The bond markets are opening pretty much unchanged to slightly improved from last night’s close. For the most part we have been seeing a slow grind of improved mortgage prices and lower bond yields so there really is very little to complain about. The trading range has been tight but as mentioned yesterday we expect some price volatility starting with the ADP report on Wednesday leading up to Friday’s NFP release.

I came across 2 very interesting articles/stories that I want to pass along to the masses. The first one is a political story that would annoy anyone who was brought up to work hard and be responsible for your obligations. There has been a lot of criticism from the Obama administration against Edward DeMarco who is the acting director of the Federal Housing Finance Agency which currently “oversees” FNMA and FHLMC. The Obama camp wants the agencies to write-down principle for some heavily indebted homeowners while DeMarco has resisted the pressure because he simply does not think it is a good idea. DeMarco is leaning on the “it would cost too much” reason but many think he just does not believe this is a good precedent. I for one totally agree.

So the Obama administration has decided to turn up the heat on this guy who is trying to do what is right for the taxpayers and the moral fabric of our society by now telling him that the U.S. Treasury will offer to split the cost of any principal write-downs. Where will the Treasury get the money? It will come from unspent housing-aid funds which in turn came from the $700 billion bank rescue that Congress passed back in 2008. So yes this is tax-payer money. Who will qualify for the principal write-downs? Underwater borrowers owing at least 125% of the value of their property AND who are behind on their mortgage payments. So if you are busting your tail to make your mortgage payments on-time by working 2 jobs because that is just what you do and that is your inner make-up then you do not qualify. However if you are a bon-bon eating, Oprah-watching, unemployment collecting (but very capable) slacker who cashed-out on the equity of your home back in 2007 so you can buy a new BMW to keep up with the Joneses then you get the free money. I understand that there are good people out there that had a string of bad luck but unfortunately you just know that in the majority of these cases the money will go to the wrong people. This does nothing to reward the hard work that responsible underwater home owners who keep up with their mortgage payments  also deserve.

Now this is not official but it does appear that DeMarco might lose his battle. Maybe responsible heads will prevail and there will be some way to do this correctly. I have a novel idea…eliminate those that did cash-out refinances and just limit this to purchase transactions where the borrower never extracted a penny from their past home equity. Also give the money based upon a certain % drop in your property value even if you did the unthinkable and kept up with your mortgage payments. I guess that just makes too much sense.

The other story worth passing on is a survey that was taken by the 21 primary dealers who are basically involved in all if not most bond trading activity. They were asked where they see the yield on the 10yr by the end of 2012. Keep in mind that we are currently at 2.17% and got as high as 2.40%  and as low as 1.80% so far this year. They were asked this at the beginning of the year and at the end of the 1^st quarter. The results were interesting:

• When asked at the beginning of the year the average was 2.43% with the low being 2.0% and the high being 3.0%.
• When asked at the end of the first quarter the average increased slightly to 2.49% with the low/high still 2.0% & 3.0%.

This kind of stuff is always pretty interesting because it answers the question on where those that are involved believe interest rates are going. I think we as originators can live with this range and it does allow for a healthy origination environment. We will all take the 2.0% but I also think the average of 2.49% and even the high of 3.0% will allow the mortgage market to offer rates that will still entice new production. Food for thought…

Bond markets are up today as it seems that investors are moving back into Treasuries with the stock market down over 1% and oil down 1.5%. Since the Dow hit 13k, investors have made it clear that they were not comfortable with that level just yet and we have since seen better selling at those levels. This along with the drop in oil prices from their highs has helped support the bond markets. We now see the Dow sitting @ 12,799 with the 10yr @ 1.94%

The big story today in the mortgage market is the speech that Obama will give today unveiling his “Blueprint for an America Built to Last” plan (sounds catchy doesn’t it?). What it will do is clearly map out what he will do to help “responsible borrowers”. It is a very thorough plan that addresses relief to military members as well as homeowners with outstanding FHA mortgages.I am sure that many of you will want to jump to the 4^th page which addresses streamline refinances.

All this will need to be absorbed by the mortgage market so nothing will be immediate but it does appear that much of what Obama will announce today does not require congressional approval so that means that most if not all of this will be available in the marketplace. Be assured the FFF will do everything possible to be involved.

We are going to cut this a little short today because of the importance in reviewing the attachment but keep in mind that we have the Non-Farm Payroll report this Friday and the ADP report tomorrow. Both numbers especially Friday’s NFP number have the potential to be market movers.

The bond markets are opening up with some life after what has been a tough week. We started the week off with a 1.91% 10yr and peaked as high as 2.06% yesterday. To make matters worse for us mortgages have been getting hit pretty hard as well. However we are fighting back today as we are currently at 2.01%. There is little news on the economic calendar so barring some unexpected news headlines it should be a relatively quiet Friday in the bond markets. The Dow is still flip flopping on the 13k level as it is expected to open down according to futures trading from yesterday’s close of 12,979.

The financial markets do give me the sense that they want to see interest rates higher and at this point some good reasons need to present themselves for rates to fight this sentiment and go back to the lows. The markets were holding onto hope for another round of quantitative easing from the accommodating Fed but have so far been given the Heisman on that one. Bernanke spoke to Congress this week and gave absolutely no indication that they will unveil QE3. Therefore at this point good old fundamentals might have to take over the trading strategies. It has been a few years since this has happened and based upon economic fundamentals rates are just too low.

But hold on before you are ready to change careers. There are still some issues out there that will keep rates from going too high. We have this little oil problem brewing and we still have a lot of uncertainties in Europe. In regards to oil, it did help keep interest rates at bay given the rally in the stock markets over the last 2-3 months. Oil was up big again yesterday and almost touched $110 a barrel but closed @ $108.81 and is down today with it currently @ $107.93. Unless we get a reversal in oil prices, this is and will be a major drag on the rebound that we are seeing signs of in our economy. This alone will help keep rates around their historic lows.In addition you still get the sense that at any moment there will be another news tape bomb out of Europe.

So all-in-all sellers of Treasuries are putting a little damper on the bond markets this week but one cannot expect any drastic shift in interest rates. Don’t forget that the Fed stated that they will keep rates (discount and Fed Funds rate) low until at least the end of 2014. So let’s just go with the assumption that they know something that many others do not appear to know… at least for this week.

(Image courtesy of Salon.com)

The bond markets are opening pretty much unchanged from yesterday’s close but that is okay given the price action yesterday. The mortgage market was on fire yesterday as they impressively outperformed the rally in the bond market. We were testing the 2.00% level on the 10yr since the strong NFP number on 2/3 but it clearly appears that the bond markets will not have any of that. The NFP number has quickly become a distant memory and it is back to the safe haven trade of buying US Treasuries. We are opening with a 1.94% 10yr yield but the story yesterday was all about mortgages and GNMA(FHA) securities specifically.

However, I need to be fully honest by telling everyone that the reason for yesterday’s strong GNMA bid was not all good. There is concern about future supply with the proposed fee increases. The HUD budget proposal calls for increases in fees as a result of the concerns that the agency’s insurance fund continues to face capital ratios below it congressionally mandated rate. We have mentioned this issue in the past. This is accounting jargon for a way of saying that HUD’s insurance fund is running dry and there are legitimate concerns about their ability to cover the growing loss mitigation cost that comes with lending money to borrowers with relatively low credit scores at elevated LTV’s.

On top of that they still need to implement the 10 basis point g-fee increase that FNMA & Freddie did a few weeks ago as a result of the payroll tax cut. Remember that any changes to the FHA program must go thru Congress therefore this implementation was delayed so it can go thru the political system. However the increases by FNMA & Freddie do not require congressional approval in the same manner which is why that happen swiftly. Also expect to see an increase in fees for the FHA HLB and HUD is also expected to announce plans to increase MIP later this month. Obviously all this in its entirety have buyers of GNMA securities concerned that the supply of FHA loans will dramatically shrink. I agree.

On one last note regarding HUD… Many of you may have heard about the $25 billion settlement between federal agencies, 49 state attorneys and 5 major banks as a result of “improper conduct in the foreclosure process”. Well guess where some of that money is going to…that is right HUD. FHA officials said that they expect about $1 billion to go towards HUD to help prevent the agency from the political landmine of going to Congress for a taxpayer bailout. This issue with HUD is no joke and will be a mainstream story in the months ahead. That I am sure about.

It is Wednesday so we got the release by the MBA on it Weekly Application Survey. Here are the highlights:

• Applications decreased 1%
• The refi index increased .8%
• The purchase index decreased 8.4%
• The refi share increased to 81.1% from 80.5%
• The average loan size in January 2012 was $226k up from $207k in January 2011
• DC has the highest loan size @ $375k. Those brownstones in DC are not cheap.
• Indiana has the lowest loan size @ $143k
• The average 30yr conforming rate is 4.08% w/.51pts
• The average 30yr FHA rate is 3.87% w/.78pts
• The average 15yr conventional rate is 3.33% w/.40pts

The markets are quiet today as we lead into tomorrow’s big Nonfarm Payroll (NFP) report (yes, we are still trading at the 1.83% level on the 10yr…1.84% to be exact). Remember that the NFP comes out @ 8:30 and the latest consensus is +135k with a range of 110k-189k. It will move the markets but I really do not see how any number short of a mind-blowing increase (+300k) will change the tone of this market.

President Obama released the details of his latest attempt of a Refinance Plan. Here are the highlights:

• Includes borrowers not backed by Fannie & Freddie;
• These loans which were securitized by private-label securities without any federal backing would be allowed to refinance into FHA-backed loans;
• Eligible borrowers would have to have made their mortgage payments over the last 6 months without a delinquency;
• Loan cannot exceed the FHA loan limit for the area;
• If the borrowers have a ltv >140%, the lender has to agree to reduce the loan balance;
• Borrowers would not have to submit a full file of paperwork for the refi as long as they can verify their employment;
• Enables borrowers who still have equity in their home, up to 20%, to participate;
• The program would be paid by charging a fee to the country’s largest banks so that the plan will not add to the deficit;
• Includes a Bill of Rights for home owners.

All this will require the Republican-controlled Congress to pass. The response to all this yesterday was unanimous…good luck! Even if you are the ultimate optimist and still believe in Santa Claus, this will not take effect for months. However, if you are a realist then this is just another political angle for the President to use as a campaign cry of how he tried to do more for the “good hard working borrowers that played by the rules” but the Republican-controlled Congress did not pass his plan. Either way it is something that originators need to be informed about because consumers will ask questions as this makes it to the mainstream media. If you want to read more about this then click on the link below which was issued by the White House…