There were mixed blessings in the mortgage rate world today. The bad news is that today’s rates are just a bit higher than yesterday’s, resulting in another 8 month high. The good news is that things were looking quite a bit worse earlier in the morning. Mortgage lenders prefer to set rates once per day even though those rates are dictated by movement in the underlying bond market. If bonds move enough, lenders will change rates mid-day. Today was one of those days and, fortunately, the change was in a friendly direction.  Before the improvement, the average lender’s top tier 30yr fixed rate was roughly 6.7%, but afterward, only 6.64%.

Products, Services, and Software for Brokers and Lenders Four Methods to Hedge Non-QM & Maximize Profits: In today’s growing non-QM market, selling best efforts is leaving value on the table. Accumulating bulk and improving execution is possible, but it involves taking price risk on the non-QM loans, and this requires hedging. A new technical brief evaluates four primary methodologies used by capital markets professionals: forward sales, correlated hedges, hedging to expected CPRs (i.e., prepayment profile), and hedging to a stochastic model. While forward sales offer direct risk transfer, their utility is limited and it doesn’t offer discernable improvements in execution. Correlated hedges provide a data-driven alternative, but face challenges regarding loan data quality and maturity mismatches. As a result, many capital markets professionals are choosing to align hedges with expected prepayment profiles. The fourth method involves hedging to a stochastic model, a more precise but complex method of valuing and hedging expected future cash flows. The technical paper also highlights an emerging preference for SOFR swaps, by using liquid and easily accessible Eris SOFR Swap futures, instead of US Treasuries. As it is more efficient to forecast and hedge forward rate expectations using the SOFR swap market, it is becoming the benchmark of choice for efficient modeling and hedging. Whether you are managing a small pool or a massive portfolio, understanding these four methods is essential for maximizing your execution and profitability. Read the technical paper and contact John Douglas.

Markets were presented with an opportunity just before the close yesterday to put their faith in another ceasefire-style announcement, but have instead opted to stick with prevailing momentum (lower stocks, higher yields and oil prices). Part of the reason is that rather than a true ceasefire, the announcement merely delayed a major escalation from this weekend by 10 days. In addition other escalations continue to add up based on overnight reports. Bonds (and stocks and oil) are now in a pattern of fading (a trading term akin to “calling the bluff of”) ostensibly hopeful de-escalation developments until they see something real and lasting.

Layoffs stretch across the organization, including members of Summit’s c-suite and its general counsel, the company said in a notice to California officials.

Full documentation was only applied to 2.6% of the underlying pool of mortgages. Debt-to-income, however, was 23.3% when it was applied.

Americans who qualify for a mortgage with Better will be able to use Bitcoin or USDC as collateral to fund their down payment through a private loan.

The 30-year fixed mortgage has increased by 40 basis points since February, while the 15-year is 14 basis points lower than a year ago, Freddie Mac reported.

New questions about Fannie Mae and Freddie Mac’s guarantee by experts who saw conservatorship start points to tensions in a stalled secondary offering.

That Escalated Quickly

It would be easy to check in on the bond market at some point on Thursday afternoon and conclude there’d been precipitous escalation in the Iran war or some other big new development putting pressure on bonds (10yr yields up almost 10bps to 4.42+ and MBS down more than 5/8ths). But today’s selling was remarkably linear and steady. It began in the overnight session and ramped up at 10:30am ET after a brief correction this morning. If you need a single scapegoat, it’s simply “renewed escalation” after yesterday’s session raised some hopes for the opposite. Looking a bit deeper, we also suspect the entire market is positioning defensively for a weekend with serious volatility potential. 

Econ Data / Events

Continued Claims (Mar)/14

1,819K vs 1850K f’cast, 1857K prev

Jobless Claims (Mar)/21

210K vs 210K f’cast, 205K prev

Market Movement Recap

08:31 AM Weaker overnight and no reaction to data. MBS down a quarter point and 10yr up 4.4bps at 4.375

11:24 AM Down 10 ticks (.31) on the day and 5 ticks (.16) from AM highs.  10yr up 4.5bps at 4.376

12:34 PM Weakest levels. MBS down more than 3/8ths and 10yr up 7bps at 4.399

02:32 PM More selling. MBS down 5/8ths and 10yr up 8.6bps at 4.417

Bonds yields stayed lower than oil prices suggested yesterday afternoon. The same is true this morning, but oil prices have risen enough to lead bonds into weaker territory. Said differently, Iran war de-escalation sentiment is increasingly drying up, thus causing higher oil prices, higher bond yields, and lower stock prices. Additionally, the closer we get to the weekend without good news on negotiations, the more escalation risk will be priced-in by the market due to the Saturday deadline on Trump’s ultimatum to reopen shipping channels lest they be taken by force.