National Mortgage News is in the throes of finishing its annual Mortgage IndustryDirectory. There will be no traditional "Weekend Update" column this week, but we offer this edited commentaryon interest rates. It comes from Richard Gordon, managing director, fixed-income strategist at Wachovia Securities:
- The market continues to imply 25 bps of Federal Reserve movement in June and 25 more bps in August.
We believe that at this juncture the futures markets are accurately pricing where rates will be realized. This means that carry and roll down the curve should offset capital losses from rate increases. - In contrast to 1994, the Federal Reserve has given ample alert that short rates will rise. As a result, the
curve has only flattened by 33 bps year-to-date. We expect that over the next six months, as higher short rates become a reality, the curve will flatten more. However, we see nowhere near the potential flattening which occurred in prior rate cycles like 1994. - Stocks have rallied and outperformed bonds over the last two weeks. We believe stocks will continue to outperform
bonds through the second half of 2004, although neither will show close to the total returns of 2003. - Liquid AAA ABS have widened only a few bps vs. Libor, as investors have looked to reduce their spread duration
exposure by favoring high-grade ABS. We continue to believe that spread widening in these sectors will be very modest, and liquid AAA ABS will outperform competing alternatives on both a duration adjusted and non-duration adjusted basis. - The MBS basis looks very tight vs. swaps. Despite this tightness, we do not see mortgages underperforming substantially
until commercial banks begin to reduce the size of their MBS portfolios. The housing GSEs remain inactive at current MBS valuation levels. We would prefer to express "short" positions in volatility by rolling non-MBS products down the steep parts of the yield curve rather than by overweighting the mortgage sector.
WASHINGTON NEWS: The new president of the National Association of Mortgage Brokershas called for an industry-government alliance at the state and local level to expose and, most importantly, toprosecute predatory lenders. Bob Armbruster, a broker from Lawrenceville, Ga., outside Atlanta, envisionsa system that would "grease the judicial process" to bring bad actors to court more quickly." Mr.Armbruster admitted his idea is "a little visionary" and said he's still not sure about all the legalwhys and wherefores.MORTGAGE PEOPLE: Mark Lefanowicz, chief operating officer of E-Loan Inc.,Pleasanton, Calif., has been promoted to president of E-Loan and will retain his position as COO.
MORTGAGE DATA/RESEARCH NOTICE: NMN, for a limited amount of time, is offeringtwo of its mortgage technology white papers, "Transactional Retail Mortgage Website Report" and"Mortgage LOS Report," for the discounted price of $249 each. Order both and get an additional5% off. For more information contact Elizabeth Washington at (202) 434-0328 or e-mail:
@ThomsonMedia.com
