Mar. 15, 2012: Mortgage jobs continue; a primer on why we care about Treasury auction results; Thornburg execs reply

Mar. 15, 2012: Mortgage jobs continue; a primer on why we care about Treasury auction results; Thornburg execs reply Rob Chrisman

The weekly MBA application index, which typically doesn’t generate waves of excitement, is becoming more interesting – especially for companies whose companies rise and fall based on refi’s. The overall index yesterday was down 2.4%, so while the purchase component was up over 4% the refi portion dropped over 4%, with refi’s now accounting for “only” about 75% of overall applications. Mike Fratantoni of the MBA, who is here at the Atlantic City MBA conference, noted that as “HARP volume continued to grow as a share of total refinance volume, reaching roughly 30% of refinance activity in the last two weeks. Typical HARP loans had loan-to-value ratios above 90 percent, indicating that lenders are reaching out to underwater borrowers.” Not only that, but the ARM share is eking higher, is represented almost 6% of new biz.

Mortgage hiring continues out west. BofI Federal Bank is looking for a National Operations Manager to oversee the growth of its Retail, Wholesale and Correspondent operations divisions. BofI Federal Bank, a $2.3 billion dollar branchless thrift based in San Diego, runs an affinity-based retail lending platform and a portfolio jumbo wholesale and correspondent business. BofI also recently announced their entrance into the warehouse lending business, offering warehouse lines up to $25 million for agency and jumbo originations. For more information, please contact Brian Swanson SVP, Head of Single Family Lending at brian.swanson@bofifederalbank.com or Darin Sullivan, VP, Warehouse Lending & Mortgage Operations at darin.sullivan@bofifederalbank.com. In Northern California New Penn Financial is looking for underwriters for its wholesale division. New Penn, owned by Shellpoint Partners, has been picking up some momentum and now has over 600 employees and licensing in 39 states. Ideal underwriter candidates should be knowledgeable, of course, and have a minimum of 3 years’ experience in underwriting in the mortgage industry (FHA and DE experience a plus).  Anyone interested in further discussing the position, please email your resume to Aubrie Cusumano at acusumano@newpennfinancial.com. A couple of the ex-Thornburg executives responded to the SEC’s lawsuit, with some phrases very similar to Quicken’s statement of the Freeman vs. Quicken Loans case (“wholly without merit” comes to mind). The courts will decide if the $400 million is due to a mark-to-market requirement that resulted from an accounting issue (FASB 157) that was triggered by the repo market, or fraud: http://www.marketwatch.com/story/former-tmst-inc-fka-thornburg-mortgage-executives-respond-to-sec-lawsuit-2012-03-13.

By the way, a few folks wrote to say that they though Bank of Internet was Thornburg reborn. Thornburg, while they’ve gone away BOFI Federal Bank has replaced Thornburg in the market with “niche, make-sense loan programs for borrowers with assets but that fall outside the typical Fannie/Freddie box. BOFI lends in all 50 states and will allow both wholesale and correspondent relationships. Interested lenders can visit www.bofilendingpartners.com for more information. Hey, just because the large servicing companies and the state attorneys general reached a $25 billion settlement doesn’t mean that every county in every state can’t sue them for the same thing. A county in North Carolina has begun: http://www.cbsnews.com/8301-505247_162-57397581/nc-county-sues-banks-over-mortgage-robo-signing/.

We’ve had a lull in Treasury auctions, but they certainly haven’t gone away. The Treasury is tasked with raising money to fund the federal government, which includes paying interest on older debt, and the obvious way it does this is through periodic Treasury auctions of bills, notes, and bonds. (T-bills have a maturity less than a year, notes from 1-10 years, and bonds out past that, like 30 years.) Economists use the auction results to gauge the interest in our debt: the more interest, the higher the price. Along those lines, investors also watch the yields at which the securities are sold, which vary inversely with the price. Most average loan officers merely see the result of the auctions – if the securities are sold as expected, interest rates may not move much. But if the auction went poorly, i.e., no one really wanted to buy the securities, which dropped the price, interest rates can go up because of it. And every auction is measured against the one before it. Yesterday we had a 30-yr bond auction. One trader wrote, “The 30-year bond reopening stopped basically right on the screws (tiny tail) and the auction statistics were close to the recent averages.  This auction was not as good recent reopenings, but respectable in its own right. The 30-year reopening stopped at 3.383%.  The WI was bid at 3.382% at 1:00PM.  The auction generated a bid/cover of 2.70, which compares with an average of 2.63 in the four most recent auctions and 2.54 over the past 12 months.  Noncomps were $7.5 million vs. $36.5 million a month ago.” What the heck does that mean? First, remember that a high demand for anything, whether it is U.S. debt or a lock of George Washington’s hair, will drive the price up; low demand typically causes prices to drop. Something else to keep in mind is that Primary Dealers, approved by the Federal Reserve, must bid on Treasury auctions to stay in the club. Treasury auctions are “Dutch Auctions” where bidders submit the minimum yield they’re willing to accept, and then the yield moves higher (price moves lower) until the issue is sold old – the auction “stops” at the high yield. And the results of any auction can be seen at www.treasurydirect.gov. “When-Issued” could be considered the primary means of establishing the expected yield (rate) of a security sold at an auction. In many U.S. Treasury auction results, there are two different yields that come into play.  The first set are the normal yields that one reads about in the newspaper or TV, and then there’s the “when-issued” market, which is like the market’s bet on where the auction will “stop” (awarded high yield).  When-issued trading “reduces uncertainties surrounding Treasury auctions by serving as a price discovery mechanism.  Bidders look to when-issued trading levels as a market gauge of demand in determining how to bid at an auction” and also helps Treasury by “stretching out the actual distribution period for each issue, allowing the market more time to absorb large issues without disruption”.  If dealers are able to sell to investors on a when-issued basis, it effectively puts the ball in the dealers’ courts at auction to pick up the pre-sold supply, thus “concentrating bidding interest in the hands of market participants that have a substantial financial incentive to identify correctly the price that balances demand with supply.” All that said, you can simply think of “when-issued” or “WI” as the same as where experts think the securities are going to be sold – it’s the running guess at where the auction’s high-yield will stop.  The word “stop” is important too because it doesn’t just mean that the auction is over, but specifically has the connotation of the “awarded high yield.”  Generally, when the high yield is lower than the when-issued (or “WI” yield), the auction is referred to as having “stopped through” or “traded through.”  In this case “stop” carries an implicitly positive connotation. The opposite of this sort of “stop through” is a “tail.” In other words, if the yield stops at a HIGHER level than when-issued, the auction is said to have “tailed.”  Bottom line, auctions either “stop through” or “tail,” unless they hit the when-issued yield (measured just before results are released) exactly in which case, most refer to the auction as being “on the screws.” As far as the other metrics that allow us to say such things as “better-than-expected” etc… that comes simply from an examination of past performance.  There are numerous components of each auction that are measured, such as bid-to-cover, % of the total amount awarded to dealers vs. non dealers, % of those awards versus amount bid (aka: “hit-rate”), and more.  Probably the most important and easiest-to-understand among these would be Bid-to-Cover, which is a measure of demand: how many dollars of bids were submitted for each dollar auctioned.  Using my HP 12C, if there were $75 billion in bids for a sale of $25 billion 30-yr bonds, it would be 3.0. To sum up, as Mortgage News Daily points out, when economic news comes out the markets trade off of expectations, and the same holds for Treasury auctions. Turning to something equally as Darwinistic, in New York mutual holding company Northfield Bancorp is buying another mutual – Flatbush Federal Bancorp – for about $8.1mm. And from overseas, Great Western Bancorp out of South Dakota, a unit of National Australia Bank, will buy Iowa’s North Central Bancshares. For those playing along at home, Great Western now has 200 branches in 7 states – g’day, mate. Community banks with less than $500 million in assets breathed a sigh of relief on the news that the FHA will not require them to meet financial and compliance audit requirements. Wednesday was not a good day for any borrower, broker, or LO who failed to lock earlier in the week. As the economy continues to show signs of picking up, thoughts of QE3, like those of a double dip recession, seem to be ebbing. All is relatively quiet in Europe, the Fed has indicated that the future looks a little rosier, U.S. economic numbers in some sectors are showing some strength, and suddenly we find our rates have shifted out of the range they’ve been in since Halloween. And when you throw in higher-than-normal selling by originators (almost double recent averages) hedging their pipelines, well, things can become ugly. The 10-yr T-note worsened by nearly 1.5 in price, closing around 2.27%, and “rate sheet” MBS pricing worsened by about 1.125.

Today has a full economic news calendar: at 8:30AM are Empire State Manufacturing Survey (expected lower), Initial Jobless Claims (expected lower), and the Producer Price Index (expected higher to +0.5% from +0.1% with the Core lower to +0.2% from +0.4%). And at 10AM EST is the Philly Fed Survey for March. It’s still pretty early, but it would appear that the market has some momentum toward slightly higher rates again with the 10-yr up to 2.31% and MBS prices worse by another .125.

A woman was having a passionate affair with an Irish inspector from a pest-control company.  One afternoon they were carrying on in the bedroom together when her husband arrived home unexpectedly. “Quick,” said the woman to the lover, “into the closet!” and she pushed him in the closet, stark naked. The husband, however, became suspicious and after a search of the bedroom discovered the man in the closet. “Who are you?” he asked him. “I’m an inspector from Bugs-B-Gone,” said the exterminator. “What are you doing in there?” the husband asked. “I’m investigating a complaint about an infestation of moths,” the man replied. “And where are your clothes?” asked the husband. The man looked down at himself and said, “Faith and Begorrah! Those little devils!” If you’re interested, visit my twice-a-month blog at the STRATMOR Group web site located at