MBA Mortgage Applications 5-8-13

MBA Mortgage Applications 5-8-13

TRADEX GLOBAL INTERNAL COMMENTARY

Mortgage Applications were up 7% last week, according to the MBA.  The market composite index that captures both refinancing and new originations were up 7% from the prior week.  The refinance index was up 8% from the prior week.  The percent of mortgage refinancings to the total number of applications was up 1% to 76%.  The HARP program accounted for 30% of the refinance applications; that is down from 34% the prior week.  The average conforming loan interest rate was 3.59%, down one basis point from the prior week.  The possible story here is that even with very low rates, the amount of mortgage borrowers going through the HARP program was down 4%.  We believe that regardless of the level of rates, most borrowers who could have done a refinancing have already done so.  Yes prepayments are still elevated and CPR’s are still very fast, but we also believe April may have been a turning point for IO holders as many investors threw in the towel and dumped IO’s.  The prices of some IO’s are almost as low as in 2008 and PO bonds at 98 are probably telling us this is the top.  The collateral that has been immune (low loan balances) finally also took a hit in April and now those IO’s are at interesting levels.  We have been saying that pre-pays will be elevated through the first half of 2013 and we are not changing this opinion.  We can now also say that the market has priced these IO’s as if rates will never tick up and every mortgage will refinance.  We disagree with that view.  As a reminder, an investor that bought IO’s at the end of 2008 made almost 2x on their money.  We are patiently waiting, but see the opportunity clearly on the horizon and expect it to positively impact our Portfolios.  Keep nimble – Michael Beattie

EXTERNAL RESEARCH COMMENTARY

The total number of mortgage applications filed in the U.S. last week rose 7% from the previous week as several interest rates increased, the Mortgage Bankers Association said Wednesday. The market composite index was 7% higher on a seasonally adjusted basis for the week ended May 3 from the previous week, according to the MBA's weekly survey, which covers more than three-quarters of all U.S. residential-mortgage applications. The refinance index climbed 8%. On a seasonally adjusted basis, the purchasing index jumped 2% from a week ago to the highest level since May 2010. Low interest rates have attracted new buyers and persuaded many homeowners to refinance their mortgages. However, tightened credit restrictions still bar many borrowers from filing loan applications. The share of applications filed to refinance an existing mortgage rose to 76% from 75% in the prior week. Adjustable-rate mortgages, or ARMs, was unchanged from a week earlier at 4% of total activity. The Home Affordable Refinance Program share of refinance applications fell to 30% from 34% a week earlier. The average rate on 30-year fixed-rate mortgages with conforming loan balances declined to 3.59%, the lowest rate since December, from 3.6% in the prior week. Rates on similar mortgages with jumbo-loan balances decreased to 3.79% from the previous week's 3.8%. The average rate on 30-year fixed-rate mortgages backed by the Federal Housing Administration was up at 3.35% from the earlier week's 3.34%. The average rate for 15-year fixed-rate mortgages shrank to 2.81%, the lowest rate in the history of the survey, from 2.84% a week earlier. The 5/1 ARM average rate, meanwhile, declined to 2.53%, also the lowest rate in the history of the survey, from 2.55% a week earlier.