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Mortgage Rates Stage Nice Comeback, But Uncertainty Remains

May 29,2020
by admin

Mortgage rates staged a nice little comeback today, moving back toward the all-time lows seen late last week. Mortgage rates are determined primarily by the bond market, and the bond market benefited from strong demand at the end of the month. Higher demand means higher prices, and higher bond prices equate to lower rates.

There has been some concern that the overall bond market (which includes mortgage-specific bonds as well as benchmarks like US Treasuries) was gradually moving toward higher rates in the past few weeks. As of today, however, 10yr Treasury yields (the most quintessential benchmark for longer-term interest rate momentum) improved for a third straight day. This went a long way toward arguing against the recent, gentle uptrend in rates but fell short of suggesting a big drop moving forward.

Loan Originator Perspective

You must remain cautious in the current rate environment, so if you are happy with current terms lock in today. Not a fan of locking on Friday, and with MBS in the green, I think floating over the weekend might be worth the risk. As always, float at your own risk. –Victor Burek, Churchill Mortgage

Ongoing Reminder on Forbearance

Coronavirus has created unprecedented challenges for people and industries. For homeowners facing a big reduction in income due to coronavirus-related hardship, a forbearance can make excellent sense. But for those who have the capacity to continue making mortgage payments, there are downsides to consider. Forbearance itself does not hurt your credit score, but it does show up on your credit report. This will affect your ability to qualify for a loan in the present and near future. It can also result in your other creditors decreasing your available credit balances. This has the unintended effect of increasing your ratio of debt to available credit which is a key component of credit scoring models. Thus, even though forbearance itself is not hurting your credit, it can indirectly lower your credit score and it will absolutely impact your mortgage creditworthiness in the short term.

April’s Forbearance Requests Slow to a Relative Trickle

May 28,2020
by admin

Black Knight says its research is showing that the numbers of new forbearance plans for homeowners financially affected by the COVID-19 pandemic have slowed to a trickle compared to the tidal wave in early April. Only 7,000 new plans were put in place during the week ended May 26 compared to a 325,000-net increase in the first week of May and 1.4 million in the first week of April.

The most recent increase brings the total forbearance plans to 4.76 million or 9.0 percent of all active mortgages. These loans represent more than $1 trillion in unpaid principal balances.

The largest number of loans in forbearance plans, 1.99 million, are those serviced for the GSEs Fannie Mae and Freddie Mac. Another 1.535 million are serviced for Ginnie Mae (loans backed by FHA, the VA, and USDA) and 1.233 million are mortgages belonging to “others” such as bank portfolios or investors in private label securitizations. However, in terms of the impact on portfolios, 12.6 percent of the Ginnie Mae portfolio of 12.1 million mortgages are in forbearance, as are 9.5 percent of “other” loans, and 7.2 percent of the 27.9 million GSE aggregate portfolios.

Because of contractual obligations, servicers of the government-backed loans must continue to advance principal and interest (P&I) payments to investors and taxes and insurance premiums (T&I) on behalf of loans with escrow accounts even though homeowners are not making their monthly payments. Black Knight places those obligations, given the current number of forbearance plans, at $3.6 billion a month in P&I payments and $1.5 billion in T&I payments.

The Federal Housing Finance Agency, conservator and regulator of the GSEs, has capped servicer obligations for P&I advance payments on their loans at four months. Black Knight says, given today’s forbearance numbers, servicers of GSE-backed loans still face up to $8.8 billion in advances over that four-month period.

MBS Day Ahead: Bonds Look to Challenge Trend With Powell on Deck

May 28,2020
by admin

The next Fed announcement is 1.5 weeks away and so it’s time to start ramping up expectations for the details of the Fed’s official QE announcement. But wait… Aren’t they buying a ton of bonds already?

Indeed, the Fed continues purchasing both MBS and Treasuries in relatively significant quantities every day, but they do so under “emergency measures.” Markets expect the Fed to make it official in this upcoming meeting. Why is that?

The Fed is committed to transparency. For anyone who tuned in very much to the pre-Bernanke Fed communications, this is a bonafide fact. They’re also committed to ensuring smooth market functioning as the economy battles back from coronavirus impacts. Under the current emergency policy, markets are left to guess how and when the daily buying amounts will be adjusted.

Given that Fed speakers have indicated the need for a protracted period of easy policy, transparency, and liquidity, they will get more mileage out of their bond buying if it’s on a set schedule. We have a pretty good idea of what that will look like based on how the buying amounts have leveled off in both Treasuries and MBS after the initial response to the biggest market volatility in March.

20200529 open

Combining the Fed anticipation with some risk-off vibes due to US/China trade relations, we have bonds challenging the friendly end of their recent trend this morning. I wouldn’t read too much into this, either this morning or this afternoon, but ending below the yellow line would be a positive development, all other things being equal.

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Powell speaks via webcast at 11am ET.

Portfolio Monitoring, Non-QM, Corresp., Broker Products; Customer Satisfaction Survey

May 28,2020
by admin

Here’s something you can do for your friends, relatives, and borrowers, especially older ones: Remind them that the current batch of coronavirus relief payments are coming as VISA debit cards. Texas’ Larry C. reminded me that we’ve all unexpectedly received cards in the mail that we didn’t order and cut them up before throwing them in the garbage. Don’t do it this time! 2020 has been quite the year for unexpected things. In March, as huge fundings hit the secondary markets, REITs withdrew, and the Fed stepped in as a big buyer. But too big. Things balanced out, but when the CARES Act hit with its forbearance plan for anyone with government-backed mortgage, it “broadened the denominator” and thrust making the advances onto the servicer. That created a potential liquidity crisis for most non-bank servicers, many of whom grew out of 2008 crisis. Warehouse banks grew nervous about financial condition of non-banks with servicers and concerns about counterparty risk of all sorts increased. And all in the last two and half months! Economists are really great at predicting the past. But the mortgage market has quieted down and lenders can look forward to low rates well into the future!

Services and Products for Lenders

“At Mr. Cooper, we are proud to have provided forbearance relief to 200k+ of our valued customers. As a firm, we have worked on behalf of the industry, specifically the non-bank community, to ensure that legislation and advance liquidity solutions are available to meet the needs of the mortgage servicing sector. Specific to our valued correspondent clients, we continue our dedication to be a leading investor and our passion shows through our service and offerings. The correspondent business is core to our franchise, and as the industry progresses through this COVID-19 period, we are focused on providing robust solutions across mandatory and best efforts (both delegated & non-delegated). We thank each of our clients for their business and are cheering for everyone’s safety through this COVID period. Mr. Cooper is a top 10 correspondent investor and the largest non-bank servicer with a servicing portfolio $600B+.”

Axos Bank Wholesale and Correspondent Portfolio Lending continues to provide innovative products and enhanced options. Always a market leader in the Jumbo/Super Jumbo, Non-QM, and portfolio lending space, we offer creative solutions for today’s complex transactions. Maximize your origination opportunities with loan amounts up to $30MM, no cash-out limitations, 90% LTV with asset pledge, 100% financing with cross-collateralization, 12 month bank statements, asset depletion program, foreign national/non-permanent resident alien programs, plus bridge to sale and pledged asset lending. Email Axos to learn more about how Axos Wholesale Lending is delivering exceptional products, service, and support to our mortgage brokers, mortgage bankers, and home builder partners during these uncertain times.”

30-year fixed rates starting at 2.5%. Grow your new business with Conquest from UWM. Just in time for what could be the best purchase season our industry has ever seen, UWM has launched Conquest, a program designed to help brokers win new business by offering competitive rates at the lowest rate ranges on all purchases and on many refinances. With 30-year fixed rates ranging from 2.5-3.0% on purchases and rate/term refinances, it’s a great way to add new borrowers to your roster, build new relationships with real estate professionals and wow them all with UWM’s fast turn times, elite service, and groundbreaking technology. Talk to your UWM account executive or sign up today at

Can you forecast how current economic conditions will affect properties in your portfolio? With DataTree by First American Portfolio Surveillance Solutions, you can discover the insights, liabilities and opportunities existing within your loan portfolio and turn critical lien information into action. DataTree portfolio monitoring solutions proactively analyze the performance, value, and position of liens for loans in your portfolio, from an HOA or tax lien to a notice of default. Enhanced data and insight provide a transparent view of activities that impact properties, so you can support your clients. Monitor Loan Portfolios with solutions Fueled by DataTree best-in-class data and backed by data specialists with extensive experience in understanding the evolving conditions that may impact your lending and servicing business.

Check out this FREE Live Workshop on June 3 – Experts Alex Kutsishin, Co-Found and CEO of Sales Boomerang, and Paul Harrington, Business Development Director for Usherpa, explain how Loan Officers can provide value to their Realtor partners and build mutually-beneficial relationships by utilizing authentic data intelligence. Authentic intelligence linked to powerful CRM and Marketing systems give Loan Officers the opportunity to share actionable buyer data that Realtors can use to grow their business. By providing value to Realtors, LOs can cultivate crucial professional relationships and establish rock-solid referral pipelines. It’s a win, win, win. LOs win, Realtors win, and borrowers win. Register Now: The Holy Grail- Send Realtors Buyers.

Customer Satisfaction

Is there a constant in this ever-evolving environment of pandemic impacts? “Yes,” says the May issue of STRATMOR Group’s Insights Report — the need to focus on the customer. In “Creating a Customer-Centric Culture in a Brave New World,” MortgageSAT director Mike Seminari relates findings from STRATMOR’s recent Customer Experience Workshop where the most-asked question by lenders attending was “How do you create a shift in company culture toward customer-centricity?” Seminari offers three steps for building a customer-centric culture and provides tactical suggestions with each step for lenders to implement. This issue of the Insights Report also includes STRATMOR’s COVID-19 Homeowner Experience Report with details from their recent survey of the pandemic’s impact on 1,000 homeowners.

Capital Markets

Without someone who wants to invest in a new mortgage, it won’t be originated. What is going on with U.S. non-QM mortgage bond supply and demand? Although non-QM production is far less than 1 percent of the market, there are indeed signs of life. Last week, Invictus and Angel Oak combined raised $708 million, and names being mentioned include Starwood Property Trust and Neuberger Berman. ThomsonReuters reports that the non-QM RMBS supply has totaled US$4.92bn so far this year, down sharply from the US$9.43bn for the same period in 2019. (For comparison, Ginnie Mae issued $63 billion of mortgage-backed securities in April, one month’s worth. If we do $2.5 trillion this year, non-QM would have to hit $25 billion to even be 1 percent of the market.)

Fannie’s trading desk has updated the Pricing & Execution – Whole Loan FAQs.

As much of the country moves towards reopening many shops and businesses, governors patiently watch the health data for signs of an increase in Covid-19 cases and the potential for a second wave. While it remains too early to assess the full effects in the states that were first to reopen, so far there does not appear to be a new surge in cases. Last week was relatively quiet in DC as lawmakers and the Fed expressed a desire to monitor the effects of the previously enacted relief measures before enacting more stimuli. Expect continued debate over whether the massive budget deficits resulting from more fiscal stimulus will be worse than potential long-term damage resulting from the current recession. This will play out against a backdrop of more than 38 million people and counting filing for unemployment since the start of the pandemic. As some begin to go back to work, markets will adjust their expectations as to what constitutes improvement. Despite activity still being down nearly 90 percent in some sections of the economy we’re already seeing people celebrate any small uptick that could potentially signal a turning point.

Interestingly enough, Treasury yields pulled back yesterday despite escalating global tensions. China’s rubber-stamp legislature approved sweeping national security laws in Hong Kong, defying condemnation of a move democracy advocates and residents of the former British territory warn will allow Beijing to crush free speech, freedom of assembly and a free press. President Trump announced a press conference today to discuss China, with investors speculating the U.S. will take action against the Beijing that could destabilize the global economy. I don’t like sharing my opinion much, but this feels exactly like when Ukraine annexed Crimea a couple years ago: lots of initial outrage followed by what I presume will be slow acquiescence and an accepted new normal.

Let’s focus on some actual economic releases and their impact on the economy. New jobless claims shrank for the first time during the pandemic, a sign that things may be returning to normal, but still posted a multi-million increase (2.123 million) and managed to top 40 million since the pandemic-related shutdowns began in earnest. On an even less positive note, pending home sales slumped to a record in April, posting their second consecutive drop of more than 20 percent and the largest decline since 2010, as lockdowns thwarted buyers. And Q1 GDP was revised downward to -5.0 percent from -4.8 percent, though markets didn’t pay much attention as the presumption is economic activity will rebound in the coming months. The 10-year Treasury yield closed the day +3 bps to 0.71 percent.

COVID will continue to impact world economies well into the future, and in the United States today’s economic calendar is already underway with April Personal Income (+10.5 percent due to unemployment checks!), Personal Spending (-13.6 percent as people put their money in the bank!), April Advance Goods Trade Balance (-$69.68 billion, widening), April Advance Retail Inventories (-3.6 percent), and April Advance Wholesale Inventories (+.4 percent). The month-end calendar closes later this morning with May Chicago PMI and Final May Michigan Consumer Sentiment Survey. The lone Fed speaker sees Chair Powell speaking remotely on the economy in a couple hours. As far as MBS purchases go, the NY Fed will conduct two FedTrade MBS purchase operations totaling up to $4.77 billion today, starting with up to $1.8bn GNII 2.5 percent through 3.5 percent followed by up to $2.97 billion UMBS30 2 percent through 3 percent. A new MBS FedTrade purchase schedule is due in the afternoon. We begin the day with Agency MBS prices better/up by a few ticks and the 10-year yielding .66.


“We’re growing! There’s never been a better time to join our talented team. American Financing is looking for talented and enthusiastic candidates to join our sales, tech, and operation teams. At American Financing, we’re innovators with imagination. We’re fast-paced and fun. And we’re a collaborative group that respects and values the individuality of all employees. Together, we do what it takes to help borrowers achieve their financial goals. And we stay ahead of the competition by challenging ourselves to become more efficient. We are one of the fastest-growing national mortgage lenders because we don’t follow the status quo. Wherever your passions lie, you can find rewarding work and new opportunities here and we’d love for you to join our growing team.”

“Freedom to Succeed! Freedom Mortgage is growing and looking for talented and experienced Wholesale operational professionals to help us serve the needs of borrowers, brokers, and wholesale correspondents across the nation. Work from home opportunities for Loan Processors, Closers and Underwriters are available throughout the continental U.S. Prior to the COVID-19 pandemic, the vast majority of our teams already worked from home, so you will be ready to seamlessly and efficiently contribute to our goals on day 1! If you are fueled by your entrepreneurial spirit and are looking for a great work culture, please visit”

Wyndham Capital Mortgage, a leading digital home lending company, is a recipient of the coveted Innovation Award by Ellie Mae. The honor recognizes Wyndham as the industry leader in AI technology, having leveraged robotic process automation to create a workflow that is faster, smoother, and more efficient. Wyndham Capital has its eyes toward the future, looking for new advancements to improve our workflows, processes, and systems. The Innovation Awards honor recognizes the company’s technology-enabled, people-driven culture and the impact it has on both employees and borrowers. With robotics and AI incorporated throughout the lending process, loan officers at Wyndham are freed of menial, time-consuming tasks and given the freedom to focus on providing the best to the borrower, every time. Click here to learn more about Wyndham’s best-in-class technological innovations and how loan officers are given the tools they need for success.

Branch Managers and Production Teams look to Pacific Residential Mortgage (PacRes), to perform at a high level: aggressive underwriting and provide a strong and supportive pro sales culture possible. In today’s environment, you can’t be successful without this. What made Pacific Residential standout from all the other lenders you interviewed? “Honestly, PacRes is the lender for top producers or anyone who desires to be a Top Producer. Weekly top producing coaching calls, sales tools and referral based sales strategies, appealed to me and they cater to aggressive goal oriented loan officers and production teams, by far the best mortgage platform I’ve seen across the United States”, says John Phillips, Loan Officer and National Business Development (413.221.2977). If you want to expand in the Midwest, Texas, Panhandle, New England, and Southeastern markets, call PacRes. If you are interested in learning more, email

Mortgage Rates Have Already Risen From All-Time Lows (But Only Slightly)

May 27,2020
by admin

It’s Thursday, and thus time once again for Freddie Mac’s weekly mortgage rate survey. This is the longest-running and most widely-cited snapshot of mortgage rates in the US, but it frequently results in misinformation for mortgage shoppers. The survey does an accurate job of capturing the rates available early in any given week, but it doesn’t take the entire week into consideration. As such, actual rates can be very different by the time the survey is published (and news organizations are citing it as a breaking story).

This is most noticeable when rates make huge moves late in any given week or simply when rates are near all-time lows. In the current case, the average lender was at all-time lows late last week when Freddie’s survey wasn’t accepting any responses. It’s no surprise to see Freddie’s survey showing all-time lows today, even as rates have clearly moved up a bit from those all-time lows. After all, a good amount of that movement occurred after Tuesday when the majority of Freddie’s survey responses have already come in.

All that to say, please don’t expect your mortgage lender to be able to offer all-time low rates today… not without a time machine anyway.

Loan Originator Perspective

Pricing is still in a tight range, perhaps off a tad from earlier in the week. For the most part, I am locking when loans are submitted to UW, our short term lock pricing is vastly superior to longer terms. Ask your lender how his lock length pricing varies, he should be able to advise you on best course of action for your scenario. –Ted Rood, Senior Originator, Bayshore Mortgage

Ongoing Reminder on Forbearance

Coronavirus has created unprecedented challenges for people and industries. For homeowners facing a big reduction in income due to coronavirus-related hardship, a forbearance can make excellent sense. But for those who have the capacity to continue making mortgage payments, there are downsides to consider. Forbearance itself does not hurt your credit score, but it does show up on your credit report. This will affect your ability to qualify for a loan in the present and near future. It can also result in your other creditors decreasing your available credit balances. This has the unintended effect of increasing your ratio of debt to available credit which is a key component of credit scoring models. Thus, even though forbearance itself is not hurting your credit, it can indirectly lower your credit score and it will absolutely impact your mortgage creditworthiness in the short term.

Pending Sales Rout May Signal a Bounce for Housing – Realtors

May 27,2020
by admin

Pending home sales cratered again in April, marking two straight months of declines that exceeded 20 percent. The National Association of Realtors® (NAR) said its Pending Home Sales Index (PHSI) fell 21.8 percent to 69.0. The decline in March was 20.8 percent. The Index is down by 33.8 percent year-over-year.

This is the largest decline in pending home sales number since NAR began tracking the transactions in January 2001. Every major region experienced a drop in both month-over-month and year-over-year pending home sales transactions.

NAR Chief Economist Lawrence Yun said he expects that April will be the lowest point for pending sales and subsequently May will mark the bottom for closed sales of existing homes.

The April results were even worse than analysts had expected. Those polled by Econoday had predicted a decline ranging from 12.0 to 16.4 percent. The consensus was 15.0 percent.

“While coronavirus mitigation efforts have disrupted contract signings, the real estate industry is ‘hot’ in affordable price points with the wide prevalence of bidding wars for the limited inventory,” he said. “In the coming months, buying activity will rise as states reopen and more consumers feel comfortable about homebuying in the midst of the social distancing measures.”

There appears to be a disconnect between the April PHSI and recent numbers on purchase mortgage applications from the Mortgage Bankers Association. Those applications have risen every week since April 17 and have improved over that period by an aggregate of 46 percentage points.

NAR said that buyers may be growing more comfortable with buying in the midst of the pandemic. In its most recent Flash Survey 34 percent of Realtorsreported successfully completing nearly all aspects of transactions while adhering to social distancing procedures.

“Given the surprising resiliency of the housing market in the midst of the pandemic, the outlook for the remainder of the year has been upgraded for both home sales and prices, with home sales to decline by only 11 percent in 2020 with the median home price projected to increase by 4 percent,” Yun said. “In the prior forecast, sales were expected to fall by 15 percent and there was no increase in home price.”

While pending sales were down in all four regions compared to March, the declines in the Midwest, South and West were less severe than those the prior month. In the Northeast, the PHSI sank 48.2 percent to 42.6 in April and was down 52.6 percent on an annual basis. In the Midwest, pending sales were lower by 15.9 percent at an index of 72.0 last month and by 26.0 percent year-over-year.

Pending home sales in the South decreased by 15.4 from March to an index of 87.6. This was a 29.6 percent decline from April 2019. The index in the West slipped 20.0 percent for the month and 37.2 percent on an annual basis to a reading of 57.1.

The PHSI is a leading indicator of existing home sales and is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the Index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. NAR will release existing home sales results for April on June 22.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current sales climate.

Doc, MSR, Broker Products; Private MI Companies Motor On; Continuing Jobless Claims Drop

May 27,2020
by admin

With two business days left in May, one can feel the anticipation of the start of the “National Standing Desk League” opener coming up soon. I’m excited about that, and I’m excited that it’s garbage day here at the house. Taking out the garbage… What to wear, what to wear? What isn’t exciting for investors in mortgages are delinquencies. Mortgage delinquencies had a record surge in April. At 6.45%, the national delinquency rate nearly doubled from 3.06% in March, the largest single-month increase recorded, and nearly three times the prior record for a single month’s change during the height of the financial crisis in late 2008, Black Knight said. For context, it took more than 18 months before the first 1.6 million homeowners became delinquent during the Great Recession, says Andy Walden, economist and director of market research at Black Knight, adding that there is still potential for a second wave of delinquencies in May.

Lender Services, Products, and Training

Stearns Lending continues to stay nimble to support the Wholesale community through these times. Recent releases include a hybrid e-close option. Borrowers can now apply through the digital mortgage application, bSNAP, to receive updates in real time throughout the loan process and spend less time at the closing table. Around 90% of the documents are available to be signed electronically allowing for a convenient and secure experience from the comfort of home. In addition to borrower benefits, hybrid e-close can reduce the potential for missed signatures, reduce print & shipping costs, and ultimately deliver a more custom solution. Non Delegated and Broker clients can reach out to their Account Executive for details, or to partner with Stearns, click HERE to be contacted.

Join MCT today at 11AM PT for its webinar on MSR Management through Market Disruption. MCT’s Phil Laren and Bill Berliner will provide an in-depth analysis on MSR market conditions, cash management and forbearance strategies through market volatility. MCT has also recently released a new post for MSR managers looking for additional guidance titled MSR Retain-Release Decisions in a Volatile Market. In the post, you will find information on making speedy and informed retain-release decisions during periods of market volatility. View the post then register for today’s webinar at 11AM PT for additional MSR management strategies.

You’ve read the story about how DocProbe became the go-to Trailing Document solution for lenders. Those lenders have been coming on board for a reason. A lender’s core business is closing and selling loans. Behind the scenes, processing, underwriting, closing, and post-closing takes place. The challenge is that Final Docs, Corrections, and Investor exceptions are areas that simply aren’t efficient. Moving operational staff, or hiring in a refi boom and then laying them off when loan levels drop, results in error-prone and delay-filled deliverables creating friction and stress on critical investor relationships. DocProbe’s only focus, and specialized experience, is trailing docs. By partnering with DocProbe, lenders get a well-oiled, transparent process that delivers accurate and complete Trailing Docs to investors on time. Onboarding is simple, and costs stay fixed in tandem with loan volume. And, oh yeah, investors are thrilled. Come see for yourself at or get more info from Nick Erlanger.

California’s Legal Challenge

Given that roughly 25 percent of residential originations come from California, much of the industry watches that state for policy and legal changes. Recently I shared with you information on AB 2501 the California legislative measure that would have a dramatic negative impact on the real estate finance industry. The bill has passed its first policy committee and is poised to fast-track to a vote before the State Assembly. The California MBA partnered with the national MBA to send a Call to Action through the Mortgage Action Alliance. If you are in California, be a part of the advocacy efforts and use this link to defeat this bill and contact your representative to encourage a no vote.

The Impact of COVID on MI Companies

KBW’s Bose George released thoughts on mortgage insurance performance in Q1 and the slowing growth of the mortgage forbearance rate in May. Mortgage origination volumes fell -15 percent QOQ, which was slightly better than the MBA’s -19 percent forecast. Mortgage GOS margins generally expanded as would be expected given the wider primary/secondary spreads. However, there were some instances where the volatility in March caused pipeline hedge-related losses (via TBAs) that prevented reported margins from expanding even further. While mortgage origination profitability was generally strong, mortgage servicing was weighed down by the decline in interest rates that resulted in large negative MSR marks.

Growth in private mortgage insurance remains well above the pace of growth in mortgage debt outstanding, but that is expected to moderate. MI companies noted that they had raised prices to reflect the higher expected loss content and higher capital charge required as forbearance-driven delinquency rates are expected to jump in the months ahead. The objective of the rate increases was to move the ROEs on new business back up to targeted levels, and the pricing updates also had the added effects of enabling the MIs to better fine-tune their new risk exposures.

NMI Holdings lowered estimates to build in higher loss provisioning (using conservative assumptions for forbearance take-up) and reduced IIF growth rates (credit tightening), partially offset by higher average premium margin (given higher new pricing). They noted the market focus shifting to capital preservation as opposed to growth. Management expects the default-to-claim rate on loans that go into forbearance to be meaningfully lower than it was for pre-COVID delinquencies.

Essent was hurt by higher taxes, though EPS beat consensus. Credit came in better with a reported loss ratio driven by a positive prior period reserve adjustment. Though the company did not provide its excess PMIERs capital in the release, it did note it is applying the 0.30x FEMA adjustment to nearly all new delinquencies. KBW tells us that management estimated that tighter credit standards from the GSEs focused on the riskier credit cohorts: 95+ LTV, sub-700 FICO, and layered risks took roughly 6-8 percent of potential borrowers out of the market. Estimates have been lowered to capture the impact of elevated default notices expected over the coming months driven by forbearance take-up, as well as lower insured portfolio growth trajectory with a tighter credit box.

MGIC showed it has PMIERs capital to withstand a 24.3 percent delinquency rate. After recording reserve releases on prior delinquencies for the past several quarters, the company booked a $3 million adverse loss reserve development in 1Q20. The other notable piece of the provision was increasing the incurred but not reported reserve by $8 million. The portfolio delinquency rate ticked down to 2.53 percent in Q1 from 2.78 percent in Q4 2019. However, the company disclosed that April metrics used to calculate the delinquency rate ticked back up. Management’s estimated default-to-claim rate on new delinquencies in 1Q20 was up slightly from the rate used for the last several quarters to reflect the more uncertain economic outlook. Management added that they have assumed lower default-to-claim rates for hurricane-related delinquencies in the past. The rate used by management for COVID-related forbearances represents the big unknown for how high loss provisions will amount to over the next few quarters.

Radian experienced lower incurred losses than expected. Delinquencies ticked down after the company entered another quota-share reinsurance agreement (both sources of capital relief previously announced). The 12.8 percent MI loss ratio was better than estimates, per KBW, and the company also saw positive improvement in prior period defaults with lower provisioning on new notices. The company shows no signs of credit weakness. After issuing a 3rd ILN and entering another quota-share reinsurance agreement (both sources of capital relief previously announced), PMIERs excess capital grew and the company projects it has capital capacity to weather forbearance take-up rate of 25 percent by June. On the downside, there will be increased provisioning driven by higher forbearance-driven default notices over the coming quarters.

Genworth experienced lower incurred losses than expected in Q1, though his was more than offset by weakness in Life/Runoff. U.S. MI. KBW points out that operating income of $148m beat estimates, driven primarily by a lower loss ratio as the company noted there were neither any new delinquencies related to COVID-19 nor any deterioration in the performance of existing delinquencies that would warrant reserve strengthening. Genworth applied the adjustment to PMIERs required capital for new NPLs given every state has been designated a FEMA Declared Major Disaster Area. The PMIERs cushion rose at quarter-end, but is expected to decline as delinquencies increase. To preserve capital, the company noted further dividends from the U.S. MI subsidiaries may not be paid up for the remainder of the year. Apart from credit, the rest of U.S. MI earnings were generally in line.


Treasury and MBS traders continue to watch international news grab the majority of the headlines. The European Commission unveiled a larger-than-expected rescue plan to tackle the current economic downturn, and provide help to Italy and Spain, the hardest hit of European nations. To our west, Japan is reportedly planning a $1.1 trillion bailout package and Secretary of State Pompeo said the U.S. no longer considers Hong Kong politically autonomous from China. Really? The change in status could have far-reaching consequences on the city’s special trading status, leading to tariffs and visa restrictions on top local officials.

Domestically, the big release on the day was the Federal Reserve’s Beige Book for May. The U.S. business outlook remained “highly uncertain and most contacts were pessimistic about the potential pace of recovery” and noted a sharp decrease economic activity in all districts. The most severe declines were observed in leisure and hospitality, while auto sales also fell significantly and steep job losses were reported in most districts. St. Louis Fed President Bullard said April was likely the worst of it, while New York Fed President Williams said we are close to the low point and that he expects a “pretty significant” rebound in the second half. He also said policy makers are “thinking very hard” about targeting specific yields on Treasuries as a way of ensuring borrowing costs stay at rock-bottom levels. U.S. Treasury yields ended the day unchanged for shorter maturities and slightly lower on longer ones, including the 10-year yield closing the day -2 bps to 0.68 percent.

Turning to today, we’ve already had a whole slew of economic releases. Weekly Initial Claims for the week ending May 23 (2.123 million), Continuing Claims (21.05 million, actually dropping), April Durable Orders (-17.2 percent), Durable Orders ex-transportation (-7.4 percent), Q1 GDP — Second Estimate (-.2 to -5 percent). The only other releases on the economic calendar today are April Pending Home Sales and the KC Fed Manufacturing Index in a couple hours. There are two scheduled Fed speakers: New York Fed President Williams and Philadelphia Fed President Harker. The NY Fed will conduct two FedTrade purchase operations totaling up to $4.23 billion. We begin the day with Agency MBS prices roughly unchanged and the 10-year yielding .69.


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MBS Day Ahead: Why We’re Watching Treasuries

May 27,2020
by admin

The market reaction to coronavirus made a mess of the relationship between Treasuries and MBS (and between MBS and mortgage rates for that matter). These disconnections can happen from time to time and when they do, we stop following trends in Treasuries and focus on MBS. In fact, the disconnection between MBS and mortgage rates forced me to stop following MBS except inasmuch to be on the lookout for a reconnection.

While we may see a bit of small scale disconnection between Treasuries and MBS in the short-term, it won’t be big enough to suggest we tune-out Treasuries again. The time has clearly come to get back to the business of following Treasuries, even though our focus is on mortgage rates. If you haven’t read my primer on this before, here’s why we do that.

And if you prefer an entire primer in one chart (mostly), here you go:

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The blue line is the MBS current coupon yield (left axis) and yellow is 10yr yield. It’s hard to see the most recent disconnection, so let’s zoom in.

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To be clear, we’re not concerned about the gap between the lines most recently. The y-axis doesn’t matter. The lines will adjust depending on the time frame being viewed. The correlation is what matters. For instance, if we zoom in even more (keeping the same visual distance between highs and lows on the chart), the gap disappears and the correlation becomes even more noticeable.

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All that to say, again, it’s clearly time to start paying attention to Treasury trends again. So what do those trends suggest? Simply put, we’re still in the uptrend we’ve been following, but yields have shown more and more resilience–perhaps even an inkling of bullishness that hints at a friendly breakout.

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The caution here is that this would be a very weak reversal. The stochastic at the bottom of the chart would need to be reversing well above the oversold line in order for the signal to be stronger. As it stands, this is only slightly more promising than neutral/incidental. But it’s better than a sharp stick in the eye!

Freddie’s Loan Portfolio on Pace to Increase by 14.3 Percent This Year

May 26,2020
by admin

Freddie Mac reported this week that its total mortgage portfolio increased at an annualized rate of 14.3 percent in April, up from a 9.2 percent gain in March and the largest rate since December. The portfolio balance at the end of the period was $2.396 trillion compared to $2.368 trillion at the end of March and $2.216 trillion a year earlier. The growth rate for the year to date is 8.4 percent.

Purchases and Issuances totaled $88,879 billion and Sales were ($0.770) billion. The March numbers were $58,830 billion and ($3,165) billion, respectively.

Single-family refinance loan purchase and guarantee volume was $52.100 billion in April compared to $33.300 billion in March and representing a 69 percent share of total single-family mortgage portfolio purchases and issuances compared to 63 percent the previous month.

Purchases in Freddie Mac’s Mortgage Related Investments Portfolio totaled $57.560 billion for the month compared to $41.227 billion in March. Liquidations were ($2.809) billion and ($2.238) billion for April and March respectively and Sales for the two periods were ($62,506) and ($29,987) billion. The ending balance in the portfolio was $203.443 billion, down from 211.197 billion in March.

The Mortgage Related Investments portfolio had a negative annual growth rate of 44.1 percent in April, compared to 53.4 percent growth in March. The annualized growth in April 2019 was (13.4) percent.

The ending balance of the Mortgage Related Investments Portfolio was composed of $107.945 billion in Mortgage Related Securities, Mortgage Loans valued at $87.268 billion, Non-Agency, non-Freddie Mac Mortgage-Related Securities at $1.540 billion; and Agency non-Freddie Mac Mortgage related securities of $6,690 billion. Mortgage related securities and other guarantee commitments increased at an annualized rate of 15.0 percent compared to 5.5 percent the previous month.

Freddie Mac’s single-familydelinquency rate increased by 4 basis points to 0.64 percent, leaving it 1 basis point below the rate in April 2019. The rate for credit-enhanced Primary Mortgage Insurance loans rose 5 basis points to 82 percent while the non-credit portion increased from 0.67 percent to 70 percent. The multi-family delinquency rate was 0.08 percent, unchanged from January but up from 0.03 percent in April 2019.

Freddie Mac said the measure of its exposure to changes in portfolio value averaged $63 million in April.

MBS Day Ahead: Rising Rate Trend Intact, But Motivation is Required

May 26,2020
by admin

Today’s first chart shows the trend we’ve been following in 10yr Treasury yields. It is pointed in an unfriendly direction (i.e. “up”), but at a fairly gentle pace in the bigger picture. Even then, such trends are by no means crystal balls. At best, they can provide some lines on either side of whatever road we’re currently on. With that in mind, we’d reached the lower end of the range last Thursday and had begun to bounce by Friday. Now this week, the first two trading days are confirming the bounce (unless today’s losses fade).

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The reassuring part of today’s weaker performance so far is that it has required some specific motivation. In other words, bonds haven’t moved to higher yields simply because this trend says they are supposed to. In today’s case, it was a massive stimulus announcement from the European Commission at 7am. Before that, Treasuries were actually doing a good job of resisting the stock market’s incessant beckoning back into a riskier realm.

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There are no big ticket events on the economic calendar today, which makes this a break in the action before the schedule gets significantly more active on Thursday and Friday. The only notable inclusion on the event calendar is the 5yr Treasury auction at 1pm ET–the biggest ever at $45 bln (but not extraordinarily bigger than the $41 bln seen frequently in the past 18 months).