MBS Live: MBS Afternoon Market Summary
In the intermediate term (about a month, perhaps), MBS have been utterly and completely outperformed by Treasuries. It looks like utter and complete carnage until you zoom out to a 9 month view, and even that looks like a slow stroll in the park compared to late 2008 spreads. The good news is that we're at a bit of a pivot point in terms of spreads which could help MBS link back up with Treasuries. The bad news is perhaps more important, in that a decent bout of spread-tightening at this point seems contingent on Treasury weakness. Given that 10yr yields may be in the process of confirming a bounce off a 1.83% technical level, it could be the case that we'll see Treasuries lose ground in the near future while MBS merely "lose less." That's merely one possibility, however, and not a prediction. What we can more reasonably predict (largely because it's an ongoing problem) is that further MBS gains are really tough to come by at these levels.
MBS Pricing Snapshot
Pricing shown below is delayed, please note the timestamp at the bottom. Real time pricing is available via MBS Live.
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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.
3:08PM :
ALERT ISSUED:
MBS Tick Slightly Lower in Early 'After-Hours' Trading
If this morning's surge in volume at 9:30am was a hint of asset allocation trading out of stocks and into bonds, then perhaps we're seeing a bit of the reverse here at the 3pm Treasury Close. There's not necessarily a comparable surge in volume, but a slight uptick relative to it's surroundings. MBS are sort of along for the ride and both sides of the market are suffering somewhat from light liquidity late in the day. Fannie 3.5's are now down to 104-04, the first price level at which we'd actually not be too surprised to see a few of the "early crowd" lenders consider repricing negatively. No big picture trend shifts here, but again, we'd have to wonder if 10yr yields are in the process of bouncing higher from the 1.83% technical level in preparation for tomorrow's auction.
1:44PM :
ALERT ISSUED:
MBS Fall To Morning Levels as Treasuries Bounce Higher
10yr yields bounced slightly higher in yield and MBS prices fell 3-4 ticks in the past few minutes, bringing Fannie 3.5's in line with the morning's range around 104-05 to 104-06. It's tough to say if that mini-slide creates any sort of negative reprice risk. The selling looked like a bit of a departure from the pre-existing trends, both for MBS and Treasuries, but as far as the former is concerned, we're only talking about moving from 104-09 to 104-05. Additionally, most rate sheets hit when prices still hadn't broken above 104-08. Bottom line, reprice risk is minimal at these levels and *probably* non-existent. If the losses ebb from here, risk is absent. We'd watch 104-05 as the line in the sand for shifting risk.
11:45AM :
MBS Uneventfully Trudge To New All-Time Highs
Just a slight addendum to the recent "MBS Mid-Day" linked below. The traditional post-fed-buying bounce that we noted as absent at 11:00am came instead at 11:15am. The more interesting topic now, is not the timing of the bounce but whether or not the mid 1.83's will now act as some sort of ceiling for 10yr yields. If they do not, it would be in line with the "head fake" mentioned below (the upside here is that MBS would be able to hold their ground much better than Treasuries into any weakness right now). If 1.83's DO provide a supportive ceiling, it's disconcerting on two levels.
First, it would make us wonder how tomorrow's auction would fare if it followed a moderate rally to multi-month lows. More frustratingly, it would force us to watch as MBS continued to get squished against the ceiling in the low 104's (in other words, Fannie 3.5's can only be pushed so high without any meaningful liquidity in 3.0's--something that's harder to muster than it otherwise would be if we weren't 2 days before the roll).
First, it would make us wonder how tomorrow's auction would fare if it followed a moderate rally to multi-month lows. More frustratingly, it would force us to watch as MBS continued to get squished against the ceiling in the low 104's (in other words, Fannie 3.5's can only be pushed so high without any meaningful liquidity in 3.0's--something that's harder to muster than it otherwise would be if we weren't 2 days before the roll).
Live Chat Featured Comments
A recap of the featured comments from the MBS Live Dashboard's Live Chat feature, utilized by hundreds of industry professionals each day.
Michael Tadros : "REPRICE: 3:47 PM - Interbank Worse"
Matthew Graham : "DONOVAN: There's no question that while many of those barriers to greater competition were removed by HARP 2.0, that your bill targets the critical remaining barriers. I'll just give you one example of what's happening at this point.
Because servicers who currently service the loan and already have all of the data through the GSE systems to be able to refinance, they only have to do, for example, a verbal confirmation of employment in order to proceed to refinance. Other servicers who would w"
Matthew Graham : ""The other question I have is do you believe that the HARP 2.0 policies, some implemented by the GSEs and some by the servicers themselves, are reducing competition among banks, and ultimately decreasing the effectiveness of HARP 2.0 and robbing homeowners of savings through lower interest rates? I think we
we try to address that based upon all of the things we heard in the hearing, and I'm wondering how you view those""
Matthew Graham : "MENENDEZ: Yeah, as a matter of fact, Professor Mayer at our subcommittee hearing that I chaired a few weeks ago estimated that the results in GSE profits of as much as $23.7 billion. So whether it's your lower range or that range, the reality is you're talking about significant saving taxpayers' money and reducing the size of any fiscal challenge in the future."
Matthew Graham : "Mendendez: "Am I correct, Mr. Secretary, that FHFA making further changes in HARP 2.0 as outlined in the Menendez-Boxer discussion draft, would actually save the GSEs money because of reduced defaults once homeowners' mortgage payments are lowered?"
DONOVAN: "All of our modeling suggests that there would be significant savings to the GSEs in terms of lower default rates. I think Chris Mayer here, professor at Columbia, testified about specific numbers that he expected that exceeded $20 bill"
Andrew Horowitz : "if this type of program had been floated 2 years ago where would we be?"
Andrew Horowitz : "Paul, I tend to agree with your points, but letting the free market work itself out, has exacerbated the slide IMO, If the gov't had done more sooner I don't think we would be looking at the problems that we are presently facing"
john murphy : "mis-pricing of risk got us into this mess, mispricing of new risk certainly wont get us out of this mess"
Paul Carlin : "The problem is government tries to pick the winners and losers. "
Paul Carlin : "I would say that the government can help, but in most cases, letting the free market work itself out is the best way. As long as regulation is minimal and reasonable, people will be driven by profit to find a solution. There will be winners and losers, there always are. That can’t be helped, but the problem will get fixed"
Matthew Graham : "Donovan says: non-GSE borrowers could take part in FHA streamlines with two conditions: principal write-down to 140LTV and a separate mortgage-insurance fund "
Chris Kopec : "Pretty sure the GSEs need instruction from Congress, rather than Exec Order."
Andrew Horowitz : "Demarco is the problem now, he has the authority based upon what i just read to implement some of these, the question is will he"
john murphy : "DZ: dont think so. this is an attempt to utilize "unspent" TARP funds...admin has been struggling for a palatable way to "disburse" these "unspent" funds to the VOTING electorate...and appease the "middle class". Nothing will be paid "thru the rate" as that implies a premuim that is unlikely to exist...unless fully guaranteed by the....uh "federal:" govt i.e. "taxpayers". sorry its just a stopgap for strategic defaulters"
Ira Selwin : "reps/warrants waived are all good in theory, but no one believes it"
Matthew Graham : ""
And so, what we've done through HARP 2.0 is remove many of those barriers, however, there continue to be differences between the way Fannie and Freddie are implementing that, and also differences between how above water loans and underwater loans are treated.
And frankly we think its -- doesn't make a lot of common sense that a homeowner who actually has more equity in their home and is if anything a lower risk borrower would have to pay more or be locked out of refinancing relative to thos"
Andy Pada : "it seems that in this instance, as well as others, the government is the solution and the private overlays are the problem"
Matthew Graham : "
DONOVAN: I think we have taken most of those steps. We believe that many of the steps that I've just described could actually be taken under existing authority. And -- and we would urge that FHFA implement a number of them even without the legislation being passed.
"
Andy Pada : "remember the overlays are private contractual decisions...does it seem that we should have a federal mandate?"
Matt Hodges : "i'm jaded, i don't trust congress to fix it"
Victor Burek : "lets wait and see the overlays that kill it"
Andrew Horowitz : "If those program comes out people, this has teeth"
Matthew Graham : ""Mr. Chairman, we know that the second a foreclosure sign goes up on your block, your home value drops by as much as $10,000. Well, homeowners that are in the hardest hit places often live near a dozen or more homes with those signs.
But as the Neighborhood Stabilization Program has proven, we can halt the slide in home values in these hard-hit places. Indeed according to data hot off the presses, three-quarters of neighborhoods that receive targeted investments through the first two rounds o"
Matthew Graham : "Donovan: "The second equity-building proposal I want to discuss is the Project Rebuild Act, introduced by Senator Reed, which would further stabilize places where prices have dropped the most and create 200,000 jobs.""
Victor Burek : "dont all govt programs work?"
David Z. : "Not true JM"
Matt Hodges : "this was thrown out there with little research"
john murphy : "anytime you read "GSE" or " federal" think "taxpayer" and "deficit spending"..."
Andrew Horowitz : "wow he must have had my phone tapped, I have been saying this for couple of years now"
Matthew Graham : "@AH: "To ensure these families aren't left out, we support extending streamlined refinancing for all GSE borrowers, irrespective of their loan to value ratio.""
Matthew Graham : "Donovan: "As an incentive, we're proposing that homeowners' closing costs, about $3,000 on average, be paid by the GSEs. And to be eligible, borrowers must agree to refinance into a loan with a term of no more than 20 years, providing a path for all borrowers to get their heads above water faster.""
Andrew Horowitz : "is he actually talking about a Fannie/Freddie Streamline program, "
Matt Hodges : ""unnecessary appraisals" who wrote that?"
Matt Hodges : ""need to write down the balance" good luck"
Matthew Graham : "More Donovan : "The second proposal, as developed by Senators Menendez and Boxer, would allow us to clear the remaining barriers to refinancing for borrowers with GSE-insured loans. While HARP 2.0 has already given many more borrowers an opportunity to refinance, there remain responsible borrowers who need our help, including those who have equity in their homes.
To ensure these families aren't left out, we support extending streamlined refinancing for all GSE borrowers, irrespective of their"
Matthew Graham : "cont'd... "The program includes features to minimize program costs, including establishing loan to value limits. Lenders interested in refinancing deeply underwater loans would need to write down the balance of the loan before they quality, relieving the strain on the borrower and reducing risk to the taxpayer.
And while this program would be run by FHA, it would be financed from a completely separate account from FHA's MMI fund. Further, by financing this proposal through a dedicated funding"
Matt Hodges : "portfolio ----> FHA"
Matthew Graham : "cont... "The first would provide borrowers whose loans are not guaranteed by FHA or the GSEs access to simple low-cost refinancing, so long as they are current on their mortgage, meet a minimum credit score, have a loan within FHA conforming loan limits, and are currently employed.""
Matthew Graham : "Sec. Donovan: "
But, Mr. Chairman, that is still not enough, and so today I want to discuss four legislative proposals supported by the administration to ensure every responsible borrower has the opportunity to refinance and rebuild equity.""
Matt Hodges : "now menendez is losing me... sounds like credit or DTI issues now"
Chris Kopec : "Sounds like a loan officer has finally been allowed into the decision-making room."
Ira Selwin : "It's all great in a statement, but who knows what the final push out to everyone will be"
Paul Carlin : "Sounds good and all, but the all the minions in DC will muck it up some how"
Jason Wilborn : "I do like that statement"
Matthew Graham : "Menendez: " HARP 2 removed loans for underwater homeowners, but doesn't apply to borrowers under 80 percent loan to value ratio who theoretically should be able to refinance, but in practice sometimes cannot.""
Chris Kopec : "Menendez rules!"
Matt Hodges : "OKAY - that i like"
Matthew Graham : "Menendez: "FHFA did not scale back representations and warranties liability for cases when a different servicer was refinancing the loan, which has led to a lack of competition among lenders that has resulted in much higher interest rates for borrowers.
And we need to inject competition and market forces into this market where servicers have an unfair monopoly on refinancing certain borrowers who effectively have no choice but to use their original lender.""
David Z. : "Good that it's being talked about but I agree with AP"
Chris Kopec : "How about starting by allowing a rate/term to include refinancing an existing 2nd HELOC?"
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