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Shah Tehrany's Blog

By Shah Tehrany | Mortgage Broker
or Lender in New York, NY
  • MARKET UPDATE 4/6/12: From The Capital Markets Desk Of Franklin First Financial

    Posted Under: Home Selling in New York, Financing in New York  |  April 6, 2012 8:40 AM  |  274 views  |  No comments

    To keep in-line with the religious theme over the next few days….HOLY S*@T!! I think this is what a lot of economists screamed this morning when they heard the release of the NFP report showing that payrolls increased by a anemic 120k. This after the revised consensus was 201k with a range of 180k-239k and the whisper number was in the 250k neighborhood. Situations like this just makes you realize that sometimes the financial markets and all those involved “smart” people simply have no clue and the whole thing is just a small step away from the bus visits to AC that those senior citizens take every day. There is no one that could have imagined this number because it is just so far off what everyone was thinking.

    As a result the bond markets are loving it. The yield on the 10yr is currently @ 2.07%. Prior to the release of the number it was @ 2.22%. The expected trading range today was 2.26%-2.14% per a very reputable financial report company so we have blown threw that one. So I guess it is safe to say that they all have it wrong at least for today. Given the shortened trading session I would expect a small consolidation but with the stock markets closed (an extremely rare occasion where the bond markets are open and the stock markets are closed) there is little more to digest with this number that seems to not have any silver lining. So the focus going forward will be will the Fed QE3 or not.

    Today’s report contradicts a lot of what the Fed minutes said on Tuesday. So it appears the Fed is as confused as everyone else seems to be. You get the feeling that everyone is making financial decisions based upon a Magic 8 ball. I do know that the Fed is probably feeling some heat and the temperature will only get hotter come election time as both parties will be putting needles in the Bernanke voodoo doll be it for much different reasons.

    Here are the highlights of the Non-farm payroll report:

    • March payrolls rise 120k
    • Jobless rate falls to 8.2% as 161k leave the labor force (just gave up finding a job)
    • Revisions added a combined 4k for Feb and Jan
    • Retail employment declines 33k which is the most since 10/09
    • Private sector jobs rose 121k with Gov’t job down 1k

    I hope everyone enjoys whatever religious holiday one celebrates at this time of the year. Have a nice weekend.

    Source: http://www.askshah.com/market-update-4612-from-the-capital-markets-desk-of-franklin-first-financial/
  • MARKET COMMENTARY 4/5/2012: From The Capital Markets Desk Of Franklin First Financial

    Posted Under: Market Conditions in New York, Financing in New York  |  April 5, 2012 9:08 AM  |  137 views  |  No comments

    I guess this was all just a bad dream. Sort of like the Wizard of Oz but without the creepy little people. I guess what goes down must come up. Sort of like bad Mexican food. Alright, enough of that lame attempt of humor. At this time we are actually a little better than where we were pre-Fed minutes. So the market has responded positively for now and we now brace ourselves for tomorrows NFP report. Remember that the bond markets close at noon so Secondary will only accept locks up until 11:30.

    Therefore if you have locks to submit then you may want to take advantage of this morning’s uptick unless you have a crystal ball and know that the NFP # will be much lower than expected. I do know that a very consolidated trading day always seems to be met with a few unexpected turns. Not to mention that there will be a small window to where we will be accepting locks. Ok… I think everyone gets my point.

    So why the turnaround? I believe it is a few things:

    • It was simply an overreaction. Traders have no choice but to react to headlines. It all seems a little insane when you think about it considering the financial exposure but many times traders do not respond to the cold hard facts. The minutes was a nine page document that is about as exciting to read as the Mets 2012 yearbook. While 9 pages is far from War and Peace (very large book), the markets just can’t take a 30 minute break to thoroughly read the document and have their economist translate on what it all means. In short most traders are not rocket scientists and are just doing their best to make as much money each day they sit at their desk. You do this by going with the cards you are dealt. Some traders have the benefit of putting on longer term trades and letting them “mature”. Those are usually senior guys that have a nice track record and are given the benefit of doubt. Therefore, while it now appears the Fed minutes were not as bad as initially thought, traders have to trade what is front of them and on Tuesday afternoon it was sell, sell, sell (yes, Trading Places).
    • Europe. Yes there are still issues over there and Spain is now at the plate. The market was not too happy with how the Spanish auctions went this week so now the 800lb. gorilla is a little hungry again and is letting the world know. Again a story that is far from over.
    • Stock market. Yes the stock markets have gotten off to a great start to 2012. But is it too much too soon? It appears that many believe so and it is reflected in what has been a bad week for stocks. When investors get out of stocks they tend to go into bonds.

    All-in-all this market is currently reacting like a teenage girl. Happy one minute then ready to bite your head off the next minute. The key to all of this is to pick your spots. Good luck with that.

    Source: http://www.askshah.com/market-commentary-452012-from-the-capital-markets-desk-of-franklin-first-financial/

  • MARKET UPDATE 4/3/12: From The Capital Markets Desk Of Franklin First Financial

    Posted Under: Market Conditions in New York, Financing in New York  |  April 3, 2012 1:35 PM  |  138 views  |  No comments

    The bond markets are opening pretty much unchanged to slightly improved from last night’s close. For the most part we have been seeing a slow grind of improved mortgage prices and lower bond yields so there really is very little to complain about. The trading range has been tight but as mentioned yesterday we expect some price volatility starting with the ADP report on Wednesday leading up to Friday’s NFP release.

    I came across 2 very interesting articles/stories that I want to pass along to the masses. The first one is a political story that would annoy anyone who was brought up to work hard and be responsible for your obligations. There has been a lot of criticism from the Obama administration against Edward DeMarco who is the acting director of the Federal Housing Finance Agency which currently “oversees” FNMA and FHLMC. The Obama camp wants the agencies to write-down principle for some heavily indebted homeowners while DeMarco has resisted the pressure because he simply does not think it is a good idea. DeMarco is leaning on the “it would cost too much” reason but many think he just does not believe this is a good precedent. I for one totally agree.

    So the Obama administration has decided to turn up the heat on this guy who is trying to do what is right for the taxpayers and the moral fabric of our society by now telling him that the U.S. Treasury will offer to split the cost of any principal write-downs. Where will the Treasury get the money? It will come from unspent housing-aid funds which in turn came from the $700 billion bank rescue that Congress passed back in 2008. So yes this is tax-payer money. Who will qualify for the principal write-downs? Underwater borrowers owing at least 125% of the value of their property AND who are behind on their mortgage payments. So if you are busting your tail to make your mortgage payments on-time by working 2 jobs because that is just what you do and that is your inner make-up then you do not qualify. However if you are a bon-bon eating, Oprah-watching, unemployment collecting (but very capable) slacker who cashed-out on the equity of your home back in 2007 so you can buy a new BMW to keep up with the Joneses then you get the free money. I understand that there are good people out there that had a string of bad luck but unfortunately you just know that in the majority of these cases the money will go to the wrong people. This does nothing to reward the hard work that responsible underwater home owners who keep up with their mortgage payments  also deserve.

    Now this is not official but it does appear that DeMarco might lose his battle. Maybe responsible heads will prevail and there will be some way to do this correctly. I have a novel idea…eliminate those that did cash-out refinances and just limit this to purchase transactions where the borrower never extracted a penny from their past home equity. Also give the money based upon a certain % drop in your property value even if you did the unthinkable and kept up with your mortgage payments. I guess that just makes too much sense.

    The other story worth passing on is a survey that was taken by the 21 primary dealers who are basically involved in all if not most bond trading activity. They were asked where they see the yield on the 10yr by the end of 2012. Keep in mind that we are currently at 2.17% and got as high as 2.40%  and as low as 1.80% so far this year. They were asked this at the beginning of the year and at the end of the 1st quarter. The results were interesting:

    • When asked at the beginning of the year the average was 2.43% with the low being 2.0% and the high being 3.0%.
    • When asked at the end of the first quarter the average increased slightly to 2.49% with the low/high still 2.0% & 3.0%.

    This kind of stuff is always pretty interesting because it answers the question on where those that are involved believe interest rates are going. I think we as originators can live with this range and it does allow for a healthy origination environment. We will all take the 2.0% but I also think the average of 2.49% and even the high of 3.0% will allow the mortgage market to offer rates that will still entice new production. Food for thought…

    Source: http://www.askshah.com/market-update-4312-from-the-capital-markets-desk-of-franklin-first-financial/

  • MARKET UPDATE 4/2/12: From The Capital Markets Desk Of Franklin First Financial

    Posted Under: Market Conditions in New York, Financing in New York  |  April 2, 2012 9:27 AM  |  139 views  |  No comments

    We are starting off the week with a slightly improved bond market with the 10yr sitting at 2.19%. We have been a little quiet on the Market Updates because quite frankly there has been very little to write about because the markets have been pretty quiet. We have been trading in a tight trading range and the markets seem eager to cling onto something that will provide a definitive direction.

    In the mist of the tranquility, we did have a blindsided sell-off on Friday afternoon which is never welcomed headed into a weekend. The funny thing is that the reasons for the sell-off are a little murky. I called around when it happened and after reading several market commentaries on Friday afternoon and this morning, I still do not have a unanimous reason for it. The good news is that we are not seeing any follow-thru of this questionable price action this morning so let’s just call it a little bump in the road.

    We do have a heavy economic calendar this week that will be capped off by the Non-Farm Payroll number on Friday morning. It will be an interesting day because the bond markets will have an early close(noon) for the Easter holiday. Therefore we will probably see some highly concentrated price movement for a few hours that will come to a screeching halt at around 11:30 as traders close their books for the weekend. The current consensus is a gain of 201k with a tight range of 180k-239k.

    Given the relatively tight range if we get an outlier number things could get interesting in the consolidated trading day. Of course leading up to Friday’s number is the ADP report which will be released on Wednesday morning. The consensus there is a gain of 208k.

    Source: http://www.askshah.com/market-update-4212-from-the-capital-markets-desk-of-franklin-first-financial/
  • MARKET UPDATE 3/23/12: From The Capital Markets Desk Of Franklin First Financial

    Posted Under: Market Conditions in New York, Financing in New York  |  March 23, 2012 10:16 AM  |  171 views  |  No comments

    I guess as long a we end the week on a good note then we forget about all the pain and suffering that happened in the beginning of the week. I am happy to say that we are on track with being able to go with that theme because what seemed like a really bad turn for the worse at the beginning of the week has turned into a reason for hope.

    We have seen some good price action in the bond markets since Wednesday which has brought the 10yr to a very acceptable 2.22%. While the economic calendar has been light this week there is concern that growth in China may finally show signs of cooling after decades of non-stop robust growth. While a cooling in the growth of China is still growth that most if not all other countries would die for, this would be the equivalent of the Yankees only finishing the season 5 games above .500. I am sure the Mets would be thrilled with that kind of season. My point being is that everything is relative. Regardless of the reason for the bond markets licking their wounds and coming back with some fight, I know that we all feel a lot better for it.

    Looking ahead, we have another light economic calendar next week so traders will be taking their lead from the headlines for direction. I am encouraged that we did not continue the slide in bond yields. Having lived thru a fair amount of bear markets, they tend to be relenting. It is sort of like getting kicked in the midsection (I heightened the location point to be politically correct) as soon as you walk into the office and then the beatings just keep coming. It tends to make for a miserable existence.

    However, with the exception of a few days, we did not get that feeling this time around. I think we have the presence of the Fed to thank for that (or maybe it is Tim Tebow). Like we have been saying, they are steadfast in keeping mortgage interest rates low which will happen by keeping US Treasury rates low. The Fed’s current and latest intervention called Operation Twist is scheduled to come to an end in June. Therefore the optimistic bond traders are looking for some new and creative move by the Fed come June that will facilitate a continued low rate environment. It might not be called QE3 which does appear to be off the table but Bernanke can and has been very creative so they are looking for something. I am sure the Fed was not happy about the quick rise in yields but they also were not losing too much sleep over it either. They know they have some influence and you just get the feeling they have more tricks up their sleeves. We will see…

    Have a good weekend.

    Source: http://www.askshah.com/market-update-32312-from-the-capital-markets-desk-of-franklin-first-financial/
  • MARKET COMMENTARY 3/22/2012: From The Capital Markets Desk Of Franklin First Financial

    Posted Under: Market Conditions in New York, Home Selling in New York, Financing in New York  |  March 22, 2012 9:03 AM  |  343 views  |  No comments

    Is it Friday yet?? We have had a very bi-polar week so far in the bond markets that has made us all a little insane. This market is as confused as the Jets front office. We are perfecting the price changes this week and thankfully we were able to dust of the price change for the better yesterday after nothing but negative price changes on Monday and Tuesday.

    So far today all is looking good as we are up  across the board with the 10yr sitting nicely at 2.26%. Considering we were getting real close to the 2.40% level on Tuesday, I do find the resilience of the bond markets to be impressive. What I really did not like about Monday and Tuesday is that we started out in positive territory but the markets were unable to sustain the rally. There was no news that triggered the days sell-offs but when that happened it was fast and furious without the smashing cars of course. Those are not good signs because it clearly shows a bearish trend.

    However, market sentiment can and does change quickly when there is not strong directional convictions. I still do not think we are out of the woods because I still feel we are on thin ice but there is no doubt that this little rally is encouraging. There was a lot of talk over the last few days that higher bond yields need and should happen. However, they might have gone up too much too fast. So perhaps this is just a little correction of that thought. We have not had any major economic news events happen so I do buy into that this little rally is just some mild correction but I do not expect any return to the <2.00% 10yr anytime soon barring a EU tape bomb.

    If we manage to stay in a tight trading range that is a little lower/higher from here then I do believe this is a great environment to grow pipelines by getting the borrowers who were on the fence to commit to refinancing. This is not a “sticking out my neck” moment because a lot of seasoned mortgage veterans share the same viewpoint.

    Yesterday we saw the release of the Weekly MBA Application Survey. I apologize for being a day late but I do want to mention the highlights:

    • Applications decreased 7.4%
    • The Refinance Index decreased 9.3%
    • The Purchase Index decreased 1.0%
    • The refinance share decreased to 73.4% which is the lowest since July 2011
    • The average 30yr conventional rate was 4.19% w/.47pt
    • The average 30yr FHA rate was 3.93% w/.48pt
    • The average 15yr conventional was 3.47% w/.40pt
    • The average 5/1 ARM was 2.90% w/.44pt

    Source: http://www.askshah.com/market-commentary-3222012-from-the-capital-markets-desk-of-franklin-first-financial/

  • MARKET UPDATE 3/9/12: From The Capital Markets Desk Of Franklin First Financial

    Posted Under: Market Conditions in New York, Financing in New York  |  March 9, 2012 10:34 AM  |  489 views  |  No comments

    The market is opening up pretty much unchanged from yesterday’s close. This would normally be a boring start to what is always an exhilarating Market Update but what makes this quiet morning worthy of mention is that we got the monthly NFP report @ 8:30 which as we all know is the Granddaddy of them all (think Keith Jackson here).  This is because the number was definitely a strong number but close enough to the consensus and quite frankly there is a lot more going on out there and the report, dare I say, has become less significant. You almost get the feel that the market just wants to move on and focus on the next thing.

    It is all part of the attention deficit disorder that most if not all traders likely possess. This has been the trend over the last several reports where it comes out, gets quickly digested, there is a marginal market move, trading levels return to the pre-number release and we move on. However here are the highlights worth mentioning:

    • NFP increased 227k in February
    • There was revision to both the January and December numbers resulting in a +61k improvement
    • The unemployment rate remain unchanged @ 8.3%
    • Government jobs lost 6k in Feb
    • The participation rate increased to 63.9% from 63.7%
    • Average hourly earnings rose a mere .1%

    Something things worth noting:

    • The participation rate did increase but the unemployment rate remained unchanged. This shows that those who entered the workforce found jobs.
    • The average hourly earnings only rose .1%. This indicates that the strong job growth is highly weighted in lower paying jobs.
    • The job growth is happening in the private sector as shown by the drop in Government jobs. This is always a great sign because it shows true job growth as opposed to padding the bureaucratic and inefficient Government payroll.

    Let’s move on to a very disturbing story that hit yesterday morning. For those of you who are kind enough to regularly read these Market Updates than you know how I did not understand why our lawmakers aligned the payroll tax deduction with an increase in the g-fee. It just did not make sense to me that borrowers who are taking out new mortgages should pay for payroll tax deductions. I felt this was totally against the intended use of the g-fee which is to properly allow the agencies to generate reserves for future losses on loans. My opinion is not unique as the MBA venomously opposed the move but were obviously not successful. I felt it would open up a can of worms. Well it did not take long for some insane US Senators (Mary Landrieu, D-La & Richard Shelby, R-Ala,) to push for a bill that would extend the increase another year but instead of the 10bps it would be 7.5bps.

    Sounds good right?? But get this... the reason would not be for continuing the payroll tax deductions that help all US citizens but the money would be used to help pay for continued cleanup from the British Petroleum Gulf Coast oil spill. Now I was very disturbed like most people by what happened there but I am equally disturbed that lawmakers are already tapping into this newfound method of taxation. What an easy way to pay for something by generating money thru a source that most voters have no clue about and, I hate to say, most mortgage professionals do not understand either. It is like they discovered gold mines in the valleys of California. There is a zero expectation that this will get passed so there is no need to panic. However if one thinks that the Government will not use an increase in the g-fee again to fund a political nugget (sticking with the gold theme) then they are just as crazy as the Jet fan who thinks Payton Manning will lower his standards by allowing Rex Ryan to be his coach.

    Have a good weekend.

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