|
|||||||||
Copyright © 2004 by servicing.com |
August
24th, 2004 |
||||||||
Servicing Values Pull Back Slightly Although the short end of the yield curve picked up in July, mortgage rates actually dropped, which has slightly eroded some previous MSR gains. There was increased activity in the market for mortgage servicing rights with several notable transactions occurring recently, from a few hundred million to a few billion dollars in size. Although volumes are still down substantially from their peak, there is no question that the supply of bulk portfolios being offered for sale has increased dramatically this year. As expected we have seen some buyers, who were previously on the sidelines, reenter the market, especially for large low coupon offerings. Small and mid-sized portfolio offerings are still lagging the market and we expect that to continue until demand increases for those portfolios. As of the end of June, MIAC completed its annual review of the characteristics of the Generic Servicing Asset (GSA) portfolio that is used to construct the MSR Product Type Price Indexes. MIAC has created some brand new asset classes and removed some older, smaller segments. In addition, some material changes to the characteristics of existing asset classes have been implemented. As a result, the change in the MSR Product Type Indexes from May to June may not be meaningful due to the distortion of the individual buckets.
These MIAC Indexes represents the MSR price behavior of
the entire 30-Year Conventional Agency MSR and 30-Year Jumbo MSR
market and particular components within the marketplace have increased
or declined to a greater or lesser extent. These Indexes DO NOT
represent multiples indicative of the value of new production,
current coupon servicing rights. |
|||||||||
|
|||||||||
 |
|||||||||
| After one full year of inactivity, the Federal Open Market Committee made their move on June 30th and decided to increase the target Fed Funds Rate by 25 bps to 1.25% (and then again by another 25 bps on August 10th). Although inflation continues to be modest, certain economic indicators continue to improve and we expect that the Fed will prolong its accommodative stance as long as price stability remains under control. The 1 Month Libor rate moved up another 13 bps through the month of July to finish at 1.50%. The 5-Yr CMS fell back 8 bps and the 10-Yr CMS rate dropped 10 bps. FNMA and GNMA 30-Yr Current Coupon Yields fell by 10 to 12 bps each, respectively. |
|||||||||
 |
|||||||||
Libor-swap spreads have tightened again in July, and the Swap curve has flattened further. After tightening about 10 bps in the month of June, both FNMA and GNMA Mortgage/Swap spreads have tightened 1-2 bps as of July-end. |
|||||||||
MSR OASs Generally Wider MIAC Analytics makes available Daily GSA OASs through the Daily GSA Pricing Service. Each day, MIAC Analytics will use the previous day’s current volatility of 1-Year into 10-Year swaption volatility as a proxy for mortgage volatility. The graph below illustrates the OASs computed in MIAC Analytics from the actual GSA prices for nine of the largest GSAs: Conventional 15-Year 5.0% Issue Year 2002, Conventional 15-Year 5.0% Issue Year 2003, Conventional 15-Year 5.5% Issue Year 2002, Conventional 30-Year 5.0% Issue Year 2003, Conventional 30-Year 5.5% Issue Year 2003, Conventional 30-year 6.0% Issue Year 2002, Conventional 30-year 6.0% Issue Year 2003, GNMA 30-Year 5.5% Issue Year 2003, and GNMA 30-Year 6.0% Issue Year 2002. The graph displays the monthly OASs from 10/1/2003 to 7/1/2004.
After peaking back in the summer of 2003, the GSA OASs followed
a tightening trend through the month of June 2004, but since then
have appeared to stay within a certain range, some of them widening
more than others, however. |
|||||||||
|
|||||||||
Servicing.com
has provided daily IO/PO pricing on a portfolio of Trust IOs for
several years. As a result, we can provide a comparison of historical
Trust IO OASs with the same interest rate model, volatility inputs
and OAS cash flow model as the historical GSA OASs. One can see
from the table above that Trust IO OASs don’t appear to be
well correlated to OAS behavior of the GSAs. This behavior does
not support the use of Trust IO OASs as benchmark OASs for the MSR
marketplace. |
|||||||||
In
the table above, the OAS durations or measurements of the anticipated
MSR price sensitivity
|
|||||||||
OAS Convexities: MSR convexities have continued moving further into their typical negative territory for most Generic Servicing Assets, as rates persistently climb. When convexity is positive, MSR prices will increase more for an upward rate shift than they will decrease for a downward rate shift. When convexity is negative, MSR prices will decrease more for a downward rate shift than they will increase for an upward rate shift. |
|||||||||
|
|
|||||||||
| BMA
Prepay Speeds Rise Again
The following tables reflect BMA historical dealer median prepayment forecasts. After a long decline in BMA dealer consensus prepayment speeds observed over the last several months, speeds picked up a little bit through the month of July, but are still well below their historical highs. On 7/15/2003 and 5/15/2004 the Bond Market Association released a revised listing of mortgage assets and their prepayment speeds to reflect the current mortgage market at the time. These new asset classes do not have historical speeds prior to that date. |
|||||||||
Red indicates the highest forecasts on record and yellow the second highest. |
|||||||||
|
|||||||||
More detailed BMA prepayment information can be obtained at www.servicing.com by viewing the Daily MIMs (Mortgage Industry Medians) data product. |
|||||||||
|
|||||||||
