Heading into the 5pm "IM NOT HERE CAUSE ITS FRIDAY" marking period, the FN 4.5 is sideways near a big ol trend channel top and four month high.
I got an email on Wednesday inquiring about a pipeline strategy for a medium-sized branch lender. They do some mandatories, but are generally best effort lockers (ewww...expensive hedge). A couple of commitments had been submitted overnight, at a time when pricing was relatively aggressive. The next morning, rebate got trimmed and the desk was now underwater on several loans.
Lock?
or ...
Try and Make it Back?
We talked about loan amounts, fee structures, and the capacity of their shipping department. We decided to float all but one super sensitive deal.
The next morning pricing improved a few bps, but we were still underwater. We talked again and it looked like there was more reward than risk in floating...the loan amounts were small and therefore not as sensitive to price changes, plus...based on early estimates from accounting, the operation had already broken even for the month. They felt a little frisky, so we decided to float into today. AND...
PRICING GOT BETTER THIS MORNING!!!! yay lock desk you turned a few extra bps into another $11,946 this month...woo hooo! Very nice.
PARTY OVER. Again they asked...SHOULD WE FLOAT????
MY RESPONSE: $11,946 funds a copier bill, or maybe you finally pay down your office depot invoice...who cares its $11,946 more than you had on Wednesday!!!! NO...lock it on the shortest commitment period you can and dont forget to put a nice big green dollar sign on the front of the file so the shipper knows that they better get this one delivered to the lender/servicer ASAP!
REMINDER: Its been four months since youve seen rates this aggressive. We are at the high side of the rate sheet range. IF YOUVE BEEN FLOATING THIS WEEK....YOU HAVE MADE MONEY WATCHING THE MARKET!!!
Dont let your profits sit too long. Dont look back regreting what couldve been...at least lock up a portion of your pipeline profits. ALWAYS GUTFLOP.
Yield Curve
2s/5s: 6ps flatter at 138 bps
2s/10s: 11bps flatter at 233 bps
5s/10s: 5bps flatter at 96 bps
5s/30s: 7bps flatter at 173 bps
10s/30s: 2bps flatter at 78 bps
THAT'S SOME FLATTENING!!!
MBS CURRENT COUPON: 4.283%
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