MBS RECAP: Near Best Levels of Month

FNCL 4.5's reached new highs in recent trading, now up 18 ticks on the day at 101-29. 10yr yields are under 3.41 as stocks slide in their final hour of trading. Even the lenders who released aggressive sheets or repriced for the better may come out with slight improvements here, but once again, given the pricing already seen today, this may not be a widespread phenomenon.

This Mortgagee Letter introduces a 25 basis point increase to the Annual Mortgage Insurance Premiums for forward mortgage amortization terms. It also provides guidance on the validity period of case numbers and new requirements for requesting them. The increase in Annual Mortgage Insurance Premiums for forward mortgage amortization terms is effective for case numbers assigned on or after April 18, 2011. The new procedures for requesting case numbers are effective on April 18, 2011. Beginning April 18, 2011, FHA systems will automatically cancel any uninsured case number where there has been no activity for 6 months since the last action. HUD’s Single Family Premium Collection System (SFPCS) will not bill for Annual MIP on a mortgage with: • a term of 15 years or less, AND • a loan-to-value ratio (LTV) at or below 78 percent at the time of origination. For example, if a lender closes a mortgage with a 15 year term at 78 percent LTV, SFPCS will not bill for the Annual MIP for that mortgage. A mortgagee letter will be issued informing lenders that Annual MIP is not applicable for mortgages with terms of 15 years or less where the LTV at the time of origination is at or below 78 percent. http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/11-10ml.pdf

If TOTAL Scorecard issues a referral to manual underwriting based on the presence of one or more disputed accounts, lenders should ignore the TOTAL finding to refer the account to manual underwriting in any of the following circumstances: 1. The disputed account has a zero balance 2. The disputed account is marked as “paid in full”, or “resolved” 3. The disputed account is both a. less than $500, and b. more than 24 months old. For FHA technical support on TOTAL Score Card or any other FHA issue, please email at: info@fhaoutreach.com or visit: http://www.fhaoutreach.gov/FHAFAQ

* FED'S HOENIG SAYS KEEPING RATES NEAR ZERO MEANS SAVERS ARE SUBSIDIZING DEBTORS, LARGE BANKS * HOENIG SAYS NEAR-ZERO RATES BOOSTS LIKELIHOOD OF INFLATION OVER TIME, AGAIN ADVANTAGING DEBTORS * HOENIG - NEAR-ZERO RATES BUILD IMBALANCES IN THE ECONOMY * HOENIG SAYS TOTAL INFLATION IS WHAT I WORRY ABOUT, IT'S UP VERY DRAMATICALLY * HOENIG - FED POLICIES COULD BE FUELING RISE IN TOTAL INFLATION, MAY NOT BE TRANSITORY * HOENIG - FARMLAND VALUES ARE RISING, IF RATES RISE LAND VALUES COULD FALL QUICKLY *HOENIG SAYS NOT AN ADVOCATE FOR TIGHT MONETARY POLICY * HOENIG REITERATES VIEW RATES SHOULD RISE TO 1 PCT, PAUSE, THEN ADJUST FURTHER TOWARDS 2 PCT

Granted, volume is lower, and thus, so is the significance, but a gradually weakening stock market has helped bonds get back to nearly their best levels of the day with 10's at 3.417 and FNCL 4.5's at 101-26. Reprices for the better are possible, but not likely to be widespread.

Though the ups and downs of stocks and bonds continue to occur in relative unison, it has been the bond market that has made a sharper move back toward it's morning range. That brings 10yr notes to 3.4303 and FNCL 4.5's directly to the center of it's range at 101-26. See? Just some turbulence. Back on auto-pilot again, and we'll let you know if things get bumpy again.

First of all, an apology may be order for saying the following: "However the S&P is at 1319.43, right at a bit of a technical shelf. It's now more likely that stock movement could impact the bond market. If stocks move higher, 10yr yields could creep higher in their range." That's basically what just happened, and although it takes MBS Flight 101-26 out of auto-pilot, it's not sending us hurtling toward the ground with engines ablaze. Simply put, stocks reached the level at which we'd expect them to connect more to bonds. They did. And now bonds are NOMINALLY weaker. 10yr yields up to 3.44 and FNCL 4.5's down to 101-24 from 101-26. We'd need to go below 101-23 before reprice risk started picking up. Could that happen? Sure, but the point is that there's nothing of major significance happening right now. Some people fear for their lives when flying through some turbulent air, and others fully understand it poses the plane no risk. Be the latter. We'll make sure the captain gets on the intercom if we take an albatross strike to the windshield.

Truth be told, the day is shaping up to leave us with one of the more frustrating eventualities that it could have offered. After stampeding EXACTLY from one side of today's range to the other, things are dead... Volume and volatility are way down in both stocks and bonds. 10yr notes have been within a 1bp range for hours. In that same time, FNCL 4.5's haven't been lower than 101-25 or higher than 101-27. Stocks are up slightly and really that's the main story... The positive stock prices haven't adversely impacted TSY yields... AKA: disconnected stock lever. However the S&P is at 1319.43, right at a bit of a technical shelf. It's now more likely that stock movement could impact the bond market. If stocks move higher, 10yr yields could creep higher in their range. But S&P's would likely need to drop 10 points from here to motivate any sort of serious break below 3.42 in 10yr notes. We're just kind of watching and waiting for any movement that may come at this point, but even then, the movement would just be incidental. The main story of today is the confirmation of a break out of the recent bearish trend in bonds (link below). Now we're sideways.

(Bloomberg) - Federal Reserve Bank of Chicago President Charles Evans said low inflation and high unemployment both call for continued easy U.S. monetary policy, and there’s little evidence of emerging asset bubbles. “At present, we’re underrunning both our inflation objective and our employment objective,” Evans said in a speech in New York. “Both call for monetary policy accommodation.” U.S. central bankers are debating how to address rising inflation and when to start tightening policy after the Fed ends its purchases of $600 billion of Treasuries in June. Richmond Fed President Jeffrey Lacker and Philadelphia’s Charles Plosser have indicated they’re concerned about prices, with Lacker saying the central bank must tighten credit before inflation gains speed. Evans, echoing the view of Fed Chairman Ben S. Bernanke, said monetary policy shouldn’t be used to address asset prices such as the housing bubble that triggered the longest recession since the 1930s. Evans and other Fed officials will update their economic forecasts and review the Fed’s bond purchase plan at their April 26-27 meeting amid a strengthening labor market and higher inflation. The Fed’s second round of asset purchases has come under fire from Republican leaders in Congress, who say it risks inflating asset-price bubbles and stoking inflation. Kansas City Fed President Thomas Hoenig dissented last year from record monetary stimulus.