The Institutional Risk Analyst

Only the Fed under Janet Yellen was dumb enough to buy $3 trillion in MBS, costing the taxpayer hundreds of billions in losses without really affecting mortgage rates. A mere $200 billion from Donald Trump is a rounding error, pure populist political pulp -- another progressive political display that will have zero impact on LT interest rates. In fact, the childish suggestions coming from the White House on housing may continue to push LT interest rates up.

PFSI trades on a trailing P/E of 14x vs ~ 8x for RITM. PFSI trades around 1.6x book vs 0.9x for RITM. Case closed? We have long believed that RITM should spin off its manager to create a comp for PFSI and then externally manage the RITM REIT. Like PFSI, in this scenario the new RITM manager would need to retain the Ginnie Mae MSRs.

If we were to select one characteristic that describes the financial markets today it would be confirmation bias. The human tendency to interpret new evidence as confirmation of one's existing beliefs or theories is among the most powerful and dangerous trends in financial markets, especially when the predominant passive investment strategies favor a net-long position. Nowhere is confirmation bias more apparent than the market for private-equity backed IPOs. 

As and when the home price correction finally arrives ~ 2028, many of the conventional loans written since 2020 are likely to be underwater vs the collateral.  The GSEs will be looking for reasons to reject loans. After all, FHFA Director Bill Pulte is in the loan insurance business.

The majority of the actual cash profit generated from residential lending is found in the mortgage servicing rights (MSRs).

We look for lower prices for legacy MBS and MSRs as new allocations are used up and P&Ls sink deeper into the red...

It seems obvious that the reported book value metrics coming from many commercial banks, REITs and mortgage banks are a tad inflated...

We see an at least equal chance that margins will get squeezed for agency and MSR investors before they expand via higher interest rates

No amount of computer power can really, really enable you to predict when Fred and Wilma are going to sell or refinance their home.

magine if the Fed started margin calling the big banks in response to the April market selloff rather than supporting the system!