MBSonMND: MBS RECAP
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FNMA 3.5
95-29 : -0-01
FNMA 4.0
100-05 : -0-01
FNMA 4.5
103-18 : -0-02
FNMA 5.0
106-08 : -0-03
GNMA 3.5
97-12 : +0-01
GNMA 4.0
102-01 : -0-01
GNMA 4.5
105-20 : -0-04
GNMA 5.0
108-11 : -0-04
FHLMC 3.5
95-24 : +0-18
FHLMC 4.0
100-02 : -0-01
FHLMC 4.5
103-13 : -0-02
FHLMC 5.0
106-04 : -0-03
Pricing as of 3:56 PM EST
Afternoon Market Updates
A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBSonMND Dashboard .
MBS underperformed benchmarks today on a general lack of buying interest and profit taking on relative value trades. This focused weakness came regardless of modest improvements in TSY levels and was most notable in the afternoon hours, which ultimately forced a few lenders to reprice for the worse.
3:46PM  :  HUD and Louisiana Make "Road Home" Less Bumpy
Homeowners living in Cameron, Orleans, Plaquemines, and St. Bernard Parishes may be eligible for additional compensation under the Louisiana’s Road Home Program under the terms of a settlement agreement announced today by the U.S. Department of Housing and Urban Development (HUD), the State of Louisiana and plaintiffs in a federal housing discrimination lawsuit. “This agreement is a huge help to families who clearly want to get back into in their homes but continue to struggle to make the needed repairs to their properties,” said HUD Secretary Shaun Donovan. “While this additional compensation goes a long way to helping folks complete their recovery, we’re also going to make sure that those who left their blighted properties behind are held accountable.” Louisiana Commissioner of Administration Paul Rainwater said, “Our goal in Louisiana has always been to provide the resources necessary to allow residents impacted by Hurricanes Katrina and Rita to return home, regardless of race or status. We recognize that many households face remaining challenges in their rebuilding efforts and we are hopeful that additional assistance through our Blight Reduction Grant Adjustment and other rebuilding programs will help bring even more Louisiana families home. I am glad that we will be able to close this chapter of the Road Home and to move forward.” “Regrettably, the Road Home program became a road block for many.” said James Perry, Executive Director of the Greater New Orleans Fair Housing Action Center. “This settlement is a step in the right direction toward getting more hurricane-affected homeowners back into their homes and making good on America’s promise to build a better New Orleans in a way that is fair and equitable for all people regardless of their race.”
2:48PM  :  New Mortgage Rate Watch Post
2:26PM  :  ALERT: Reprice Alert Status Shifts Positively on Afternoon Gains
While this isn't necessarily an alert that you're LIKELY to receive reprices for the better, you're at least no longer as likely to receive reprices for the worse (unless the lender's watch is broken or the decision is unrelated to MBS movements). Some lenders who had previously repriced for the worse may now consider giving that rebate back as the afternoon MBS rally has steadily and calmly brought prices of Fannie 4.0's back to their morning levels (currently 3/32nds up on the day at 100-09). Conceivably, a lender who priced conservatively this morning MIGHT reprice for the better as well, but we'd stress the "might," and reiterate the fact that MBS are only back to the earlier range, with no breaks into higher territory.
1:41PM  :  An Ideological View of "Stuck in the Middle"
In our earlier RATES TECHS post, we already laid out the quantitative case for MBS being "stuck in the middle." This is just an ideological road to the same conclusion. The ground lost on earlier headlines out of Europe gave the bond market a chance to show its resolve to hold relatively steady and sideways ahead of NFP. After losing just enough ground (sadly) for a few reprices for the worse, MBS and Treasuries quickly and decisively regained their footing, and at technically pertinent levels as well. If we are indeed witnessing a circling of the wagons ahead of Friday's jobs data (that is to say that bonds seem to have shaken off a temporary market mover in order to get back to being "decidedly undecided" about the bigger picture), then we SHOULD continue to see a moderate amount of volatility contained within a sideways range for the rest of today and tomorrow. Without predicting with certainty how wide the volatility might nudge the range, it does appear to be centered on 3.10 today (or in the process of pivoting around 3.10). Fannie 4.0's are back in the green, 2/32nds up on the day at 100-08. Lenders who decided to reprice when that figure was 100-03 may have to consider reprices for the better if current levels hold or improve.
12:50PM  :  New MBS Commentary Post
12:13PM  :  ALERT: Reprices for Worse Possible as MBS Go Red
Production MBS coupon prices have fallen far enough to be concerned about reprices for the worse. The Fannie Mae 4.0 is currently -2/32 at 100-04 after trading as high as 100-12 this morning. Rate sheets are all over the place following a long holiday weekend so some lenders may be slower to recall than others. This alert is based purely on the negative change of price direction (thx to a bounce in stocks)
11:38AM  :  MBS Experience Minor Volatility, but Holding Ground
This mornings movement in the bond market, when taken into consideration with the uptick in volume versus yesterday, paints a fairly clear picture. After the harrying hours spent testing some of the worst levels since early May, both MBS and Treasuries calmly marched back toward long term crossroads. Would this have occurred without Portugal and Greece in the news? It's hard to say for sure, but we'd wager that bigger picture quantitative considerations continue to underpin the appearance of a headline-driven market. Due to varying spread levels between MBS and Treasuries, it's always easier and more valid to discuss "big picture" in terms of the benchmark--in this case, 10yr Treasury yields. Those yields have been consistently reinforcing a level near 3.10 as the most important inflection point on the high side of the market over the past two months. After rising into the 3.2's last week, the market has promptly corrected back down to 3.10 neighborhoods this week. Today fits into this picture well. Today we see the remnants of the directional rally that brought MBS prices higher and Treasury yields lower SHIFTING out of that short directional phase and potentially settling into a sideways holding pattern. Why go into a holding pattern near longer term crossroads levels? You may already have guessed the answer: Friday's NFP. 3.10 (and thereabouts) is the best candidate for a neutral territory where bulls and bears can meet to digest the upcoming significance of Friday's jobs data. If the data makes a solid suggestion in one direction or the other, 3.10 will become less of a middle ground and more of a level to be watched for resistance or support going forward. Specific to today, Fannie Mae 4.0 MBS have been in a narrow range between 100-07 and 100-11 with two clear bounces at both those highs and lows. That speaks to the "sideways" aspect adopted by bond markets this morning after exhibiting a decided bias to rally off recent weak points.
11:15AM  :  New MBS Commentary Post

Featured Market Discussion
A recap of the featured comments from the Live Discussion on the MBSonMND Dashboard .
Dustin McAlister  :  "those banks are probably paying the LO's 400 to 700 a unit like they do here"
Dustin McAlister  :  "we have rate table LO's here and that is their pricing too"
Dustin McAlister  :  "lower commissions paid."
Dustin McAlister  :  "rate table lenders will be lower"
Kim  :  "question - my client is shopping my rate quotes with Bankrate.com quotes and they are .25 lower on rate. Any feedback on this? They are lenders I have never heard of. I a quoting 4.75% with 0 points on high balance conforming at 625k with 20% down. Bankrate shows 4.5% and one lender at 4.375%. "
Matthew Graham  :  "When it increases, it feeds on itself, and a major component of snowball selling in MBS roars its terrible roar"
Matthew Graham  :  "there's no one perfectly clear line in the sand that will trigger extension risk panic and selling off, but we can't point out levels AROUND WHICH that sort of sentiment is most likely to increase"
Matthew Graham  :  "so that's where a bit of the variability comes into play with forecasting what rates might do as well as what prepayment behavior is like based on those rates."
Matthew Graham  :  "IF YOU WAIT TOO LONG AFTER SEEING WARNING SIGNS"
Matthew Graham  :  "and that's exactly the point! You ARE stuck! but with a big "if""
Matthew Graham  :  "100% on. didn't read that while I was writing and we said the exact same thing. Fantastic job bro"
Matthew Graham  :  "anyway, I think AQ already said this, but to drop the analogy now, Investors don't want to be holding 4.0 or 4.5% coupons in a market that's moving higher in rate (to the point where those coupons won't be profitable), and they REALLY want to get out of them quick if it looks like they soon won't be able to because the higher rates go, the less likely borrowers are to do investors the favor of retiring those MBS by refinancing."
Scott Valins  :  "but aren't i stuck at a lower mbs coupon b/c people aren't refinancing out of the loans since rates went up?"
Matthew Graham  :  "if the general world of "interest rates" (the boat), is moving away from you, there's a risk that you're going to get stuck on the island (extension) unless you get to the boat quickly (sell-off)"
Matthew Graham  :  "you're a lower coupon MBS, so are the "friends." "
Matthew Graham  :  "here's the decoder ring for my analogy..."
Matthew Graham  :  "bottom line is that if it looks like you're going to be left on the island by yourself with no boat, you might start to either panic, or simply head very quickly toward the drifting boat, agreed?"
Matthew Graham  :  "but gradually, more and more friends head toward the boat, anchor goes up, boat slowly drifting away from island."
Matthew Graham  :  "for whatever reason you like (storm, mosquitos, voted off island, take your pick), a few friends start heading toward the boat."
Matthew Graham  :  "imagine you're on a desert island with a bunch of friends. You got there on a boat. boat is anchored very close to shore."
Scott Valins  :  "AQ - i understand the extension risk definition but can you take it a step further and explain why it causes rates to go up faster? "
Adam Quinones  :  "Investopedia defines "Extension Risk" as... Extension risk is mainly the result of rising interest rates and is generally associated with mortgage related securities. As interest rates rise, the likelihood of prepayment decreases. Since loans in a pool underlying a security are being prepaid at a slower rate, investors are unable to capitalize on higher interest rates because their investments are locked in at a lower rate for a longer period of time. "
Adam Quinones  :  "Ever hear us say "mortgage rates rise much faster than they fall". This is a factor of extension risk and right now we're learning a painful lesson on what extension risk really means...."
Adam Quinones  :  "all over the map following scattered reprices on Friday."
Adam Quinones  :  "saw some weird pricing behavior yesterday."
Brent Borcherding  :  "Broker here---Basically .375 better "
Adam Quinones  :  "good anecdotal info but not a consistently clear painting of reality. "
Adam Quinones  :  "re: trader position surveys"
Gus Floropoulos  :  "our rates improved by 20 bps avg"
Adam Quinones  :  "howd your pricing look this AM?"
Adam Quinones  :  "Today 11:33 BRUSSELS, July 6 (Reuters) - Credit ratings agencies must be extremely careful to adhere to European Union rules, the European commissioner in charge of financial regulation said on Wednesday, issuing a further warning to the ratings companies. Michel Barnier said the ratings agencies had made "profound mistakes" in the past and had the tendency to follow market thinking rather than independently diagnosing problems. "I invite the agencies, which are under the control of "
Andrew Horowitz  :  "the downgrade in Portugal led to sell offs in the other PIIGS"
Steven Stone  :  "if only mortgage borrowers could suspend their fico score while they declare bankruptcy..."
Steven Stone  :  "lol perfect! its not a problem if we ignore it!"
Brett Boyke  :  "EU FINANCIAL REGULATION CHIEF: EU COULD LOOK INTO POSSIBILITY OF SUSPENDING RATINGS ON EU COUNTRIES RECEIVING BAILOUTS "
Jason Wilborn  :  "Here comes Moody's with a blockbuster which may put China's "White Knight" status, at least as far as Europe is concerned, in grave danger. In a report just released, the rating agency not only warns that China's debt problem is "bigger than stated" (i.e., China is hiding a ton of ugly stuff off the books), but goes ahead to quantify it: "Of the RMB 10.7 trillion (about $1.6 trillion) of local government debt examined by the Chinese audit agency, RMB 8.5 trillion ($1.3 trillion) was funded by ba"