Wednesday, May 4, 2011

Mortgage Market Insight

Happy humpday Insighters!
Today has a little news being released but all in all probably not major market movers.
Today we have…
MBA Mortgage Index: Actual 4.0%, prior -5.6%
Challenger Job Cuts: Actual -5%, prior -38.6%
ADP Employment Change: Actual 179K, prior 201K
ISM Services: Actual 57.5, prior 57.3
The MBA data is a result of the flood of applications taken to beat 4/1/11 and likely will see the next report in the loss column as refinance applications are way down. The ADP report is never accurate, so very little weight, if any at all, will be given to it.
With ISM Services showing improvement and Challenger job cuts improving you could see us at the top of the market today. Not hitting 103 yesterday (FNMA 4.5) is a bit concerning, however we did not miss by much closing the day at 102.969. Today opened -3bps and has remained there. I urge caution today. We have had a nice series of daily gains and flattened out some yesterday. Overnight trading was improved but profit takers sold off to push yields up from overnight lows of 3.24% to 3.27% (10y).
I believe we will see today's trading range between 102.8 – 102.97 (FNMA 4.5 coupon). Its a very tight window, so be careful, breaking through either level could cause a sparked sell off if on the low or a nice rally if to the high.
Lock advice
If closing is…
7-10 days – Lock (as yesterday too much risk/reward and we look to be at top of range today)
14+ – Float cautiously (if we hit and break through 103 you will likely see a nioe rally to lower rates if we fall below 102.8 we could fall back down to 102.5 levels).

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