MBA Mortgage Applications 5-1-13

MBA Mortgage Applications 5-1-13

TRADEX GLOBAL INTERNAL COMMENTARY

The Mortgage Bankers Association’s seasonally adjusted index of mortgage applications rose 1.8% in the week ending April 26th.  The index of refinancing was up 2.8% and the refinance share of total application activity stayed at 75%.  New purchase requests were down 1.4% from the previous week.  Fixed 30-year conforming rates were down 5 basis points to 3.60%, which was the catalyst for a slight uptick in refinance activity.  I sound like a broken record, but we still believe the greatest refinance wave in history is burning out.  We believe that those that could re-fi have, and those not interested for a variety of reasons will not be enticed to refinance for 5 or 10 basis points.  The collateral in IO’s that is performing well is non-agency mortgages that have no HARP option to bail them out.  Also, low balance agency bonds, where there is no incentive to refi at any interest rate are performing relatively well.  We do have to at least think of force majeure, where Obama convinces Congress to pass a law that gives every mortgage holder a free pass and forgives the debt or reduces the interest rate to 2%.  This sounds nice, but likely would never be reality.  We will monitor the situation closely and are glad we run a hedged portfolio that is also diversified with bonds that actually do very well with faster than expected prepayment rates.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Applications for U.S. home mortgages rose last week, fueled by demand for refinancings as interest rates dropped, data from an industry group showed on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 1.8 percent in the week ended April 26. The MBA's seasonally adjusted index of refinancing applications climbed 2.8 percent. But the gauge of loan requests for home purchases, a leading indicator of home sales, slipped 1.4 percent. The refinance share of total mortgage activity was unchanged at 75 percent of applications. Fixed 30-year mortgage rates averaged 3.60 percent, down 5 basis points from 3.65 percent. It was the lowest level for rates since late last year. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

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