The
bottom
line
is
the
housing
market
remains
in
flux
and
is
once
again
adjusting
to
the
likelihood
of
interest
rates
remaining
higher
for
longer
after
being
teased
by
the
potential
of
a
falling
rate
environment. 

This
flux
has
created
far
more
volatility
in
the
housing
market,
particularly
in
recent
weeks,
with
the MOVE
Index —
a
measure
of
rate
volatility
in
the
U.S.
Treasury
market
—
jumping
to
as
high
as
121
in
mid-April
after
ending
March
near
85. 

Ben
Hunsaker,
a Beach
Point
Capital
Management
portfolio
manager
who
is
focused
on
securitized
credit,
said
that
during
the
past
year,
nonqualified
mortgage
(non-QM)
AAA
bond
spreads
have
actually
contracted
from
155
to
135,
while
agency
mortgage-backed
securities
(MBS)
spreads
have
widened
from
about
118
to
134
over
the
same
period.

“With
agency
spreads
moving
out
10
to
15
basis
points,
you
would
expect
that
non-QM
spreads
also
have
to
widen
eventually,
otherwise
the
market’s
a
little
bit
out
of
sync,”
Hunsaker
said.
“On
a
forward-looking
basis,
you
would
expect
you
don’t
have
the
same
tailwinds
as
you
did
before.”

Volatility
in
the
Treasury
market,
which
trades
at
a
shifting
spread
below
that
of
mortgage
rates,
also
translates
into
uncertainty
among
housing
market
investors.
Market
observers
say
this
normally
leads
to
investor
hesitancy
and
a
tendency
to
keep
more
money
parked
on
the
sidelines. 

“When
interest
rate
volatility
goes
up,
you
generally
have
lower
fund
flows,
which
you’ve
seen
over
the
last
few
weeks,”
Hunsaker
said.

On
top
of
that,
mortgage
origination
volumes
are
projected
to
be
flat
this
year
in
the
agency
(Fannie
Mae,
Freddie
Mac
and
Ginnie
Mae)
sector,
and
only
slightly
better
on
the
non-agency
(non-QM)
side
compared
to
2023,
according
to market
experts. 

Non-QM
mortgages include
loans
that
cannot
be
purchased
by
Fannie Mae or Freddie
Mac.
The
pool
of
non-QM
borrowers
includes
real
estate
investors,
fix-and-flippers,
foreign
nationals,
business
owners,
gig
economy
workers
and
the
self-employed.

What
does
this
market
uncertainty
—
marked
by
low
origination
volumes
and
a
move
toward
higher
rates
for
longer
—
mean
for
the
secondary
mortgage
market,
which
creates
liquidity
for
the
primary
mortgage
market
via
securitization
and
has
a
heavy
finger
on
the
scale
in
determining
interest
rates
for
homebuyers?

If
bond
yields
rise
in
the
secondary
market
due
to
a
supply-demand
imbalance
or
because
of
increased
perceived
risk,
then
that
also
tends
to
put
upward
pressure
on
mortgage
rates
in
the
primary
market.

HousingWire
interviewed
a
range
of
experts
across
the
secondary
market
to
get
a
pulse
on
the
dynamics
at
play
at
the
end
of
April
across
the
following
sectors:
whole
loan
trading,
agency
and
non-agency
MBS,
and
mortgage
servicing
rights
(MSRs).

Following
are
excerpts
from
their
responses
that
reflect
on
the
good,
the
bad
and
the
ugly
of
the
current
market.

Whole
loan
sector

“When
we
came
into
the
year,
we
thought
we
were
in
for
as
many
as
five
or
six
rate
cuts.
That
was
a
problem
for
sellers
of
loans.
For
mortgages,
specifically
30-year
fixed
rate,
it
was
hard
to
find
a
buyer
willing
to
make
a
strong
premium
payment
[on
a
whole
loan
purchase]
when
you
think
you
are
going
to
get
four
or
five
or
six
rate
cuts,
because
that
meant
rates
were
going
to
fall
and
[mortgage]
prepayments
[due
to
refinancing]
were
going
to
increase.

“However,
what
we’re
discovering
is
that
those
folks
that
had
the
courage
to
put
that
trade
on
back
in
the
third
and
fourth
quarter
of
last
year
are
in
the
first
quarter
of
this
year
being
rewarded.
Because
if
we
are
now
looking
at
only
one
rate
cut
[in
2024],
maybe
even
one
hike
—
although
I
think
that’s
still
a
pretty
low
probability
—
but
let’s
just
say
we’re
flat
—
then
prepayment
speeds
should
remain
low. 

“Higher-coupon
loans
now
may
[offer]
a
higher
rate
of
return
for
longer
than
someone
might
have
anticipated
in
a
rate
assessment
that
was
at
the
beginning
of
2024.
…
So,
basically,
if
I’m
trading
[as
a
seller]
a
7%
loan
right
now,
I
may
get
a
premium
—
like
a
solid
102
[over
par]
or
whatever.

“The
buyer
is
going
to
be
happy
because
the
prepayment
speeds
are
likely
to
remain
low
given
the
current
Fed
stance
[of
higher
for
longer],
and
you
can
amortize
that
premium
over
a
longer
period
of
time
to
get
a
better
yield.
So,
both
seller
and
buyer
are
happier
with
the
newer
loan.“ 

— John
Toohig,
head
of
whole
loan
trading
at Raymond
James
and
president
of Raymond
James
Mortgage
Co.

“There’s
a
lot
of
cash
on
the
sidelines.
There’s
a
lot
of
money
out
there.
This
translates
into
whole
loans
too.

“In
RPL
and
NPL,
which
are
reperforming
loans
and
nonperforming
loans,
there’s
a
ton
of
demand.
We
just
put
a
bid
out
recently
and
…
had
over
30
bids.
That
tells
you
that
folks
are
trying
to
grab
those
loans,
either
for
the
real
estate
—
if
it’s
a
nonperforming
loan
…
such
as
for
rentals,
accumulating
assets
for
their
portfolio
—
or
if
it’s
reperforming,
to
get
cash
flows
at
a
discount.

“Those
loans
[RPL
and
NPL]
are
really
rich
on
the
demand
side,
but
the
only
sellers
are
those
who
are
forced
to
sell
because
it’s
at
a
discount,
with
the
stuff
we’ve
seen
trading
in
the
80s
[below
par]. 

— JB
Long,
president
of
Incenter
Capital
Advisors 

Non-agency
sector

“Rate
volatility
has
persisted
in
the
market.
It’s
essentially
like
playing
a
game
of
Keno
[with
bets
being
placed
on]
what
number
when,
and
that
money
can
be
lost
doing
so
is
not
surprising.
From
my
perspective,
transaction
volume
and
mortgage
origination
volume
has
been
on
its
back
—
and
stayed
on
its
back
—
for
the
last
year
and
a
half.

“
…
There
is
a
book
called
“Who
Moved
My
Cheese.”
And
it
is
a
very
simple
book
that
highlights
a
very
important
premise.
A
mouse
goes
looking
around,
looking
around,
looking
around,
and
spends
all
its
time
looking
for
cheese.
Then
[after
it
finds
the
cheese],
it
just
keeps
going
back
to
the
same
place,
but
the
cheese
is
gone. 

“The
mouse
forgot
the
whole
reason
he
ever
found
the
cheese
in
the
first
place,
and
that’s
because
the
mouse
remained
nimble
and
adaptive,
as
opposed
to
just
hitting
the
same
button
as
many
times
as
he
possibly
could.
The
point
is
we
have
to
continue
to
evolve
with
an
evolving
market.

“
…
[For
example],
one
of
the
big
changes
in
the
[agency]
CRT
[credit
risk
transfer]
market
has
been
a
decision by
the
GSEs
to
not
issue
the
most
subordinate
[securities] tranches.
They
are
the
riskiest
tranches
…
and
they’re
the
ones
that
offer
the
highest
return.
The
supply
of
that
profile
has
diminished
considerably
because
they’re
not
issuing
it
anymore. 

“…
So,
what
happens
is
those
investors
go
to
non-QM
subs.
…
There’s
a
lot
of
demand
for
that
sub
now
[securities
backed
by
non-QM
mortgages,
particularly
those
linked
to
home
equity
loan
products].“ 

— Peter
Van
Gelderen,
specialist
portfolio
manager
in
the
fixed-income
group
and
co-head
of
Global
Securitized
at TCW

“Inflation
is
running
hotter
than
expected,
but
I
wouldn’t
say
it’s
out
of
control.
We’ve
just
been
kind
of
consistently
in
a
range
that’s
higher
than
what
the
Fed
would
like.
..
Rates
do
feel
rich.
They
do
feel
high,
but
I
think
the
market
has
adjusted
pretty
well
to
where
the
rates
are
and
certainly
it’s
within
the
range
of
expectations.

“The
credit
spreads
[for
non-agency
MBS]
have
come
in
throughout
the
year,
and
so
the
[non-agency]
securitization
market
is
open,
and
it’s
functioning
from
the
originator
through
the
aggregator
to
the
end
buyer.
Everyone
can
still
make
it
work.

“It’s
by
no
means
the
best
market
anyone’s
ever
seen,
but
[non-agency
mortgage]
originations
are
growing.
…
It’s
a
market
that’s
diverse
in
product
types
and
participants.“ 

— Dane
Smith,
senior
managing
director
and
president
of
Verus
Mortgage
Capital

[Editor’s
Note: Kroll
Bond
Rating
Agency
(KBRA)


expects 2024
issuance
for
non-agency
MBS
to
be
approximately
$67
billion,
up
22%
year
over
year.
Home
equity
lines
of
credit
(HELOCs)
and
closed-end
second
(CES)
originations
are
expected
to
account
for
$11
billion
of the
increase.
KBRA’s
measure
of
non-agency
loans
encompasses
the
prime
jumbo,
nonprime/non-QM,
and
home
equity
lending
spaces,
as
well
as
credit-risk
transfer
deals.]

Agency
sector

“The
lock-in
effect
[of
homeowners
staying
in
place
due
to
low
mortgage
rates]
has
taken
so
many
homes
off
the
market
that
you’re
seeing
reduced
sales
volume,
which
creates
fewer
issuances
of
mortgages
so
that
the
market
doesn’t
have
to
metabolize
that
many
loans.

“…
But
you
still
have
this
issue
that
the
Fed
displaced
real
money
investors
[in
the
agency
MBS
acquisition
market]
for
a
whole
business
cycle,
a
decade,
[before
pulling
back
from
the
market starting
in
2022]
and
that
market
just
doesn’t
reappear
overnight.

“…
We’ve
never
had
this
many
people
that
have
a
loan
that’s
so
far
below
prevailing
rates.
So,
we’re
in
a
part
of
the
cycle
that
people
can’t
look
to
a
model
and
say,
’This
is
what’s
going
to
happen,’
because
we’ve
never
been
here
before. 

“…
Lower
interest
rates
will
create
more
[agency
MBS]
issuance,
but
more
issuance
creates
a
wider
basis
[spread
from
Treasurys]
because
there’s
now
a
lack
of
investor
demand
versus
the
added
MBS
supply,
and
this
creates
higher
primary
mortgage
rates
to
account
for
the
lower
investor
bids
for
the
excess
MBS
supply.

“…
It’s
a
structural
issue
that
I
would
love
to
see
more
focus
on
…
because
if
you
don’t
have
a
couple
of
trillion
dollars
of
excess
balance
sheet
out
there
somewhere
that’s
priced
appropriately,
then
the
homeowner
is
going
to
end
up
paying
more
for
their
mortgage
than
they
otherwise
would.“ 

— Sean
Dobson,
chairman
and
CEO
of
real
estate
investment
firm
Amherst

“I
think
agency
spreads
have
a
pretty
high
correlation
to
interest
rate
volatility,
so
when
you
go
from
relatively
low
interest
rate
volatility,
like
where
we
came
into
April,
to
where
we
are
today,
it’s
a
pretty
big
shock
to
the
agency
mortgage
market. 

“And
accordingly,
you’ve
seen
agency
spreads
widen
pretty
materially.
[April
has]
been
a
really
bad
month
for
agency
mortgage-backed
securities.
…
The
supply-demand
for
agency
MBS
is
probably
in
balance,
however,
and
it’s
in
balance
because
there’s
very
light
creation
of
new
agency
MBS [about
$232
billion
of
agency
MBS
issuance
in
Q1
2024,
compared
with
$223
billion
in
Q1
2023,
according
to
the Securities
Industry
and
Financial
Markets
Association
(SIFMA)].

“…
The
money
managers
who
really
drove
spreads
tightening
[in
the
agency
market]
from
middle
of
last
year
to
the
end
of
last
year,
they’ve
become
pretty
overweight
in
agency
MBS.
…
But
there’s
still
a
lot
of
annuity
money
being
deployed
from
annuity
sales,
and
so
that
should
be
a
continued
tailwind
[for
the
overall
secondary
mortgage
market].

“Insurance
is
really
the
900-pound
gorilla
in
the
room
driving
the
bus,
so
they
matter
a
lot,
and
there’s
not
a
lot
of
credit
creation
that
can
satiate
their
needs.“

— Ben
Hunsaker,
portfolio
manager
focused
on
securitized
credit
for
Beach
Point
Capital
Management

MSR
sector

“You
were
able
to
get
[MSR]
trades
off
[much
of]
last
year
with
interest
rates
somewhat
certain.
But
then
when
the
uncertainty
hit
[late
in
the
year,
with
rates
declining]
that
slowed
the
fourth-quarter
[deal
volume],
and
that’s
what
was
reflected
[in
the
number
of
deals
closing]
when
we
came
into
this
first
quarter.

“Then
all
this
data
starts
coming
out
and
it
became
obvious
that
[rate
cuts
were]
not
going
to
happen,
and
that
gave
a
lot
more
confidence
to
the
buy
side. [MSRs
tend
to
price
better
in
a
high
or
rising
rate
environment
because
prepayment
speeds
are
reduced.
They
tend
to
lose
value
in
a
falling
rate
environment
as
mortgage
prepayments
increase,
reducing
the
payout
of
MSRs.]

“So,
look,
pricing
began
to
pick
up
[as
it
became
clear
rate
cuts
were
not
likely
in
the
near
term],
but
we
also
saw
an
interesting
phenomenon.
And
that
is
the
capital
that
was
tied
to
highly
efficient,
highly
capable
[refinance-
and
home
equity
loan-focused]
recapture
platforms
decided
it
was
not
as
concerned
about
interest
rates
[going]
either
way. 

“If
rates
do
not
move,
[they
are]
comfortable
with
the
pricing
that
they’re
paying
today
based
on
just
the
steady
prepayment
speeds
and
the
cash
flows,
and
they’re
clipping
coupons
each
month
based
off
of
those
payments
coming
in.
However,
when
rates
do
move,
they
are
going
to
be
in
position
to
recapture
[those
customers
via
refinancing].

“…
So,
we
now
have
a
strong
appetite
for
the
MSR
asset,
whether
it’s
out
of
the
money
—
which
to
us
is
below
prevailing
market
rates
—
or
at
the
money,
and
we
also
have
a
strong
demand
for
both
conventional
as
well
as
government
[MSR
assets]. 

“I
will
paraphrase
a
seasoned
veteran
in
the
industry
that
I
was
talking
to
recently,
who
said
candidly,
’I
have
never
seen
the
market
like
it
is
today
—
how
extremely
active
and
busy
it
is.’

“I’m
not
calling
a
peak
yet.
There’s
a
lot
of
interest
from
some
pretty significant
[investor]
sources,
who
have
a
lot
of
capital
[and]
who
are
still
looking
to
buy
…
And
it’s
driven
again
by
[a
desire
to]
put
units
on
their
platform,
maintaining
efficiencies,
while
also
then
having
the
ability
to
recapture
when
—
and
who
knows
when
—
that
market
opportunity
presents
itself.“ 

— Tom
Piercy,
chief
growth
officer
at
Incenter
Capital
Advisors 

[Editor’s
Note:
Year
to
date,
Incenter
has
announced
auctions
for
some
$15
billion
in
new
bulk
MSR
deals,
which
does
not
include
privately
negotiated
deals.]

“I
don’t
know
if
this
is
the
peak
or
if
…
rates
are
going
to
continue
to
go
up
from
here,
and
MSR
values
are
going
follow
suit
or
not.
But
I
think
people
are
of
the
mindset
that
it’s
now
higher
for
longer
[on
rates].

“It’s
hard
because
of
low
[housing]
inventory
levels
and
higher
interest
rates
to
bring
in
new
originations,
but
that’s
the
reason
why
so
many
of
these
servicers
keep
going
back
to
the
same
well,
with
a
focus
on
offering
cash-out
refinance
[or
closed-end
second
liens,
or
home
equity
lines
of
credit]
to
existing
customers,
given
that
can
be
a
source
of
some
volume.

“It’s
been
a
strong
[MSR]
market
[so
far
this
year],
with
some
really
attractive
execution
levels
that
are,
dare
I
say,
being
influenced
by
one’s
ability
to
recapture
these
borrowers.
…
It’s
hard
to
convince
a
borrower
with
a
3%
note
rate
to
cash-out
refinance
into
a
7%
note
rate,
but
they
can
still
tap
their
equity
by
taking
out
a
HELOC
or
closed-end
second
without
impacting
the
rate
on
their
first
lien.

“I’ve
got
probably
three
or
four
deals
I’m
currently
working
on,
so
[MSR]
volume
and
pricing
are
strong.
We’ve
seen
some
high-5
multiple
trades [historically a
great
deal
in
this
measure
of
pricing
on
MSR
pools]. 

“I
think
[MSR
trading
volume]
this
year
is
going
to
be
on
par,
if
not
slightly
better,
than
last
year [which
would
mark
the
fourth
year
in
a
row
that
the
MSR
market
has
recorded
trading
volume
near
the
$1
trillion
level].“ 

— Mike
Carnes,
managing
director
of
MSR
valuations
at
Mortgage
Industry
Advisory
Corp.
(MIAC)

[Editor’s
Note:
Year
to
date,
MIAC
has
announced
auctions
for
some
$6.4
billion
in
new
bulk
MSR
deals,
which
does
not
include
privately
negotiated
deals.)