MBS Weekly Market Commentary Week Ending 8/19/22

MBA mortgage applications drop to a 22-year low

This week saw talk of Wells Fargo scaling back its mortgage division (possibly greatly exaggerated), MBA mortgage applications dropping to a 22-year low, and U.S. retail sales resiliently remaining flat despite a drop in gasoline prices, though the biggest story was Ginnie Mae and FHFA releasing jointly updated seller/servicer requirements.

To be eligible for Ginnie Mae and GSE loans, issuers/servicers need a net worth base minimum of $2.5 million plus add-ons of 25-basis points for GSE servicing, 35-basis points for Ginnie product, and 25-basis points for private-label and other servicing loans. Tangible net worth or total assets must be greater than or equal to 6%.

TBA rule, requiring IMBs to hold 2.5% in reserves is gone

“Origination liquidity” has been significantly reduced and the requirements recalibrated to better reflect expected margin call risk. Fannie did confirm that the TBA rule, requiring IMBs to hold 2.5% in reserves, is in fact gone. It’s a win for the prospect of hedging in general since the 50-basis points liquidity on IRLCs appears to be regardless of best efforts or hedged pipelines. Importantly, FHFA and Ginnie Mae extended the implementation timeline to provide servicers sufficient runway to adjust to the new requirements. Agency lender letters are expected to come out in September.

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In times of lean volume, lenders need to maximize their gain on sale, as such they must fully-leverage the secondary mortgage markets.

It’s a reminder that the industry is constantly shifting and evolving. Over the past few years, MCT has been focused on the sophistication of best execution which has evolved with a proliferation of potential loan sale executions due to more buyers, more approved buyers, fee adjusted considerations, mandatory versus best efforts delivery, AOT, co-issue, etc.

Our clients have shown a willingness and desire to move away from the status quo, or “the way it’s always been done,” to implement new processes and technologies. That has led to the digitization of workflows that were once “black box” processes, thereby increasing efficiency, transparency, and access to actionable data (e.g., automated AOT, digital TBA trading, and whole loan sales via marketplaces).

Lenders need to maximize their gain on sale

In times of lean volume, lenders need to maximize their gain on sale, as such they must fully-leverage the secondary mortgage markets. We are always pushing the boundaries of digitization and automation in pursuit of efficiency, transparency, and profitability for our clients. At the same time, we pay cautious and necessary consideration to security and privacy of client data and information. We have a 20-year track record of doing what’s right for our clients.

We meet clients wherever they are in their growth cycle. If a client wants to benefit from our technology and also desires hands-on support, we’re there for them. And if they opt for autonomous use of our award-winning, all-inclusive capital markets platform, we’re ready to enable them. Near-term and long-term, it’s about helping our clients thrive. Contact us today to learn more.

Looking for more tips on how to navigate this period of increased volatility? Hopefully, you attended our webinar on Improving Profitability to Counter Market Headwinds. We have also published several blogs over the last few weeks, including Strategies for Mitigating Risk in a Volatile Market, which provide more subject matter on the current market. As always, contact us if you are looking for a better suite of secondary marketing products or more guidance on how to manage market volatility.

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 9/23/22

The phrase “Don’t fight the Fed” was first introduced in the 70’s (a lovely time for inflation lovers) and for most of the last few decades, the phrase meant that the Fed has the market’s back and investors are rewarded for keeping their feet on the gas pedal as the Fed injects liquidity, dampens volatility, and drives outsized returns. But fighting the Fed cuts both ways, and Fed officials are now intent on taming prices, even though the economy is already in a technical recession. Investors have been forced to consider their positions accordingly.

MBS Weekly Market Commentary Week Ending 9/16/22

There are the unfortunate costs of reducing inflation (higher interest rates, slower growth, and softer labor market conditions) that will bring some pain to households and businesses, but a failure to restore price stability would mean far greater economic pain. Markets have interpreted recent Fed comments as: “We are going to raise rates higher and keep them there longer than the market is anticipating. People now understand the seriousness of our commitment to getting inflation back down to 2%. If we have a hard landing and cause a recession, so be it.”

MBS Weekly Market Commentary Week Ending 9/9/22

This year’s run up the coupon stack has led to the destruction of both purchase supply and refinance demand, which has drastically reduced prepayment activity. The Fed’s QE4 created a refinance bonanza in 2020 and 2021, but with the Fed leaving the MBS purchase space next week for the foreseeable future, that party is over. The MCT Review this week examines August prepayment speeds that were released yesterday and what to expect for the remainder of the year.

MBS Weekly Market Commentary Week Ending 9/2/22

In addition to raising the overnight Fed funds rate, the Fed is exiting the MBS and security purchase space as it wraps up QE4. The Fed will reduce its asset holdings by not reinvesting the funds received from maturing securities into new securities as it has been doing over the past two years. The MCT Review this week examines the Fed’s plans and the ultimate impact on a volatile bond market.

MBS Weekly Market Commentary Week Ending 8/26/22

This week’s commentary discusses market preparation and reaction to Fed Chairman Powell’s speech in Jackson Hole. As the Fed puts the brakes on the economy, the central bank is willing to let unemployment go up as a trade for getting inflation under control. Rate hikes are expected to continue as the Fed prioritizes driving down inflation rather than economic growth. Read the rest of this week’s market commentary for more information on the Fed and the MBS market.

MBS Weekly Market Commentary Week Ending 8/12/22

Last week’s U.S. employment figures pointed to a continued strengthening job market while this week saw a spate of softer-than-expected inflation data, but the 10-year Treasury yield closed each week at the same level. Mortgage rates, however, whipsawed around by 0.25-0.375 percent over the last several trading days, exemplifying the basis risk of hedging a pipeline with U.S. Treasuries.