MBS Print New Session High. Reprices Due. Will They Be Awarded?

While hedge ratios and fall out forecasts have always been one of the main inputs in the determination of mortgage rates, they've been a bit more influential since "rate sheet influential" MBS prices started trading in outer space (record levels). Major lenders have been pricing loans as if the day to day movements of the MBS market are a distant second in the process of building rate sheets.

Rate sheet influential MBS prices just hit a new session high. The September delivery Fannie Mae 4.0 is trading +0-06 at 101-12. The FNCL 4.5 is +0-05 at 103-18. The secondary market current coupon is 2.4bps lower at 3.764%. Yield spreads are basically unchanged vs. TSYs and swaps.

On average, loan pricing is 20.4bps worse today. This brings the 3-day average loss tally to 39.4bps. Buydowns are also getting more expensive. This might seem like a big deal, but it really isn't. 4.50% is still best execution for a borrower. 4.375% is  available for a borrower who wants to pay points.  Actually, a few lucky borrowers with perfect credit profiles who live in regions where servicing is more valuable  may be quoted 4.375% at no points. I should also point out that the spread between Best Efforts and Mandatory locks is huge....

If you compare pricing on a week over week basis, rebate is still 11.7bps better and buydowns are 2.2bps less expensive. Unfortunately the week over week average will likely suffer tomorrow because lenders were seen offering the most aggressive pricing of the week last Thursday and Friday.

This explains why we've been on a losing streak lately...

Rate sheets are about 40bps worse on average over the past three days and the FNCL 4.0 is 8 ticks of the high print seen on Friday. 8 ticks = 0.375% so we're not too far from reality.   After filling their pipelines to capacity (which is low) late last week, it looks like lenders might be realigning their pricing strategies to more closely follow the behavior of MBS prices.  I guess we'll find out if that is true or not. If "rate sheet influential" MBS prices hold near session highs. Reprices for the better are due...

Bernanke is about to sit down before the Senate Banking Committee to share the Fed's thoughts on what has happened over the past 6 months and what they expect to happen in the next six months. I don't expect Ben's tone to differ greatly from the message offered by the most recent  FOMC Meeting Minutes: Economic expansion will be slow. Inflation is not an issue. The Fed stands at the ready to act if conditions deteriorate.