In another back and forth session prices of mortgage backed securities ended up making some headway today. Yay!

FN30_________________________                GN30______________________

FN 4.5 -------->>>> +0-04 to  100-23                   GN 4.5 -------->>>> +0-09 to  100-31

FN 5.0 -------->>>> +0-04  to  101-23                  GN 5.0 -------->>>> +0-04 to  101-31

FN 5.5 -------->>>> +0-01  to  102-09                  GN 5.5 -------->>>> +0-02 to  102-16

FN 6.0 -------->>>> +0-01  to  103-00                  GN 6.0 -------->>>> +0-01  to  102-31

 

The Fed took the training wheels off the MBS market today, their participation was reported to be relaxed at best.  Early in the session, as Fed money sat on the sidelines, the Ninja reported that mortgage bankers were adjusting their hedges by selling 4.5s and buying 4.0s. This sell off provided a little early morning drama but bids improved as MBS prices cheapened. This has been and will remain the trend for the time being...that's ok though these strategies have helped keep MBS bids stable and rate sheets somewhat sensible. Trading volume was close to average.

Lock desks were shaken from their slumber following some positive pricing pass-through's from lenders today. Based on mortgage banker's buying and selling strategies recently we do not believe they will wait long to protect their pipeline from interest rate risk. That said we would anticipate a spike in originator supply to hit MBS markets in the next few days. This means at some point in near future there will be a sell off...we anticipate bargain buyers and day traders won't allow this anticipated sell off to last long though...we however must stress that this does not mean rates will get better. The recent behavior of the MBS stack will continue to be stagnant/back and forth/up and down in a tight range as Fed intervention controls the yield curve and day traders and bargain buyers battle it out. Always follow GUT-FLOP.

Yesterday Fannie Mae announced some underwriting changes that are intended to "allow more borrowers to take advantage of today's historically low interest rates"

Here are a few excerpts...

I will leave the discussion up to you...HERE IS A FORUM POST TO CHAT ABOUT THE CHANGES --->CLICK ME

Starting April 4, 2009...

In order to provide lenders with increased efficiencies for the origination and underwriting of limited cash-out refinance transactions, and allow more borrowers to take advantage of today's historically low interest rates...

Expanded Eligibility Criteria

The following expanded eligibility guidelines will be applied to limited cash-out refinance loan casefiles meeting the DU Refi Plus eligibility criteria noted above (including the successful identification of the existing Fannie Mae mortgage loan):

  • Loan casefiles with an LTV less than or equal to 80 percent will not be subject to the minimum "representative" credit score requirement of 580.
  • High-balance mortgage ARM loan casefiles with an LTV less than or equal to 80 percent will not be subject to the minimum "representative" credit score requirement of 680.

Reduced Employment Documentation Requirements

DU will offer the following reduced employment documentation requirements on all DU Refi Plus eligible loan casefiles:

  • Salary/Bonus/Overtime: one current paystub and a verbal verification of employment
  • Commission/Self-Employment: one year's federal income tax return

Updated Property Fieldwork Requirements for Foreclosure or REO Properties

The recent increase in property foreclosures has resulted in some real estate owned (REO) properties being neglected and/or sitting vacant for an extended period of time before they are sold to new homeowners. In these cases an exterior-only property inspection or appraisal may not provide the most accurate assessment of the condition of the property.

As a result, lenders will now be required to obtain an appraisal based on an interior and exterior property inspection for purchase transactions when the transaction is the result of the sale of an REO property, or the last transaction on the property being purchased was a foreclosure.

Doesn't it seem like all sectors of mortgage world are trying their darndest to stimulate the housing market??? (with the exception of servicers..they are lagging bc of delinquencies. Speaking of which...

The Federal Reserve spent $22.277bn on MBS between January 29 and February 4. The Fed averaged $4.455bn  purchases per day. Fannie Mae got 47.18% of the bids, Freddies got 43.62%, and Ginnies were ignored. (kidding but you can do the math :-D )

36.58% of the purchases were in 4.5s. 20.44% were in 5.5s. 17.86% were in 6.0s

At 830 AM tomorrow we get THE employment report...The Employment Situation. This one has the potential to move some money...

Nonfarm payrolls are expected to be down 524,000 and the Unemployment Rate is expected to remain unchanged at 7.5%. As far as the reports relation to MBS...if it is worse than expected...perhaps a little FTQ (flight to quality) will help the entire fixed income curve. On the other hand the Federal Reserve's participation in the mortgage market has seemingly disconnected MBS from economic data in general. Plus the stack is stuck in a relative value tug of war so at this point we are skeptical of the effects this data will have on MBS.

Just a side note I like to flip to the back of the Employment Situation Report. Specifically data table A-12 Alternate Measures of Labor Utilization. This table includes info such as "discouraged workers"---these are workers who are not considered to be part of the labor force and therefore not accounted for in the unemployment rate.  This number can be startling..here is what it looks like.....

http://stats.bls.gov/news.release/pdf/empsit.pdf

13.5% in December