The 10yr is opening down today @ 1.74% but that is after it was up yesterday. With no tangible economic news until Friday this back and forth does not surprise me. Like I said yesterday I believe we are in a holding pattern until the election with a bias towards slightly lower US bond yields. So with that said we should have a lot of these seesaw days where we are up a little or down a little.

Where we as originators have interest in is how mortgages react to these relatively minor swings. Unfortunately the mortgage situation is totally unpredictable. Yes we all know that the Fed is buying until Spring Break 2013 or 2014 or 2015 and so on (that is a little tongue and cheek) but the question is what are the other players doing. Are originators producing enough to at least offset the Fed’s buying? Are hedge funds unwinding their extremely profitable trades by selling? Also what are servicers doing? All these questions are answered every day and the answer seems to change day to day. This makes mortgages almost impossible to figure out if they will widen or tighten vs. Treasuries. Flip a coin.

We can shed some light on one of these components which is mortgage banker supply. Today we got the release of the MBA Weekly Applications Survey. The report showed a decline of 1.4% in mortgage applications. That is the bad news. The good news is that this expectation of less supply is helping the bid for mortgages as of this morning. So here are the highlights of this week’s report:

• Mortgage applications decreased 1.4%
• The Refinance Index decreased 2.0%
• The Purchase Index increased 3.0% to its highest level since June
• The refinance share remained unchanged @ 83%
• The Gov’t purchase share remained unchanged @ 35.5%
• The ARM share decreased to an anemic 3.9%
• The average 30yr conforming rate was 3.56% w/.39pts. This is the 1st increase after declining for the last 6 consecutive weeks.
• The average 30yr FHA rate was 3.34% w/.71pts. This is a big increase in the points charged from last months .36pts.
• The average 15yr was 2.88% w/.40pts.
• The average 5/1 ARM was 2.60% w/.36pts.

I guess as long a we end the week on a good note then we forget about all the pain and suffering that happened in the beginning of the week. I am happy to say that we are on track with being able to go with that theme because what seemed like a really bad turn for the worse at the beginning of the week has turned into a reason for hope.

We have seen some good price action in the bond markets since Wednesday which has brought the 10yr to a very acceptable 2.22%. While the economic calendar has been light this week there is concern that growth in China may finally show signs of cooling after decades of non-stop robust growth. While a cooling in the growth of China is still growth that most if not all other countries would die for, this would be the equivalent of the Yankees only finishing the season 5 games above .500. I am sure the Mets would be thrilled with that kind of season. My point being is that everything is relative. Regardless of the reason for the bond markets licking their wounds and coming back with some fight, I know that we all feel a lot better for it.

Looking ahead, we have another light economic calendar next week so traders will be taking their lead from the headlines for direction. I am encouraged that we did not continue the slide in bond yields. Having lived thru a fair amount of bear markets, they tend to be relenting. It is sort of like getting kicked in the midsection (I heightened the location point to be politically correct) as soon as you walk into the office and then the beatings just keep coming. It tends to make for a miserable existence.

However, with the exception of a few days, we did not get that feeling this time around. I think we have the presence of the Fed to thank for that (or maybe it is Tim Tebow). Like we have been saying, they are steadfast in keeping mortgage interest rates low which will happen by keeping US Treasury rates low. The Fed’s current and latest intervention called Operation Twist is scheduled to come to an end in June. Therefore the optimistic bond traders are looking for some new and creative move by the Fed come June that will facilitate a continued low rate environment. It might not be called QE3 which does appear to be off the table but Bernanke can and has been very creative so they are looking for something. I am sure the Fed was not happy about the quick rise in yields but they also were not losing too much sleep over it either. They know they have some influence and you just get the feeling they have more tricks up their sleeves. We will see…

Have a good weekend.

Is it Friday yet?? We have had a very bi-polar week so far in the bond markets that has made us all a little insane. This market is as confused as the Jets front office. We are perfecting the price changes this week and thankfully we were able to dust of the price change for the better yesterday after nothing but negative price changes on Monday and Tuesday.

So far today all is looking good as we are up  across the board with the 10yr sitting nicely at 2.26%. Considering we were getting real close to the 2.40% level on Tuesday, I do find the resilience of the bond markets to be impressive. What I really did not like about Monday and Tuesday is that we started out in positive territory but the markets were unable to sustain the rally. There was no news that triggered the days sell-offs but when that happened it was fast and furious without the smashing cars of course. Those are not good signs because it clearly shows a bearish trend.

However, market sentiment can and does change quickly when there is not strong directional convictions. I still do not think we are out of the woods because I still feel we are on thin ice but there is no doubt that this little rally is encouraging. There was a lot of talk over the last few days that higher bond yields need and should happen. However, they might have gone up too much too fast. So perhaps this is just a little correction of that thought. We have not had any major economic news events happen so I do buy into that this little rally is just some mild correction but I do not expect any return to the <2.00% 10yr anytime soon barring a EU tape bomb.

If we manage to stay in a tight trading range that is a little lower/higher from here then I do believe this is a great environment to grow pipelines by getting the borrowers who were on the fence to commit to refinancing. This is not a “sticking out my neck” moment because a lot of seasoned mortgage veterans share the same viewpoint.

Yesterday we saw the release of the Weekly MBA Application Survey. I apologize for being a day late but I do want to mention the highlights:

• Applications decreased 7.4%
• The Refinance Index decreased 9.3%
• The Purchase Index decreased 1.0%
• The refinance share decreased to 73.4% which is the lowest since July 2011
• The average 30yr conventional rate was 4.19% w/.47pt
• The average 30yr FHA rate was 3.93% w/.48pt
• The average 15yr conventional was 3.47% w/.40pt
• The average 5/1 ARM was 2.90% w/.44pt

Bond markets did open up slightly from yesterday’s close but has since traded off as the market is reacting negatively to Ben Bernanke’s prepared statement released prior to his semi-annual testimony in front of the House Financial Services Committee to explain the Fed’s outlook on the US economy. We see the 10yr trading @ 1.97% which is a bit of a turnaround from the 1.93% open prior to Bernanke.  He will be addressing the Committee and answering their ridiculous questions so the market sentiment can change on a dime. If you ever want to be embarrassed of our elected officials then you want to watch one of these hearings. I always find them to just be an opportunity for our elected officials to flex what limited muscle they think they have by trying to make Bernanke uncomfortable. It just seems like political grandstanding.

We finally did see the Dow close above 13k yesterday (13,005) and is up again this morning so that was certainly an interesting physiological level. However this rally is coming at a price to consumers as the price of oil has risen along with stocks. The high oil price story is gaining significant momentum as we have all seen a dramatic increase in the price of gasoline. We are reaching the point of pain for consumers. It certainly is not something the economy needs as we are showing signs of economic growth and do not think the Obama administration is not keeping a close eye on it as well. With the economy growing, be it slowly, the Republicans will need some arrows to sling at Obama especially as his poll ratings have increased recently. Nothing upsets consumers more than getting hit hard at the pump.

We also saw the release today from the MBA of the Weekly Application Survey. Here are the highlights:

• Applications decreased .3%
• The refi index decreased 2.2%
• The purchase index increased 8.2%
• The refinance share dropped to 77.9%. This is the lowest refinance share since 12/2/11 and the first time the measure has fallen below 80% since 12/9/11.
• Among purchases… 86.4% were fixed, 6.5% were 15yr, 5.4% were ARMs and 1.7% was other
• The average 30yr conforming rate was 4.07% w/.51pts
• The average 30yr FHA was 3.86% w/.80pts
• The average 15yr conventional was 3.36% w/.38pts

(Image courtesy of House Committee on Financial Services)

We are opening up with a relatively unchanged market from yesterday’s close and while we are approaching the 2.00% level on the 10yr (1.98% to be exact) I believe all-in-all the bond/mortgages markets are holding up pretty well in light of the recent events. There is still buzz in the air regarding Friday’s NFP monster number and it appears that there will eventually be a resolution on a Greece bail-out plan. Both things would weigh on the bond markets but it would be really hard and irrational complaining about a 2.00% 10yr. This is still an extremely low rate environment and one that is very conducive to loan originations.

In regard to the NFP number the talk is that the Fed might have understated the strength underlying our economy. That is a fair argument considering that the Fed stated they would keep rates low thru at least the end on 2014. There is little doubt that our economy has consistently showed promising signs but the thought here is that the Fed is very concerned about Europe and its impact on our economy. Also they are very much aware of the surplus of foreclosed properties that need to be redistributed before there is any serious thoughts of an true economic rebound. However like I mentioned this is a great environment for originating loans and this week’s MBA Weekly Application Survey clearly shows that. Here are the highlights:

• Applications rose 7.5% from the prior week
• Refi Index increased 9.4%
• Purcahse Index had a marginal increase of .1%
• The refi share increased to 80.5% from 80.0%
• The ARM share increased to 6.0% from 5.6%
• During the month of January the investor share was 6.4% which was a decrease from 6.9% in December
• During the month of January the second home share increased to 5.9% from 5.4% in December
• All average interest rates set records for the lowest rate in the history of the survey.
• The conforming 30yr was 4.05% w/.44pts
• The FHA 30yr was 3.89% w/.78pts
• The conforming 15yr was 3.33% w/.37pts

Like I said….good time to be an originator.