I
have been speaking with plenty of mortgage bankers in recent weeks - what are
they saying? The refi biz is alive and well but slowing markedly - the volumes
are much to the concern of investors who paid up for loans with higher rates
only to see them prepay. And so lenders are girding their loans, uh, I meant
loins, for premium recapture. Obviously the huge lock days in January will
result in good February and March volumes (but don't forget margins and gain
per loan!) that will come at the expense of servicers and owners of the loan
assets: faster factors ahead. And management will once again grapple with
whether or not to pass early payoff penalties or premium recaptures on to
originators. And staffing in these types of accordion-style volume moves is
difficult at best.
Yesterday
this commentary mentioned some mortgage shopping sites. Rich Rizzuti sent along
a calculator that tells one
where they stand in terms of income and tax brackets. "This calculator
tells you, based on how much you make, where you rank in overall income: are
you in the top 1%, 10%, and so on. It also tells you how much you and your
(mostly) same tax bracket buddies paid as a percent of the total tax collected.
I thought it interesting (after playing with the numbers for a little while)
that the top 1% pays 38.1% of total income taxes. That means that the other 99%
pay 61.9% of the tax burden. Heck the top 25% pays 86.4% of total taxes. And
they say the top 1% doesn't pull their weight. I'm not saying I don't want my
taxes to be lower, but I certainly have no issues with the top 1% who mostly
worked extremely hard to get where they are (or had a relative who did).
Peer-to-peer lending is on the
rise, with no better example of this than San Francisco based Social Finance
Inc.'s largest bond issue to date of $313.8m. The issue balance is backed
by $348.6 million of borrowings that former graduate students mainly used to
refinance existing federal loans, according to the presale report. In a similar
business model, LendingClub Corp. raised $870 million in an initial
public offering last year and is now valued at $7.5 billion, while SoFi Chief
Executive Officer Mike Cagney told The Wall Street Journal in October that it
expected to file for an IPO this year. SoFi, which has originated more than
$1.5 billion of loans since being founded in 2011 by focusing on refinancing
the debt of former students, announced in October it would also deal in home
mortgages. Borrowers are changing, and access to credit appears to be evolving.
The
market is taking direction from the Federal Reserve whose Governors said the
recovery of the U.S. economy is too fragile
to risk by raising interest rates. According to minutes of their January policy
meeting, officials fear that a premature increase could dampen economic growth
so much that the central bank would have to reverse course and return stimulus
programs. So analysts are shifting back their "short term rates are going
up this summer" to possibly the autumn. Either way, overnight rates
don't determine 30-year mortgage rates.
Nothing
out of the ordinary happened in the bond markets Thursday. How do you like that
for technical analysis? Sure we had some movement in different coupons (rates),
and a little movement based on type of security or maturity, and there was more
talk of Greece. But really it seems folks are more focused on the weather and
enjoying the holiday week than on rate volatility. And don't look for any news
out of the United States today as we wrap up the end of ski week in many
locales. As a proxy for the rates we had a 2.11% close Thursday (after a 2.07%
Wednesday, and 2.14% Tuesday) on the 10-yr.; agency MBS prices are better by
.250 as the 10-yr is down to 2.07%.
Executive
Rate Market Report:
A better opening this morning with the 10 yr note yield down 3
bps to 2.08%, reversing yesterday’s decline of 3 bps. 30 yr MBS prices fell
24 bps yesterday, started this morning up 27 bps. Marking time ahead of next
week’s testimony of Janet Yellen to the Senate and House. There are no economic
reports to think about today. In early trading prior to the pen at 9:30 the key
stock indexes were slightly lower.
Looking over the news wires there isn’t much to concern markets. The Greek tragedy
continues; Germany continues to resist any proposal from Greece to extend its
debt payments. Germany’s stance is increasingly looking like Germany doesn’t
care whether Greece leaves the EU or not; siting Greece's radical leftist
government is trying to weasel out of the bailout program by asking for an
extension of just one of the legal documents that frame it, instead of the
whole package. Traders and investors remain concerned; the details are
confusing for most investors and even those that are directly involved. The
take away for us, the crisis is sending the euro currency down and increasing
the strength of the dollar. The stronger dollar is beginning to drag on the US
in terms of competitiveness in global trade. The stronger dollar is a support
for the bond and mortgage markets; foreign investors continue buying treasuries
and in turn keeping rates from increasing much.
Keep focused on crude oil; a key reason that interest rates
dropped in January was the sharp and swift decline in price. Lower oil meant lower
commodity prices across the board and less concern about inflation; as long as
investors don’t worry that inflation is increasing it keeps markets guessing
about when the Fed will begin the lift-off. Presently, it’s a toss-up
regardless of what you might read or hear frm those that believe the Fed will
make its first move in June. The proof can be seen in market movements;
interest rates have increased slightly but overall remain very low. The price
of crude is a major factor for where interest rates will trade; currently looks
like supply isn’t being reduced. The U.S. Energy Information Administration
said oil inventories grew by 7.7 million barrels in the week ended Feb. 13.
Analysts said swelling stockpiles are a sign that producers aren’t cutting back
on output despite a more than 50% collapse in prices since last summer. In its
report, the EIA said U.S. oil production was on track to reach a 42-year high
this month.
At 9:30 the DJIA opened -22, NASDAQ +1, S&P -2, not much change.
The 10 down to 2.07% frm 2.11% yesterday. 30 yr MBS price +17 bps after
declining 24 bps yesterday. Within 15 minutes after the pen the DJIA declined
over 100 points; crude opened higher but has begun to decline.
Call your attention to the 10 yr note chart above. The long trend line
going back to last Sept is holding any additional selling in the bond market
this week. The last vestige of technical support, a close over the trend line
will trigger a move to 2.30% and pull MBS prices down 100 basis point frm
current levels. Don’t buy the view that some espouse that MBS markets are
independent of treasuries in terms of direction; treasuries always set the
direction for mortgages. Our work remains bearish and won’t turn around unless
the 10 yr note rate declines below 2.00%. Floating in this environment is
dangerous, especially if you can profit or lose on small movements. Home buyers
should not speculate now that rates will decline enough to risk the potential
of higher rates.
Expecting a narrow range today with no news and Yellen’s
testimony next week. Still a near term bearish outlook. Overall as we have noted
previously, we do not expect US interest rates to increase much frm present
levels, although we can’t act on it because our technical indicators remain
negative.
PRICES @ 10:10 AM
10
yr note: +17/32 (53 bp) 2.06% -5 bp
5
yr note: +10/32 (31 bp) 1.52% +6 bp
2
Yr note: +3/32 (9 bp) 0.58% -5 bp
30
yr bond: +34/32 (106 bp) 2.68% -5 bp
Libor
Rates: 1 mo 0.173%; 3 mo 0.260%; 6 mo 0.385%; 1 yr 0.684%
30
yr FNMA 3.0 Mar: @9:30 101.38 +17 bp (+2 bp frm 9:30 yesterday)
15
yr FNMA 3.0 Mar: @9:30 104.37 unch (+4 bp frm 9:30 yesterday)
30
yr GNMA 3.0 Mar: @9:30 102.16 +16 bp (+8 bp frm 9:30 yesterday)
Dollar/Yen:
118.40 -0.55 yen
Dollar/Euro:
$1.1298 -$0.0070
Gold:
$1208.90 +$1.30
Crude
Oil: $50.99 -$0.17
DJIA:
17,907.74 -78.03
NASDAQ:
4910.98 -13.72
S&P
500: 2088.06 -9.39
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