MBA Mortgage Applications - 11/14/12

TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage applications rebounded.  The Mortgage Bankers Association said that its seasonally adjusted index of mortgage application activity (which includes both refi’s and home purchase) rose 12.6% in the week ended November 9th.  States hit by Sandy were up more than 60% after almost no activity from the week before.  The refinance component was up 13.1% and the new home purchase index was up 11%.  The share of refi’s to the total was 81%, up from 80% last week.  The 30-year conventional mortgage averaged 3.52%, down 9 bps.  As I have been saying, we believe refinancings are probably cresting and we should see pre-payments at peak speeds in the next 2 months, followed by a dramatic slowing in the first quarter of 2013.  We are bullish on IO securities as part of our Liquid Real Estate Portfolio.  We also think that the RV strategy in the portfolio has some exciting opportunities ahead as some lower coupon MBS has gotten overpriced in the secondary market and could sell off dramatically with any hint of a rate move or a change in policy on principal forgiveness.  Both of these would be negative for the lower coupon bonds.  Markets are not reacting to anything positive and we are seeing another round of red on the screen.  We increased hedges and believe “prudent” is the word of the day.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Applications for U.S. home mortgages jumped last week, rebounding after a massive storm depressed applications on the East Coast and as a fall in interest rates to a new low spurred demand, 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 12.6 percent in the week ended Nov 9. Application volume in New Jersey more than doubled over the week, while volume in Connecticut and New York increased more than 60 percent, Mike Fratantoni, MBA's vice president of research and economics, said in a statement. The seasonally adjusted index of refinancing applications surged 13.1 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, climbed 11 percent. The refinance share of total mortgage activity rose to 81 percent of applications from 80 percent. Fixed 30-year mortgage rates averaged 3.52 percent, down 9 basis points from 3.61 percent the week before. Interest rates had hit new lows following the Federal Reserve's September announcement of its latest aggressive stimulus plan, though rates had edged back up in subsequent weeks. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

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