But if I knew how to manage my portfolio safer and smarter than most hedge fund managers, I could realistically grow my wealth.
Why Ginnie Mae securities rallied 5 ticks with a strong bond rally
The front-month Ginnie Mae TBAs were bid up as bonds rallied eight basis points. Ginnie Mae TBAs began the week at 106 16/32 and picked up 5 ticks to close at 106 21/32.
Fannie Mae MBS rallied a bit on a strong bond market. The Fannie Mae 4% TBA started the week at 105 26/32 and picked up about an eighth to close at 105 30/32.
Bonds rallied last week in sympathy with European sovereigns and on tensions in Ukraine. Surprisingly, they shrugged off a strong 4.2% GDP number and some stronger-than-expected economic data.
The Dallas Fed survey asks about output, employment, orders, prices, shipments, inventories, capacity utilization, prices, capital expenditures, and some other indicators.
Mortgage REITs like Annaly (NLY), American Capital Agency (AGNC), and PennyMac (PMT) will use the survey data to help forecast prepayment speeds and also to gauge consumer sentiment and its expected effects on the economy.
Some places of the country are looking for workers, and other places have a glut of workers. Unfortunately, they can’t move easily if they’re underwater on their mortgage.
Fannie Mae MBS rallied a bit on a strong bond market. The Fannie Mae 4% TBA started the week at 105 20/32 and picked up about an eighth to close at 105 24/32.
The Fannie Mae to-be-announced (or TBA) market represents the usual conforming loan—the plain Fannie Mae 30-year mortgage. Meanwhile, Ginnie Mae TBAs are where government loans go.
Last week didn’t have much market-moving economic data, with the exception of the FOMC minutes. Last Friday’s rally to 2.34% was given back on Monday. After that, bonds flatlined for the rest of the week.
The discussions regarding what to do with the mortgage-backed securities’ (or MBS) assets on the Fed’s balance sheet is important to mortgage REITs. The Fed has said that they will retain their MBS holdings. They will maintain their exposure through reinvesting maturing proceeds.
Quantitative easing (or QE) has grown the size of the Fed’s balance sheet almost eight-fold since the turn of the century. From holding just over $500 billion in assets in 2000, it passed $4 trillion at the end of last year.
Non-QM loans would typically be useful for borrowers with sporadic income, but a large amount of assets. However, lenders will only consider low loan-to-value (or LTV) loans—like 80% maximum, which really is a ceiling. Most lenders are below that.
We’ve seen that home price appreciation varies widely by location. In the active California markets, there’s tight supply because the foreclosure pipeline has been worked through. In several California markets, you’re seeing over 20% annual home price appreciation.
In general, mortgage delinquencies are falling as home prices rise and the foreclosure pipeline clears. While 5.7% seems low compared to the peak of 10%, the “normal” level prior to the housing bubble was in the range of 4%–5%.
The biggest difference between a Fannie Mae mortgage-backed securities (or MBS) and a Ginnie Mae MBS is that Ginnie’s have an explicit guarantee from the federal government. Fannies don’t have a guarantee. However, there’s a “wink wink, nudge nudge” guarantee.
The TBA market allows loan originators to take individual loans and turn them into a homogeneous product that you can trade. TBAs settle once a month. Fannie Mae loans go into Fannie Mae securities. TBAs are broken out by coupon rate and settlement date.
Last week didn’t have a lot of stuff that could move the bond market, but bonds rallied anyway. Weakness in the Eurozone pushed yields lower and U.S. Treasuries followed along. Finally, tensions in Ukraine also caused a flight to quality which pushed yields lower.
Mortgage REIT investors have finally received a taste of what interest rate risk looks like over the past year. For most of the past 30 years, bonds have been a one-way bet, with rates generally falling from high tens to zero.
REITs will offer volatile dividends. Most corporations loathe cutting their dividend because of the message it sends to Wall Street. So volatile dividends are generally rare. But for REITs, they’re a fact of life.
MFA Financial reported net income of $0.20 a share. This was higher than the Wall Street estimate of $0.19 per share. Book value per share increased 2.1%, to $8.37 per share.