Thursday, March 21, 2013

MBA Mortgage Applications - 3-20-13


TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage applications fall again for the second straight week.  MBA reported a 7.1% drop in total applications.  The more important number for us was the refinance component, which was down 8%, bringing the percentage of total applications that are for refinancing activity down to 75% (this was 85-90% only a few weeks ago).  We are still being patient and are collecting a nice return on our IO portfolio while waiting for "burnout" on specific pools of MBS.  When we get closer, the carry will be higher as will the price of the securities.  We expect IO’s to appreciate quickly.  There is nothing like getting paid to wait for big upside, while maintaining positive convexity.  For now, prepayments will continue to be elevated as HARP is doing a good job of getting underwater borrowers a lower mortgage rate.  That being said, the cracks are now appearing and we believe that we are close to the end of the greatest refi wave in history.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

Applications for U.S. home mortgages tumbled for a second week in a row last week as interest rates continued to climb to seven-month highs, 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, fell 7.1 percent in the week ended March 15. The index of refinancing applications dropped 8 percent, while the gauge of loan requests for home purchases, a leading indicator of home sales, slipped 3.9 percent. The refinance share of total mortgage activity fell to 75 percent of applications from 76 percent the week before. Fixed 30-year mortgage rates averaged 3.82 percent, up 1 basis point. It was the highest level since last August, shortly before the Federal Reserve launched its latest stimulus program of buying mortgage-backed securities. The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.

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

@Tradex_Global

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