Friday, July 12th, 2024

Advice at a Glance...

<15 Days:

Cautiously Float

15-30 Days:


30+ Days:


Pricing remains erratic, varying quite a bit from lender-to-lender and sometimes changing suddenly through the day. Reprice risk remains high, with reprices possible both from bond market conditions as well as lenders opening and closing the spigot for new loans. Rather than trying to get "the best" rates and pricing, it's a good idea now to lock anytime when rates meet the borrower's expectations and you think you can get the loan closed. Holding out for better rates is ok, we are likely to see them in short windows over the next few weeks, but don't get greedy or you risk losing the chance to get the deal wrapped up. Also watch out for high risk programs, credit scores, etc. and look to get those loans locked and closed as soon as you can to avoid possibly losing the loans to guideline changes.

Pricing this morning likely to be similar to Friday's, as mortgage bonds find a groove. Reprice risk remains high, lenders are starting to reprice on smaller movements now as well as repricing based on volumes. Rates remain elevated, and should come down a bit once we see the servicing and forbearance liquidity issues resolved.

"But I heard it on CNBC so it must be true..."

On a related topic, mortgage forbearance continues to be widely misunderstood and dramatically misreported, leaving many borrowers frustrated when they find out that they can't just "pause" their mortgage. A forbearance is not a deferment - they ARE different. Although some borrowers will be able to get a true deferment, pushing missed payments to the end of the loan, most will not (because mortgages are securitized and they can't change the bonds). Forbearance will require paying the missed payments at the end, or modifying the mortgage. Make sure you understand all this if you're getting calls about it - and if the people are employed and able to qualify, encourage a cash out refi over a forbearance (in my opinion). You can share this video on your social media if you like:

The reason this forbearance thing is so important is that it is causing huge concerns about "the collapse of the mortgage industry" (a bit dramatic, don't worry). When borrowers don't make their payment, the servicer must still pay the bondholders. This normally isn't a problem - but you also don't normally have a global pandemic and 6.5 million people apply for unemployment benefits in a week. Servicers are not prepared to foot a bill this big, for as long as they could be facing, and need help from the government to make sure they have the money to do so. Although help has been talked about (and even promised if you believe the rumors) we haven't seen anything take hold yet. Once it does, it should help open the door for lenders to move more loans, and possibly help rates come down a bit more.

My advice remains what it has been... cautiously float loans that you need to float, but only until you get the rate/pricing you need to lock in and get it closed. We are not going to see rates go down past a certain point, as lenders will find a floor... and no matter how good bonds perform you're going to see them hold to it. Also, there is simply too much volatility on the rate sheet (although bonds are much more stable now) to risk losing a rate/pricing scenario by holding out for 'just a little bit more'. Lenders can (and will) increase rates even when bonds are improving, depending on their capacity and other complex factors happening behind the scenes.

Welcome to the "new normal" my friends. We should get used to it, because we're going to see it this way for quite awhile.

TECHNICALS at 9am Eastern

UMBS 2.5: 103.89 (+6bps on the day)

10yr Treasury yield: 0.65%

The Fed has found a sweet spot, and is buying up mortgage bonds but only enough to keep MBS between 103.50 and 104. The stability has helped mortgage lenders, and should help rates fall a bit further eventually.

(I've posted this before but it bears repeating...)

I know many of you are frustrated with what's going on, and specifically about rates. I've said it before, but it bears saying again... rates should be below 3% if you only look at the price of mortgage bonds. However, lenders are pricing where they need to be right now for a multitude of reasons that include reducing volumes, higher required margins to cover the costs of doing business right now, paying additional staff, building a war chest to weather this storm, etc... As an LO, I get that you're on the front line and have to deal with an uneducated public that thinks banks are made of money... but please, PLEASE work to keep the negativity at bay right now, because we have it better than so many others at the moment, and it will get better once we turn the corner and people get back to work.

Guidelines continue to tighten up, as lenders look to only take on loans most likely to perform through this crisis. This will also reduce volume, allowing rates to come down naturally when margins can be reduced. Right now though we aren't likely to see rates drop too much, but they can (and likely will) go lower once lenders clear some pipeline.

Get used to pricing that requires borrowers to put some skin in the game. Lenders are not able to price loans with a big premium, because no one wants to get stuck with a loan that pays off early. This isn't likely to pass anytime soon - so work on your sales scripts to help consumers come to terms with it and get them to pay and move on. Also, cash out refis are a great idea right now, despite the ugly pricing add ons. Money in the bank is a good thing for ANYONE at this time, and by the time someone really needs it they won't be able to get it. In my opinion, you're doing folks a great service by freeing up some equity into liquid reserves for the next 6 months. Tell them that rates are likely to drop again in the future (likely - we can't guarantee anything but it is likely) and you can help them drop the rate again after 6 payments. Thats a win-win folks.