MBS ALERT: Taylor Bean Considerations...

This far into 2009 we've become almost spoiled by a pleasant lack bank failures among the most common names to the mortgage crowd.  Chases TPO drama was a pit of a pot shaker... for some more than others, but it seemed, especially with all the recovery buzz, that the wholesale lending base might be on some sort of cruise control. 

But then we get news like yesterday's announcement that TBW would be suspended from FHA originations.  And now today, TBW themselves are saying that Freddie also pulled the plug yesterday!  That's news to just about everyone!  Maybe even Freddie!?  Ha...  Bit of an exageration there, but still, even some of the big box analyses out on TBW this AM specifically says "no action taken by Freddie..."  Head scratcher to be sure...

So, with no Freddie (full article)....

Whether or not it has anything to do with TBW, MBS prices have dropped about half-way to their lows from this AM.  Considering that TBW only accounted for 3% of Freddie Originations over the past couple of years, drastic impact to MBS prices directly owing to TBW drama is likely to be nil to minimal from a pure volume standpoint.  However, the whole situation does insinuate "that which you thought was safe" is no longer safe.  Or "oh by the way, yes there may still be big failures in the mortgage industry despite the apparent calm."

This doesn't necessarily mean anything for prices in the short term, but it doesn't NOT MEAN anything as well.  Despite the small proportion of originations, TBW's absence will be immediately felt throughout the market.  Interconnectedness goes beyond a percentage share of volume in this industry and were this not an alert, I might pontificate more on the matter.  The bottom line though is that my "spidey sense" is tingling about those certain special reprice alerts that are seemingly disconnected from MBS prices.  Having only dropped to 99-18, prices in and of themselves don't necessarily justify a reprice, but considering other events, I'd just be a bit more cautious today and tomorrow...  

Let us know what you're seeing...