Following Friday's employment data, Mortgages Rates moved quickly higher.  In most cases, the changes were seen not in the quoted interest rates themselves, but rather in the closing costs required to obtain those rates.  A small number of lenders' Best-Execution rates rose to 4.0%, but a majority stayed at 3.875%.  (learn more about how we calculate Best-Execution in THIS POST). 

For a given interest rate, there are a range of costs at which it could still be a best-execution candidate.  Whereas Friday basically took these costs from the low side (about as low as they'd even been) to the high side, today's improvements serve to moderate that movement back toward somewhat of a middle ground.  In another way of looking at things, you could think of the past three days as 3.875% best-ex rates being in question on Friday afternoon, but are "safe" once again, at least for today. 

Indeed, "safety" is a relative term.  All we can ever truly know is what rates are available on the day we're looking at them.  Even then, rates can change several times a day.  They don't usually do this more than once a day, but it does happen.  While we don't necessarily expect any violent movements in the near future, we can't ever rule out potential volatility.  In that regard, we can at least identify the events and possibilities that could stand as the culprits for such volatility, in the same way we prepared for Friday's jobs report as a high-risk event. 

Of the high risk events this week, some are scheduled while others are not.  The key scheduled events are the US Treasury auctions this week, particularly the 10yr auction on Wednesday and the 30yr auction on Thursday (these two are more pertinent to the MBS--or "Mortgage Backed Securities"--market which most closely governs mortgage rates).  The other "potential event," is a lingering LACK of resolution to an ongoing debate between Greece and it's bond-holders to determine whether or not Greece will receive it's next lump of bailout funds or face default.  It's actually this uncertainty (Greece defaulting would be bad, economically speaking) that's helping rates bounce back from Friday's jobs data.

Today's BEST-EXECUTION Rates

30YR FIXED -  3.875% mostly, less 3.75 today, 4.0's getting closer
FHA/VA -3.75%
15 YEAR FIXED -  3.25%
5 YEAR ARMS -  2.625-3.25% depending on the lender

Ongoing Lock/Float Considerations

Rates and costs continue to operate near all time best levelsCurrent levels have experienced increasing resistance in improving much from hereThere are technical reasons for that as well as fundamental reasons
Lenders tend to get busier when rates are in this "high 3's" level and can throttle their inbound volume by raising rates or costs.While we don't necessarily think rates are destined to go higher, given the above facts, there seems to be more risk than reward regarding floatingBut that will always be the case when rates operating near historic lows(As always, please keep in mind that our talk of Best-Execution always pertains to a completely ideal scenario.  There can be all sorts of reasons that your quoted rate would not be the same as our average rates, and in those cases, assuming you're following along on a day to day basis, simply use the Best-Ex levels we quote as a baseline to track potential movement in your quoted rate).You can see a list of all comments on MND by clicking the 'Read the Latest Comments' option under the 'Community' menu.

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(MBS Live) - Against today's data-free backdrop, the only real market mover has been the earlier scheduled Fed buying (30yr sector of Treasuries) that left the long end of the yield curve in slightly better shape. 2s v 10s moved down to 167 from 170.8 just before the Fed buying. In the process, 10yr yields have held support nicely under 1.95, and it seems that MBS appreciate the stable environment. Fannie 3.5's have marched calmly to better and better prices all morning, now up 4 ticks at 103-27. 

Volume has been quite light and volatility quite low for MBS. The swings in Treasuries have been a bit choppier by comparison, but this is the expectation surrounding these Fed market ops, and as long as the next pivot point on either side of the prevailing range remains unbroken, the volatility isn't much of a concern. This is exactly what happened this morning as yields rose at their quickest pace in the lead up to the Fed buying from 9-10am, then got choppy for the next hour, finally resolving a bit lower than this morning's previous lows. 10yr are currently at 1.9083. 

Is all this good enough for a potential positive reprice? Maybe... In terms of outright price gains, we'd normally like to see a bit more before considering reprices, but there's something to be said for slow and steady improvement, even if it's minimal in terms of outright gains. A few of the early crowd might show up with reprices, but the majority of lenders would likely need either more time or further gains.

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Here are three different ways to view Friday afternoon's bounce back in 10yr yields combined with the moderate gains so far today.  It's not uncommon for opposing trends to exist on the same chart.  Depending on the peaks and valleys to which you wish to pay attention, a case could be made for up, down, and sideways trends in intermediate-term 10yr yields.  The triptych below breaks the three trends out on three separate frames, each of the same underlying 10yr yield chart.  Which one is your favorite?

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The Mortgage Bankers Association (MBA) reports that commercial and multifamily loan originations were down 7 percent in the fourth quarter of 2011 compared to the third quarter but were 13 percent higher than originations in the fourth quarter a year earlier.  The year-over year change was driven by originations for both industrial and multifamily properties which increased 43 percent and 31 percent respectively from Q4 2010.  On the negative side, retail loans were down 8 percent, loans for healthcare properties fell 24 percent, office properties were down 29 percent and hotel originations decreased 44 percent.

Quarter over quarter results were mixed.  There was a 153 percent jump in originations for health care properties; industrial loans were up 51 percent and multifamily properties increased 29 percent.  Originations for healthcare properties fell 52 percent, office properties were down 39 percent, and retail property loans decreased 24 percent.

Looking at lending by investor groups, commercial bank portfolios were up by 122 percent compared to the fourth quarter of 2010 and Freddie Mac and Fannie Mae (the GSEs) increased lending 17 percent.  Life insurance companies and conduits for commercial mortgage backed securities (CMBS) decreased lending by 23 percent and 50 percent respectively.

 On a quarter-over-quarter basis only the GSEs increased their loans, which rose 34 percent to an all time high.  Conduits for CMBS were down 26 percent, life insurance companies decreased lending by 23 percent, and commercial bank portfolios declined by 16 percent.  

"MBA's Commercial/Multifamily Mortgage Bankers Origination Index hit record levels for life insurance companies in the second and third quarters of 2011," said Jamie Woodwell, MBA's Vice President of Commercial Real Estate Research. "In the fourth quarter, multifamily originations for Fannie Mae and Freddie Mac hit a new all-time high. While the CMBS market continued to be held back by broader capital markets uncertainty during the past year, others - like the GSEs, life companies and many bank portfolios - increased their appetite for commercial and multifamily loans."

Commercial/Multi-family Originations by Investor Types

*2001 Ave. Quarter = 100

Commercial/Multi-family Originations by Property Types

*2001 Ave. Quarter = 100

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Gain access to the most accurate real-time back month TBA indications from Thomson Reuters and Tradeweb. LEARN MORE A recap of MBS Market Updates provided by MND Analysts and streamed live to the MBS Live Dashboard.2:36PM  :  ALERT: MBS Gains Hold. Additional Positive Reprices Reported About 2 hours ago, we started to entertain the possibility of positive reprices despite the lack of outright gains, and suggested that additional lenders would either need more time or further improvement in prices. They ended up getting both, and we're ending up seeing more reprices as a result. Things still aren't widespread in terms of participating lenders, but the possibility remains into the afternoon as MBS have basically been on a slow, steady run higher in price since Friday afternoon.

Fannie 3.5's are up 5 ticks on the day to 103-28 and 10yr yields are down 2.6bps to 1.898.

12:40PM  :  ALERT: MBS Slowly and Steadily Winning The Race Against today's data-free backdrop, the only real market mover has been the earlier scheduled Fed buying (30yr sector of Treasuries) that left the long end of the yield curve in slightly better shape. 2s v 10s moved down to 167 from 170.8 just before the Fed buying. In the process, 10yr yields have held support nicely under 1.95, and it seems that MBS appreciate the stable environment. Fannie 3.5's have marched calmly to better and better prices all morning, now up 4 ticks at 103-27.

Volume has been quite light and volatility quite low for MBS. The swings in Treasuries have been a bit choppier by comparison, but this is the expectation surrounding these Fed market ops, and as long as the next pivot point on either side of the prevailing range remains unbroken, the volatility isn't much of a concern. This is exactly what happened this morning as yields rose at their quickest pace in the lead up to the Fed buying from 9-10am, then got choppy for the next hour, finally resolving a bit lower than this morning's previous lows. 10yr are currently at 1.9083.

Is all this good enough for a potential positive reprice? Maybe... In terms of outright price gains, we'd normally like to see a bit more before considering reprices, but there's something to be said for slow and steady improvement, even if it's minimal in terms of outright gains. A few of the early crowd might show up with reprices, but the majority of lenders would likely need either more time or further gains.

Curt Sandfort  :  "thank you!" Kent Mikkola #353976  :  "yep" Curt Sandfort  :  "cool, so 15 is automatic at 78%?" Kent Mikkola #353976  :  "if it is a term greater than 15 yrs" Victor Burek  :  "yes..restarts it" Curt Sandfort  :  "will a FHA s/l "restart" the 5 year period one must carry MI on their mortgage? Assuming they will be below 78% in less than 5 years from date of new loan" Tom Schwab  :  "REPRICE: 3:48 PM - Franklin American Better" Victor Burek  :  "REPRICE: 3:27 PM - Nexbank Better" Victor Burek  :  "REPRICE: 2:36 PM - Plaza Better" Jim Cheeley  :  "REPRICE: 2:35 PM - Flagstar Better" Michael Tadros  :  "REPRICE: 2:30 PM - Interbank Better" Tim Collins  :  "REPRICE: 2:16 PM - 360 Mortgage Better" Tom Schwab  :  "REPRICE: 2:02 PM - AMC Better" Michael Tadros  :  "REPRICE: 12:39 PM - Provident Funding Better" Discuss the MBS and Mortgage Markets on Our Streaming Dashboard

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The Employment Situation Report is normally preceded by "sideways uncertainty" and followed by noticeable directionality.  But this time around, the opposite is true.  Although there were some fast and moderately large losses on Friday following the report, it could be argued that the "noticeable directionality" took place in the days leading up to the report, and the passing of the report--by the time this week's upcoming Treasury Auctions and European events are considered--will usher in the "sideways uncertainty." 

Case in point with respect to European events, Reuters reports that Greece basically cannot bring itself to accept the terms of their most recent bailout, thus effectively dooming themselves to default and/or EU exit.  Well...  They apparently do have until today:

( Reuters) - Greece's coalition parties must tell the European Union on Monday whether they accept the painful terms of a new bailout deal as EU patience wears thin with political dithering in Athens over implementing reforms.  Technocrat Prime Minister Lucas Papademos put on a brave face on Sunday as he tried to get leaders of the three parties in his government to sign off on terms of a 130 billion euro rescue, which Greece needs soon to avoid a chaotic debt default.  Papademos said in a statement the party chiefs - who may face angry voters in parliamentary polls as soon as April - had agreed measures including wage cuts and other reforms as part of spending cuts worth 1.5 percent of gross domestic product.  But a spokesman for the PASOK socialist party said a number of major issues demanded by the "Troika", representing Greece's EU, European Central Bank and IMF lenders, remained unresolved late on Sunday. 

Bond markets chopped around in a fairly narrow range overnight, in fairly low volume.   The Greece-related uncertainty helped 10yr yields walk in the door this morning abotu half a bp lower than Friday afternoon, just under 1.92.  MBS are opening right in line with those Friday afternoon levels as well.  Fannie 3.5's are currently unchanged at 103-23.  With no other significant scheduled data on tap, a Greek resolution, or lack thereof, is our best candidate for moving markets today.  The economic calendar stays light all week actually, with the only report drawing much attention away from 10 and 30yr auctions being International Trade on Friday. 

No Significant Scheduled Economic Data

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There is plenty of play-by-play on the post-NFP sell-off in the MBS Recap.  If you haven't seen those updates already, that's a good place to start, and in terms of where MBS are and what they're doing, there's not much more to say.  So we'll focus instead on the longer term implications, look at charts, and consider the week ahead. 

First off, here's some pictorial accompaniment for today's movement.  MBS turn out to have been relatively drama-free since the initial sell-off, returning to bounce fairly convincingly for a second time at 103-18.

Even if MBS were now to break below that pivot, volume has basically dried up for the week, leaving the big bounces seen in the earlier heavy volume as the more significant from a technical perspective.  To quantify the relative change in volume on the day and since the FOMC statement (last major volume spike), here's a chart of 10yr Futures Contracts volumes, both on the day, and you guessed it, since the FOMC statement:

The biggest pop of activity from 8:30 to 8:40 took 10yr yields precisely to the lower white trendline in the chart below, as if to suggest that 10's should try their luck in this uptrend (the white parallel lines are an upwardly sloped trend channel).  This is the first time I've charted this uptrend, but certainly, it's seen quite a few bounces, not only on the trendlines pictured below, but also on other lines of the same slope (not pictured below because frankly, the chart is crowded enough as it is, but feel free to use your mind's eye to see the other potential locations for the similarly sloped white lines).

Despite the losses, 10's clearly rejected the notion of testing a breakout of the red line.  There's also a horizontal support/resistance pivot point at 1.95, meaning that all three trends are contenders heading into next week's auction cycle.  Bond markets were clearly bullish headline into today's report, and clearly had been doing more to confirm the bullish trend (red lines).  So rather than the usual "sideways uncertainty" being resolved by a big piece of data, we're instead left with a strong rally resolving into sideways uncertainty.  If the upper red line breaks and 1.95 isn't offering any support, 2.04 and perhaps even 2.09+ might not be that far behind, although we'd generally expect dealers to reload longs up into that territory.  Auctions, however, will be more informative than our general expectations in that regard.  3's, 10's, and 30's next week, and very limited economic data to distract from that.

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Treasury Secretary Timothy Geithner told the Financial Stability Oversight Council that the financial system is getting stronger and safer and that much of the excess risk-taking and careless financial practices that caused so much damage has been forced out.  However, he said, "These gains will erode over time if we are not able to put our full reforms into place."

He outlined the basic framework has been laid, with new global agreements to limit leverage, rules for managing the failure of a large firm and the new Consumer Financial Protection Bureau (CFPB) up and running, and the majority of the new safeguards for derivatives markets proposed.  Geithner ticked off the major accomplishments of reform.

First, banks now face much tougher limits on risk which are critical to reducing the risk of large financial failures and limiting the damage such failures can cause.  The focus in 2012 will be "on defining the new liquidity standards and on making sure that capital risk-weights are applied consistently."

 The new rules are tougher on the largest banks that pose the greatest risk and are being complemented by other limits on risk-taking such as the Volcker Rules and limits on the size of firms and concentration of the financial systems.  These will not apply only to banks but to other large financial institutions that could pose a threat to financial system stability and this year the Risk Council will make the first of these designations.

Second, the derivatives market will, for the first time, be required to meet a comprehensive set of transparency requirements, margin rules and other safeguards.  These reforms are designed to move standardized contracts to clearing houses and trading platforms and will be complemented with more conservative safeguards for the more complex and specialized products less amenable to central clearing and electronic trading.  These reforms, the balance of which will be outlined this year, will lower costs for those who use the products, allow parties to hedge against risk, but limit the potential for abuse, the Secretary said. 

Third, is a carefully designed set of safeguards against risk outside the banking system and enhanced protections for the basic infrastructure of the financial markets: 

Money market funds will have new requirements designed to limit "runs."Important funding markets like the tri-party repo market are now more conservatively structured.International trade repositories are being developed for derivatives, including credit default swaps. Designated financial market utilities will have oversight and requirements for stronger financial reserves;

Fourth; there will be a stronger set of protections in place against "too big to fail" institutions.  The key elements are:

Capital and liquidity rules with tough limits on leverage to both reduce the probability of failure and prevent a domino effect; New protections for derivatives, funding markets, and for the market infrastructure to limit contagion across the financial system;Tougher limits on institutional size; A bankruptcy-type framework to manage the failure of large financial firms. This "resolution authority" will prohibit bailouts for private investors, protect taxpayers, and force the financial system to bear the costs of future crisis.

Fifth, significantly stronger protections for investors and consumers are being put in place including the CFPB which is working to improve disclosures for mortgages and credit cards and developing new standards for qualified mortgages.  New authorities are being used to strengthen protections for investors and to give shareholders greater voice on issues like executive compensation.

Geithner pointed to the failure of account segregation rules to protect customers in the MF Global disaster as proof of the need for more protections and said that the Council will work with the SEC and the Commodity Futures Trading Council on this problem.   

Moving forward, reforms must be structured to endure as the market evolves and to work not just in isolation but to interact appropriately with each other and the broader economy.  "We want to be careful to get the balance right-building a more stable financial system, with better protections for consumers and investors, that allows for financial innovation in support of economic growth." 

First, he said, we have to make sure we have a level playing field at home; that financial firms engaged in similar activity and financial instruments that have similar characteristics are treated roughly the same because small differences can have powerful effects in shifting risk to where the rules are softer.  A level field globally is also important, particularly with reforms that toughen rules on capital, margin, liquidity, and leverage, as well as in the global derivatives markets.  "In these areas we are working to discourage other nations from applying softer rules to their institutions and to try to attract financial activity away from the U.S. market and U.S. institutions." 

It is necessary to align the developing derivatives regimes around the world; preventing attempts to soften application of capital rules, limiting the discretion available to supervisors in enforcing rules on risk-weights for capital and designing rules for resolution of large global institutions.  Also, because some U.S. reforms are different or tougher from rules in other markets, there needs to be a sensible way to apply those rules to the foreign operations of U.S. firms and the U.S. operation of foreign firms.

 The U.S. also needs to move forward with reforms to the mortgage market including a path to winding down the government sponsored enterprises (GSEs.)  The Administration has already outlined a broad strategy, Geithner said, and expects to lay out more detail in the spring.  The immediate concern is to repair the damage to homeowners, the housing market, and neighborhoods.  The President spoke this week about the range of tools he plans to use.  Our ultimate goals are to wind down the GSEs, bring private capital back into the market, reduce the government's direct role, and better target support toward first-time homebuyers and low- and moderate-income Americans.

Geithner said the new system must foster affordable rentals options, have stronger, clearer consumer protections, and create a level playing field for all institutions participating in the system.  For this to happen without hurting the broader economy and adding further damage to those areas that have been hardest hit, banks and private investors must come back into the market on a larger scale and they want more clarity on the rules that will apply. 

Credit availability is still a problem and there is a broad array of programs in place to improve access to credit and capital for small businesses.  As conditions improve, it is important that we remain focused on making sure that small businesses, a crucial engine of job growth, have continued access to equity capital and credit.

Many Americans trying to buy a home or refinance their mortgage are also finding it hard to access credit, even for FHA- or GSE-backed mortgages.  The Administration has been working closely with the FHA and FHFA to encourage them to take additional measures to remove unnecessary barriers and they are making progress.  They will probably outline additional reforms in the coming weeks.

Bank supervisors, in the normal conduct of bank exams and supervision, as well as in the design of new rules to limit risk taking and abuse, must be careful not to overdo it with actions that cause undue damage to the availability of credit or liquidity to markets.

Geithner said the U.S. financial system is getting stronger, and is now significantly stronger than it was before the crisis.  Among the achievements:

Banks have increased common equity by more than $350 billion since 2009.Banks and other financial institutions with more than $5 trillion in assets at the end of 2007 have been shut down, acquired, or restructured. The asset-backed commercial paper market has shrunk by 70 percent since its peak in 2007, and the tri-party repo market and prime money market funds have shrunk by 40 percent and 33 percent respectively since their 2008 peaks.The financial assistance we provided to banks through TARP, for example, will result in taxpayer gains of approximately $20 billion.

The Secretary said the strength of the banks is helping to support broader economic growth, including the more than 3 million private sector jobs created over 22 straight months, and the 30 percent increase in private investment in equipment and software.   Broadly, the cost of credit has fallen significantly since late 2008 and early 2009.  Banks are lending more, with commercial and industrial loans to businesses up by an annual rate of more than 10 percent over the past six months.  

He concluded by saying that no financial system is invulnerable to crisis, and there is a lot of unfinished business on the path of reform.  The reforms are tough where they need to be tough.  "But they will leave our financial system safer, better able to help businesses raise capital, and better able to help families finance safely the purchase of a house or a car, to borrow to invest in a college education, or to save for retirement.  And they will protect the taxpayer from having to pay the price of future crisis."

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