MBS Weekly Market Commentary Week Ending 3/17/23

An Eventful Week

Imagine being on vacation the past week or so, completely unplugging, and then coming back to work to find… multiple bank failures? DTI LLPA delays from FHFA? Nobody knowing whether the Fed will stand pat or deem stubbornly high inflation worthy of a hike to the Fed funds rate of 50 basis points next week? Sheesh. Let’s take a quick look at each of these topics.

If you haven’t already, we recommend reading our latest blog, March Housing Market Update: After Silicon Valley Bank Collapse, which details recent changes to the composition of bank portfolios and how we got to this point. Silicon Valley Bank’s cardinal sin was to buy Treasuries and MBS without hedging the interest rate risk. When the bank was met with a deluge of withdrawal requests, it sold its available-for-sale securities at a loss in the hope it would cover withdrawals. 

Bank Consortium to the Rescue

The banking space concocted a quasi-rescue deal in just a matter of days, with the nation’s biggest banks – JPMorgan, Bank of America, Citi, and Wells Fargo ($5 billion each) – agreeing to deposit around $30 billion with troubled First Republic Bank. The full consortium of 11 banks, which also includes Goldman Sachs, Morgan Stanley ($2.5 billion each), PNC Financial, BNY Mellon, Truist, U.S. Bancorp, and State Street ($1 billion each), coming to First Republic’s aid, represents a vote of confidence for First Republic and the entire U.S. banking system. This is obviously a developing story.

Mortgage rates have fallen substantially in recent days.



Shifting gears, the Federal Housing Finance Agency (FHFA), after updating Fannie Mae and Freddie Mac’s (the Enterprises) single-family guarantee fee pricing framework with a special focus on upfront fees in January 2023, decided to delay the effective date of the DTI ratio-based fee by three months to August 1, 2023, to ensure a “level playing field” for all lenders to have sufficient time to deploy the fee. 

In addition, lenders will not be subject to post-purchase price adjustments related to this DTI ratio-based fee for loans acquired by the Enterprises between August 1, 2023, and December 31, 2023. Beyond impacting the new upfront fee for certain borrowers with a debt-to-income (DTI) ratio above 40 percent, the updated pricing grids also include the upfront fee eliminations announced in October 2022 to increase pricing support for purchase borrowers limited by income or by wealth.​ My question for capital markets heads is this: are you going to credit back the DTI LLPA or not?

Looking to the Federal Reserve

Finally, let’s get to the Fed. Bank failures have made the Federal Reserve’s decision at its meeting next week significantly more complicated. Until now, the economy (aside from the mortgage and residential real estate markets) has weathered the Federal Reserve’s rapid interest rate increases remarkably well. However, these bank failures have made clear that the Federal Reserve’s rapid increase in rates has created real and lasting consequences to the banking sector and the overall economy. The stress in the banking system will restrict credit and that will have a tightening effect on its own. 

This makes it all but certain that the Federal Reserve will raise rates by a maximum of 25 basis points at its meeting next week, with a real possibility that the Fed pauses rate increases to better assess the impact of their policy decisions to date. Next week will reveal the Fed’s resolve on continuing to beat the drum in their aggressive inflation fight. The word until now has been that the central bank will keep hiking interest rates until inflation is under control. But sadly, we haven’t been on vacation for the last week, so we aren’t as sure about that as we once were. 

10-Year Treasury Yield Curve

Compare this chart with the mortgage rates chart to see how the 10-year treasury and mortgage rates are correlated. Read more below to learn how mortgage rates are tied to the 10 year treasury yield. View raw data on U.S. Department of the Treasury website.


Mortgage Rates Today

The current MBS daily rates are shown below in this chart for 5/1 Yr ARM, Jumbo 30 Yr, FHA 30 Yr, 15 Yr Fixed, 30 Yr Fixed. Sign up for our MBS Market Commentary to receive daily mortgage news in your inbox.

About the Author

Robbie Chrisman, Head of Content, MCT

Robbie started his mortgage industry career with internships during high school and college at Peoples National Bank in Colorado, and RPM & Bay Equity in the San Francisco Bay Area. After graduating from The University of Texas at Austin with a degree in Finance in 2014, he went to work at SoFi, where he rose to Director, Capital Markets assisting in the creation of SoFi’s residential mortgage division before leaving to work for TMS in Austin, Texas. From there, he went to work for FinTech startup Riivos in San Francisco and now is the Head of Content at Mortgage Capital Trading (MCT) in San Diego.

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Previous Weekly Market Reviews by Mortgage Capital Trading (MCT)

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MBS Weekly Market Commentary Week Ending 3/31/23

The market reaction went a little “too far, too fast” in regard to the Fed policy pivot. We witnessed the coupon stack (i.e., the price spread between TBA coupons) decompress in more than a trivial manner in a short period. However, the primary mortgage market has been largely reluctant to follow the Treasury rally, and mortgage rates have ultimately not dropped by the same amount as Treasury yields.

MBS Weekly Market Commentary Week Ending 3/24/23

The FOMC raised its benchmark rate by 25 basis points to a new range of 4.75%-5.00% on Wednesday, a middle ground policy move made in the hope of tampering inflation without further harming the banking system. The raise marks the 9th consecutive rate hike since the Fed began hiking in May of last year and brings the target fed funds rate range to the highest level since September 2007. While the central bank’s monetary policy has been aimed at correcting inflation, it has also revealed hidden weaknesses (e.g., entities whose balance sheets relied on low interest rates).

MBS Weekly Market Commentary Week Ending 3/10/23

Events this week likely will lead to a higher peak interest rate than investors had been expecting just weeks ago. Central bankers appear worried about a cycle in which workers seek higher pay to offset inflation’s bite, and in turn trigger more price increases. In fact, inflation remains high because people have jobs and earn enough income to cover stubbornly expensive housing costs. Robust hiring is good for the economy and workers, but elevated pay growth puts added pressure on the Fed to bring down earnings. 

MBS Weekly Market Commentary Week Ending 2/10/23

The week after the jobs report is generally pretty data-light, and this week was no exception. With a dearth of data, market movement hinged on “Fed speak” and consumer sentiment. We saw some volatility return to bond markets as investors built in expectations for a more hawkish Fed. As a reminder, the Fed raised its benchmark rate last week to a range of 4.5% to 4.75%. Let’s run through what we’ve learned in the wake of that decision and a robust U.S. payrolls report that took some wind out of investors’ sails that had hopes for rate cuts by summer.

MBS Weekly Market Commentary Week Ending 2/3/23

As strong as economists may have thought the job market was, it’s even stronger. In addition to headline non-farm payrolls in January (517,000) beating estimates by around 300,000, employment numbers were revised higher for the past two months. Yes, a tight labor market is anathema to any sort of quick stop to the Federal Reserve’s rate hiking cycle, but the growth rate in average hourly earnings is declining, which will be welcome news to Fed Chair Powell and his colleagues. There exists a raging debate among economists over whether we’ll need a sharp rise in unemployment to keep inflation low.

MBS Weekly Market Commentary Week Ending 1/27/23

Even with the most aggressive pace of rate hikes in over a generation during the past year, recent data suggests that there’s still a path to a “soft landing” for the Federal Reserve. The U.S. economy posted the kind of mild slowdown in the last quarter of 2022 that the Fed wants to see as it attempts to tame inflation without choking off growth. Gross domestic product beat expectations to rise at a 2.9% annualized pace, down from 3.2% in the third quarter and a long way from a recession.