Primary/Secondary Spread Widens into MBS Rally. Lenders Limit Year End Production

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Posted To: MBS Commentary

Last week, we noted that lenders were not likely to add production into year end. In addition we talked at length about the "big difference" between 4.75 and 4.625. "...we'd set our 'best ex' loan pricing targets as follows: 4.75% is your base. You don't want to lose 4.75% This is your line of demarcation. Anything attractive below 4.75% should be considered sacred. Especially float down friendly 4.50% par pricing. A close examination of loan pricing shows that we are indeed being "nudged" toward loan rates that can be pooled in 4.5 coupon MBS. Lenders are effectively doing this by gradually shifting better execution to those rates that correspond with 4.5 coupons as opposed to their next lowest neighbor on the rate sheet. 4.75 vs. 4.625 is a good example of this as we can see float-down there...(read more)

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