Wednesday, May 27, 2009

MBS Free Fall

FNMA 30yr 4.5 Coupon

The MBS 4.5 coupon is off nearly 160 basis points from yesterday's close, dropping 100 bps just since 1:30pm.

30yr fixed rates have jumped .25% - .375% on the price decline.

The Treasury market is suffering as well:
Bonds turn lower (, 5/27/09)

Thursday, May 21, 2009

WSJ: "Fed Open to Buying More Securities"

As reported in the Wall Street Journal today, apparently there's talk among some members of the Fed's FOMC regarding the idea of purchasing more Treasury bonds and Mortgage Backed Securities (MBS). In other words, they want to see low rates for a longer period of time.
Some Federal Reserve officials are open to raising the amounts of mortgage and Treasury securities purchase programs beyond the $1.75 trillion that they have already committed to buying, according to minutes from the Fed’s April meeting.

Some members noted that a further increase in the total amount of purchases might well be warranted at some point to spur a more rapid pace of recovery,” according to the minutes of the April 28-29 meeting, released Wednesday with the usual lag. (Read the full minutes.)
The Fed can achieve low mortgage rates by increasing its purchases of MBS - when prices rise, yields (rates) fall. But it takes money, and lots of it. So the longer rates are artificially kept low, the larger the Fed's tab grows. adds a perspective to the issue with it's most recent post about the Fed's slowing MBS purchases:
In a bid to keep interest rates on mortgages lower for a longer period of the time, the Fed has apparently decided to slow its purchase of mortgage bonds, according to a research note from Credit Suisse.

The analysts said they believe Fed involvement in the mortgage-backed securities market will be necessary well into 2010, and as a result, they’ll need to slow buying so it there’s enough purchasing power to remain engaged next year.

As the government reduces its purchases of MBS (and assuming investor demand stays the same), MBS prices will drop and mortgage rates will go up.

So are these two actions incompatible - slowing down purchases of MBS but increasing purchase funding? Not necessarily, because Fed could do both at the same time, all in an attempt to keep the low rate train rolling on.

Monday, May 4, 2009

The Home Valuation Code of Conduct In Full Effect

The HVCC, or Home Valuation Code of Conduct (link: Fannie Mae FAQs), went into effect on Friday, May 1, 2009.

Michael wrote about its imminent arrival in an April post as the National Association of Mortgage Brokers (NAMB) had just announced the withdrawal of their lawsuit versus FHFA, thus ending their legal battle against the HVCC.

After months of preparation by lenders and appraisers alike, we're just past the May 1st start date and now submitting files according to the new guidelines. At this point, any appraisal ordered or paid for by loan production staff members (loan officers and processors at brokerages and banks alike), homeowners or real estate agents will not be accepted by Fannie Mae or Freddie Mac.

While NAMB was vociferously opposing the Code, the reaction was mixed in the appraisal industry (as far as I could see).

But the grumbling in the appraisal industry is picking up: HVCC Appraiser Talkback Survey: What's Really Going On? (Appraisal Scoop, April 30th)

The intentions of the HVCC were admirable. Everyone wants a better appraisal system. The reality of the new rules? So far the biggest beneficiary has been AMCs, or Appraisal Management Companies - the companies through which lenders order/pay for appraisals. Business is booming for them. Borrowers pay $50-75 more for appraisals, the AMC takes their cut, and the appraiser gets paid approx. $100 less for the same report they did back in April.

But I guess only time will tell if the HVCC is the appraisal panacea, or if it was just an ill-conceived solution to a complicated problem.