MBS RECAP: All Sorts of Reprices

As expected reprices for the worse have been seen from several lenders and more may follow as FNCL 4.5's are well off their 102-10 highs, now at 102-02. Benchmark 10's were unable to get through 3.30 and have risen slowly and steadily since then, now at 3.328.

The U.S. Department of Housing and Urban Development’s, Office of Housing, Office of RESPA and ILS, issues the following additional guidance on how mortgage loan originators (MLO) comply with the Real Estate Settlement Procedures Act (RESPA), in light of the Federal Reserve Board’s (FRB) Loan Originator Compensation rule that is effective April 1, 2011.This guidance seeks to clarify RESPA requirements related to proper disclosure on the GFE and HUD-1 settlement statement. This guidance does not address substantive issues related to restrictions on mortgage loan originator compensation that are within the jurisdiction of the FRB. http://www.hud.gov/offices/hsg/rmra/res/mlocomplrodup31811v3.pdf

MBS have continued to fall with the FNCL 4.5 now down 11 ticks on the day at 102-03. Benchmark 10's haven't been able to gain any ground either, having slowly and steadily backed up to 3.323. There's a risk now that lenders may reprice for the worse, be they those that repriced twice for the better earlier, or those that were otherwise more aggressively priced to begin with.

All-cash sales were a record 33 percent in February, up from 32 percent in January; they were 27 percent in February 2010. Investors accounted for 19 percent of sales activity in February, down from 23 percent in January; they were 19 percent in February 2010. The balance of sales were to repeat buyers. A parallel NAR practitioner survey shows first-time buyers purchased 34 percent of homes in February, up from 29 percent in January; they were 42 percent in February 2010. Distressed homes – sold at discount – accounted for a 39 percent market share in February, up from 37 percent in January and 35 percent in February 2010. “The decline in price corresponds to the record level of all-cash purchases where buyers – largely investors – are snapping up homes at bargain prices,” Yun explained. “We’d be seeing greater numbers of traditional home buyers if mortgage credit conditions return to normal.” Plain and Simple: 33% of existing home sales in February were covered with cold, hard cash. 39% of all sales were distressed inventory. This indicates folks are looking for bargains before the spring/summer buying season gets underway. Adding some optimism to the home buying outlook, we're hearing from loan originators that purchase applications are on the rise with most settlements not scheduled until April and May. Unfortunately, on the whole, optimism is tempered by tighter underwriting standards and weak consumer credit profiles. This is old news though. It's not only hurting home buying demand, it's preventing many folks from refinancing into a lower monthly payment as well. There's a lot of borrowers out there who just can't qualify for an agency-backed loan. Anyone know of a better alternative besides cash? We don't....

Total housing inventory at the end of February rose 3.5 percent to 3.49 million existing homes available for sale, which represents an 8.6-month supply at the current sales pace, up from a 7.5-month supply in January.

The national median existing-home price for all housing types was $156,100 in February, which is 5.2 percent below February 2010. This is the lowest Median price since April 2002.The median existing single-family home price was $157,000 in February, which is 4.2 percent below a year ago. The median existing condo price was $150,400 in February, down 11.1 percent from February 2010. The median price in the Northeast was $230,200, down 9.5 percent from a year ago. The median price in the South was $134,600, down 3.9 percent from a year ago. The median price in the Midwest was $122,000, which is 5.4 percent below February 2010. The median price in the West was $190,000, which is 5.2 percent below January 2010.

This is a bit of an uncertain situation. FNCL 4.5's made it as high as 102-10 and are now down to 102-06 after benchmark 10's saw a moderate resistance bounce at 3.30 and moved up to 3.32. It depends on how aggressively a lender repriced for the better as to whether or not they might consider a reprice for the worse now, but we'd probably need to fall a few more ticks before that became an appreciable risk.,

MBS are staying close to 102-08 opening levels with FNCL 4.5's currently down 7 ticks on the day at 102-07. However, this is appreciably better than the 101-28 hit earlier. 10yr notes look to have bumped into some resistance right at 3.30, which is near their opening levels and the same resistance that prevented any gains this morning. Reprices for the better have been widespread, but with 10's moving up to 3.312 and MBS off a few ticks from their recent high of 102-10, these may slow down unless bonds can re-engage rally mode.

When we witnessed the relative disconnect of the stock lever on Friday, the assumption was that money was leaving the market on both sides into the afternoon. Perhaps then, this has something to do with why we're seeing stocks hold huge gains this morning as bonds rally back to their opening levels. For 10yr notes, that's around 3.30 and FNC 4.5's are back to 102-09. A few additional reprices for the better have been seen and more should follow if this levels are maintained or improved upon.

With the lowest, scariest levels of MBS prices coming during the thick of lender's time frame to release morning rate sheets, we're now seeing a few reprices for the better as the rally off those lows has been maintained. FNCL 4.5's are now at 102-04, a few ticks better than previous levels, though still down 10 ticks on the day.

As previously mentioned, FNCL 4.5's had been in a tight range around 101-30 following this morning's sell-off. The confines of that range have been broken now and prices are up a few ticks to 102-03 (still 11 ticks down on the day however). This is an encouraging sign given the extent to which 102-00 had previously acted as resistance to moves higher, it now has a chance to offer support against moves lower.

Mortgages were hit by non-Japan/Libya headline news this morning when Treasury announced it would begin selling its $142 billion mortgage-backed securities portfolio. Although this decision is not seen as having a major impact on MBS cash flows, the market's initial knee jerk reaction was not favorable and "rate sheet influential" MBS prices plummeted. The FNCL 4.5 coupon is currently -15/32 at 101-31. Reprices for the worse have been reported.