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Company & Industry OverviewsWhy the Fed Continues to Reinvest Its Maturing QE Assets
QE increased the size of the Fed’s balance sheet almost eightfold since the turn of the century. Currently, the Fed’s balance sheet holds around $4.5 trillion.
FinancialsWhy Did Mortgage Rates Fall with Interest Rates?
Lately, mortgage rates and bond yields have shown a weak correlation. Treasury yields have fallen over the past month, while mortgage rates have been steady.
FinancialsThe Labor Force Participation Rate Increased in July
In July 2016, the labor force participation rate rose to 62.8%—up 10 basis points from June. The labor force rose from 158.9 million to 159.3 million.
Earnings ReportWhat’s Annaly Capital’s Take on the Bond Market’s Volatility?
Annaly positioned itself to reduce its interest rate risk and increase its credit risk. Since 2009, global bond markets have risen in value by about $17 trillion.
FinancialsMortgage Rates Rise with the Bond Market
Lately, mortgage rates and bond yields have shown a weak correlation. Treasury yields have fallen over the past month, while mortgage rates have been steady.
FinancialsHow Do Foreclosures Impact Mortgage REITs?
The federal government has taken numerous steps to reduce foreclosures. It started with loan modification programs.
FinancialsIncreasing Mortgage Rates Negatively Impact Mortgage REITs
Mortgage rates are the lifeblood of the housing market. The Fed’s plan to help the housing market started when it pushed rates lower to allow people to refinance.
FinancialsLabor Force Participation Rate Rose in June
In June 2016, the labor force participation rate rose to 62.7%—up 10 basis points from May. The labor force rose from 158.5 million to 158.9 million.
FinancialsMortgage Rates Catch Up with Bond Yields
Last week, the ten-year bond yield fell 12 basis points to 1.44%. Mortgage rates fell 10 basis points to 3.46%.
FinancialsHow Much Did Mortgage Refinance Applications Fall Last Week?
Mortgage refinance applications, as measured by the MBA (Mortgage Bankers Association) Refinance Index, fell last week. Since mid-2013, refinances have been dropping dramatically.
FinancialsMortgage Applications Fell on the Brexit Vote
Mortgage applications fell 2.6% last week after rising 2.9% the week before. Rates were increasing for most of the week, only to fall on Friday on the Brexit vote.
Macroeconomic AnalysisHousing Market: Mortgage Rates Head Lower
Lately, mortgage rates and bond yields showed a weak correlation. Treasury yields fell over the past month. Mortgage rates have been steady.
Macroeconomic AnalysisMortgage Servicing Rights’ Valuations Are Getting Hit
New capital requirements for MSRs (mortgage servicing rights) are also depressing valuations. Banks are reluctant to hold too much servicing.
Macroeconomic AnalysisEmployment Costs Rise with Healthcare Inflation
Employment costs rose 0.6% in the quarter ending March 31, 2016. Over the past 12 months, compensation costs for civilian workers have risen 1.9%.
Macroeconomic AnalysisThe Labor Force Participation Rate Heads Back Down Again
In May 2016, the labor force participation rate fell to 62.6%, down 20 basis points from April.
Macroeconomic AnalysisMortgage Rates Rise with Treasury Yields
Last week, the ten-year bond yield rose 14 basis points to 1.84%. Mortgage rates rose 6 basis points to 3.64%.
Company & Industry OverviewsThe FOMC Notes That Credit Conditions Are Improving Slightly
The FOMC staff economists said that financial market conditions have improved further since the March meeting.
Macroeconomic AnalysisWhy Did Mortgage Rates Fall with Bond Yields?
Mortgage rates are the lifeblood of the housing market. The Fed’s plan to help the housing market started when it pushed rates lower to allow people to refinance.
Macroeconomic AnalysisThe Fed Continues to Maintain Its Bloated Balance Sheet
Quantitative easing (or QE) has increased the size of the Fed’s balance sheet almost eightfold since the turn of the century.
Macroeconomic AnalysisLabor Force Participation Rate Rose: So Why Don’t We Feel Better?
The unemployment rate has been falling, so why don’t we feel better about the economy? Let’s look to the labor force participation rate to answer that question.
Macroeconomic AnalysisMortgage Rates Catch the Bond Market Rally
Mortgage rates are the lifeblood of the housing market. The Fed’s plan to help the housing market started when it pushed rates lower to allow people to refinance.
Macroeconomic AnalysisMortgage Rates Rise as Bond Yields Increase
Mortgage rates are the lifeblood of the housing market. The Fed’s plan to help the housing market started when it pushed rates lower to allow people to refinance.
Macroeconomic AnalysisRefinance Applications Fall as Interest Rates Rise
Mortgage refinance applications fell 2.3% from 2,104 to 2,056 for the week ending March 4. Since mid-2013, refinances have been dropping dramatically.
Macroeconomic AnalysisHow Did Mortgage Rates Trend Last Week?
Lately, mortgage rates have mainly ignored bond market movements.
Macroeconomic AnalysisMortgage Rates Rose despite a Flat Bond Market: REIT Outlook
Lately, mortgage rates have mainly ignored bond market movements. However, they finally started catching up. Last week, they rose by 5 basis points to 3.67%.
Macroeconomic AnalysisLots of Real Estate Numbers ahead: Here’s What You Need to Know
This week will have a lot of valuable data for real estate investors. We have some important earnings this week too.
Macroeconomic AnalysisRefinance Activity Surges as Rates Fall, Impacts Mortgage REITs
Mortgage refinance applications, as measured by the MBA (Mortgage Bankers Association) Refinance Index, rose 16% for the week ending February 5.
Macroeconomic AnalysisMortgage Rates Fall as Bonds Rally, Impact Mortgage REITs
Mortgage rates largely ignored the moves in bond markets. In the week ended January 8, they fell by ten basis points while the ten-year bond yield fell to 2.1%.
Macroeconomic AnalysisMortgage Rates Rose as Bond Yields Increased
TheFed hoped that lowering mortgage rates would also support home prices.
Macroeconomic AnalysisMortgage Rates Fall despite Higher Interest Rates
Mortgage rates are the lifeblood of the housing market. The Fed’s plan to help the housing market began when it pushed rates lower to help people refinance.
Macroeconomic AnalysisMortgage Rates Rise Despite Little Bond Market Movement
Last week, mortgage rates rose from 3.87% to 3.92% even though the ten-year bond yield fell by a basis point.
Macroeconomic AnalysisMortgage Rates Rise despite Lower Bond Yields
Mortgage rates have lagged behind the drop in interest rates we’ve seen over the past few weeks. Last Friday, they reacted to the strong jobs report and increased from 3.8% to 3.9%.
Macroeconomic AnalysisLabor Force Participation Rate Still Mired at Multi-Decade Lows
In October, the labor force participation rate held steady at 62.4%—its lowest point since 1977.
Macroeconomic AnalysisMortgage Rates Ignore the Jobs Report for the Moment
Mortgage rates are the lifeblood of the housing market. The Fed’s plan to help the housing market began when it pushed rates lower to allow people to refinance.
Macroeconomic AnalysisWhy Did the Fed Decide to Keep Reinvesting Maturing QE Assets?
The elephant in the room at the Fed is that rates need to return to more normal historical levels at some point.
Macroeconomic AnalysisMortgage Rates Tick up Despite Bond Market Rally
Last week, interest rates fell on the weak jobs report. The ten-year bond yield fell from 2.16% to 1.99%. Surprisingly, mortgage rates rose 5 basis points to 3.88%.
Macroeconomic AnalysisMortgage Refinance Applications Rise
Mortgage refinance applications, as measured by the MBA Refinance Index, rose 16.7% from 1,693 to 1,902 for the week ending August 28.
Macroeconomic AnalysisEmployment Cost Index Falls
The employment cost index increased 0.2% in the quarter ending June 30, 2015. This was a small increase from the fourth quarter of 2014.
Macroeconomic AnalysisMortgage Rates Fell Last Week as the Bond Market Sold Off
Last week, mortgage rates fell even though the bond market fell. This was because rates rose a few basis points too high…
Macroeconomic AnalysisCredit Remains Tight in the Mortgage Market
Given that credit conditions are generally strong elsewhere, there has to be something specific going on in the mortgage market. Regulatory conditions are making banks reluctant to lend.
Macroeconomic AnalysisThe Labor Force Participation Rate Hits a Multi-Decade Low
Since the Great Recession, the labor force participation rate has declined. It’s back to levels we haven’t seen since the late 1970s.
Macroeconomic AnalysisMortgage Rates Rise as Bond Market Sells Off
Mortgage rates are the lifeblood of the housing market. The Fed’s plan to help housing began when it pushed rates lower to allow people to refinance.
Macroeconomic AnalysisMortgage Rates Ignore the Rally in the Bond Market
As a general rule, mortgage rates are somewhat stabler than bond yields. When we see big outsized moves in the bond markets, mortgage rates tend to lag the move.
Macroeconomic AnalysisMortgage Rates Rise as Bonds Fall: A Critical Investor Input
Last week, the ten-year bond yield increased 7 basis points, and mortgage rates rose from 3.85% to 3.9%.
Macroeconomic AnalysisEmployment Costs Are Accelerating
Employment costs increased 0.7% in the quarter ended March 31, 2015. This was a small increase from the December quarter.
Macroeconomic AnalysisMortgage Rates Increase as Bond Market Sells Off
Mortgage rates followed the bond market lower, which sold off with European bonds. The 30-year increased 9 basis points to 3.87%. The ten-year picked up 10 basis points.
Macroeconomic AnalysisJobs Report Postponed until Friday, May 8
The jobs report should have gone out last Friday. But the BLS decided to postpone it until this Friday, May 8. Unless the report is unusually good, the bond market will probably take it in stride.
Macroeconomic AnalysisMortgage Rates Zig as the Bond Market Zags
With a focus to draw first-time homebuyers into the market, the government has announced measures to increase credit availability for new homebuyers.
Macroeconomic AnalysisMortgage Rates Fall as Bonds Rally
Mortgage rates are the lifeblood of the housing market, and the Fed’s plan to help housing began with pushing rates lower in order to allow people to refinance.
Fund ManagersOaktree Capital Boosts Holdings in Ally Financial
Ally Financial joined TARP in 2008 as part of an effort to stabilize the US auto industry. The firm went on to become a major provider of auto finance.
Macroeconomic AnalysisMortgage Rates Fall as Bonds Rally: A Critical Housing Input
Mortgage rates fell along with bond yields after the FOMC statement. That said, we’ve seen tremendous volatility in the ten-year over the past month
Fund ManagersBaupost Group Lowered Its Stake in Ocwen Financial
The Baupost Group lowered its position in Ocwen Financial (OCN) during 4Q14. The position accounted for 1.77% of the total portfolio in 4Q14.
Real EstateFannie Mae’s survey shows an increase in home price appreciation
The latest survey shows that consumers expect home price appreciation to increase by 2.5% over the next 12 months. This is up 20 basis points month-over-month.
FinancialsAn Old Headache Returns: Increased Prepayment Speeds Up
The Mortgage Bankers Association (or MBA) Refinance Index rose 66% from 1,349 to 2,245 as rates finally fell enough to allow refinances.
Earnings ReportUnderstanding KB Home’s Geographical Advantage And Strategy
KB Home (KBH) is a Los Angeles–based homebuilder that focuses on first-time, move-up, and active adult homebuyers.
FinancialsBond Market Rally Lifts Originator Business
Since the bubble burst, mortgage origination has been almost exclusively government-driven. The US government bears 50% of the credit risk of the entire US mortgage market.
FinancialsAre lower rates enough to trigger another refinance wave?
The increase in rates has basically put prepayment worries on the back burner for REITs. The lack of a reaction in the refinance index on the back of a drop in rates could mean we’re finally seeing prepayment burnout. This would be good news for REITs.
FinancialsWhy mortgage applications hit 14-year lows as refinances dry up
The MBA Applications Index fell 7.2% after rising 0.2% the week before. This is the lowest reading for the MBA Mortgage Applications Index since early 2001.
FinancialsMust-know: Understanding non-qualified mortgage loans
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.
FinancialsWhy mortgage rates rose as the 10-year bond sold off
The average 30-year fixed-rate mortgage rose 2 basis points, from 4.15% to 4.17%, while the ten-year bond yield rose 11 basis points after some weaker economic data.
FinancialsA key guide to the left-versus-right divide on housing policy
For the political right, the goal is to encourage private capital to return to the market and lower the government’s footprint in housing. For them, the goal is to “crowd in” private capital.
FinancialsWhy more mortgage originators venture into the non-qualified space
The Consumer Financial Protection Bureau promulgated a list of requirements for a mortgage to be considered a qualified mortgage (or QM). On January 1, the new QM rules took effect.
FinancialsAn investor’s guide to non-bank mortgage servicers like Ocwen
It’s important to keep in mind that the quality of MSRs that have been originated over the past six years are head and shoulders above the MSRs that were created during the bubble.
FinancialsWells Fargo and Ocwen’s mortgage servicing right sale is blocked
New York State Attorney General Eric Schneiderman decided in October to block the planned sale of mortgage servicing rights from Wells Fargo (WFC) to Ocwen Financial.
FinancialsWhy did the mortgage rates flatten after a mixed jobs report?
The average 30-year fixed-rate mortgage rose 1 basis point, from 4.34% to 4.35%, while the ten-year bond yield was flat after a mixed jobs report.
FinancialsA key guide to mortgage servicing rights: The non-bank servicer
The non-bank servicer is what the name implies: a company that services loans as a primary business but isn’t a bank. Typically a bank will service its own loans that it has put on its balance sheet.
FinancialsThe must-know basics of mortgage servicing rights and servicers
Mortgage servicing rights (or MSRs) are interesting assets that can hedge interest rate risk. They’re usually held on banks’ balance sheets.
FinancialsWhy low mortgage origination volumes are bad for REITs
Mortgage originators have had a difficult time over the past year, as rates have begun rising. The increase in interest rates pretty much stopped the refinance boom in its tracks.
FinancialsWhy steeply falling originations mean bad news for non-agency REITs
Mortgage originators have had a difficult time over the past year, as rates have begun rising. The increase in interest rates pretty much stopped the refinance boom in its tracks.
FinancialsMortgage rates rise 10 basis points on strong economic data
The average 30-year fixed-rate mortgage rose 10 basis points, from 4.38% to 4.48%, while the ten-year bond rose 11 basis points.
FinancialsWhy mortgage applications fell in the holiday-shortened week
The MBA Applications Index fell 12.8% after holding steady the week before. Mortgage applications have dropped off a cliff ever since rates began increasing last spring.
FinancialsWhy mortgage applications are falling as rates rise
Last year, refinance activity drove business for mortgage bankers. Now, they’ll have to rely on purchase activity, which tends to be very seasonal.
FinancialsMust-know: Two Harbors reports a small decline in book value
Two Harbors’ sophisticated investment strategy of buying mortgage servicing rights and being short TBAs helped it weather the bond market sell-off.
FinancialsWhy mortgage rates are falling as the government re-opens
The average 30-year fixed-rate mortgage fell 2 basis points, from 4.28% to 4.23%, as the ten-year bond yield dropped from 2.69% to 2.88%.
FinancialsSeptember jobs report disappoints, December taper off the table
The economy added 148,000 jobs in September—lower than the consensus forecast of 180,000. August was revised upward to 193,000 jobs from 169,000.
FinancialsWhy mortgage applications rose despite the government shutdown
Mortgage applications fall slightly The MBA Applications Index rose 0.3% after rising 1.2% the week before. Mortgage applications have dropped off a cliff ever since rates began increasing last spring. Both purchases and refinances drove the increase. The summer selling season is winding down, and we’re entering a slow period that will last through the […]
FinancialsWhy mortgage rates declined after the FOMC maintained its course
Interest rates fell sharply across the board as the Fed voted to maintain its current rate of asset purchases. The market was betting heavily that the Fed would begin to reduce purchases.
FinancialsMortgage applications rebound after a short holiday week
Mortgage applications fall off a cliff on a short week The MBA Applications index rose 11% after falling 13% the week before, which was a holiday-shortened week. Refinances drove the increase, with an 18% jump in the index. Purchase activity also rose, although only slightly. The summer selling season is winding down, and we’re entering […]
FinancialsRecommendation: how to play increasing interest rates for Mortgage REITs
Interest Rates are going up. Now what? It is hard to be a mortgage REIT investor right now. The secular bond bull market that began in 1981 – 1982 recession has ended. The wind at the back of REIT investors, quantitative easing, which has put a bid under most of the stuff that mortgage REITs […]
FinancialsConsumer Financial Protection Bureau rose cost of loan servicing
Regulatory risks One of the other big risks for holders of mortgage servicing rights (MSRs) is the Consumer Financial Protection Bureau (CFPB). While the servicer’s job is to look out for the bondholders, the regulators are tasked with looking after the borrower. First, one of a servicer’s jobs is dealing with the borrower once a […]
FinancialsWhy mortgage servicing rights imply risks for servicers
Risks of being a servicer Generally, servicing seems like an easy job. Collect the payment, give the government its take, pass the (smaller) payment to the bondholders, and keep the rest. What could go wrong? There’s just one catch. What happens if you miss your mortgage payment? The U.S. government guarantees Ginnie Mae securities. When […]
FinancialsWhy mortgage servicing rights can hedge interest rate risk
Mortgage servicing rights are residual assets from mortgage origination Mortgage servicing rights (MSRs) are residual assets that mortgage originators usually retain after selling a mortgage into a mortgage-backed security. While a few companies specialize in servicing—particularly Ocwen (OCN) and Nationstar (NSM)—MSRs are usually held on the balance sheets of banks. MSRs are interesting assets that […]
FinancialsMortgage servicing rights increase in value as interest rates rise
Mortgage servicing rights are one of the few financial assets that increase in value as rates rise Most mortgage REITs are exposed to changes in interest rates, and are usually long-duration, which means that the value of their portfolio decreases in value as interest rates rise. Good examples of these types of REITs would be […]
FinancialsBonds and REITs collapse on FOMC statement
The Federal Open Market Committee determines interest rate policy The June Federal Open Market Committee (FOMC) meeting was recently completed and the results of that meeting were released at 2:00 pm EST. The FOMC statement gives color on how the Fed views the economy, how they are thinking about moving forward, and some guidance regarding […]
FinancialsRadar Logic futures curve predicts flat real estate prices until September 2014
Radar Logic futures can be used to forecast real estate prices Most people are unaware that there is a futures market for U.S. real estate prices. The Radar Logic futures contract launched about a year ago on the CBOE Futures Exchange. While they are not especially liquid, they do provide an insight into what the market […]
FinancialsStrong economic data is causing the yield curve to steepen
The shape of the yield curve matters almost as much as the absolute level of interest rates to financial companies As a general rule, financial companies (banks, REITs) borrow short and lend long. What this means is that they lever their balance sheet by borrowing at short-term interest rates and generally invest in longer-maturity assets, […]