FRM Update

February 26, 2018

Mortgage related security yield spreads to Treasuries widened and the curve flattened last week.  Mortgage rates moved higher again last week, continuing the trend higher over the last six months.  Mortgage applications fell for the second consecutive week.  Refinance activity fell 7.1% to 1183 and continues to be historically low and range-bound.  Existing home sales surprisingly fell for the second consecutive month in January to the slowest pace in four months.






CMO yield spreads were unchanged last week and have remained stable over the last month. CMO yields of 3% or higher are attainable for typical bank-type structures.  Investor activity is focused on those structures that offer 3% yields or higher and weighted average lives around five to six years in sequential and VADM structures with coupons typically ranging from 2.5% to 4%.



Mortgage Rates




Refinance Activity





Existing home sales surprisingly fell for the second consecutive month in January, down 3.2% MoM to the slowest pace in four months as activity slowed in each of the four geographic regions (also for a second month).  Other metrics showed a tick up in months’ supply and number of days on the market.  Prices of existing homes sold in January fell to the lowest median price since March 2017.



With declines in both activity and prices of existing home sales in January, it will be interesting to see if higher mortgage rates pressure the housing market over the next several months.  Home sales have proven to be rate sensitive when mortgage rates push above 4.00%.



Dan Stimpson, CPA

Senior Vice President

Vining Sparks

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