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Upcoming Conferences

Several Compass sales directors and generic viagra uk account managers will be attending the following conferences in the next few months. If you are attending and would like to set up a meeting to discuss CompassPoint™ tools, functionality, or partnership, please email Phalla Sok.

Texas MBA Southern Secondary Conference: Feb. 5 | Houston, TX
The Mortgage Collaborative Winter Lender Member Conference: Feb. 11 | San Diego, CA
Eastern Secondary Conference: Feb. 14 | Orlando, FL

Market Update

As we begin 2018, many indicators are pointing to what could be an interesting year for the market. While the market is anticipating at least two rate hikes during the year, several other market variables are likely to affect the Treasury market as the year progresses. Among these include whether inflation will re-emerge over the Fed’s 2% target, and how treasury supply could increase dramatically because the tax bill could have up to $300b of less than expected revenue. These indicators, along with the Fed’s balance sheet runoff of approximately $600b, could lead to plenty of new supply for Treasury paper.

The yield curve has remained flat with the 2-10 spread currently sitting at 53bps vs. 55bps in mid-December, while the two and ten-year Treasury yields have increased 12bps and 13bps respectively. Spreads in the mortgage market, most notably with credit risk transfer securities, have tightened in response to the rise in rates.
With the passing of the tax cut legislation, the possibility of GSE reform is something that may pick up steam in 2018 and has returned to headlines due to recent statements from Congress. GOP lawmakers are expected to continue their push for deregulation, and Representative Hensarling is now willing to consider a government role in housing finance, supporting the Demarco-Bright plan.

With many market variables in play, all eyes will be on new Fed Chair Jerome Powell. It remains to be seen as to how the Jerome Powell Fed might respond to tax cuts, the rise in inflation expectations and the overall strength of financial markets.

– Jason Freydberg

Buy-Up/Buy-Down Grids

BU/BD Grids Note To Readers: As a result of the Agencies increasing customization of seller BU/BD grids and the variability with which we receive grids we are unfortunately no longer able to provide actual BU/BD color in our Newsletter. We will continue to monitor the Trust IO market and set directional expectations for BU/BD grids within the Newsletter. Though no BU/BD color will appear in this Newsletter, we can provide client-specific month over month reconciliation and color. Should this be of interest please reach out to your Compass Account Manager.

Over the past month ending with Class A notification, we saw rates gradually moving higher as FNCL finished the period up 10bps to 3.14% and our current note rate tacked on 6 bps to 4.39%. Volatility continues to hover around record lows across markets. Trust IOs benefitted with higher rates and best place to purchase viagra online the lack of volatility as multiples in coupons surrounding current production gained 17 bps on average. As rates moved higher, the 3.0/3.5 swap was unchanged while the 3.5/4.0 swap widened 4 tics. FN/FG swaps were unchanged over the course of the month. We don’t foresee any surprises this month, expecting to see the Agencies reprice BU/BD multiples consistent with the move in Trust IOs given the measured increase in rates, low volatility and lack of change in swap levels.

– Virgil Caselli

Excess Primary-Secondary Spreads Color

We began December with FN30 MBS yielding 3.01% (FNCL) and borrowers paying 4.4% for a moving average excess primary-secondary (xPS) spread of 10 bps. Rates were steady at the beginning of the month before climbing mid-month and remaining volatile into January.

Last month rates generally remained at their elevated levels and became more volatile when starting to decline. This month as rates increased and seasonality came into full force, many originators saw declines in production and dropped further below their capacity levels. Last month just one lender stated that they were significantly under capacity with 2 replying they were moderately under capacity. This month as winter seasonality picked up 3 originators stated they were significantly under capacity and 2 remained moderately under. Similarly, the decline was seen in production responses with the number of lenders stating they were slightly down at 15 this month, up from 12 the previous month with one lender responding they were significantly under. With backlogs already small to nonexistent there was little change in responses with all but 1 of the 28 survey recipients stating they had a small backlog. The rise in rates and volatility flowed through to excess margin levels as 23 lenders having no excess margin baked into their rate sheets up 1 from the previous month.

We ended January 12th with FNCL at 3.15% and our moving average xPS spread at 7 bps. Next month, if FNCL continues its upward trend we would expect to see xPS decline towards 0 as production continues to slow and viagra uk cheap cold weather continues to impact new production.

– Sam Rockwell

Specified Pool Commentary

Specified pool pay-ups saw flat to small decreases overall after increasing moderately last month. After three rates hikes in 2017, all eyes are focusing on unemployment numbers, inflation forecasts and what effect the $1.5 trillion tax-cut will have on the economy. San Francisco Fed President, John Williams, believes we are in “a pretty good situation: the economy is doing great, everyone expects us to raise rates gradually… and I’m not worried about inflation suddenly taking off”. Two of President Williams’s peers do not share his ‘benign’ view of inflation. Boston Fed President, Eric Rosengren, is fearful a decline in jobless rate could accelerate inflation figures, which could force the Fed to increase rates more aggressively than initially forecasted. Neel Kashkari of the Federal Reserve of Minneapolis wants to see more data before committing to Fed tightening. He has expressed concern over the underperforming inflation figures. January speeds are expected to decline due to decreasing refinance rates and rates projecting to increase.

Of note, pay-ups for the FN30 4.5 coupon pools increased with the 110K and FNCR pools leading the pack. The 110K 4.5 pool moved from +78/32 to +83/32, and the FNCR 4.5 moved from +40/32 to +44/32. Pay-ups for the FN30 3.5 coupon pools decreased this month with the FNCQ pool (-4/32) and 125K pool (-2/32) being pools of note. The FN30 4.5 coupon 175K pools saw the most significant month over month decrease (-6/32). Pay-ups for the FN15 85K and 150k pools decreased this month. The 85K 3.5 pool decreased (-3/32), and the 150k 3.5 pool decreased (-4/32). Pay-ups for the 10yr and 20yr remained flat.

– Brendan McPartland

MSR Rich/Cheap & Mandatory/Best Effort Spread

Bond prices have sold off with interest rates rising in December and January, and during this time we have a decrease in the MSR Rich/Cheap IRRs and a widening of Gross Profit Margins and the Best Efforts to Mandatory spread relative to December’s observations. MSR values have decreased slightly in December as aggregators stepped up their bid on servicing assets. The average IRR value in December was 7.71%, a -0.17% decrease compared to the November readings, with a peak value of 9.30% and a low value of 6.37%. January’s observations showed an increase in the Conventional Best Effort (BE)/Mandatory Spread and the Profit Margins month-over-month. The peak BE/Mandatory Spread value was 47 bps, and the trough was 36 bps, with an average value of 41 bps, which is a 1 bps increase from our December observation. Profit Margins displayed an average reading of 197 bps (a 3 bps increase relative to December’s readings) with a peak of 213 bps and a trough of 183 bps.

The MSR Rich/Cheap gives the internal rate of return for retaining servicing and provides a general measure of how aggressive aggregators are in their servicing bid. If a client is considering retaining servicing or is deciding between retaining or selling servicing-released on any given day, this number can serve as a guide. Compass uses best execution across aggregators each day for note rates bracketing the FN30NR. The Mandatory/BE spread tracks the difference of a representative seller’s basis point pick-up using mandatory delivery instead of best efforts. Compass uses several investors, for best efforts and mandatory, and compares the best execution of each of the two delivery methods for note rates flanking the FN30NR. The Conventional 30-year average gross profit margin tracks the originator’s gross profit margin, i.e., the difference between what the originator pays for the loan (what is posted on a rate sheet) and what the originator could sell the loan for into the secondary market.

– Sean Welsh

Production Index

Production in the 30-day period ending January 16, 2018, decreased while rates traded in a wider range (18 bps range in this period versus 5 bps in the prior period), with the average yield increasing month over month by 6 bps. The average volume for the last 30 days was 73% of our base volume (vs. 79.3% in the prior period) ranging from a low of 37% to a high of 100%. The average yield on the FN30 RNY in this period was 3.529% (vs. 3. 473% in the prior period) ranging from a low of 3.450% to a high of 3.631%.

– Bopha Sok