Just wanted to share one more pre-auction update because I think it will make a difference once the auction results are released. 

Loan pricing is 2.6bps worse on average today with the largest reductions seen in the note rates closest to par pricing. This includes 4.25% and below but as you can see 3.75% quotes are still on the board in the broker/direct banker market. This doesn't mean those quotes are being passed along by the mid-majors and regionals but it should give you a warm and fuzzy feeling that they haven't been totally erased from rate sheets. Week over week, loan pricing is 20bps better and MBS price levels were just about the same as they are right now (prices were higher when lenders priced this AM though. yikes reprices coming!)

Buydowns are slightly more expensive, increased costs are focused in the loan paper that would fill 3.5 and 4.0 MBS coupon commitments. 

Primary/secondary loan pricing spreads are much tighter as lenders have let more juice leak out of their margins, yikes reprices coming!

EXPLANATION OF LOAN PRICING COMPARISON

Buydowns are the cost of floating down to the next lowest note rate. Buydown costs are matched to the note rate in the same row. For example, the second number in the buydown column is 0.300%, this is the cost to float down from 4.875% to 4.750%, as a percentage of the loan amount (bc they are priced the same!).  This is important because it helps an originator determine the best execution rate/points combination for a borrower who has a good idea of how long they intend to keep their mortgage (breakeven on points paid vs. monthly payment savings). In the Buydown Delta column, red is cheaper. Black is more expensive.

The pricing change column is a direct rebate comparison of pricing today vs. pricing yesterday. Red is worse. Black is better.

The BE v M column shows you how margin is changing. Red means more margin. Black means less bps are baked into pricing.

I do not show the actual price lenders are paying for loans. This is too much info. I would get angry emails from lock desks and production managers.  I will tell you this though, the comparison is based on raw pricing. There isn't another markup built into my model.

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I felt the need to bring up the fact that loan pricing is only 2.6bps worse on average because MBS prices are well off their early AM highs and we will probably see reprices for the worse following the TSY auction unless there is a rally in the aftermath. Wells would be the first to go in my opinion.

The December FNCL 3.5 is currently -8/32 at 100-05 yielding 3.488% and the December FNCL 4.0 is -8/32 at 102-27 yielding 3.569%. My version of the secondary market current coupon is 3.1bps higher at 3.529%

Trading flows have been slow all day, this has allowed the bond market to cheapen up the issue in advance. The "When Issued" 10yr note yield is currently bid at 2.594%. The "on the run" issue is -10/32 at 100-08 yielding 2.596%.

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2pm tomorrow is our best hope for a turn around....