The foundation for 4.00% rates is being formed by MBS market participants...

Fn 4.0-> +1-07+ to 101-11

Fn 4.5-> +1-01+ to 102-18

Fn 5.0-> +0-27 to 103-10+

Fn 5.5-> +0-26+ to 103-20

Fn 6.0-> +0-18 to 103-30

Look at those bullish trends...sure are peeerty aint they?!?!?!?

On our MBS screens everything looks just peachy. Down in coupon spread tightening continue as bids are coming from all sources, including ASIA
(great to see them back in the MBS market). Volume is above average and supply has been limited. The roll is still relatively expensive compared to other funding sources...not a big deal though...our only legitimate roadblocks are profit taking and originator hedging (which should occur any day now). Unfortunately we are going to have to wait and see how market participants react to this expected selling, but again....we aren't too worried about it. The Federal Reserve is buying, the Treasury Department is contributing, and the GSE desk has a company credit card too (the company being the US GOVERNMENT). So we don't expect excess supply to sit long in this market, if anything it will create a buying opportunity for someone else....the MBS trading environment is quite nice right now.

The Lending environment on the other hand...not so peachy.

As widely discussed in various blog posts like THIS ONE MATT WROTE ON DECEMBER 31  and the BLOG POST I WROTE LAST NIGHT....we have some business to take care of before we can enjoy all the fruits of government's subsidy. The infrastructure of the mortgage supply chain needs to be beefed up in order to properly accomodate the expected demand for mortgage loans over the next 6 months. Understaffed lenders are overloaded. There are just not enough processors, underwriters, and closers to move these loans from application to securitization.

We understand your frustration...be patient (for now)....rates will improve!

WE MUST INFORM YOU THAT THERE ARE HOWEVER SOME BAD APPLE LENDERS !!!

There are certain lenders, who we will not name, that are adding unnecessary premiums to their rate sheets for pure profit purposes. Well....can you blame them? No need to be the price setter in this market, then you run the risk of overwhelming yourslef with loans which might result in having to completely shut down your lock desk. Why not set pricing to a level that is juuuuust a bit better than your competition... if you have decent turn times your operation will remain comfortably busy. This is the other side of the story...I am not saying we support this strategy...more of an FYI than anything.

Look at the bright side...even after all the socialistic government spending...contemporary capitalism continues to prevail.  Not to mention maybe some of this extra revenue will aid in the "beefing up/restaffing" process. Mortgage professionals keep checking the want ads!!!

Lock or float? From an MBS perspective we do expect some profit taking and an influx of MBS supply to hit the market any day now....fundamentally this selling pushes rates higher. However as explained we dont expect this normally negative news to be much of an effect on rates. So we are floating...but short termers (like tomorrow or the next day) should stay glued to the blog for short term (like tomorrow or the next day) lock recommendations. Longer term we see the jan.13 settlement providing some much needed relief to warehouse lines and balance sheets. We believe some of the "operational overcapacity" will be relieved after the January 13 roll and rates will move lower.

Mortgage Professionals,

You have made it through some REALLY ROUGH times...we've been anxiously anticipating government intervention in the mortgage market for 6 months. Dont get frustrated about these administrative hold ups. Stay positive...keep educating yourself and keep educating your borrowers. When we look back on this crisis hopefully we will be be able to say "yeah maybe some payment selling saleman got us into this mess, but the true mortgage professionals got us out!"