Purchase mortgage applications continue to surge

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Published Date 5/27/2020

Stock indexes rallied yesterday; the DJIA +530, in futures trading this morning the DJIA up another 400 points at 8:00 am ET. The rate markets still in their narrow ranges, the 10 yr yesterday increased +3 bps to 0.69%, this morning at 0.72%. The openings around the country over the long weekend exiting investors in equity markets with still many states remaining locked down. The improvement in stocks this morning was driven by Europe's markets that were moved by European Union's final touches to its fiscal-stimulus proposal. The European Commission will announce a new fiscal stimulus package of as much as 750 billion euros ($823B), two-thirds of which is expected to be in the form of grants to hard-hit member states.

The ECB President Christine Lagarde said the EU economic outlook is as bad as its worst-case forecasts. Output in the region is set to shrink between 8% and 12%, she said, with estimates for a milder slump now "out of date." "We'll have a better sense in a few days as we publish our numbers in early June, but it's likely we will be in between the medium and severe scenarios," Lagarde said of the outlook in an online question-and-answer session. Lagarde expressed confidence that higher public spending won't result in a new debt crisis in the euro area.

How many small businesses will survive the present shut down? It's a worry at the Fed and in the markets. We think maybe 30% will never survive, and that figure isn't far out of line with various analysts and economists. Jerome Powell said the Fed is concerned, at the Senate last week he's concerned about America's "jobs machine" -- its small and medium-sized firms -- tipping into bankruptcy and destroying the "work of many families and generations." Congress approved the Main Street lending program to help small businesses, but so far, it hasn't been operational, a very high risk for the Fed to undertake.

According to the Mortgage Bankers Association, roughly 4.2 million homeowners were in forbearance plans as of May 17, or 8.36% of all loans outstanding. The figure ballooned to nearly 8% as of May 3 from less than 1% in early March, but it has risen only slightly since. No one has any prior data to look back on to accurately estimate the longer view of how many loans will actually go to foreclosure, and that presents a challenge for loan servicers and investors that own the securities. One estimate from BSI Financial Services, a servicer, the national delinquency rate will peak at 12% to 15% nationwide, with the foreclosure rate hitting 9% to 10%. Servicers were relieved when the pace of forbearance requests fell to 93,000 borrowers in the third week of May, compared with 1.4 million requests in the first week of April.

MBA reported mortgage applications for last week; apps overall +2.7%, purchase apps increased 9.0% while refinance apps declined by 0.2%. The Refinance Index was 176 percent higher than the same week one year ago. The seasonally adjusted Purchase Index increased 9 percent from one week earlier. The unadjusted Purchase Index increased 7 percent compared with the previous week and was 9 percent higher than the same week one year ago. The refinance share of mortgage activity decreased to 62.6 percent of total applications from 64.3 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 3.4 percent of total applications. The FHA share of total applications decreased to 11.2 percent from 11.5 percent the week prior. The VA share of total applications decreased to 12.4 percent from 13.4 percent the week prior.

At 9:30 am ET, the DJIA opened +331, NASDAQ -19, S&P +22. 10 yr 0.70% unchanged. FNMA 3.0 30 yr coupon +8 bps from yesterday's close and +15 bps from 9:30 yesterday.

At 10:00 am ET, the May Richmond Fed manufacturing index expected at -39 from -53 in April, as released -27.

At 1:00 pm ET, Treasury will auction $45B of 5 yr notes.

At 2:00 pm ET, The Fed's Beige Book will be released.

Early today, the 10 yr increased to 0.72% +2 bps, by 9:30 am ET, it's back to unchanged at 0.70%. MBS prices at 9:30 am were up 8 bps. The recent high yield for the 10 yr was 0.74% on the 19th, then dropped to 0.64%—still no real change in the 10 yr or in mortgage rates. We continue to expect the 10 yr will move higher with the economic outlook improving and the openings of the economy increasing. A worrying point for the long end of the curve is the explosion in Treasury debt and the huge increase in the Fed's balance sheet. It isn't getting a lot of press now, but within the rate markets, the concern is building.

Source: TBWS Group

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