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Monthly Market Update

Monthly Market Update

We began May with FN30 MBS yielding 3.28% (FNCL) and borrowers paying 4.65% for a moving average excess primary-secondary (xPS) spread of 8 bps. FNCL finished down 29 bps at 2.99% at the end of the month hitting the high of 3.29% on 5/2 and a low for the month of 2.99 on 5/31.

During May, rates finished the month down approximately 29 bps with FNCL starting the month at 3.28 and finishing the month at 2.99. FNCL started the month at 3.28 and then increased until hitting 3.29 on 5/2. FNCL then steadily moved down stopping at 3.19 on 5/22 before dropping precipitously the last week of May falling to 2.99 on 5/31. With rates trending downward, most originators saw a slight or significant up tick in production. With the recent drop in rates, most originators are seeing capacity for more loans shrinking. Last month 20 lenders stated that they were under capacity with 3 saying they were severely under capacity. This month with rates decreasing, 1 originators stated they were severely under capacity, 3 significantly under capacity, and 12 slightly under capacity. Most lenders did have upticks in production with 6 lenders stating they were at capacity compared to 5 last month and 6 lenders stating they were over capacity compared to 3 last month. May saw a moderate increase in production in comparison to April. 18 clients saw a small increase in production compared to 17 in April and 6 clients saw significant increase in production compared to 3 last month.4 of 28 clients reported that production was either flat, slightly down or significantly down compared to 5 clients last month. With reports of slightly up production compared to April, reports of backlog actually increased slightly compared to last month with 5 survey receipts stating they had small backlog compared to 4 last month. With rates decreasing this month, reports of excess margin increased substantially. This month 11 clients reported having a little extra margin in their rate sheets compared to 6 clients last month.

We ended June 12th with FNCL at 2.92% and our moving average xPS spread at 8 bps.  Next month, even if FNCL bucks course and trends upward again we are expecting to see xPS stay relatively flat in the 8-10 bp range as the recent drop in rates was large enough to create pro longed periods of excess margins.

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