Wednesday, August 14, 2013

MBA Mortgage Application 8/14/13

TRADEX GLOBAL INTERNAL COMMENTARY

The total number of mortgage applications was off by 4.7%, and the Refinance Index slid 4.4% from the previous week. We estimate that the refinancing of existing mortgages is off 40% from its peak. We also know that once the old deals that homeowners locked in go through the system, the end of the greatest refinancing wave in history will be over. This will bode well for our IO strategy, which is approximately 50% of the Tradex Liquid Real Estate Portfolio. These securities will have a huge upside as rates move up and at the same time we get a nice carry. The overall improvement in housing also bodes very well for our legacy RMBS bonds. We will not see the 25% returns in RMBS, but we will be very happy with a 10-12% return without the volatility we experienced in the early days of long RMBS. We are more excited about the improving fundamentals in CMBS; seeing that our manager is connected to a large private equity real estate firm, we are lucky enough to be able to have exposure to the mezzanine pieces of deals that other traders cannot re-underwrite. We expect high-teen returns in the CMBS strategy, and will increase exposure in the strategy. We have been careful not to push too hard to increase IO’s and CMBS, but we are at the inflection point and believe with the fundamentals in both strategies, we will have a better overall return than the 10.5% annualized return we have achieved in the last 3.5 years. All the best, have a great summer. Please feel free to call us to discuss and understand this opportunity. - Michael Beattie


EXTERNAL RESEARCH COMMENTARY

The number of mortgage applications filed in the U.S. last week dropped 4.7% from the prior week, the Mortgage Bankers Association said Wednesday. MBA also reported the refinance index fell 4.4% from a week earlier, while the seasonally adjusted purchase index fell 5.4%.
A run-up in interest rates had curbed some individuals' appetite to buy a new home and reduced the appeal of mortgage refinancing, though mortgage rates have steadied somewhat after a torrid increase this summer. The share of applications filed to refinance existing mortgages held steady at 63%. In the latest week, adjustable-rate mortgages, or ARMs, represented 6% of total applications. The average rate on 30-year fixed-rate mortgages with conforming loan balances declined to 4.56% from the prior week's 4.61%. Rates on similar mortgages with jumbo-loan balances slid to 4.57% from 4.64%. The average rate on 30-year fixed-rate mortgages backed by the Federal Housing Administration fell to 4.25% from 4.33%. The average rate for 15-year fixed-rate mortgages decreased to 3.6% from 3.66% in the previous week. The 5/1 ARM average declined to 3.36% from 3.39%. MBA's weekly survey covers more than three-quarters of all U.S. residential-mortgage applications.

Tradex Global Advisory Services, LLC
investorrelations@thetradexgroup.com 
203-863-1500
@Tradex_Global

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