Mortgage rates are unchanged from Friday and are basically unchanged from a week ago. Retail Sales was the only significant economic announcement made last week. Retail sales were much stronger than expected causing a brief drop in mortgage prices. The drop was reversed fairly quickly. The 10 yr and 30 yr Treasury auctions from last week were well received. They caused little movement in mortgage prices.
The end of the Fed’s MBS purchase program is fast approaching and the market awaits the impact of the Fed’s exit. A few months ago their exit was expected to push mortgage rates significantly higher. Now it appears that the market has factored their exit in the prices paid for MBS and the end of the MBS purchase program will have little immediate impact on rates. Several factors contributed to the change in expectations, including less supply of MBS to absorb due to a slow down in originations, a steep yield curve making MBS an attractive investment, and the announcement that Fannie Mae and Freddie Mac will begin buying back about $200 billion in delinquent loans from MBS pools adding to cash to the mortgage investment community.
The considerations of switching from a best efforts seller to a mandatory seller were discussed. The reason to switch is to pick up margin, about 20 to 30 basis points. The increased margins will be partially offset by incremental cost. The incremental costs include the requirement to hire a hedge consultant (required by many warehouse banks), additional warehouse capacity required to carry loans while you accumulate loans to sell , and system enhancements to provide accurate pipeline and closed loan status for hedging purposes. The minimum volume necessary to make this switch worthwhile is estimated at around $150 million a year.
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