BMIC Mortgage Blog

Market Highlights - Friday October 25, 2013

October 25th, 2013 10:54 AM by Gary Schiller

Not that much market moving data being reported today.  Bonds are slightly higher, which leaves mortgage rates unchanged for the day.  Stocks are starting the day higher.

 

The Federal Housing Finance Agency, (the conservator for FNMA and FHLMC), announced yesterday they would NOT CHANGE the FNMA and FHLMC loan limits.  They will review the loan limits again in mid 2014.  

 

Mortgage rates are starting the day Flat.

 

At BMIC follow a mortgage news service called MBS Highway, which is run by Barry Habib.    Mr. Habib was recently asked his opinions regarding the mortgage market, by Mr. Art Cashin, Director of Floor Operations at UBS. 

 

Below are excerpts of the interview:

 

Of Mortgages And Mavens – With several banks pairing back the size of their mortgage processing units, I turned to my friend and mortgage maven, Barry Habib.  Here's the brief review he sent me:

 

As you know, since September we have been very bullish on the Bond Market.  Specifically, we believe Mortgage Backed Securities will continue to improve for both fundamental and technical reasons.

The Fed has stated that they are purchasing $40 Billion per month in Mortgage Backed Securities and $45 Billion in Treasuries.  But they are really purchasing a lot more in Mortgage Backed Securities because they are reinvesting payoff proceeds and principal payments.   This amounts to an additional $20 Billion per month currently, bringing the total to $60 Billion per month in MBS purchases. 

Tapering appears to be off the table for some time, and even if tapering begins, Fed members have already suggested skewing it more toward Treasuries and leaving MBS purchases alone.  Additionally, the reinvestment portion of MBS purchases will not be part of any tapering, according to comments by Ben Bernanke.  The reinvestments will be reevaluated when the Fed starts actually increasing rates – perhaps a 2015 event.  This means that the Fed will continue to buy MBS hand over fist.  Meanwhile, the supply of MBS coming to the market is greatly reduced.  Mortgage lenders are seeing huge slowdowns in closed loan volume beginning September.  August closings were still relatively strong, as they reflect June originations.  But, those September closings, and forward looking closing levels, are significantly smaller.  Once a loan closes, it takes time for the post-closing documentation process and eventual sale into the secondary markets.  The time for those reduced pools of MBS to come to market from September is about now.  The basic laws of supply and demand tell us that the Fed’s actions should be highly stimulative to the MBS market.  I see prices continuing higher, driving yields lower.  

On the technical side, MBS prices just broke above the 200-day Moving Average.  This is a very significant event, and can represent a sea change.  For example, MBS prices have been beneath their 200-day Moving Average for the past 10 months.  And before that, they were above their 200-day Moving Average for 18 months.  So, these moves can be quite meaningful and long lasting.  And the 10-year Treasury Note Yield also broke some significant technical barriers today.  The 10-year Note Yield dove beneath its 100-day Moving Average, and appears headed towards its 200-day Moving Average, near 2.25%.  We continue to feel that mortgage rates will improve in a meaningful way.  I don’t think they will reach the low levels we have seen earlier this year, but they should drop low enough to drive some refinance activity and support the housing market.  

And while we still feel the housing market looks favorable, there is legislation on the horizon that could become a significant drag.  The new “Qualified Mortgage Rule” goes into effect January 10th, 2014.  This will make it much more difficult for buyers on margin to get a loan.  And once we start taking potential buyers out of the housing market, we could see things soften a bit.  I still see positive price appreciation, but, nowhere near the current heated pace. 

Posted in:General
Posted by Gary Schiller on October 25th, 2013 10:54 AM