Where R Rates / MBS Market Update
MBS UPDATE
Did you miss me? Well I certainly hope so : )
In case you did not know I was on vacation last week and I do not write while on vacation. I am back and refreshed and ready to be here for you.
So what happened last week? Not sure honestly but I am sure it had to do with tariffs, govt debt, DOGE and inflation concerns. We lost 38 to 44 BPS in conforming rates which equates to $380 to $440 worse price per 100K in loan size if comparing the same rate from Monday open to Friday close. It is a bit of a hit although not huge market changing impact.
This morning we are up a little bit so it is a good start to our Monday morning. Partly due to the NY Empire Manufacturing information that came out this morning that show new orders and shipments fell big time. This also showed hours and employment being down a bit and the selling prices increased. None of this is great for the economy which means it is usually good for mortgage rates if inflation stays away.
Govt pricing pretty much ended the week where it started.
The stock market tanked last week especially on Thursday but recouped quite a bit on Friday to the tune of 600+ points. So from Monday – Thursday we had lost 1,600+ points and now beginning recovery.
This week we have some retail sales numbers coming in, housing market indexes, building permits, housing starts, jobless claims and existing home sales. Typically a really big deal is the Fed Meeting which is Tuesday and Wednesday. We are usually anticipating whether there will be a fed rate cut and where they feel the economy is headed.
We pretty much know how they feel and are fairly assured there will be no rate cuts. it is still a vital meeting that can impact markets depending on what is said during the press conference following the end of the meeting with Fed Chair Powell.
I look forward to seeing you tomorrow morning.
| LAST WEEK CONV 5.5% – DOWN 44 CONV 6.0% – DOWN 38 GOVT 6.0% – DOWN 6 10 YR NOTE – UP 2 TO 4.31 DOW JONES – DOWN 1,019 |
| SO FAR TODAY CONV 5.5% – UP 13 CONV 6.0% – UP 6 GOVT 5.5% – UP 6 GOVT 6.0% – UP 3 10 YR NOTE – UP 1 TO 4.32 |
GREEN is GOOD for Rates – RED is BAD for Rates
Product & Guideline Highlights Ad Mortgage Products
NON-QM LENDING PHILOSOPHY
There are plenty of people who need a loan and plenty of people who want a loan. The only way to make those two a possibility is to have investors that want to lend these folks money.
A lending philosophy is helpful to understand the kind of borrowers that an investor is willing to lend money to in hope of gaining a return on their investment. Investors do not lend money to lose it. They lend money to make money. Therefore, it would make sense to lend money to those who are able to pay it back.
There are three areas investors are going to look at. Credit, Capacity and Collateral.
How has a borrower paid their debt in the past? What type of income and/or assets do they have to be able to pay a loan back and finally what are they putting up for collateral and how much room will we have if a borrower does not pay to collect the amount a borrower was entrusted with.
If a borrower is great or even adequate in all three of these areas then they will get a great rate. They will also likely be eligible for Fannie, Freddie, FHA, VA or USDA.
This is where the Non-QM market makes so much sense. If a borrower is short in one of the Areas of credit, capacity or collateral then they can typically still get a loan as long as they are strong in the other two areas. 3 out of 3 is good rates. 2 out of 3 it is still pretty decent rates.
Then you get to someone that is strong in one area but lacking in two other areas. Well, they still may have options but due to the risk threshold the investors are going to want a bit higher rate of return for their willingness to invest in a 1 out of 3 borrower.
If you are 0 for 3 then most lenders are going to pass regardless or charge a significantly higher rate.
Non-QM lenders are not in the business of foreclosure nor do they want to be. This is why low LTV is not a guaranteed loan. It absolutely helps and we can get a lot of exceptions when someone has a very low LTV due to the risk threshold of losing our investment is much lower. But the cost of foreclosing is not worth the time and effort it takes to recoup funds invested.
This is why our Prime Jumbo loans start at 6.25% and go as high as 8.375%. Bring a 3 out 3 buyer and you get 6.25%. Bring a 2 or 1 out of 3 borrower and you are between 6.25% and 8.375%.
Then you have our Super Prime (Good Non-QM loans) that start at 6% and go to 9.25%. Think all of the alternate income products like 1 Yr Income, Bank Statement, 1099, P&L Etc type docs.
Also, you have the regular borrower prime rates that may not fit in to the super prime category. Mortgage lates, less reserves and stuff like that. They start at 6.625% and go to 10.25%.
What about those DSCR loans that are 100% investment property only as well as those foreign nationals which are investment property only as well. DSCR is 6% to 9.625% and foreign nationals are 6.625% to 9.875%.
Lastly you have those who want a 30 year fixed second mortgage. They go from 8.125% to 11.875% depending on their credit, capacity and collateral.
The lending world is quite simple. You just have to know where your borrower fits and let them know why they fit where they do. If you bring a golden borrower you will get golden rates.
If you want an exception because they are great in one area and poor in the other two then prepare your borrowers for the why behind the terms they will be offered.
As I always love to say when someone gets upset about why they were turned down for a loan or that they say those that have get all the best rates. My answer is that I did not underwrite their loan, the loan officer did not underwrite their loan. The borrower is the underwriter on their own loan. They created their credit, their capacity and their collateral by their own choices. We are just giving them their options based on their underwriting themselves.
It is important to understand lending philosophy as it helps borrowers understand what to work towards and understand why they are receiving the best rates in the market or barely qualifying for the highest rates in the market.
Share the three C’s with your marketplace and educate them on the why behind the what.
We here at AD Mortgage or soon to be effective April 1 are very good at Non-QM and all agency loans. Got questions? Just ask.
Jackism of the Day
A STRONG SPOUSE
In life we have our opinions on who our spouse is and expectations of the role of a spouse that is based on how we grew up and the life that we want to live.
I have many thoughts on the topic of how to love your spouse as I have been a student of being a good man for 20 plus years and yet find ways to fail every single day : )
I had a big aha moment after watching a video by Simon Sinek on a lot different areas of life.
He told a story of where he was meeting with Navy Seals and he asked the question. How do you know who is going to make it as a Navy Seal and who do you want next to you that you put your life in the hands of them.
Simon said there are two areas that are vital in being an effective seal team member. It is Performance and Trust. He then put Performance on the left of a 4 square grid and Trust at the bottom. The top left was higher performing low trust. The bottom left was low performance low trust. The bottom right was low performance high trust and the top right was high performance high trust.
You always want your leaders to be high performing and high trust individuals. Someone you are willing to put your life in their hands. The Navy Seals would actually prefer a mediocre performer with high trust over a high performing mediocre trust individual. In their world they need someone they know has their back and can do the job they are sent to do.
That is where it really hit me. What if we graded our spouse on that level. Just those two items for the moment. Does your spouse fulfill their role as husband or wife and father or mother? Do they perform well in that role? Regardless of anything else. For my wife is she a good wife and faithful mom.
Then do I completely trust my wife? Do I know she is going to have my back in any situation in our life. Will she choose me over whatever is happening around us.
It was at that moment with those two criteria that I realized yet again how amazing of a woman my wife is to me and who she is to our children. Then I thought of how much she takes care of me and our home and everything that she does to protect our family and our home.
When I only use those two metrics OMG she is a rock star, high performing, high trust Navy Seals Wife.
I could nitpick the little things she may do I may not always agree with and she could write a 1,000 page novel of everything I have failed at in life. But in the end she performs her role as wife and mom and I trust her completely with how she does it.
It was like falling in love with another part of her that I do not always put my focus on. I realized how little I am without her. I also realized how vital I am to her life to make sure I am a high performing and high trust husband and father.
If you are majoring on the minor things with your spouse of what you see as negative attributes. Ask yourself the question. At the core are they a good and performing husband, wife, father or mother and do you trust them with your life and your future?
If the answer is yes then make sure they feel that appreciation of who they are to you and make sure in your heart you allow that part of them to impact your actions and love towards them. If they are not, then start the conversation of what you can do to become part of the Navy Seal marriage philosophy.
I just wanted to share this with you because it made such a large impact on me of how valuable my wife truly is to me.
