MBS RECAP: Decision Time Again


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began on a positive note for bond markets as a few headlines from the
overnight session reinvigorated uncertainty regarding the next austerity
vote for Greece. MBS and Treasuries kicked the day off significantly
improved and were not much deterred by Jobless Claims beating estimates (
still worse vs.previous report though). Following that, we found out
that New Home Sales decreased marginally in May, staying in an odious
long term pattern tracing all the way back to 2010, just above all-time
lows. No major surprise there, but taken in conjunction with still-high
jobless claims numbers, the Fed’s GDP downgrade yesterday, and
developments in the EU debt crisis, and a logical “flight to safety”
ensued: Stocks down, Bonds up. But in stark contrast to recent
sessions, MBS price volatility was low. We were one-way, almost all
day. The Fannie Mae 4.0 is going out +11/32 at 101-07. This is 6/32 off
the price high of the day, but it made little difference in the grand
scheme of things. For almost every lender, the improvement in MBS prices
versus yesterday was already accounted for in the first release of rate
sheets this morning. Because there were limited reprices for the better
around the 101-13 price high, the day is ending relatively in-line with
where rate sheets should be, based on MBS indications. Some lenders
might owe you .125, but that’s about it. Don’t hold your breath though,
lenders remain defensive, and with good reason considering the
potential lock fall-out at stake here. One last observation: Benchmark
10s have been proven unable to sustain a rally through 2.90%. Right now
10s are going out at 2.923%. That implies we’ll either need to see a
sustain commitment to rally from the bond market, soon, or the next move
for 10s is likely higher. That would likely lead MBS prices lower.

1:40PM  : 
Rising Production Costs an Issue for Mortgage Bankers
Independent mortgage banks and subsidiaries saw a huge dip in profitability as the average they made on each loan originated dropped from $1,082 in the fourth quarter to $346 in the first quarter. According to the MBA’s Mortgage Bankers Performance Report, lenders increased their overall revenues but profits suffered because of higher production costs. This made it difficult for mortgage companies to manage staff levels which in turn caused higher production costs. Walsh continued, “In the first quarter of 2011, changes in compensation plans and investor expectations are additional factors that likely drove up loan production expenses per loan to the highest levels ever reported for this study.” Loan production revenues increased substantially from an average of $2,102 in Q4 to $2,297. Within this number, loan origination fees rose from $1,443 to $1,569; correspondent and broker fee income decreased to $138 from $143 and “other originations-related income” rose from $516 to $590. Expenses however more than kept pace. Direct loan production expenses rose from $4,664 to $5,471 driven, as Walsh said, by personnel expenses which rose to $3,640 from $3,124. The cost of fulfillment and production support employees rose by over $167 and $134 per loan respectively while sales personnel costs were down $8 per loan. Average production volume was $164 million per company, down from $286 million in the fourth quarter and the average number of loans originated was down from 1,296 to 793. The loss of business came mainly from the refinancing share which dropped from 60.13 percent of volume in the fourth quarter to 48.23 percent and in the share of the dollar volume from 63 percent to 50 percent.


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