PennyMac Mortgage Investment Trust

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.

Initial jobless claims rose to an annualized rate of 360,000 for the week ended May 10th Initial jobless claims are one of the few labor market indicators that are released every week. Unemployment is a profound driver of economic growth, and persistent unemployment has been the Achille’s heel of this recovery. While it seems like […]

According to the October FOMC minutes, the Fed members noted that industrial production had fallen, which they attributed to the rise in the US dollar.

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.

The Fed’s decision to reinvest QE assets in the markets affects REITs. It keeps a bid under TBAs, and it supports MBS values in general.

Mortgage real estate investment trusts (or REITs) like American Capital Agency (AGNC) and Annaly (NLY) will focus on data that will move the bond market.

The recovery hasn’t been satisfying. Due to consumption and consumer deleveraging, the necessary spending isn’t generated to pull the economy out of its slow growth pattern.

The FOMC didn’t change its characterization of the economy. The labor markets are improving, economic growth slowed, and household spending moderated.

Chimera’s core earnings grew to $116 million compared to $93 million in the year-ago period. Growth was mainly due to an increase in net interest income.

The 7.4% year-over-year (or YoY) gain resembles the gains we saw during the bubble years. On a month-over-month basis, the increase was only 1.2%. It was decent. The prices for ex-distressed sales increased 6.8%. Prices are still 11.9% below their peak in April 2006.

The Federal Housing Finance Agency (FHFA) House Price Index The FHFA House Price Index differs from the other house price indices like Case-Schiller and Radar Logic in that it only looks at houses with mortgages guaranteed by Fannie Mae and Freddie Mac. This means all the home prices are below the conforming threshold, which is $417,000. […]

At the March 2013 meeting, the Fed was forecasting that 2015 unemployment would be 6.7%–7%. Now, the Fed is forecasting that unemployment will be 5.2%–5.3%.

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 […]

MFA Financial is a REIT that invests in both agency and non-agency mortgage-backed securities MFA Financial (MFA) is a mortgage real estate investment trust (REIT) that invests in both agency (government-guaranteed) and non-agency (non-guaranteed) mortgage-backed securities (MBS). Its portfolio is primarily invested in hybrids, adjustable-rate mortgages (ARM), and 15-year fixed-rate mortgages. It chooses to invest […]

The mortgage market is undergoing a massive transformation as the private label mortgage market returns.

Continued from Primer on mortgage backed securities, Part 2. Basic mortgage backed securities: Fannie Mae, Freddie Mac, and Ginnie Mae Most mortgage backed securities are agency securites, which means they are associated with government guaranteed loans. Fannie Mae and Freddie Mac are government sponsored entities (GSE’s) and do not carry an explicit government guarantee like Ginnie Mae mortgages do. […]

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 […]

Next week is all about the FOMC (Federal Open Market Committee) minutes The FOMC (Federal Open Market Committee) will release the minutes from the September meeting on Wednesday. The Fed-speak indicates that it was a close call between tapering at the September meeting and not. Market participants will parse the minutes closely, although the government […]

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.

Black Knight Financial Services (formerly known as Lender Processing Services) is a vendor to mortgage originators, handling mortgage processing and default management outsourcing.

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 […]

Ninety-day mortgage delinquencies rebound to 6.7% after hitting 6.1% in May Mortgage delinquencies are falling as home prices rise and the foreclosure pipeline is clearing. While 6.7% seems low compared to the peak of 10%, the “normal” level prior to the housing bubble was in the 4%-to-5% range. This also reflects the mortgage modification push […]

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.

The average 30-year fixed-rate mortgage fell 3 basis points, from 4.17% to 4.14% this week. The ten-year bond yield fell 4 basis points.

Back to Part 5 Non-agency mortgage backed securities – interest rate risk and credit risk When we think of non-agency paper, we have both interest rate risk and credit risk. The interest rate risk borne by non-agency mortgage backed securities is more or less the same as agency paper. They have the same exact issues […]

The Federal Housing Finance Agency (FHFA) House Price Index The FHFA House Price Index differs from the other house price indices like Case-Shiller and Radar Logic in that it only looks at houses with mortgages guaranteed by Fannie Mae and Freddie Mac. This means all the home prices are below the conforming threshold, which is $417,000. It […]

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.

Initial jobless claims increased to an annualized rate of 374,000 for the week ended October 4. Unemployment has been the Achilles’ heel of this recovery.

The CoreLogic Index is a widely followed index of real estate values. Unlike the other major indices—like Case-Shiller or Radar Logic—CoreLogic separates distressed sales from non-distressed sales.

Leverage and Mortgage REITs – Part 1 How a mortgage REIT typically does it Most mortgage REITs use repurchase agreements to fund their balance sheet. A repurchase agreement (repo) is basically a secured loan. The REIT will pledge the mortgage backed securities they just bought as collateral for a loan. It is actually an agreement […]

MFA Financial is a REIT that invests in both agency and non-agency mortgage backed securities MFA Financial (MFA) is a mortgage Real Estate Investment Trust (REIT) that invests in both agency (government guaranteed) and non-agency (non-guaranteed) mortgage backed securities. Their portfolio is primarily invested in hybrids, adjustable rate mortgages (ARM), and 15 year fixed rate […]

The MBA Refinance Index is an important index to forecast mortgage activity and prepayments The Mortgage Bankers Association (MBA) Index of Refinance Activity measures application activity, not loans made. The Mortgage Bankers Association samples roughly 75% of all mortgage activity in the U.S., and its indices are key indicators for the real estate finance market […]

The Standard and Poor’s/Case-Shiller index of real estate prices increased 10.9% year-over-year in March, hinting that the real estate market bottomed around this time last year. The Case-Shiller index The Case-Shiller index is the most widely quoted index of real estate values. Real estate values are big drivers of consumer confidence and spending, and, therefore, […]

Over the past 12 months, MFA has paid a dividend yield of over 20% when you take into account two special dividends.

Continued from Primer on mortgage backed securities, Part 4. Prepayment risk Prepayment risk and interest rate risk go hand-in-hand. The main difference between a mortgage backed security and a government bond is that with a government bond, you know exactly when you will get your principal and interest payments. If you purchase a 7-year Treasury […]

Homebuilders use the survey data to measure consumers’ attitude towards future home price appreciation. Mortgage REITs use the survey data to help forecast prepayment speeds and also to gauge consumer sentiment.

The benchmark iShares Dow Jones US Real Estate ETF (IYR) comprises 114 stocks. We can divide the ETF by market capitalization.

What are mortgage backed securities? Mortgage backed securities are pools of individual mortgages that have similar characteristics. They allow a relatively illiquid asset (an individual home mortgage) to be converted into a very liquid asset that can be traded with relative ease. They also allow an issuer to divide up the cash flows in order […]

Back to Part 3 Interest rate risk and mortgage backed securities Mortgage backed securities have different interest rate risk than conventional Treasuries and corporate bonds. This is because of prepayment risk. When interest rates fall, borrowers will typically refinance their mortgages. To an investor, they will get their pro-rate allocation of principal early. They will not get […]

Fannie Mae puts out a monthly National Housing Survey that measures consumers’ attitudes about housing and the economy. In many ways, it’s similar to the consumer confidence indices. However, the majority of the questions relate to real estate.

Mortgage applications, as reported by the Mortgage Bankers Association, rose 7% for the week ending May 3rd in spite of a five basis point increase in mortgage rates Mortgage applications are primarily interest-rate driven. Applications typically increase as rates fall because home owners take advantage of the drop in rates to refinance. Conversely, they fall […]

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 […]

Leverage and Mortgage REITs – Part 4 Liquidity risk Even if borrowers make their payments, jitters in the mortgage backed security market can hit liquidity, making it difficult (if not impossible) for REITs to reduce leverage. REITs are also at the mercy of their bankers, who can pull lines of credit (or simply refuse to […]

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.

The Fed’s balance sheet rose to over $3 trillion in Q1 as quantitative easing goes into overdrive.

Black Knight Financial Services (formerly known as Lender Processing Services) is a vendor to mortgage originators, handling mortgage processing and default management outsourcing.

There isn’t much real estate–related economic data this week. There are some important macro reports as well as the jobs report on Friday.

Fannie Mae puts out a monthly survey measuring consumers’ views on housing and the economy. The Fannie Mae National Housing Survey asks several questions.

Real estate values are big drivers of consumer confidence and spending, so they have an enormous effect on the economy.

The 12% year-over-year gain resembles the gains we saw during the bubble years. Both distressed sales and non-distressed sales rose by similar amounts.

In general, mortgage delinquencies fell to 5.4% due to home price improvements and clearing foreclosure pipelines. The normal level before the housing bubble was between 4% and 5%.

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.

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.

The rally in bonds has been an unexpected gift to cap off what was otherwise a dismal year in mortgage banking.

The Mortgage Bankers Association (or MBA) Refinance Index rose 66% from 1,349 to 2,245 as rates finally fell enough to allow refinances.

Commercial retail REITs such as Simon Property Group (SPG) and General Growth Properties (GGP) focused most on disappointing retail sales data on Tuesday.

Better economic times are helping lower mortgage delinquencies, but we still have some work to do clearing the foreclosure pipeline.

The MBA Refinance Index is an important index to forecast mortgage activity and prepayments The Mortgage Bankers Association (MBA) Index of Refinance Activity measures application activity, not loans made. The Mortgage Bankers Association samples roughly 75% of all mortgage activity in the U.S., and its indices are key indicators for the real estate finance market […]

The use of leverage is how REITs provide a high yield from low-yielding instruments Mortgage REITs, particularly agency REITs, use leverage to enhance returns. Agency REITs invest solely in government mortgage backed securities – either Fannie Mae, Freddie Mac, or Ginnie Mae. These securities do not have credit risk – in other words, even if […]

Mortgage rates are generally set by the TBA market which trades with the 10-year bond Mortgage rates generally follow interest rates pretty closely. The most important security for mortgage originators is the To-Be-Announced (TBA) market. The TBA market is the basis for which your loan originator prices a loan. When they make a loan to you […]

Productivity is a measure of output per unit of labor  Productivity increases allow wage increases without increasing inflation. The sister index to productivity is unit labor costs, and, unsurprisingly, the Bureau of Labor Statistics releases them together. Non-farm productivity is calculated by dividing an index of output by an index of hours worked. Productivity growth […]

Initial jobless claims rose to an annualized rate of 324,000 for the week ended April 26th Initial jobless claims are one of the few labor market indicators that are released every week. Unemployment is a profound driver of economic growth, and persistent unemployment has been the Achilles heel of this recovery. While it seems like […]

The Standard and Poor’s/Case-Shiller index of real estate prices increased 9.3% year-over-year in February, hinting that the real estate market bottomed around this time last year. The Case-Shiller index The Case-Shiller index is the most widely quoted index of real estate values. Real estate values are big drivers of consumer confidence and spending, and, therefore, […]

Housing starts and building permits came in around 1.2 million—towards the top end of a narrow range over the past year.

There are two basic types of state foreclosure laws—judicial and non-judicial. In non-judicial states, foreclosures are handled through a streamlined process.

The federal government has taken numerous steps to reduce foreclosures. It started with loan modification programs.

Last week was pretty light in terms of economic data, but markets were concerned with adjusting to the Brexit vote. For all the worries about Brexit overseas, it simply won’t have much of an effect on US corporate earnings.

According to the April FOMC minutes, the staff believes that GDP growth has begun to decelerate. Industrial production and manufacturing output declined in February and March.

During the March FOMC meeting, the Fed lowered its estimates for 2016 GDP growth from a range of 2.3%–2.5% to a range of 2.1%–2.3%.

There are two basic types of state foreclosure laws—judicial and non-judicial. In non-judicial states, foreclosures are handled through a streamlined process.

Major stocks in the top five REIT subgroups that saw positive returns over the week ended July 17.

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.

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 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.

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.

The biggest economic challenge of the recovery has been the indebted consumer. Consumption has fallen as consumers have focused on repaying debt.

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.

The current head of FHFA, Ed DeMarco, has steadfastly refused to consider principal mods because he views them as a losing proposition to the taxpayer.

Initial jobless claims decreased to 339,000 for the week ended November 8. The financial industry is laying people off as the mortgage business dries up.

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%.

Stonegate is the first pure-play mortgage originator we’ve seen since the housing bust. Most pure-play originators ended up going out of business.

The most lasting effect of the shutdown was probably in the Fed Many people in Washington were highly disappointed that the markets yawned at the government shutdown. They were hoping that a violent reaction might force Congress to get together and find some common ground. It didn’t happen, although the polling data was enough to […]

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 […]

Mortgage originators are in a tough environment After feasting on the refinance boom of 2012, mortgage originators are finding 2013 to be a much more inhospitable environment. Many banks had added little capacity and were able to make a fine living doing refinance activity, which is a technologically driven business led by price discovery. It’s […]

Next week is all about the FOMC (Federal Open Market Committee) meeting The FOMC meets on Tuesday and Wednesday, and we should have the announcement on Wednesday afternoon around 2:00 p.m. Taper? By how Much? Which securities? The Fed will also release its forecast of economic activity. The Fed has been consistently over-optimistic on economic growth, and […]

Invesco Mortgage Capital (IVR) is a mortgage REIT that focuses on agency and non-agency mortgage-backed securities Invesco invests in a wide range of products, from agency residential mortgage-backed securities, to non-agency mortgage-backed paper, to commercial mortgage-backed securities and residential and commercial mortgage loans. Invesco Mortgage Capital is externally managed by Invesco (IVZ). Its portfolio is […]

Mortgage backed securities are the starting point for all mortgage market pricing, and are the investment of choice for mortgage REITs When the Federal Reserve talks about buying mortgage backed securities, it is referring to the To-Be-Announced (TBA) market. The TBA market allows loan originators to take individual loans and turn them into a homogeneous […]