Afternoon Market Updates
NEW YORK, May 16 (Reuters) - U.S. Treasury yields have likely bottomed after the recent rout in commodity markets caused a safe-haven stampede into bonds, and will inch higher, a top bond fund manager at BlackRock said on Monday. Rick Rieder, who oversees half of BlackRock's $1.15 trillion of fixed-income assets, told Reuters that he will consider buying Treasuries if 10-year yields rose to the 3.60 to 3.75 percent range, 0.40 percentage point above their current level. "Now it's hard to see tremendous upside (on yields)," Rieder told Reuters of the Treasuries market. Rieder, who is chief investment officer for fixed income, fundamental portfolios, was reluctant to add risky debt securities ahead of the Federal Reserve completing its $600 billion bond buying program, dubbed QE2. BlackRock has been paring its holdings of the so-called non-agency mortgage bonds that had been rallying for nearly two years, he said. The outlook is short-term, however, as the firm's portfolios are expecting to resume its purchases at lower prices, Rieder said. "We've upgraded in quality in portfolios, increased liquidity in the instruments we hold in some of them, as you get closer to the end of QE2 on the assumption you get more volatility," he said. Separately, it would be tough for Treasury Inflation-Protected Securities to sustain their rally this year after the commodity sell-off and a fall in inflation expectations, Martin Hegarty, who co-heads the management of Blackrock's $22 billion in global inflation-linked portfolios, told Reuters. (Reporting by Richard Leong and Al Yoon, Editing by Chizu Nomiyama)
Two lawmakers have introduced bipartisan legislation that would eliminate Freddie Mac and Fannie Mae while still keeping a government presence in the housing finance marketplace. HR 1859, "The Housing Finance Reform Act of 2011", is sponsored by Congressmen Gary Peters (D-MI) and John Campbell (R-CA). Peters/Campbell have aimed this bill at overhauling the federal mortgage finance system and winding down the embattled mortgage giants, Fannie Mae and Freddie Mac, while establishing a new system of private mortgage associations - funded by private capital. Sponsor's believe the legislation will ensure liquidity in the secondary mortgage market because mortgage investments would still be backed by a government guarantee, which the plan has mandated strict standards around to safeguard taxpayers. In addition to these mandates, the legislation would extend current loan limits until Fannie and Freddie are no longer in conservatorship. FHFA has six months to provide a transition plan to wind down the GSEs and must determine within one year after five associations have been chartered whether the GSEs can be safely placed into receivership, an event that must occur no later than three years after two associations have been chartered.
In a break from a recent trend of "lower highs and higher lows," MBS are a few ticks better than their previous high, currently up 3 ticks on the day at 103-11. Reprices for the better are possible at these levels, and become increasingly likely the longer they hold or the greater margin by which they are surpassed.
In the course of the last two hours, 10yr yields improved 4 bps and FNCL 4.5's rose from 103-05 to 103-10 before running out of steam. 10's are currently at 3.1691 and 4.5's at 103-09. The joint movements are emblematic of markets that continue to bide their time, choosing to favor what has mostly been a consolidating range in the month of May. The resistance bounces for both MBS and TSYs fall in line to a series of slightly less ambitious resistance bounces. But the supportive levels have been getting higher and higher as well. This combines with the moving trend on the resistance side to suggest a consolidation centering on 3.20 in 10yr notes (roughly).
(Freddie Mac) -HomeSteps, the real estate sales unit of Freddie Mac, is launching a nationwide sales promotion for its inventory of foreclosed homes starting today. The HomeSteps Summer Sales Promotion is offering up to 3.5 percent buyer's closing cost and a $1,200 selling agent bonus for initial offers received between May 16, 2011 - July 31, 2011 and escrows are closed on or before September 30, 2011. This offer is valid only on HomeSteps homes sold to owner-occupant buyers. A two-year Home Protect® limited home warranty that covers electrical, plumbing, air conditioning, heating and other major systems and appliances is offered on some eligible HomeSteps homes. Home Protect also provides discounts of up to 30 percent on the purchase of appliances. (Terms, conditions and limitations apply. Not all homes or borrowers will qualify. For details, see www.HomeSteps.com/smartbuy.)
Rate sheets are about unchanged vs. indications on Friday when both reprices for the better and worse were reported in the same session. At the moment, risk is skewed toward the potential for unfavorable reprices, especially with rebate mostly flat and production MBS coupon prices moving marginally lower. Our negative reprice target is 103-02 in FNCL 4.5s. This would imply benchmark 10s were testing 3.21% support. Reprices for the better are more likely to be awarded as FNCL 4.5s move into positive territory and approach the 103-12 level. We currently do not recommend floating if you need to lock within the next week to 10 days.
(Freddie Mac) -In the first quarter of 2011, fixed-rate loans accounted for more than 95 percent of refinance loans, based on the Freddie Mac Quarterly Product Transition Report released today. Refinancing borrowers overwhelmingly chose fixed-rate loans, regardless of whether their original loan was an adjustable-rate mortgage (ARM) or a fixed-rate. An increasing share of refinancing borrowers chose to shorten their loan terms during the first quarter. Of borrowers who paid off a 30-year fixed-rate loan, 34 percent chose a 15- or 20-year loan, the highest such share since the first quarter of 2004. Eighty-four percent of borrowers who had a hybrid ARM chose to refinance into a fixed-rate product during the first quarter, continuing a pattern of the past few years of borrowers revealing a strong preference for fixed-rate over variable-pay contracts."The mortgage rate on 15-year fixed was about three-fourths percentage point below that on 30-year fixed during the first quarter. For borrowers motivated to refinance by low interest rates, they could obtain even lower rates by shortening their term. In the first quarter we saw the largest share of borrowers shortening their term while refinancing in seven years."
Featured Market Discussion
Matthew Graham : "S&P's heading into dangerous technical territory right now, and with only 12 official minutes left"
Matthew Graham : "there was talk before the last announcement that the 3yr offering size might be cut 1-3 bln, but that didn't transpire. I think it a near impossibility that any auctions would be postponed. More likely would be a VERY minor reduction in the offering size of the short end"
Chris Kopec : "Question: are auctions going to be postponed (i.e., 3, 5, 10 year auctions)? Or, are there other book-keeping manuevers that will clear more room for them."
Mike Drews : "Wells reprice"
Chris Kopec : "5/3 abd flagstar repriced"
Jill Statz : "PF another .125 for .25 better on the day"
Ira Selwin : "famc price change. We were owed that one"
Matthew Graham : ""jumping off" or "stepping off logically based on where they perceived the final destination of the bandwagon to be" "
Andrew Horowitz : "MG so blackrock is jumping off the bandwagon now"
Jill Statz : "Flagstar better"
Steve Chizmadia : "Mine is free standing, but there is no condo id to cross reference on VA approved condo list. I have confirmed with county they all have seperate apn's and legal descriptions, so I'm guessing VA should accept it, just wanted to confirm"
Steve Chizmadia : "Have any of you come across site condos on a VA loan? They are all individual units with no attached walls. I was under the impression that the HOA (there is none) and complex would not have to VA approved. Is this correct. I recently closed one on a FHA loan and wanted to know if any of you knew if VA followed the same "site condominium" guidelines"
Matt Hodges : "2 mos. reserves, 49.9% max dti"
Matt Hodges : "WF for us - we got a waiver last week"
Ken Crute : "what corr lenders are going to 620 on FHA?? "
Ira Selwin : "it's ok: These entities would not be allowed to discriminate against any originator, but the "Associations" could be formed for the general purposes of serving a particular mortgage market or category of mortgage lenders such as community banks. The legislation does allow banking organizations to acquire an interest in such categories of lenders"
Chris Kopec : "So instead of Fannie, we'll allow the mega-banks to be assigned even more institutional importance ...... someone tell Ozzie to stop the Crazy Train."
Chris Kopec : "Let;s replace Fannie - which was created in response to the last crash, and which functioned very well until it was warped beyond recognition by crony capitalism."
Andrew Horowitz : " An association can purchase a mortgage with an LTV higher than 80 percent if the seller retains a 10 percent stake in the loan, agrees to repurchase the mortgage on the demand of the association or private mortgage insurance is used to cover the balance of the loan above 80 percent. LOL"
Chris Kopec : "I have zero faith in GSE replacement."
Adam Quinones : "Bipartisian GSE Replacement Bill Takes Shape. Mirrors MBA Plan: http://www.mortgagenewsdaily.com/05162011_gse_reform.asp"
Jill Statz : "PF .125 better"
Adam Quinones : "not seeing much motivation in the market at the moment."
Jason York : "on fha, if there were lates, then it is like a foreclosure, if there were no lates, then there is no penalty, of course there are lender overlays though"
John Rodgers : "like a foreclosure on conv"
Steven Bote : "Anyone know how short sales on credit are viewed now for repeat buyers? I heard it's more or less treated just like a default with certain underwriters and so they can't qualify until four years from the deficiency?"
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