Compass News and cialis cheap Events
Happy Thanksgiving! Whatever your plans may be, we hope you enjoy the time and have plenty to be thankful for.
If you have not yet seen our recently-released white paper, “Selling Your Own Loans on the Secondary Market,” please take a look and let us know what you think! We want to inspire conversation within the industry and would love to hear your take on whole loan trading and the responsibilities of the hedge advisor within this process.
The treasury yield curve remains flat with the 2-10 year spread currently at 25bps, 2 basis points tighter than one month ago. For the past month, the 2-10 spread has been range bound between 24 to 45bps. Predictably, many external factors are effecting the Treasury market, including the upcoming Brexit news coming out of the UK.
The market is currently pricing in a 71% chance that Fed raises rates another 25bps on December 19, 2018. Given recent market activity, the general consensus has shifted from 3 or 4 Fed rate hikes in 2019 to the possibility the Fed may pause in 2019 after December’s rate hike. The Fed is closing in on its 3% neutral rate, a rate that would prevail when the economy is at full employment and inflation is stable. With the prevailing rate at 3%, monetary policy can be viewed as neither contractionary nor expansionary, but the possibility remains that the Fed may set the benchmark federal funds rate above the neutral rate to cool the economy or below to stimulate it.
While the chatter about a recession in 2019 or 2020 has begun amongst some investment professionals; rampant home price inflation, low unemployment and strong wage growth tend to create the belief that the Fed remains biased to tightening more than the market currently expects (expectation for a rate hike in March is only 43%). While the Fed sees solid growth, their concerns add to the number of challenges they continue to monitor. This theory was reinforced when Federal Reserve Governor Randal Quarles, during an appearance before the House Financial Services Committee, said “We can continue this strong economy and this strong labor market for some period of time.” Additionally, something else to watch for next month is the debate inside the Federal Reserve regarding their balance sheet, which was a topic at last week’s meeting. The minutes, when released next month, will give a clearer view of the debate from the Fed’s perspective.
In late October, Fannie Mae launched its first credit risk transfer (CRT) transaction, offloading credit risk on mortgages it insures using a Real Estate Mortgage Investment Conduit (REMIC). Prior to this, Fannie has primarily obtained reinsurance through its Connecticut Avenue Securities (CAS) program using a kind of credit-linked note. The performance of the securities issued to date is linked to a reference pool of mortgages, but they are the general obligation of the GSE. The notes in the new transaction, Connecticut Avenue Securities 2018-R07, were issued as a REMIC. This accomplishes two things: it reduces the risk that Fannie would fail to repay the bonds and using a REMIC structure expands the potential investor base for Connecticut Avenue Securities, making the program more attractive to various investors.
– Jason Freydberg
Rates traded in a fairly tight range of about 15 bps through the month ending with November Class A, as FNCL rose at a measured pace to a multi-year high of 4.12%, up 13 bps on the month. Our Conventional 30Yr note rate was up about 7 bps to 5.31%. Trust IOs gained about 10 ticks on average with multiples up about 7 ps. In TBAs, both the 3.5/4.0 and 4.0/4.5 coupon swaps were wider by 3 ticks. With only minor widening in coupon swaps and the low volatility environment, we expect the Agencies to reprice BU/BD multiples in line with Trust IOs ratios.
– Virgil Caselli
Excess Primary-Secondary Spreads Color
We began October with FN30 MBS yielding 3.83% (FNCL) and borrowers paying 5.13% for a moving average excess primary-secondary (xPS) spread of 5 bps. FNCL finished up 17 bps at 4.00% at the end of the month but hit a high of 4.03% on 10/22 and a low of 3.83 on 10/1 during the course of the month.
During October, rates finished the month up approximately 17 bp with FNCL starting the month at 3.83 and finishing the month at 4.00. FNCL shot up 13 bps on 10/3 to 3.94 and then steadily increased to the monthly high of 4.03 on 10/22 before drifting down to finish the month at 4.00. With rates trending upwards, some originators saw stagnation or a slight up tick in production but most originators remained under capacity. Last month 22 lenders stated that they were under capacity with 5 saying they were severely under capacity. This month with rates increasing significantly, 6 originators stated they were severely under capacity, 3 significantly under capacity, and 14 slightly under capacity. September saw flat to small decreases in production compared to September. 9 clients saw an increase in production compared to 8 in September. 19 of 28 clients reported that production was either flat, slightly down or significantly down. With reports of flat to down production compared to September, reports of backlog stay flat compared to last month with 2 survey receipts stating they had small backlog. With rates increasing this month, reports of excess margin stayed effectively the same as well. This month 9 clients reported having a little extra margin in their rate sheets compared to 8 clients last month.
We ended November 13th with FNCL at 4.06% and our moving average xPS spread at -2 bps. Next month, even if FNCL bucks course and trends downward again we are expecting to see xPS stay in the negative range due to the large jump in rates over the last month or so.
– Mike Vough
Specified Pool Commentary
Moving past the mid-term elections and potential gridlock in Congress, market participants shifted their focus to the impending actions of the Federal Reserve. Some are worried of a global slowdown starting in 2019 and Fed’s path forward with future rate hikes. Newly appointed Fed vice chair, Richard Clarida, spoke during a CNBC news conference stating the need to be data dependent, “I think certainly where the economy is today, and the Fed’s projection of where it’s going, that being at neutral would make sense,” he added, defining “neutral” as the policy rate somewhere between 2.5 percent and 3.5 percent.” The Fed has raised rates three times in 2018 and will likely raise its target again in December to a range of 2.25 percent to 2.5 percent. Minutes from September indicate policymakers expected the need to increase rates three more times in 2019. Participants will eagerly await minutes from the December meeting given Clarida’s comments and whether the outlook of three rate hikes in 2019 will be pared back.
Of note, pay-ups were a mixed bag from October to November. The appetite for FN30 3.5 Coupon completed re-appeared from the previous and thus saw the biggest pickup from month to month. All other FN30 coupons saw decreases from October to November. All pools across the coupon stack experience marginal decreases -1/32 to -3/32 expect for the 85k and 110k pools. Of all the coupons, the FN30 4.5 and FN30 5.0 had the largest decrease in these two pools, between -4/32 and -6/32. There was relatively little month over month change across the 3 coupons for FN15. However, the FN15 4.0 coupons experienced significant changes across pool structures. The FN15 4.0 coupon had the decrease in the 150k pool, -21/32. All other pools had decreases ranging from -4/32 to -7/32.
– Brendan McPartland
Rates have continued to rise over the last month as bond prices have sold off, and during this time we have seen a decrease in MSR Rich/Cheap IRRs and a tightening of both Best Efforts to Mandatory spreads and Gross Profit Margins relative to last month. MSR values experienced a small decline in November as aggregators strengthen their bid on servicing assets. The average IRR value was 8.46%, a -0.03% decrease compared to the October readings, with a peak value of 9.85% and a low value of 6.76%. In November we observed a tightening of the Conventional Best Effort (BE)/Mandatory Spread and Profit Margins relative to last month. The peak BE/Mandatory Spread value was 42 bps and the trough was 31 bps, with an average value of 35 bps, which is a 1 bps decrease from our October readings. Profit Margins displayed an average reading of 201 bps (-2 bps decline relative to last month) with a peak of 217 bps and a trough of 179 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 in the 30-day period ending November 14, 2018, decreased while rates traded in a tighter range (16 bps range in this period versus 24 bps in the prior period), with the average yield increasing month over month by 13 bps. Average volume for the last 30 days was 77% of our base volume (vs. 90% in the prior period) ranging from a low of 56% to a high of 114%. The average yield on the FN30 RNY in this period was 4.541% (vs. 4.414% in the prior period) ranging from a low of 4.452% to a high of 4.607%.