Positive Changes in the Mortgage Markets
July 6, 2020
Positive Changes in the Mortgage Markets
Since our last Notes from the Mortgage Desk in March, the mortgage markets have seen substantial changes to move the market forward in a positive direction.
The Fed’s intervention in the mortgage-backed securities (MBS) market, which in June reached the level of a $1.9 trillion dollar MBS balance sheet, has lent significant support to improving mortgage prices, tightening spreads, and increasing liquidity for agency (MPF and MBS) mortgages. This recovery is much less pronounced in the non-agency mortgage market where prices in sectors such as jumbo loans are still at least 1-2 points behind pre-COVID levels. In addition, in some cases, non-QM loan executions are in the 80s to 90s driving those borrower note rates to highs of 7.0-7.5% today.
COVID-19 Related Activity and MPF Accommodations
We revised our pricing grids at the Federal Home Loan Bank of Chicago in May to reflect the new mortgage world where note rates above 4% are rare. As a result, we've deleted those rates. Even with the smaller grid, we’re continuing to experience robust Participating Financial Institution (PFI) purchase and refinance sale activity, despite our mis-prediction of a COVID-19 related slowdown from expected tighter underwriting guidelines, high unemployment claims, forbearance claims, social distance closings, and originator capacity constraints. But none of this proved to be true as the combination of record low rates, the spring and summer home buying season, and MPF PFI member ingenuity, which have overwhelmed these COVID-19 related factors.
Lastly, we continue to try to grant added delivery accommodations. In the mid-March to mid-May, we waived most MPF Traditional extension fees. In June, we rolled out a new change designed to lower our prices on MPF Traditional conventional loan repurchases.
We thank you for your loyalty to the cooperative and look forward to trading with you and providing liquidity as the mortgage market continues to heat up with the temperature this summer.
Positive Changes in the Mortgage Markets
Since our last Notes from the Mortgage Desk in March, the mortgage markets have seen substantial changes to move the market forward in a positive direction.
The Fed’s intervention in the mortgage-backed securities (MBS) market, which in June reached the level of a $1.9 trillion dollar MBS balance sheet, has lent significant support to improving mortgage prices, tightening spreads, and increasing liquidity for agency (MPF and MBS) mortgages. This recovery is much less pronounced in the non-agency mortgage market where prices in sectors such as jumbo loans are still at least 1-2 points behind pre-COVID levels. In addition, in some cases, non-QM loan executions are in the 80s to 90s driving those borrower note rates to highs of 7.0-7.5% today.
COVID-19 Related Activity and MPF Accommodations
We revised our pricing grids at the Federal Home Loan Bank of Chicago in May to reflect the new mortgage world where note rates above 4% are rare. As a result, we've deleted those rates. Even with the smaller grid, we’re continuing to experience robust Participating Financial Institution (PFI) purchase and refinance sale activity, despite our mis-prediction of a COVID-19 related slowdown from expected tighter underwriting guidelines, high unemployment claims, forbearance claims, social distance closings, and originator capacity constraints. But none of this proved to be true as the combination of record low rates, the spring and summer home buying season, and MPF PFI member ingenuity, which have overwhelmed these COVID-19 related factors.
Lastly, we continue to try to grant added delivery accommodations. In the mid-March to mid-May, we waived most MPF Traditional extension fees. In June, we rolled out a new change designed to lower our prices on MPF Traditional conventional loan repurchases.
We thank you for your loyalty to the cooperative and look forward to trading with you and providing liquidity as the mortgage market continues to heat up with the temperature this summer.