Mortgage Market Review, April 2, 2010

Market Comment

Mortgage bond prices fell again last week pushing mortgage interest rates higher. The Fed ended the mortgage backed securities purchase program last Wednesday. There was no coincidence that rates spiked higher Thursday morning with the Fed no longer there to buffer negative movements and keep rates in check. Stock strength also pressured bonds as the Dow approached the 11,000 mark. Escalating oil prices also caused rates to spike higher as inflation fears begin to increase. Fortunately the PCE Price Index data came in as expected. Rates rose about 3/4 of a discount point for the week.

The Treasury auctions will once again take center stage this week. If foreign demand is lackluster like the last few auctions we could see that carry over to the mortgage bond market causing rates to spike. The Fed minutes and weekly jobless claims may also move the market this week.

April 6

3-year Treasury Note Auction: (important) $40 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.

Fed Minutes: (important) Details of last Fed meeting. Volatility may surround the release.

April 7

Consumer Credit: consensus estimate up $1.6 billion (low importance) A significantly larger than expected increase may lead to lower mortgage interest rates.

10-year Treasury Note Auction: (important) $21 billion of notes will be auctioned. Strong demand may lead to lower mortgage rates.

April 8

Weekly Jobless Claims: consensus estimate at 430k (moderately important) An indication unemployment. Higher claims may lead to lower rates.

30-year Treasury Bond Auction: (important) $13 billion of bonds will be auctioned. Strong demand may lead to lower mortgage rates.


The 10 and 30-year Treasury bond yields are often viewed as “benchmarks”, reflecting the overall state of interest rates in the US economy. Many people concerned about mortgage interest rates track these bonds as a barometer for mortgage interest rates. However, in reality the Treasury and mortgage markets trade independently.

The supply and demand characteristics of Treasury bonds and mortgage-backed securities (MBSs) differ. Treasury securities represent money needed to fund the operations of the US government. MBSs, on the other hand, represent borrowing by homeowners. Demand for mortgage credit is seasonal and is also affected by the state of the overall economy. In terms of demand, Treasury securities are regarded as “risk free” investments, and often benefit from a “flight to quality” in times of financial crisis. Treasury bill, note, and bond prices are dictated by yield requirements and inflationary concerns. Because homeowners can sell or refinance their homes, investors in 30-year mortgage-backed securities usually see principal repayment in significantly shorter periods of time.

In the absence of information directly related to the mortgage interest rate markets, Treasury information can be useful. However, mortgage interest rates can vary significantly. In fact, many times the Treasuries will trade wildly while MBSs only see minor price changes and vice versa.


Andrew Martz
Mortgage Loan Consultant
The Shintani Group
27 Malaga Cove Plaza, Ste A
Palos Verdes Estates, CA 90274
License # 01418195
(310) 378-8212

Copyright 2010. All Rights Reserved. Mortgage Market Information Services, Inc. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.


Jumbo loan delinquencies move higher

This piece from the LA Times regarding jumbo loans is sobering and illustrates that everyone is affected. A “Jumbo” is defined as a loan amount over the conforming limit as set by Freddie Mac and Fannie Mae. In our region currently, that ceiling is a loan of over $729,750.00.

I get the same question constantly in regards to my real estate business, “How are things going, is it picking up?” The delivery is usually cautiously empathetic and concerned. “Is the worst over” is another common query and my standard answer to that is, if I could answer that question I’d be worth a billion dollars.

The truth is that no one knows and anyone who claims they do is selling something… There are so many factors that will determine how things go ultimately and frankly if our government would spend half the energy (focused on finding real solutions) that they devote to undermining each other, we’d be on a faster road to recovery.

Living in the “now”

Pursuant to the topic of the article, following are the local numbers. Properties sold for $750,000.00 or more in the combined South Bay market are up 103% for January 2010 compared to January 2009. Pending sales are also up 73% vs. Jan. 2009 even though inventory is down 32% as most non-distressed sellers are choosing to wait.

That said, ‘pre-foreclosure’ activity on the Palos Verdes Peninsula (90274 and 90275) in this price range is, I’m sure at record levels with 138 homes either showing as NOD (notice of default), scheduled for auction or REO (bank owned). The combined beach cities; Hollywood Riviera, Redondo, Hermosa and Manhattan Beach show 144 properties in these categories.

Prime jumbo loan delinquencies still rising, report shows
LA Times by Alejandro Lazo
February 8, 2010

People who hold jumbo loans on pricey U.S. properties continued to struggle in January as more Americans lose their jobs and property values have plummeted, according to a report released Monday.

Jumbo loans were popular — and often necessary to afford homes in pricey areas like Southern California — during the heady years of the boom.

Jumbo loans are generally defined as being above certain conforming limits set by mortgage titans Freddie Mac and Fannie Mae. (The conforming limit for single-family homes was $417,000 from 2006 to 2008 but was increased temporarily by federal lawmakers in early 2008 to $729,750 in certain high-cost areas, including Los Angeles County.)

Overall, delinquencies of 60 days or more on prime jumbo loans that were packaged into securities and sold to investors rose to 9.6% in January, up from 9.2% in December and 3.7% a year earlier, according to the report by the Fitch Ratings agency in New York.

California, which comprises 44% of the market, saw its delinquency rate rise to 11.3% in January from 10.8% in December and 4.1% a year earlier.

“The deterioration in performance is really the combination of two things going on: rising unemployment that took place throughout 2009 as well as our estimate that about a third of all jumbo loans that are current are underwater in terms of the value, so [borrowers] owe more on their properties than they are worth,” Fitch managing director Vincent Barberio said. “As more of these loans become delinquent, they ultimately will come into foreclosure.”

Prime jumbo loan delinquencies began to rise in the second quarter of 2007, but accelerated in 2009 and nearly tripled over the course of the year, Fitch said. The five states with the highest volume of prime jumbo loans outstanding are California, New York, Florida, Virginia and New Jersey.