![\"cmc\"](\"http:\/\/mortgagenewsclips.com\/wp-content\/uploads\/2010\/02\/cmc.png\" "\\"cmc\\"")
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In case you missed it, mortgages sold off 0.75% yesterday.\u00a0 Super-premium Freddie Mac mortgages did, anyway.\u00a0 The 6.0%-6.5% coupons declined sharply, while the par coupon (4.5%) was mostly unchanged.\u00a0 The premium price decline was triggered by Freddie\u2019s buy-back announcement.\u00a0 Freddie, rather than wait until loans default and then buy them back, will buy back all loans that are 120 days down.\u00a0 Freddie will buy those loans at a price of 100, which isn\u2019t so good if you own a Freddie PC trading at a price of 106.<\/p>\n
Accordingly, the pressure for originators to repurchase loans will grow.\u00a0 The more loans that the agencies buy back, the more loans will get pushed back. \u201cBecause taxpayers are involved, we are being very vigilant,\u201d said Maria Brewster who oversees Fannie\u2019s repurchase team (famously quoted in the Wall Street Journal<\/em>).\u00a0 \u201cNo taxpayer should have to pay for a business decision that caused a bad loan to be sold to Fannie Mae.\u201d\u00a0<\/p>\n Unfortunately, there are plenty of loans to buy back:\u00a0 \u201c4.8 million people have not paid their mortgages in at least three months,\u201d reports Ted Jadlos, senior managing director at LPS Applied Analytics.\u00a0 \u201cAnd the pool of problems is growing far faster than any of the solutions.\u00a0 Modifications are not providing enough relief.\u201d<\/p>\n Granted, price action in the 6.0%-6.5% coupons doesn\u2019t affect new originations all that much, but Freddie\u2019s announcement begs the larger question of private investor confidence in mortgage-backed securities.\u00a0 One argument is that more regulatory uncertainty is bad for investor confidence.\u00a0 Another is that the sooner bad loans are bought out of pools, the better for investors.\u00a0 Let\u2019s hope the latter argument brings confidence and private bidders in to the market.<\/p>\n We\u2019re going to need all the confidence we can get.\u00a0 Chairman Bernanke made clear, in notes from his snow-postponed testimony this week, that the Fed will stop purchasing MBS at the end of March.\u00a0 He even mentioned the possibility of \u2013 gasp! \u2013 selling mortgage securities.\u00a0 Evidently, the Fed will begin with reverse repos, followed by raising rates in a \u201csmooth and timely way.\u201d<\/p>\n I have been at this game for a while, and can\u2019t remember markets ever reacting in a \u201csmooth and timely way.\u201d\u00a0 Wells Fargo may have the same opinion:\u00a0 They recently increased (dramatically) the fees they charge for long-term interest rate locks.<\/p>\n Fortunately, origination volume has crept up from the anemic December-January pace.\u00a0 The volume comeback has been inconsistent \u2013 better in Midwestern geography, better from retail purchase shops, worse where price matters more.\u00a0 Originations margins are down and servicing bids are up in this slow volume market.\u00a0<\/p>\n At least interest rates are low (TED spreads and the VIX seem too low).\u00a0 Problems with the PIGS in Europe are keeping global rates down.\u00a0 Germany is grumbling about the other \u201cG\u201d (Greece); the Germans are not having the best luck.\u00a0 They just lost their most cherished title, that of the world\u2019s leading exporter, to China, and their population is shrinking.\u00a0 Germany\u2019s population recently shrank below 82 million for the first time since 1995.\u00a0 To slow credit expansion (we can\u2019t relate) China raised their bank reserve requirements, a strategy that our own Fed might employ someday.\u00a0 China requires about 5% more bank capital than we do.<\/p>\n I don’t think Washington has seen a snow job like this since that last stimulus package. \u2013 Jay Leno<\/em><\/p>\n Thanks for your business, and have a good week.\u00a0 – Tom Millon<\/em><\/strong><\/em><\/strong><\/p>\n About Capital Markets Cooperative<\/span>
\n<\/strong>Capital Markets Cooperative (CMC) provides mortgage bankers with the economies of scale and the expertise to reduce risk and maximize profit in the secondary market. Regarded as the premiere secondary marketing specialist in the industry, CMC has worked with financial institutions nationwide to break traditional barriers in capital markets and take performance and profits to the next level. To date, CMC executives have managed more than $500 billion of mortgage volume.\u00a0\u00a0 For more information about Capital Markets Cooperative, visit <\/span>www.capmkts.org<\/span><\/a> or call 904.543.0052 or e-mail <\/span>info@capmkts.org<\/span><\/a>.<\/span><\/p>\n