MBS Live Morning: Bonds Making a Case For Consolidation or Just Responding to Stocks?

Bonds are off to an even stronger start on Friday, largely in response to a big risk-off move that rifled through markets in the last 90 minutes of trade yesterday and carried over to early trading in Asia.  “Risk-off” implies stock prices and bond yields moving lower together, and that’s a departure from the recent trend where the two have moved in the opposite direction in response to the Fed policy outlook. 

While the chart above gives a good general impression of yields and stocks varying inversely, it’s even easier to see the correlation when we view bonds in terms of PRICE (effectively inverting the yellow line above).  If it helps, just think of the following chart as “asset prices,” be they stocks or bonds, and then the notion that Fed policy is the tide that lifts (or sinks) all boats.

Now we’ll advance the same chart to include the last 24 hours of trading.  It shows a big departure from the recent trend with bonds improving and stocks falling.

What’s up with this?  First off, at most moments in economic history, this is the NORMAL trend (remember, the yellow line is inverted from the normal YIELD view, so this is merely showing “money flowing out of stocks and into bonds” at face value). 
There are a few reasons this could be happening.  It’s possible that bond traders have had their fill of selling for now and are entering into an impressionable couple of trading days before making their next big decisions after next week’s Fed announcement.  It’s also possible that these stock losses were big enough to force investors to seek safer havens (which is definitely a thing that sometimes happens even when the non-standard correlation seen in the first two charts had generally been in effect).
Bottom line, we’ll be watching the stock/bond relationship closely today to see how reliant the bond rally may be on stock market weakness.  
Source: Mortgage News Daily

Pre-Qual, Vendor Mgt., Subservicer Review, Warehouse Products; Pandemic to Endemic?

As I head to Northern California, and mourning the loss of Meatloaf, I’m thinking, “Dang. I guess that I shouldn’t have put my entire 401(k) into Peloton stock a year ago,” a great combination of home exercise and technology. Brad Paisley sang, “…And I’d have given anything to have my own PacMan game at home. I used to have to get a ride down to the arcade, now I’ve got it on my phone.” Mortgage loan originators can’t do anything about interest rates, but they can do something about their service & technology they use. Technology is roaring ahead, whether you’re on board or not, and it is certainly roaring ahead in other, non-mortgage areas. Do you have your digital driver’s license? Using your face for a boarding pass? Try The Frostbite Alert Coat. The faux fur-lined coat has a patch on it that tells you when temperatures are too dangerous for your pet so you can prove to them it’s time to head inside. You may soon be able to taste the culinary delights from shows like Top Chef or The Great British Baking Show . Meiji University professor Homei Miyashita wants to introduce flavor to our screentime with Taste The TV. But be careful out there with technology and data! Venders and lenders, if they are responsible for a data breach and a release of customer information, need more than a short note of apology. As this article from attorney Phil Stein shows, the penalties can be huge and remind us that “An ounce of prevention is worth a pound of cure.” (Today’s audio version of the commentary is available here and this week’s is sponsored by Sagent . Today features an interview with Tom Hutchens, Executive Vice President of Production for Angel Oak Mortgage Solutions on the non-QM industry in 2022 and the return of private money into the mortgage space. Sagent delivers the modern experience customers expect from loan originations to servicing with platforms that let consumers manage their home-owning lives from anywhere.)
Source: Mortgage News Daily

MBS Live Recap: Still Waiting on Fed Above All Else

Still Waiting on Fed Above All Else

Bonds enjoyed another day of modest improvement on Thursday.  On the plus side, gains are good.  On the other hand, the pattern looks eerily similar to last week’s (i.e. a few days of consolidation before more weakness).  It’s good to remember that recent weakness is primarily driven by the market adjusting to a shift in the Fed policy outlook.  As such, it’s hard to make a case for a significant friendly bounce before next Wednesday’s Fed announcement.

Econ Data / Events

Fed MBS Buying  10am, 11:30am, 1pm

Jobless Claims ………… 286k vs 220k f’cast, 231k prev Philly Fed Index……….. 23.2 vs 20.0 f’cast, 15.4 prev Existing Home Sales….. 6.18m vs 6.44m f’cast, 6.48m prev

Market Movement Recap

08:59 AM Moderately stronger overnight  with most of the gains during European hours.  Little changed in the first hour with 10yr down 2.5bps at 1.829 and MBS up just over a quarter of a point.

11:45 AM Sideways to slightly weaker as the trading session continues, but still in positive territory.  MBS up 5 ticks (.16) and 10yr yield down 1.8 bps at 1.838.

02:58 PM Slightly weaker after 10yr TIPS auction, but recovering now.  Trading levels right in line with the last update.
Source: Mortgage News Daily

Mortgage Rates Leveling Off at Long-Term Highs

Today was one of the most uneventful days in recent memory for mortgage rates.  The average lender is in very similar territory compared to yesterday, and there has been far less intraday volatility through 3pm E.T.  While things may be ho-hum over the past 2 days, rates are still in bad shape compared to most of the past 2 years.  In just a few short weeks, the average lender has moved roughly half a percent higher for top tier 30yr fixed scenarios. A shift in the Federal Reserve’s policy outlook is primarily responsible for the pace of the move.  As such, don’t expect things to improve too much before next Wednesday’s official policy announcement from the Fed. [thirtyyearmortgagerates] Source: Mortgage News Daily

Fannie Mae Forecasts a “Return to 'New' Normal”

Fannie Mae’s Economic & Strategic Research (ESR) Group writes that it expects 2022 to be a year “of transition for both the economy and the housing market.” While it hedges its bet as to whether COVID-19 will end any time soon, it expects the market and policy choices driven by the pandemic to be gradually be replaced by more typical pre-COVID economic and housing patterns. This won’t happen overnight, and the group says the changes may never be completely reversed. Alterations to work, school, and housing arrangements may prove to be long-lasting and even though inflation is expected to slow, it may remain higher than the pre-COVID range for the foreseeable future. That said, this month’s economic commentary from the ESR describes the year ahead as ‘returning to a ‘new’ normal.” With unemployment below 4 percent and the Federal reserve expected to increase rates starting in March, the economy appears to be entering the mature stage of the business cycle, during which growth decelerates toward the long-run trend. Labor demand and the need to rebuild inventories should mean solid economic growth in 2022, but the period of rapid recovery has passed. The group expects improvement to supply chain difficulties , but risks around how fast this occurs, the duration of continued high inflation, and policy maker and financial market reactions to these economic conditions remain. Recent economic forecasts from Fannie Mae have been notable for many revisions to economic and housing predictions, usually moving the metrics higher. January’s report, they say, contains only modest changes. GPA growth in 2021 is still expected to be 5.5 percent, the highest since 1984, but the growth this year has been lowered 0.1 point to 3.1 percent with 2023 still expected at 2.2 percent. Recent inflation data has likewise been in line with the prior forecast, so related adjustments have also been modest.
Source: Mortgage News Daily

2021 Existing Home Sales Set Post Crash Record Despite December Slide

Existing home sales dropped in December, snapping a three-month streak of increases. The National Association of Realtors® (NAR) said the month’s sales of pre-owned single-family houses, townhouses, condos, and cooperative apartments fell 4.6 percent from November’s 6.460 million-unit pace to a seasonally adjusted annual rate of 6.18 million in December. From a year-over-year perspective, sales were down 7.1 percent from 6.65 million in December 2020. Even with the year-end slide, sales in 2021, at an apparent 6.12 million units, represented an 8.5 percent increase from 2020. It was the highest annual level since 2006. Analysts substantially overshot with their December estimates. Those polled by Econoday had a consensus forecast of 6.400 million units while Trading Economics reported a consensus of 6.44 million. Single-family home sales dropped 4.3 percent from 5.77 million units in November to a seasonally adjusted annual rate of 5.52 million, a 6.8 percent year-over-year decline. Condominium and co-op sales slid 7.0 percent from the 710,000-unit level in November and were 9.6 percent lower than in December 2020 at an annual rate of 660,000 units. “December saw sales retreat, but the pullback was more a sign of supply constraints than an indication of a weakened demand for housing,” said Lawrence Yun, NAR’s chief economist. “Sales for the entire year finished strong, reaching the highest annual level since 2006.”
Source: Mortgage News Daily

Webinars Today; Training, Automation, Broker Tools; Write Up on MLO Purchase Focus

While there’s plenty of chatter out there about the return of Better.com’s CEO to its helm, and its interesting business model how LOs are supposedly not paid for closed loans but for how many they lock, I could tell that my cat Myrtle was miffed a few days ago. And I knew why: She figured out that I was not going to spend several hundred dollars to nominate her for some forgettable award. Now that a new year has begun, offers to nominate employees and producers are everywhere, and in some cases, lenders can nominate dozens of their employees at discounted bulk prices. I thought about explaining to Myrtle that she’d be better off with me spending those doubloons on line-caught salmon, or, in my opinion, that every lender would be better off spending their money on training, client retention software, or pricing concessions, rather than telling the world which producers their competitors should pick off. Of course, I was never big on giving a child a trophy just for being on the team either, but that sounds pretty curmudgeonly.) Along those lines, if you haven’t seen this video satire on hiring a millennial, you should check it out. Fortunately, the people I’ve met in our industry in their 20s and 30s don’t fit that mold. Speaking of people in their 20’s in our biz, today’s audio version of the commentary is available here and this week’s is sponsored by Sagent . Today features Interview with Sagent’s new Chief Product Officer, Courtney Thompson, on her career in the mortgage industry and how this move accelerates Sagent’s vision to remake loan servicing from the consumer perspective and deepens Sagent’s relationships with customers, regulators, and the fintech community. Give this mortgage modernization lesson a listen, and read about her new role .
Source: Mortgage News Daily

MBS Live Morning: Consolidation Pattern Continues Playing Out; Does Ukraine Matter to Bonds?

For the second day this week, bonds are off to a stronger start. The pattern is similar to last week where yields hit new long-term highs on the first day and then consolidated toward slightly stronger levels in subsequent days.  The broader pattern in January is similar to late September–the last time the market rushed to reposition for a shift in the Fed policy outlook.

There’s certainly a case to be made that a moderate, mid-week rally is a trap in this environment.  From a strategy standpoint, the rally is guilty (of being a trap) until proven innocent (by a bigger, more sustained rally than last time).  Even then, we won’t really know what’s what until after next week’s Fed announcement.  There may be some ebbs and flows that create lock/float opportunities between now and then, but no crystal balls.
In other news, we’re getting lots of questions about whether the potential conflicts in Ukraine or Taiwan will save the bond market.  The answer is “no,” probably.  Unless an all-out war breaks out, the market already has a script for the Russia-Ukraine conflict from 2014.  They were the two most boring months of the year, and wholly overshadowed by the ECB’s QE roll-out.

Taiwan is another discussion for another day.  I don’t know enough about it to comment on probabilities, but I do know it’s not as simple as “war = geopolitical risk = bond market rally.”  One great reason for that is very near and dear to our inflationary hearts in 2021.  Ever heard of the chip shortage?  And do you know which country makes almost all the chips?  Could the supply chain once again be adversely impacted if that country was at war?
Source: Mortgage News Daily

Tepid Recovery For Mortgage Rates; Big Picture Risks Remain

Mortgage rates have been having a bad 2022 so far with the average lender up to the highest levels in roughly 2 years as of yesterday.  The reason? The broader bond market (which dictates interest rates) is in the midst of an adjustment process in response to a shift from the Fed ( discussed in greater detail yesterday ). This adjustment process can be thought of as the sudden realization that rates need to go higher by a certain amount and by a certain time.  The amount is a bit of a moving target, but it is likely larger than what we’ve seen so far.   The time is open to debate, but the March Fed meeting is the most popular guess.  Between now and then, the traders who share this realization will be making trades that drive rates gradually higher.  In other words, they’re not trying to jump immediately to the apparent destination.  As such, we are going to see bonds/rate make token improvements every so often.  This happened last week.  It looked promising for a few days, and then rates promptly jumped higher on Friday (and higher still on Tuesday).   Today was one of the decent days amid the broader rising rate trend.  Could it be the first of many?  Technically, that’s possible, but it’s not especially likely.  Simply put, this is a rising rate environment until we see a far more substantial correction.  Today didn’t cut it.  Ultimately, it allowed lenders to offer rates that were right in line with yesterday’s mid-day rates. [thirtyyearmortgagerates] Source: Mortgage News Daily

Remaining Forborne Loans May Require Additional Relief

The Mortgage Bankers Association (MBA) has initiated a new monthly Loan Monitoring Survey , to replace its Weekly Forbearance and Call Volume Survey which it published weekly from the start of the pandemic through December 1. The new report covers both forbearances and loan delinquencies for the month of December. At the end of the reporting period MBA estimated that 750,000 loans remained in forbearance, 1.41 percent of mortgages in servicer portfolios. This is a 26-basis point decline over the course of the month. By stage, 23.2 percent of total loans in forbearance were in the initial forbearance plan stage, while 63.1 percent were in an extension . The remaining 13.7 percent are forbearance re-entries, including re-entries with extensions. The share of Fannie Mae and Freddie Mac (GSE) loans in forbearance decreased 8 basis points to 0.68 percent during the month and Ginnie Mae (FHA and VA) loans fell 47 basis points to 1.63 percent. The share of forborne loans among those serviced for bank portfolios and private-label securities (PLS) declined 51 basis points to 3.43 percent.  “The share of loans in forbearance continued to decline in December 2021. This was especially the case for government and private-label and portfolio loans, as those loans have higher levels of forbearance than loans backed by Fannie Mae and Freddie Mac,” said Marina Walsh, CMB, MBA’s Vice President of Industry Analysis. “With the number of borrowers in forbearance continuing to decrease below 750,000, the pace of monthly forbearance exits reached its lowest level since MBA started tracking exits in June 2020.”  
Source: Mortgage News Daily