The bond markets are opening pretty much unchanged to slightly improved fromÂ last nightâ€™sÂ 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 Fridayâ€™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 â€œoverseesâ€ 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 â€œit would cost too muchâ€ 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 Â 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 ideaâ€¦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%Â 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 1stÂ 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 thoughtâ€¦