As bond yields soar, why ‘ruinous’ rate volatility is hurting originators
“If rates rip higher, we’re getting margin back from our broker-dealers,” he said. “We’re hedging. They’re delivering us money. But if rates rip lower at the end of the day versus the day before, they’re calling us for a margin call and asking us for the money back, based on how much our hedge moved. We’ll have tens of millions of dollars come in and go out within a 24-hour span based on what’s going on in the marketplace.”
He pointed to a specific day this year as an example of how fast that volatility can force a lender to move.
“The market moved 100 basis points Wednesday,” he said. “We lost a point in MBS pricing across Ginnie and GSE loans. That day we did three pricing changes. We opened, we repriced for the negative, repriced for the positive, repriced for the negative, and closed. I’ve not seen a market like that probably since the Russian bond default in 2000.”
That same volatility, according to Brenning, is what disrupts a broker trying to lock a loan in real time.
“Let alone having to have our secondary capital markets team changing rates three times throughout the day, the interference that causes to the broker community,” he said. “They’ve joined the system to lock with us or others, and it’s down because the desk has pulled pricing off because the markets moved.”
