MBS Pricing Snapshot

The Selling Guide has been updated to include changes to the following:

• Miscellaneous Income and Documentation Requirements
• Single Entity Ownership in a Project
• Texas Section 50(a)(6) Mortgages – Adding 5-Year Adjustable-Rate Mortgages
• Calculation of Real Estate Taxes for Housing Expense
• Measurement of Various Waiting Periods
• Miscellaneous Selling Guide Updates

Each of the updates is described below. The affected topics (and specific paragraphs) are noted for each policy change. Lenders should review each topic to gain a full understanding of the policy changes. The updated topics are dated May 28, 2013.

MBS have been watching Treasuries flirt with the idea of breaking 2.137 with a good amount of composure, but have begun to break down now that the deed is done. 10's are up to 2.15 already and Fannie 3.0s and 3.5s are into new lows on the day. Reprice risk remains on the table and could pick up significantly in the next few minutes if we fall further.

10yr Treasuries fought a very important battle this morning, and lost. The battle was to get back below the mid 2.10's. The move was first rejected just after 11am on the first bounce lower and then on several successive occasions starting in the noon hour. We may even be seeing what would be the first meaningful impact from a 2yr Note auction in several years as the most recent bp of weakness in 10's followed the ugly auction.

We can't truly know if the auction is to blame, but to whatever extent it is, it's a very serious statement about the state of the yield curve (i.e. no one has cared about the short end, seeing it as largely "nailed in the ground" by the Fed's "exceptionally low Fed Funds rate" expectations and verbiage. If markets are starting to "care" again, it's yet another symptom confirming the diagnosis of a long-term rising rate environment.

Causality musings aside, we're back on the ropes with Fannie 3.0s down over a point again at 100-19 this time. Fannie 3.5's (because they're relevant now) are down 27 ticks to 103-24. 10's are up 11.85bps on the day at 2.1277, not breaking their highs, but testing that range. Negative reprice risk is omnipresent, but of course, balance the state of MBS markets against how utterly destroyed your rate sheets may be. If they're awful enough, this incremental weakness is just volatility waiting to be resolved.

If MBS rallies had a smell to them, an 8 tick improvement would generally smell pretty sweet (quarter of a point tends to result in positive reprices). But in today's case, it merely serves to mitigate the smell of death and destruction that still hangs heavy in the air after losing more than a point earlier this morning.

10yr Yr yields briefly touched 2.137 and have coasted gently lower since then. Fannie 3.0s saw buyers throw out tons of low ball bids at 100-17 before finally getting their price around 11am, but that was the turning point for now. Fannie 3.0s moved up 11 ticks before settling in to an 8-11 tick zone of improvement from the lows.

Disturbingly, both Treasuries and MBS look to have encountered some resistance to further improvements, having put in their best post-sell-off levels about 15 minutes ago. On any other day, the improvements would most likely have a few lenders considering a positive reprice. While that's not out of the question for one, maybe two lenders, others would require more TIME or more stably held gains.

Bottom line, the bounce back is refreshing, and it's tempting to hope that it holds, but we wouldn't count on it holding just yet.