April 17, 2020 - Market Update

New origination flows remain very much on the heavier side yesterday and totaled near $8B for the third time this week.  The 5-day average is now $7.1B per day up from the $4.1B per day average seen just last week.  For the day the Fed purchased $13.6B of MBS ($10.6B FN / $3.0B GN).  The Fed still has in place a maximum daily target of $15B in MBS purchases.  Yesterday’s transactions brought the Fed’s total purchases to $500B since the start of this round of quantitative easing. 

On the originator side of things, posted primary rates remain in a fairly wide range as rates are not only a function of the market but of lender’s capacity as well.  Using 3.375 as the prevailing rate, the primary/secondary spread is ~160bps which is just modestly tighter week over week. 

This morning, treasuries are trading lower across the curve as markets react to signs that the economy may slowly start to open as conditions in certain regions improve. 

Yesterday, the President shared high-level guidelines for reopening the country but gave no timeframe.  Instead the President shifted the onus on decision making to the individual state governments.  As far as regional improvements, Boeing announced this morning plans to open back up manufacturing in their Washington facility next week which would allow ~27k assembly line employees to return to work. 

First-time mortgage applications have fallen for five straight weeks and Y-o-Y activity is now down a painful 35%. Add to that a 42-point fall in the NAHB Housing Market index for March to 30, the lowest level since 6/12 and the biggest decline in the Index’s 35-year history. With March housing starts down 22%, it’s clear the housing industry, which had been going gangbusters, is suddenly very troubled.