MBS prices were volatile last week and fell about half a point during the week. Most of the push for MBS prices lower came from weak Treasury auctions. On Wednesday the 5 Yr Treasury Note received lower than usual demand, especially from foreign investors, and the yield required from the bidders was higher than the previous trading range. The weakness in the Treasury auction spilled over to the MBS market. The economic data released during the week was mixed with Durable Orders better than expected and the housing data was a little weaker than expected.
All of the focus in Congress now that Health Care has passed seems to be with the Restoring American Financial Stability Act of 2010. This proposed law will have sweeping changes for the mortgage industry, if passed. It includes the creation of a new regulator for consumer protection, retention of 5% of the risk on loans originated and then sold, and increased HMDA reporting requirements, among other things. This 1300 page bill seems to be on a fast track.
Discussion continued on the risks and benefits of converting a mortgage company’s operations from a best efforts delivery of loans originated to a mandatory delivery. The focus of this week’s discussion was on the importance of good data and the need for additional data collection points. Accurate and timely data on loans in pipeline and closed loans is essential to effectively hedging the interest rate risk associated with mandatory delivery of loans, special guest Rob Katz of Del Mar DataTrac explained. Also critical to effectively managing the risk, is the need to have a centralized lock desk to communicate with investors. Having loan originators lock directly with investors may work in a best efforts environment, but not so in with mandatory delivery.