Good morning and happy Monday! We do have some unscheduled stories today. First up, FHA has a delinquency problem. Before the pandemic, FHA serious delinquencies (90+ days) totaled 4% of all FHA mortgages. That number got to 12% in Feb. of 2021 and has fallen to 8.5% as of the end of Sept. 2021. This 8.5% accounts for 1/2 of all mortgage delinquencies, even though FHA mortgages only contribute to 17% of the total.

In other news, mortgage rates fell .05% in the most recent week ending Nov. 4th. Most don’t expect that move to lower rates to continue. Lastly, this recent rally may have significant ramifications for mortgage originators, as a 1.45% range 10yr T-Note equates to a 2.00% current coupon vs. 2.50%’s, which had been the previous coupon and primary hedge vehicle for them. Their concern is that borrowers will let the originators keep their lock-in fee and lock in at lower rates. Those lower rates will be an expensive pain in the rump for them, and will cause the originators to have a duration mismatch and force them to rebalance their pipelines. 2.50%’s have a 4.67yr duration, 2.00%’s a 6.33yr. This means they would be 26% under hedged!

Bonds today are down, with 10yr T-Notes -8/32 to yield 1.47%. In MBS, FNMA 30yr 2.50% are +9/32 to $103-09, which yields 1.78% and is +69 to the 5yr treasury curve.

Cherry Picks

ARMS / FLOATERS

Cost
Average Life
Yield
Speed
Spread
Coupon
MTR
Loans
Caps
Floor
1 Yr. Libor
WAM
Factor
$103-18+
3.4 yr
1.51%
15% CPB
+45/z curve
2.686%
64
43
Periodic 5/2/5, Lifetime 7.687%
1.619%
+1.619%
340
.5349
$1.98mm+ Fannie Mae 7/1 ARM 2.686%, #841231, 4/50 stated final

10 Year Fixed

Cost
Average Life
Yield
Speed
Spread
Coupon
# Loans
Origination
Type
WAM
Factor
$103-14
3.2 yr
.87%
346 PSA
+15/I curve
2.00%
1,304
2020
Fannie Major
1133
.9665
$3mm+ Fannie Mae 10yr am 2.00%, #MA4425, 9/31 stated final

15 Year Fixed

Cost
Average Life
Yield
Speed
Spread
Coupon
# Loans
Origination
Type
WAM
Factor
$103-06
4.9 yr
1.29%
234 PSA
+24/I curve
2.00%
1,179
2021
Fannie Major
177
1.0000
$8mm Fannie Mae Dwarf 2.00%, #MA4497, 11/36 stated final

20 Year Fixed

Cost
Average Life
Yield
Speed
Spread
Coupon
# Loans
Origination
Type
WAM
Factor
$102-20
5.5 yr
1.47%
241 PSA
+34/I curve
2.00%
9,078
2021
Fannie Major
238
.9972
$7mm+ Fannie Mae 20yr am 2.00%, #MA4474, 11/41 stated final

30 Year Fixed

Cost
Average Life
Yield
Speed
Spread
Coupon
# Loans
Origination
Type
WAM
Factor
$103-18
5.7 yr
1.80%
277 PSA
+64/I curve
2.50%
34,524
2021
Fannie Major
356
.9888
$10mm Fannie Mae 30 yr am 2.50%, #MA4438, 10/51 stated final

Agency CMBS

Cost
Average Life
Yield
Speed
Coupon
Call Protection
Tier
GEO
DSCR
LTV
OCC
Interest Only Until
Factor
$101-12
11.5 yr
1.80% + 25/swaps
0% CPY
1.91%
136mo Yield Maintenance
2
NH
--
79.4%
95%
70 Months
1.0000
$11.0mm+ FNMA 12/11.5 DUS #BS3024, 1.91% coupon, 9/2033 stated final

Agency CMO – 3 Year

Cost
Average Life
Yield
Speed
Spread
Collateral
Coupon
Band
Avg Life w/ rates +300
Factor
$103-14
3.5 yr
1.43%
387 PSA
+65/I curve
New Fannie 30yr 3.50%
2.50%
Busted PAC
8.4 yr
.5156
$5mm Freddie Mac "Busted PAC" 2.50%, FHR 4926 BL, 10/49 stated final

Agency CMO – 5 Year

Cost
Average Life
Yield
Speed
Spread
Collateral
Coupon
Band
Avg Life w/ rates +300
Interest Only until
Factor
$10612
6.1 yr
1.85%
483 PSA
+65/I curve
New FNMA 30yr Jumbo 3.00%
3.00%
No Band
18.4 yr
4/25
1.0000
$6.6mm+ Fannie Mae "AD Busted PAC" 3.00%, #FNR 20-11 JW, 3/50 stated final

Agency CMO – Long End

Cost
Average Life
Yield
Speed
Spread
Collateral
Coupon
Band
Avg Life w/ rates +300
Interest Only until
Factor
$96-03
18.1 yr
2.27%
179 PSA
+45/I curve
New 30yr Jumbo 2.00%
2.00%
131-266 PAC
19.3 yr
5/36
1.0000
$4.7mm Freddie Mac "AD PAC" 2.00%, #FHR 5055 PL, 12/50 stated final

Jim Tait is a registered representative with and offers securities through Hanover Securities, Inc. (Hanover), Member FINRA & SIPC. Although this information has been obtained from sources we believe reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Securities that may be shown are subject to availability and changes in price. Past performance is not indicative of future results. Changes in any assumptions may have a material effect on projected results.

 This information from Hanover Securities is for your private use and does not constitute an offer or solicitation with respect to the sale of any security. This information was obtained from sources we believe to be reliable but we do not represent that it is accurate or complete, and it should not be relied on as such. Certain transactions may give rise to substantial risk and are not suitable for all investors. This information was based on current market indicators which may vary over time. We may from time to time buy or sell, or have long or short positions in securities identical or related to those identified herein. 

Although this information has been obtained from sources we believe reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Loans and/or Securities which may be shown are subject to availability and changes in price. Past performance is not indicative of future results. Changes in any assumptions may have a material effect on projected results. This information from Banes Capital Group (BCG) and/or Hanover Securities is for your private use, and was obtained from sources we believe to be reliable. However, we do not represent that this information is accurate or complete, and it should not be relied on as such. This information is for institutional investors only, and as such certain transactions may give rise to substantial risk and are not suitable for all investors. This information was based on current market indicators which may vary over time. We may from time to time buy or sell, or have long or short positions in loans or securities identical or related to those identified herein. 

The pricing of loans or any Level II or III asset is inherently an exercise in quantifying uncertain variables. As such, great care should be taken when pricing loans for reporting purposes. The information included herein should never be taken as the sole method, or even a method to be relied on, for the pricing of loans or other Level II or III assets as this is for informational purposes only.