FRM Update

October 30, 2017

Mortgage rates and Treasury yields rose last week with unchanged to slightly wider mortgage yield spreads versus Treasuries. Mortgage rates rose last week for the third time in the last four. Mortgage applications for the week ended October 20 fell 4.6%, driven lower by a decline in both purchase (-6.1%) and refinancing activity (-3.0%). The MBA Refi Index continues to be range-bound, holding far below levels of 2016. The Index has fallen six of the last seven weeks to slightly above the YTD average of 1357. New home sales skyrocketed 18.9% MoM in September, marking the largest monthly gain since 1992 and the fastest monthly pace (annualized 667k homes) since October 2007.





Consistent with MBS and other spread products, CMO spreads were unchanged last week.  CMO investors were active in various types of CMO structures including front end sequential and VADM structures offering extension protection backed primarily by conventional and HLTV collateral. Depositories continue to focus on stable structures with 3- to 6-year average lives.




Mortgage Rates and Refinance Activity





Surge in New Home Sales Suspect in the Context of Broader Sector Weakness: New home sales skyrocketed 18.9% MoM in September thanks to double-digit gains in three of the four regions. It was the solid performance in the heavily-weighted southern region that contributed the most. Although the new home sales data can be extremely volatile MoM, it was the biggest monthly gain since 1992 and the fastest monthly pace (annualized 667k homes) since October 2007. Not only was the September result an above-trend outlier for the new home series, it is contrary to the more cautious picture painted by most every other housing data series so far this year. Also for some prudent perspective, total sales in 3Q were still lower than 2Q – even after the September jump.







Dan Stimpson, CPA

Senior Vice President

Vining Sparks

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