MBS UPDATE: Loud Cheers Recorded
At the close...
Fn 4.0-> +0-13 to 100-13 Gn 4.0-> +0-13 at 100-18
Fn 4.5-> +0-08 to 101-18 Gn 4.5-> +0-07 to 101-21
Fn 5.0-> +0-05 to 102-10 Gn 5.0-> +0-05 to 102-18
Fn 5.5-> +0-03 to 102-25 Gn 5.5-> +0-02 to 102-28
Fn 6.0-> +0-02 to 103-12 Gn 6.0-> +0-02 to 103-09
After a sluggish start MBS market participants managed to stir up some "down in coupon" commotion and a refreshing rally ensued. The hullabaloo even provided enough incentive for lenders to pass along some gains to mortgage bankers and brokers!!!! The long awaited rate sheet restitution spurred on cheers from originators and borrowers alike...we heard several statements that suggested lock desks were busy after rates were republished. We hope you were able to take advantage of our reprice notice....perhaps you locked in a lower rate or augmented your YSP?
Mortgage banker supply was light and volume was modest, unfortunately as we have reminded in the past this environment is a "Day Trader's Delight", so as expected intraday MBS gains were reigned in by profit takers. This behavior will remain customary conduct while the Fed provides liquidity and stability...not to mention the FOMC policy announcement is tomorrow. Speaking of the Fed...
I'm not too sure how much the Fed will have to say to us tomorrow in regards to MBS purchases. At this point in the Quantitative Easing process it wouldn't make much sense for the Federal Reserve to "shoot themselves in the foot" by using any anti-MBS verbiage. So don't expect the statement to create any unwilling/disinclined feelings regarding Fed MBS Purchases. (Maybe they will make a comment to cheapen up the stack??????IM JOKING). If anything they should state that their constant participation in the MBS market is generating lower lending rates and is expected to continue to alleviate the stress caused by a clogged credit system.
There is speculation that some of the statement will focus on a Federal Reserve Government Debt Purchase Program (Treasury Bills, Notes, and Bonds). This would be a secondary effort to lower lending rates of all kinds (remember Treasury Bills and Notes are the risk free benchmark that all borrowing costs are built upon). Initially this would result in static MBS spread widening and would make the MBS market appear cheaper vs. expensive Treasuries, a gap that would eventually tighten. However with the Fed almost always involved in capital markets it is difficult to make any assumptions on the spread effects of such a program. Basically...the Fed is able and willing to moderate any unexpected market activity with their limitless Treasury credit card, Fed support cannot go away and it appears that more is needed...therefore try not to make too many historical spread comparison...we are in uncharted waters.
In terms of monetary policy there isn't any room to go lower and I sure as H E double hockey sticks dont see ANY chance for ANY type of "contractionary" policy. So if you were wondering about that "inflationary issue" there is your answer. No rate hike. Discussing inflation at this point is putting the cart before the horse. Lending and securitization will not function without the so called "inflationary/money printing policy" tactics currently being employed by the Fed. At some point inflation may become a problem but right now the only crisis we should be concerned with is the current one...a deflationary spiral that may lead us into global depression. Our economy needs to get funds flowing through its comatose credit system. That said at some point, maybe even tomorrow (big maybe), the Fed will publicize its intentions to support cheaper borrowing costs via Treasury Debt purchases plus we are waiting on more news about the creation of a "Bad Bank" to buy up all the toxic CDO debt /derivatives off of bank balance sheets. Anyway my rant is over, no more Fed postulations for now ....here is last month FOMC policy statement...LINK
"The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.
Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.
Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.
The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.
The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity."
Tomorrow trading activity is expected to be light ahead of the FOMC announcement. A few protectionist positions may be taken but all should be quiet. I feel like I should reiterate "SHOULD BE" because this market is not operating efficiently in any way!
In other news...
The FHFA released their interest rate survey today. Here is an excerpt from the release...
"The Federal Housing Finance Agency today reported that the average interest rate on conventional 30-year, fixed-rate, mortgage loans of $417,000 or less decreased 66 basis points to 5.51 percent in December. The average interest rate on 15-year, fixed-rate loans of $417,000 or less decreased 44 basis points to 5.43 percent in December."
To read the full text....CLICK ON ME
Yesterday we reported that Fannie and Freddie are in need of money and were indeed asking their conservator to get it for them....Read the FHFA response by CLICKING ON ME
Here is a blurb from the statement...
"For Fannie Mae and Freddie Mac, an interim final regulation governs their portfolio holdings. The regulation implements Section 1109 of HERA by adopting, as the standard for the Enterprises' portfolio holdings, the criteria set forth in the Senior Preferred Stock Purchase Agreements executed between the Secretary of the Treasury and FHFA, as conservator of the Enterprises, on September 6, 2008. Those criteria, under which the Enterprises currently operate and which could be adjusted by amendment of the Agreements, provide that each Enterprise may grow its mortgage assets up to $850 billion on December 31, 2009, but, starting on December 31, 2010, must hold 10 percent less mortgage assets in its portfolio than at the end of the preceding year until those assets reach a level of $250 billion."
Ok my beautiful gf has been patiently waiting for me to finish writing so we can have some QT...good night mortgage world.