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Afternoon Market Updates
Among the five major lenders, C30 loan improved on average 11.5bps today. 25bp+ gains were seen on the note rates at or below 4.75%. The 4.875 to 4.75% permanent buydown cost are is still viewed as unattractive in most scenarios.
After breaking some resistance (short-term) earlier, bonds almost immediately moved back into their previous narrow ranges of the day. In fact, the move was rapid enough that one might have wondered if we'd now see the other side of the range broken, but 3.425 continued to serve as the line of demarcation for the day. 10yr yields have gone no further. MBS, on the other hand, haven't been at as much risk of violating their lows, but nonetheless did pull back from their highs as treasuries tested support. FNCL 4.5's are currently at 101-29 after getting as high as 101-31. This market needs the likes of ADP employment and Bernanke later this week to wake it up. Hopefully it does so on the right side of the bed.
After reaching 101-31, FNCL 4.5's are back down now to 101-30. 10yr yields rose as well, just barely creeping back into their previous range from this morning. They're currently at 3.412. Volume remains light and volatility low.
10yr notes have finally broken out of the incredibly narrow range that contained all yield movement this morning. FNCL 4.5's are pushing to their new highs as well at 101-29. On such a slow day that has experienced so little downside so far, it's conceivable we'd see a reprice for the better, but a small one. But we haven't seen enough positive movement yet to expect them with any degree of certainty.
The same yields that marked the highs and lows in the first hour of trading this morning have continued to contain 10yr yields into the afternoon. 3.41 on the low end and 3.425 on the high end. And it's the same story for MBS as FNCL 4.5's continue to grind sideways in their own narrow range between 101-26 and 101-28+. Really and truly, this is one of the quietest days in recent memory both in terms of volume and volatility.
RTRS-REUTERS SUMMIT-U.S. DEPUTY TREASURY SECRETARY WOLIN SAYS FORECLOSURE PROBE PENALTIES MAY BE USED TO REQUIRE HOME LOAN MODIFICATIONS
Changes to Federal Emergency Management Agency flood zone maps may cause economic damages to property owners, and governments may need to pay them substantial compensation, according to an article published this week in The Appraisal Journal’s Winter issue. The Appraisal Journal is the quarterly technical and academic publication of the Appraisal Institute, the nation’s largest professional association of real estate appraisers. The materials presented in the publication represent the opinions and views of the authors and not necessarily those of the Appraisal Institute. “Flood Zone Revisions and Economic Loss: An Example from Florida” – by William Cole; Bruce Stephan, MAI; Nathan Chouinard; J. Howard Finch, Ph.D.; and H. Shelton Weeks, Ph.D. – examines how revisions to existing flood zones can negatively affect land value and cause economic loss to a property owner. Under Florida’s Harris Act, as well as under case law, property owners may ask the courts to deem a change in regulation as a “regulatory taking” and may ask the government for compensation.
Scattered profit taking has been noted following the completion of the Fed's latest QEII POMO. This has led benchmark Treasury yields slightly higher and pulled MBS prices back from intraday highs in the process. It should however be noted that both TSYs and MBS are moving in a very tight range and trading activity is still well below-average. Because liquidity is lacking we may see price volatility pick up in the hours ahead but we wouldn't expect too much movement in either direction ahead of Bernanke's Humphrey-Hawkins testimony tomorrow.
RTRS-OBAMA SAYS EVERYBODY SHOULD BE READY TO GIVE UP SOMETHING TO HELP U.S. TACKLE ITS BUDGET CHALLENGES. RTRS-OBAMA SAYS DOES NOT DO ANYONE ANY GOOD TO DENIGRATE U.S. PUBLIC EMPLOYEES. RTRS-OBAMA: CONCEPT OF SHARED SACRIFICE SHOULD PREVAIL IN DEBATE ON U.S. BUDGET CUTS, AFFECTING RICH AS WELL AS POOR.
Featured Market Discussion
Frank Ceizyk : "need a rapid refinance program soon to avoid another wave of rational defaults...something that the industry could get behind in the best interest of the "non distressed but getting tired of watching their housing equity evaporate" consumers so they don't join the ranks of rational defaulters..."
Frank Ceizyk : "chris--there you go---that should be something the entire industry gets behind"
Chris Kopec : "I agree Frank, there needs to be a defined process....I think the establishment of a "toxic" GSE is the place to start. But the Government fumbled the snap when they decided not to go with the original "reverse auction" route to take these loans from banks at a steep haircut. Instead, they airdropped billions on the 2Bigs and left them to their own devices."
Frank Ceizyk : "Process has to be defined first--you could have Einstein processing the paperwork, but if the rules are subject to constant change (net present value test/eminent default test), and all the players don't know the rules (investors/servicers/borrowers/mod specialists/nonprofits), then we get what we have...a housing cesspool"
Frank Ceizyk : "to better job skills for the homeowners to get a raise? no"
Frank Ceizyk : "to the local economy? no"
Frank Ceizyk : "all the homeowners resources, money, energy go into trying to get the mod--6-9-12 months--all that money goes where?"
Frank Ceizyk : "the problem is it is counteruitive to healing process for housing"
Frank Ceizyk : "there should be a straight forward preapproval process with a set timeline"
Frank Ceizyk : "modifications slowing the process of healing IMO"
Victor Burek : "no reprices here"
Chuck Moulton : "This Halloween I think I am going as Shadow Inventory. Just sounds scary."
Adam Quinones : "herding mentality was fun for awhile."
Adam Quinones : "...still lots to play out JW."
Jason Wilborn : "to sum it all up AQ - we are in quite a quandary isnt we "
Adam Quinones : "generation lost. So it sounds like GenY will be battling their future vs. the Baby-Boomer's. Entitlements debate looms...."
Adam Quinones : "4. labor skills gap widens"
Adam Quinones : "3. businesses find another way and rebuild with productivity enhancing automation"
Adam Quinones : "2. Education takes a long time to catch up."
Adam Quinones : "problem 1. Mismatch of Labor Skills. Labor Demanded"
Adam Quinones : "*do not overdiscount the impact of high productivity in America"
Adam Quinones : "not likely. but you never know. 12/21/2012?"
Adam Quinones : "i hope a magic genie comes and fixes everyone's credit and creates 15 million jobs "
Matthew Graham : "i hope so"
John Rodgers : "Once they see the sticker shock on some of these retirment communities they may want to stay put. "
Adam Quinones : "or move in with them. Lots more families combining under one roof."
Victor Burek : "not many can move down in home, because lender will view the lesser home as a investment property and require 20% down.. not many can do that downpayment until they sell current home"
John Rodgers : "a better way to class them is "move closers". They'll move closer to the grandkids in other states."
John Rodgers : "AQ is also right. not many move downers"
Adam Quinones : "folks lost a chunk of their savings in market and home prices."
John Rodgers : "move up buyers taking that inventory"
Adam Quinones : "less people retiring"
John Rodgers : "that's simply a swap"
Jason Wilborn : "what about people retiring downsizing"
John Rodgers : "at some point people with jobs will need bigger homes and new workers entering the work force will have to move out of mom's basement. We are not producing enough homes right now to keep pace with preboom levels"
Terry Colabrese : "Truth is about this site, and it's greatest feature: AQ and MG have integrity. They want to see us all succeed, along with themselves! Not easy to find that in most places, anymore!"
Adam Quinones : "yes. it will certainly steepen your learning curve."
JTB : "That is some feedback...seems like I mostly read chat...likely to my own detriment, when I used to read updates before the new site."
Adam Quinones : "good opportunity to shine more light on best way to use MBSonMND"
Adam Quinones : "you must read the blogs in unison with micros and chat"
Adam Quinones : "not true"
Steven Bote : "Everything and anything of importance can be found, simply by scrolling down."
Adam Quinones : "youre hurting my ears."
Steven Bote : "Not your fault--I just stick to the livechat these days."
Adam Quinones : "sorry if the Week Ahead was unclear on that..."
Adam Quinones : "same speech given tomorrow and on Wednesday"
Steven Bote : "Is Bernanke talking today or later this week?"
Adam Quinones : "i dont think Bernanke will say much that we haven't already learned...this leaves the market to trade on technicals and we're right in the middle of a shift in technical bias. From that perspective, with the Employment Situation Report on Friday, the ADP report is the first real chance to break the resistance we're running up against. My bias in the month ahead is for 10s to test 3.31%. Unfortunately that doesnt mean the C30 Best Ex will improve from 4.875%. Gonna need FNCL 4.0s around 100-15 "
Ruben Delgado : "Adam, with the FED discussion tomorrow where would you place your bet? Rates increase or decrease?"
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