortgage companies are quoting rates, I've religiously been tracking trends, patterns and plain old boring statistics. I use actual wholesale rate sheets from...(read more)

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9/19/2019 2018's Home Sales Slump Now Fully Erased

Posted To: MND NewsWire

While the increase wasn't as strong as in July, last month's existing home sales posted a second straight month of gains and, as previously, the National Association of Realtors® (NAR) credited falling interest rates. Sales of previously owned single-family houses, townhouses, condominiums, and cooperative apartments were up 1.3 percent compared to July when sales rose 2.5 percent. The seasonally adjusted annual rate of 5.49 million units was 2.6 percent higher than the August 2018 pace of 5.35 million. The increase was felt in three of the four major regions while the West continues to demonstrate some weakness. The month's results were better than predicted. Analysts polled by Econoday had expected them to come in at an annual rate of 5.30 to 5.42 million with a consensus of 5.38 million...(read more)

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9/19/2019 MBS Day Ahead: Bonds Set to Battle Potentially Important Level

Posted To: MBS Commentary

In the day just passed, the bond market finally got a chance to sink its teeth into the much-anticipated Fed announcement/forecasts/press conference. Traders were hoping to get a read on whether the Fed rate cut cycle is being treated like a fine-tuning adjustment or the beginning of a sustained shift. Of course there was no way for the Fed to know that, let alone communicate it. As we expected, Powell basically said "it depends." Bonds were a bit let down by that, and the somewhat more hawkish Fed funds forecasts. Yields retreated from their anticipatory lows of roughly 1.75%, but nonetheless managed to stay in positive territory on the day. In the day ahead, bonds will battle with the same 1.75% level after an overnight rally. 1.75% or thereabouts has come into play several times...(read more)

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9/19/2019 Originator, Servicing, Correspondent Products; Why Extensions Cost Money

Posted To: Pipeline Press

The residential lending industry continues to evolve. Lenders are coming and going, moving in and out of business channels. (The latest example being Union Bank, as UBOC is rumored to be in the process of reducing its overall approved broker client base and focusing on deposit relationships). And lenders still report full pipelines but cautiousness in hiring Ops staff. Winter is coming. How many loans do processors process in a month? Or underwriters underwrite? Are there economies of scale at big banks versus independent mortgage banks Here’s a write-up on some stats. Loan officers know that the customer is king, and that there are other measures besides DTI that determine a sound borrower. Goldman Sachs and other major banks are experimenting with alternative metrics to decide whether...(read more)

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9/19/2019 Fannie Mae Turns Bullish on Construction, Best Levels Since May

Posted To: MND NewsWire

Fannie Mae says consumer spending will continue to support the economy. The company's Economic Summary for September cites increases in auto and retail sales, real disposable personal income, and real personal consumption expenditures (PCE) as evidence of that strength. In the monthly report, written before release of the very strong census data on August's residential construction, they also say that the recovery in new single-family construction spending suggests that residential fixed investment may be slightly stronger this quarter than they previously expected. As a result of these two factors, the economists upped their forecast for growth in real gross domestic product (GDP) by one-tenth of a percent in the third quarter but revised their view of nonresidential fixed investment to a...(read more)

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9/18/2019 MBS RECAP: What Fed Day? This One Was a Dud

Posted To: MBS Commentary

As far as Fed days go--especially the kind where we get updated economic projections--today's example was pretty damn uneventful. These things happen from time to time, but this wasn't exactly a day where a "dud" announcement was seen as being very likely. Markets were hungry for clarification on the Fed's rate outlook as well as any response to the short-term funding market woes of the past few days. I could weave a bit of a tale for you about how the market moved in a big way ahead of the announcement due to expectations for certain changes/inclusions and how it simply unwound that movement when it didn't get what it was looking for, but that would be giving too much credit. It's true that expectations ramped up a bit for a slightly friendlier Fed than we got...(read more)

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9/18/2019 HIGHER Mortgage Rates Despite Fed Rate CUT. Here's Why

Posted To: Mortgage Rate Watch

One of the greatest potential sources of confusion for prospective mortgage borrowers is the relationship between the Fed and mortgage rates. While the Fed's policy changes absolutely have a big impact on all sorts of interest rates (including mortgages), a drop in the Fed's policy rate DOES NOT result in lower mortgage rates. In fact, the OPPOSITE was true today. The main reason for confusion is the fact that there's a huge difference from an investment standpoint between a rate that governs the shortest -term transactions (The Fed Funds Rate applies to loans that last for 1 day or less) and a rate that can remain in effect for up to 30 years in the case of mortgages. Even if we use the average life span of a 30yr fixed mortgage, we're still talking about 5-10 years depending on the broader...(read more)

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9/18/2019 Differences Between Previous and Current FOMC Statements

Posted To: MBS Commentary

Information received since the Federal Open Market Committee met in JuneJuly indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although growth of household spending has pickedbeen uprising fromat earliera instrong the yearpace, growth of business fixed investment hasand beenexports softhave weakened. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed. Consistent with its statutory mandate, the Committee seeks to foster maximum employment...(read more)

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9/18/2019 Housing Permits and Starts Hit Highest Levels in a Year

Posted To: MND NewsWire

August turns out to have been among the year's strongest periods for residential construction. While analysts had expected builders to shake off some of the lethargy that has dogged the industry for most of the year, increasing at least the rate of housing starts. However results exceeded expectations across the board and the rates of permitting and starts were the highest in a year . On a regional basis, numbers for the Northeast and Midwest more than compensated for some softening in the West. The U.S. Census Bureau and Department of Housing and Urban Development reported that permits were issued during the month at a seasonally adjusted annual rate of 1,419,000. This is a 7.7 percent increase from the revised rate of 1,317,000 in July and 12.0 percent higher than the permitting pace in August...(read more)

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9/18/2019 Housing Permits and Starts Hit Highest Levels in a Year

Posted To: MND NewsWire

August turns out to have been among the year's strongest periods for residential construction. While analysts had expected builders to shake off some of the lethargy that has dogged the industry for most of the year, increasing at least the rate of housing starts. However results exceeded expectations across the board and the rates of permitting and starts were the highest in a year . On a regional basis, numbers for the Northeast and Midwest more than compensated for some softening in the West. The U.S. Census Bureau and Department of Housing and Urban Development reported that permits were issued during the month at a seasonally adjusted annual rate of 1,419,000. This is a 7.7 percent increase from the revised rate of 1,317,000 in July and 12.0 percent higher than the permitting pace in August...(read more)

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9/18/2019 MBS Day Ahead: Today's Fed Announcement is More Complicated Than Normal

Posted To: MBS Commentary

In the day just passed, the bond market managed to add a 2nd day to a friendly correction--a small counterattack against the much larger corrective sell-off that dominated last week's trading (and yes... that weakness was, itself, a counterattack against a MUCH larger downtrend in rates throughout 2019). There were no meaningful reactions to economic data and traders were largely preoccupied with making sense of yesterday's repo market drama. The best recap of the issue I've seen is this Reuters story . In the day ahead, all eyes are on the afternoon's Fed announcement . It's multifaceted to say the least. In just the past few days, Fed Funds Futures suggest the rate cut probability has dropped dramatically--from over a 90% chance last week to a 62% chance today. But Fed...(read more)

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9/18/2019 Pricing, Capital Markets Products; Vendor Tools and Capital Raise

Posted To: MND NewsWire

This morning I find myself in Pittsburgh, PA for the MBA of Southwest Pennsylvania . (Yes, I am bound for lunch at Primanti Brothers.) It turns out that the nearest farm to downtown Pittsburgh is only 20 minutes away, which is good for field trips, but it’s that time of year when we’re reminded of our dysfunctional government. (Not that it is confined to a particular part of the year.) We have the yearly notice of the suspension of USDA funding, and the issuance of Conditional Commitments (Form RD 3555-18/18E). Last week the USDA announced that funding will not be available for a short period (2 weeks?) at the beginning of FY 2020, which starts 10/1/2019, and that fees will not change in FY 2020. Don’t forget that via a final rule published in the Federal Register ( 84 FR...(read more)

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9/18/2019 Higher Mortgage Rates Didn't Deter Purchase Loan Activity

Posted To: MND NewsWire

There was a jump in purchase mortgage applications during the week ended September 14 even as interest rates moved higher. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of applications volume, ticked down 0.1 percent on a seasonally adjusted basis, as the increase in its Purchase Index offset a significant decline in refinance activity. The Index was up 10 percent on an unadjusted basis, bouncing back from a 9 percent decline the prior week which was shortened by the Labor Day holiday. The Purchase Index increased 6 percent on a seasonally adjusted basis, posting its third consecutive week of gains. The unadjusted index was 16 percent higher than the week before and up 15 percent compared to the same week in 2018 . The average loan for a purchase mortgage...(read more)

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9/17/2019 MBS RECAP: Fine-Tuning Correction Ahead of Fine-Tuning Rate Cut

Posted To: MBS Commentary

Today saw the narrowest trading range of any day so far this month and by far the calmest day since the big September selling spree began. Drama came in the form of an uncommon and esoteric development in short-term funding markets, which essentially and unexpectedly ran out of liquid cash . This forced the short-term lending rate quickly higher (something that was already in progress yesterday and that got worse today). It's not that firms weren't on solid financial footing, just that they've been forced to buy a giant boatload of Treasuries this year (primary dealers have to submit bids at auction). They can temporarily use those Treasuries as collateral to get the short-term cash they need, but the lenders in that system were so busy that they raised rates as a form of pipeline...(read more)

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9/17/2019 No, The Fed Rate Cut Won't Affect Mortgage Rates

Posted To: Mortgage Rate Watch

Mortgage rates have risen rather abruptly from their long term lows 2 weeks ago and are now at the highest levels in more than a month. Fortunately, the average lender is still easily able to quote rates in the high 3% range, which is still a significant savings for anyone who bought or refi'd in 2018 and even the first part of 2019. That's great and all, but what have rates done for us lately? More importantly, what are rates going to do in the future? Unlike forecasting the weather, the more of an expert someone is in the mortgage world, their ability to predict the direction of rates doesn't meaningfully diverge from the layperson's best guess. What we do know is that tomorrow's Fed announcement is a big potential source of volatility, but NOT for the reasons most laypersons may assume!...(read more)

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9/17/2019 MBA Says New Home Sales Increased for August

Posted To: MND NewsWire

The Mortgage Bankers Association (MBA) is anticipating an increase in new home sales in August. The organization's Builder Application Survey found the volume of applications to finance the purchase of newly construction homes was 33 percent higher than in August 2018 although there was a downtick of 0.2 percent month-over-month. The numbers do not include any adjustment for typical seasonal patterns. Based on the survey and other assumptions such as market coverage, MBA estimates new single-family home sales were running at a seasonally adjusted annual rate of 785,000 units last month. The seasonally adjusted estimate for August is an increase of 4.1 percent from the July pace of 754,000 units. On an unadjusted basis, MBA estimates that August sales totaled 61,000 units, a decrease of 3.2...(read more)

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9/17/2019 Builder Confidence Rises Despite Manufacturing Slowdown, China Fears

Posted To: MND NewsWire

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) increased 1 point in September. Along with an upward revision to the August number, that carried the HMI to its highest level of the year . The September reading was 68 and the August HMI was revised from 66 to 67. The index is a measure of builders confidence in the market for newly constructed homes and has held in the mid-to-upper 60s since May. NAHB Chairman Greg Ugalde said, "Low interest rates and solid demand continue to fuel builders' sentiments even as they continue to grapple with ongoing supply-side challenges that hinder housing affordability , including a shortage of lots and labor." "Solid household formations and attractive mortgage rates are contributing to a positive builder outlook," said...(read more)

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9/17/2019 MBS Day Ahead: Correction to The Correction. Does it Matter?

Posted To: MBS Commentary

In the day just passed, bonds saw their first reprieve from the fairly brutal correction that has defined essentially all of September. 10yr yields dropped all the way to 1.81 after having broken above 1.90 in the previous session, but they weren't able to hold all of those gains. Drone strikes on Saudi oil facilities served as the key market mover (and a great reminder that oil prices definitely don't always correlate with bond yields). In the day ahead, we can ponder whether it was geopolitical unrest that truly sparked the correction or if it's something we would have seen yesterday simply because it was time to see it. The big bad correction had just gotten big enough to suggest it was getting to be that time, and the 1.80-1.94 range coincides with rates being in limbo between...(read more)

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9/17/2019 MBS Day Ahead: Correction to The Correction. Does it Matter?

Posted To: MBS Commentary

In the day just passed, bonds saw their first reprieve from the fairly brutal correction that has defined essentially all of September. 10yr yields dropped all the way to 1.81 after having broken above 1.90 in the previous session, but they weren't able to hold all of those gains. Drone strikes on Saudi oil facilities served as the key market mover (and a great reminder that oil prices definitely don't always correlate with bond yields). In the day ahead, we can ponder whether it was geopolitical unrest that truly sparked the correction or if it's something we would have seen yesterday simply because it was time to see it. The big bad correction had just gotten big enough to suggest it was getting to be that time, and the 1.80-1.94 range coincides with rates being in limbo between...(read more)

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