Liquidity Issues Making MBS Look Bad

So much illiquidity this week… But what does that really mean?  Let’s break it down…
There are buyers and sellers in the MBS market submitting “bid” and “ask” prices respectively.
Sometimes the bid prices get a little crazy for a variety of reasons.  These can range from actual people making actual decisions to computer programs erroneously calculating where bid prices should be based on other variables.  
In short, there are times when prices appear to instantly drop by large amounts without any justification in the news or any corroboration from Treasuries.  MBS Live runs our own algorithm that filters out most, but not all of this noise. 10:56am ET was one such time.
MBS prices appeared to drop an instant 3/8ths of a point.  Sellers never changed their “ask” prices, and a few minutes later bid prices were right back in line with previous levels.  As can be seen in the chart, this isn’t the first time this has happened in the past few days.

It’s also not a new phenomenon in general, which is why we’ve had knowledge base articles like THIS ONE for years.
Some crazy lenders actually reprice for the worse when this happens, even though they should not.  
Source: Mortgage News Daily

Hedging, Pooling, Outsourcing, Jumbo, HELOC Servicing Products; Events and Webinars

“Wet” January is going well for me. Wait… did I get that wrong? If food news is more to your liking, Krispy Kreme has rolled out donuts covered in Biscoff cookies through the end of January. More calories per bite, right? In other non-mortgage stories, the oldest person in the world has died at 118. Contrary to what LOs say, this photo is not her praying for stated income, stated asset loans to return with no consideration of credit. Speaking of which, the latest credit reporting news involving brokers comes from the UK. Layoffs aren’t happening only in residential lending, the latest example being 10,000 from Microsoft. (It had approximately 221,000 full-time employees globally as of June 30, 2022.) Yes, parts of the economy, especially high tech (how many new phones or laptops does one need?) are slowing. But in 2023 positive labor but slowing inflation and certain economic numbers, have sparked a rally in fixed-income prices, including securities backed by mortgages, and has eased a yield-curve inversion as investors become hopeful the Federal Reserve might become less aggressive in monetary tightening. (This week’s podcast is sponsored by Candor. Candor’s patented automated underwriting decision engine, CogniTech™, is a state-of-the-art, 100% machine platform that can handle infinite loan scenarios. Listen to an interview with Planet Home’s Chris Lewis and Nick DeJesus on the benefits of a retail branch origination model and a day in the life of a branch manager.)
Source: Mortgage News Daily

Mortgage Rates Fall to New 4-Month Lows After Downbeat Data

Mortgage rates moved down at a fairly quick pace today following a slew of rate-friendly headlines.  Technically, the headlines were good for the bond market, but bonds are primarily responsible for determining day-to-day changes in mortgage rates. The first development arrived late last night when the Bank of Japan(BOJ) kept its monetary policy unchanged.  Markets expected the BOJ to make a tweak that likely would have put upward pressure on rates.  When no such tweak was announced, bonds breathed a sigh of relief. In US trading, weak economic data added momentum to the bond market rally.  A weaker economy coincides with lower rates, all other things being equal.  Today’s centerpiece was a 1.1% decline in Retail Sales for the month of December as well as a negative revision that increased November’s slide from -0.6% to -1.0%. Other data also proved helpful, but most of the gains were intact after Retail Sales.  When bonds make gains, mortgage lenders are able to offer lower rates.  And that’s exactly what they did.  The average lender moved down toward 6% with today’s rates being just a hair better than last Thursday’s.  Then, as now, you’d have to go back more than 4 months to see anything lower. [thirtyyearmortgagerates] Source: Mortgage News Daily

Big Rally Challenges Range Floor. What Next?

Big Rally Challenges Range Floor. What Next?

Bonds started strong in the overnight session thanks to an unchanged policy stance from the Bank of Japan.  Weaker domestic data, led by Retail Sales, gave the rally a second wind in the morning hours.  While some Fed speakers pushed back, others acknowledged the new “25bp hike” reality.  10yr yields were ultimately able to break and hold below the prevailing range boundary at 3.40-3.42.  Today’s video discusses the implications of that range breakout.

Econ Data / Events

Retail Sales

-1.1 vs -0.8 f’cast, -1.0 prev
(last month revised down from -0.6)

Core PPI

5.5 vs 5.7 f’cast, 6.2 prev

Market Movement Recap

08:38 AM Stronger overnight on BOJ announcement.  Adding to gains after data.  10yr down 11.6 bps and MBS up 3/8ths.

11:34 AM Additional gains after Industrial Production data, but the rally ran its course as of 9:30am.  10yr still 13bps lower at 3.419 but up 4bps from lows.  MBS still up more than a quarter point, but down nearly as much from the highs.

01:02 PM Bonds had already stopped losing ground shortly into the PM hours, but the stronger 20yr bond auction is helping reinforce the friendly bounce.  10yr down 15bps at 3.40.  MBS up roughly half a point.

02:48 PM At the best levels in 10s, down 17bps at 3.379.  MBS up roughly half a point depending on liquidity.

04:10 PM Choppy, illiquid mess of a day for MBS, but if we look through that noise, they’re at or above the day’s best levels (even if it doesn’t always look like it).  5.0 coupons up more than half a point.  10yr yield down 18bps at 3.37.
Source: Mortgage News Daily

Strong Start on BOJ and Data; Do Stocks Care About Powell's Covid?

There was a fair amount of anticipation over the most recent policy announcement from the Bank of Japan (BOJ) which came out early in the overnight session.  Markets expected another hawkish adjustment, but the BOJ held steady.  10yr yields rallied an instant 9 bps.  The domestic session added to gains in early trading after the 830am data (Retail Sales declined more than expected and producer prices were revised slightly lower).  Momentum and additional data at 9:15 (industrial production) added to the gains, but a bounce is underway as the PM hours approach.
The bounce is far more prominent in stocks, and it happens to coincide with newswires regarding a covid diagnosis for Fed Chair Powell.

The volume profile in the stock move (not pictured) suggests there was not one big reaction to one big piece of news.  In other words, correlation may not imply causality in this case.  We could also consider some hawkish comments from Fed speakers and layoff announcements from Microsoft that came out in the same general time frame.  Combine that all with an initial rally reaction that ran out of steam in the 930am-10am time frame, and we probably don’t need to read too much into the stock losses.  Incidentally, we’d care more if bonds weren’t still holding so much of the AM gains.
Source: Mortgage News Daily

Builders See a Turn-Around in Housing Starts on the Horizon

On top of the solid report on mortgage volume earlier today, comes another hopeful report from the construction industry. The National Association of Home Builders (NAHB) says builder confidence in the new home market has improved for the first time in January after 12 straight months of declines. The NAHB/Wells Fargo Housing Market Index, a measure of builder confidence rose 4 points to 35, an increase which NAHB’s chief economist Robert Dietz said was due in part to a modest drop in interest rates. He added, however, that builder sentiment “remains in bearish territory as builders continue to grapple with elevated construction costs, building material supply chain disruptions, and challenging affordability conditions.” Derived from a monthly survey that NAHB has been conducting for more than 35 years, the HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor. All three HMI indices posted gains for the first time since December 2021. The HMI index gauging current sales conditions in January rose 4 points to 40, the component charting sales expectations in the next six months increased 2 points to 37 and the gauge measuring traffic of prospective buyers increased 3 points to 23.
Source: Mortgage News Daily

TPO Non-Agency Products; Credit Reporting, QC, Home Insurance, Fee Collection Tools; Mortgage Apps Skyrocket

A friend out in California asked me how much, on average, I spend on a bottle of wine. I replied, “About half an hour.” Plenty of wine is being consumed while watching Yellowstone and 1923, and while all the women are ogling Spencer Dutton in 1923, in some non-mortgage news to save the economy the Secretary of Homeland Security will announce next month that the Immigration and Customs Enforcement will start deporting seniors (instead of illegals) to lower Social Security and Medicare costs. A major study concluded that older people are easier to catch, offer less resistance, and, more importantly, will not remember how to get back home. In actual news, lenders who own servicing continue to peel it off because it either doesn’t fit their portfolio, or they need the cash. The owners of lenders continue to examine various business strategies as we start 2023, with some thinking that it doesn’t make sense to remain the size they are. There was a lot of mergers and acquisition activity last year, big and small. I am told by my M&A friends at STRATMOR (Garth & David) that 2023 is lining up for even more. (Both will be in San Diego at the IMB Conference if you want to confidentially meet up.) This week’s podcast is sponsored by Candor. Candor’s patented automated underwriting decision engine, CogniTech™, is a state-of-the-art, 100% machine platform that can handle infinite loan scenarios. Today’s has Part Two of an interview with Tom Booker and Tom Showalter on how every underwrite is an anomaly.
Source: Mortgage News Daily

Mortgage Applications Off to Promising Start in New Year

loan application volume, increased 27.9 percent on a seasonally adjusted basis The Refinance Index rose 34 percent week-over-week but remains 81 percent below its level during the same week one year ago. Refinance applications made up 31.2 percent of those submitted during the week compared to 30.7 percent during the week ended January 6. [refiappschart] The seasonally adjusted Purchase Index rose 25 percent from one week earlier and was 32 percent higher on an unadjusted basis. Purchasing activity was down 35 percent on an annual basis. [purchaseappschart] “Mortgage application activity rebounded strongly in the first full week of January, with both refinance and purchase activity increasing by double-digit percentages compared to last week, which included the New Year’s holiday observance,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Despite these gains, refinance activity remains more than 80 percent below last year’s pace and purchase volume remains 35 percent below year-ago levels .” Added Fratantoni, “Mortgage rates are now at their lowest level since September 2022, and about a percentage point below the peak mortgage rate last fall. As we enter the beginning of the spring buying season, lower mortgage rates and more homes on the market will help affordability for first-time homebuyers.” Other data from MBA’s Weekly Mortgage Applications Survey:
Loan sizes increased week-over-week with the average for all loans growing from $349,900 to $358,100 and purchase loan sizes rising to $401,300 from $389,000.
The FHA share of total applications decreased to 13.0 percent from 13.4 percent and the VA share from 13.2 percent to 11.8 percent. The USDA share of applications remained at 0.6 percent.
The average contract interest rate for 30-year fixed-rate mortgages (FRM) with conforming loan balances decreased to 6.23 percent from 6.42 percent, with points falling to 0.67 from 0.73.
The rate for 30-year FRM with loan balances exceeding the conforming limit of $726,200 ticked down to 6.08 percent from 6.09 percent, with points easing to 0.40 from 0.66.
Thirty-year FRM backed by the FHA had a rate of 6.26 percent with 1.05 points. The prior week the average was 6.39 percent, with 1.03 points.
The average contract interest rate for a 15-year FRM dropped to 5.58 percent from 5.94 percent, and points declined to 0.54 from 0.62. The average rate for 5/1 adjustable-rate mortgages (ARMs) declined 6 basis points to 5.31 percent from 5.37 percent while points rose to 0.74 from 0.72.
The ARM share of activity decreased from 7.4 percent of total applications to 6.6 percent.
Source: Mortgage News Daily

Limited Market Motivations as Traders Wait to Fill in Blanks

Limited Market Motivations as Traders Wait to Fill in Blanks

There was a palpable absence of relevant source material to provide guidance for the bond market today.  That was painfully obvious when the day’s biggest move followed headlines regarding the prospects for a slowdown in the European Central Bank’s rate hike trajectory.  Such headlines may have had little impact on bonds on a day with a big ticket economic report, but alas!  There are none to be found today and few to be found in the rest of the week.  Retail Sales and a new policy announcement from the Bank of Japan are in focus for Wednesday morning. 

Econ Data / Events

NY Fed Manufacturing

-32.9 vs -9.0 f’cast, -11.20 prev

Market Movement Recap

09:41 AM Moderately weaker overnight and pushing back in a stronger direction so far this morning.  10yr up 3bps at 3.533 and MBS down an eighth of a point.

10:20 AM EU bonds rallying on reports that ECB is considering slowing the pace of hikes after February.  It was almost enough to get US bonds into positive territory, but both bouncing now.  10yr up 1.3bps at 3.514.  MBS down 3 ticks (0.09).

12:53 PM Gradual weakness since 10am with a bigger illiquid drop in MBS just now.  Prices fluctuating between 6 ticks (.19) and 13 ticks (.41) lower due to illiquidity.  

02:29 PM Off the weakest levels and consolidating between the day’s highs and lows.  MBS down 6 ticks with better liquidity now.  10yr up 3.5bps at 3.537.
Source: Mortgage News Daily

Old Range is New Again as Markets Wait For Mid-Tier Data

By the middle of December, bond yields made a convincing move down from decades-long highs and settled in a sideways range on CPI/Fed week.  We re-entered that same sideways range after last week’s CPI (3.42-3.62 in 10yr yields), and now wait for a slew of mid-tier reports to see if they’re up to the task of informing a new range breakout.  These include Retail Sales on Wednesday and Philly Fed on Thursday along with many of the housing-related reports that typically don’t impact bonds in a noticeable way.
Source: Mortgage News Daily